Bankruptcy
Crypto Frame Taking Shape in Real Time
In 2022, CNBC reported on the EthCC conference in Paris, a gathering for hardcore Ethereum developers and technologists. A special spinoff event was a limited invitation only rave party in the Catacombs of Paris, labyrinth of centuries-old tunnels 65 feet underground, which hold the skeletal remains of around six million Parisians.[1] Visiting the Catacombs is considered illegal, although it appears to be tolerated. The CNBC report portrayed the event as surrounded by secrecy. Multiple teams were assembled via an anonymous Telegram group and gathered across the 14th arrondissement of Paris to sneak into the underground landmark. Meanwhile, on this side of the Atlantic Ocean, the crypto world navigated a different kind of labyrinth – those of a chapter 11 reorganization in U.S. bankruptcy courts. In July 2022, two crypto players filed chapter 11 petitions in the Bankruptcy Court for the Southern District of New York– Voyager Digital, LLC, and its affiliates, and Celsius Network LLC and its affiliates. WHY IS THIS SIGNIFICANT? Voyager Digital operates a cryptocurrency brokerage that allows customers to buy, sell, trade, and store cryptocurrency on an easy-to-use and “accessible-to-all” platform. In addition to providing brokerage services, Voyager offers custodial services for customers who store cryptocurrency on Voyager’s platform. Voyager provides loans, typically in the form of a specific type of cryptocurrency, to counterparties in the cryptocurrency sector to facilitate liquidity or trade settlement. Interest earned from the Company’s loans is passed along to customers, who earn a “yield” on their stored cryptocurrency. See Declaration of Stephen Ehrlich, Chief Executive Officer of the Debtors in Support of Chapter 11 Petitions and First Day Motions, Doc. No. 15. Celsius is a cryptocurrency-based finance platform that provides financial services to institutional, corporate, and retail clients across over 100 countries. According to the filings, Celsius was created in 2017 to be one of the first cryptocurrency platforms to which users could transfer their crypto assets and (a) earn rewards on crypto assets and/or (b) take loans using those transferred crypto assets as collateral. Headquartered in Hoboken, New Jersey, Celsius has more than 1.7 million registered users and approximately 300,000 active users with account balances greater than $100. See Declaration of Alex Machinsky, Chief Executive Officer of Celsius Network LLC in Support of Chapter 11 Petitions and First Day Motions, Doc. No. 23. The bankruptcy court was flooded with letters from individuals who feel robbed by the debtors and call for return of their deposits. The treatment of crypto is not addressed in the Bankruptcy Code and the bankruptcy courts are just starting to grapple with the treatment of cryptocurrency as an asset in bankruptcy proceedings. In fact, cryptocurrency, for more than ten years, has been characterized by price volatility and uncertainty regarding its legal status. Yet, in 2021, the crypto market’s value skyrocketed from $965 billion to as much as $2.6 trillion, according to a Morningstar analysis. After many years of debating whether cryptocurrency should be considered security or commodity and which federal agency should be the primary regulator, the more important question for the retail customers is whether they could recover in kind from a crypto brokerage like Voyager or a platform like Celsius whose model resembles bank operations – take deposits and use the deposit to make loans, but without the regulatory oversight that banks experience and without FDIC protection. For customers of securities brokers, there are regulatory mechanisms that provide certain protections. Securities brokers regulated by the Securities and Exchange Commission are subject to a net capital rule—they must cease operations before their assets fall below the level that allows customer claims to be met. In addition, broker-dealers must belong to the Securities Investor Protection Corporation (SIPC), which provides an insurance scheme whereby customers of failed broker-dealers may receive up to $500,000 from the SIPC fund. For customers dealing with futures, section 4d(a)(2) of the Commodity Exchange Act (C.E.A.) provides certain protections as it requires that customer funds received by a future commission merchant to margin, guarantee, or secure a customer’s futures contracts be held in segregated accounts, and not be commingled with the funds of the future commission merchant itself, nor used to guarantee the trades or contracts of any person other than the customer. Futures commission merchants must compute daily the amount of segregated funds on hand and the amount required to be held. Any shortfall must be reported immediately to the Commodity Futures Trading Commission. 17 C.F.R. Section 1.32. None of these protections would be available in these recent filings at first glance. These crypto reorganization proceedings could potentially chart the way forward and address critical questions like – Would cryptocurrency be treated as a commodity or currency, and when could it be treated as a security? How can the cryptocurrency be used in the marketplace to generate recovery, and what’s the proper timing for valuation of crypto assets? Would withdrawals of accounts within the 90-day period before the filing be subject to avoidance actions? [1] https://www.cnbc.com/2022/07/19/ethcc-paris-crypto-developers-gather-as-turmoil-grips-industry.html For further information, please feel free to reach out to Albena Petrakov
July 29, 2022
Business
Executive Playbook: Alternative Solutions for Recruiting and Retention
Recruiting and retention continues to be a challenge for employers. While employers could always pay employees more, that is not a particularly attractive solution and, in many cases, is not a solution at all. In this episode of the Executive Playbook, Mike and Russell discuss strategies that employers can implement to attract new employees and retain existing employees.
July 28, 2022
Labor and Employment
Please Release Me
I have been dealing with a lot of claims recently from unhappy clients who have either been charged with employment discrimination or threatened with suit by disgruntled former employees. What to do? One word: release. I’m begging you have your outgoing employees sign a release of all claims and promise not to sue. This requires a good form and a payment to the outgoing employee. The payment is required to create an enforceable contract: you pay them, and they release your business from claims. A lot of employers are understandably reluctant to pay severance to people they’ve let go. However, it can be a very small payment. Employees appreciate the gesture as well, and this may decrease the chances that they bad-mouth the business. (A good release also includes a promise not to disparage the business, however.) It can cover all potential claims arising up to the time of signature and can also alert employers to any potential claims (for example, a workplace accident.) A smattering of recent examples: The minority employee who charged the employer with race discrimination (the same person hired and fired the employee, obviously making it far less likely that the decision-maker was biased.) The employee who charged the employer with disability discrimination and failure to accommodate disabilities (the person never reported any disabilities, the decision maker had no knowledge of any, and the person never requested accommodations). The employee who claimed to have reported a financial discrepancy to the employer (they don’t recall this employee ever discussing financial matters), and thus, they claim that they were discharged in retaliation for whistleblowing. The list goes on; these are just a few recent examples. Don’t be afraid to let an underperforming employee go, but give them a week’s severance and get that release signed. Check with an employment attorney to be sure that your release covers all potential legal issues.
July 27, 2022
Franchise Law
"Not So Fast" – Maryland Gas Station Operator Obtains Injunction Stopping Franchise Termination
On May 25, 2022, the U.S. District Court in Greenbelt, Maryland issued a preliminary injunction ordering PMIG 1025, LLC and Petroleum Marketing Group, Inc. ("PMG") to continue its franchise relationship with the operators of the “Airport Shell” retail gas station and convenience store near Baltimore Washington International Airport during the pendency of the operators' case that PMG did not have good cause to end their petroleum franchise relationship under the U.S. Petroleum Marketing Practice Act (the "PMPA"). The Court, through highly respected veteran jurist Paul W. Grimm, ruled that the operators had a reasonable chance of prevailing on the merits of their claims that PMG improperly terminated the Franchise Agreement for the operation of Airport Shell. The Court further found that the harm to the plaintiffs without an injunction issuing, namely losing control over their business, was greater than the potential harm to the defendants with such an injunction. The PMPA, which begins in Title 15 of the U.S. Code at Section 2801, protects franchisees by limiting the circumstances under which a petroleum franchisor may terminate or “fail to renew” a motor fuel franchise. Mac's Shell Serv., Inc. v. Shell Oil Prods. Co. LLC, 559 U.S. 175, 177 (2010) (citing 15 U.S.C. §2802). The PMPA provides protections against termination or non-renewal to motor fuel dealers that are superior to the typical provisions of the franchise and lease agreements between petroleum sellers and operators, or indeed between typical business format franchisors and their franchisees. The particular factual circumstances of the BWI Airport Shell case are quite complicated, as the site at issue is subject to a master lease with the Maryland Aviation Administration. However, the essence of the dispute is whether PMG acted in good faith (meaning “subjective good faith” based on an “honest evaluation of the franchisor’s own business needs”) and in the ordinary course of its business in demanding substantial rent increases and property improvements as a condition of continuing the franchise, or whether it imposed those conditions as pretext or "poison pill" to force out the operator and begin operating the location through employees. This is a scenario familiar to business format franchising, particularly where the franchisor also controls the real estate on which the franchised business operates. The injunction issued is just for the operators' case, as it proceeds through the U.S. district court to trial before a federal jury (likely in the summer of 2023). However, it is notable that to demonstrate its legal right to end the franchise relationship, PMG will be required to prove that the increased rent and burdens it demanded as a condition of franchise renewal were "the result of determinations made by the franchisor in good faith and in the normal course of business, and . . . franchisor's insistence upon such changes or additions [were not] for the purpose of preventing the renewal of the franchise relationship." While the PMPA does not apply to non-petroleum business format franchises, veteran business format franchisees being confronted with commercially unreasonable demands to renew their franchise should consider whether decisions under that law, used by analogy, can help their cause. The case decision described is Fursyth Petroleum Foundation Inc., et al., Plaintiffs v. PMIG 1025, LLC, et al., U.S. District Court, D. Maryland, Southern Division. Case No. PWG 21-cv-2433 (Dated May 25, 2022).
July 27, 2022
Family Law
Mediation Tips from A Mediator and Retired Judge Sandy Brooks’ interview with Retired Judge Michael Mason
Sandy: How long have you been a mediator, and approximately how many matters do you mediate a year? Judge Mason: I’ve been mediating since approximately January 2019. Last year, I did just short of 80 mediations. Sandy: Of the cases you mediate, how many are family law matters? And of the family law matters, how many do you estimate reach a settlement through mediation? Judge Mason: Around 40% of the cases I mediate are family cases. I would estimate approximately 85% are resolved through mediation. Sandy: Do you believe your background as a Circuit Court Judge benefits you as a mediator in family law cases? Judge Mason: Yes. I think frequently, the attorneys for both parties have a reasonable sense of where the case should settle. Often the problem is getting the clients to accept that outcome is reasonable. I think coming to the mediation with years of experience as a judge who’s seen a lot of these cases can help convince the clients the result is a reasonable one, even if not one they are particularly happy with. Sandy: What are some of the most complex family law issues to mediate? Judge Mason: The most difficult cases to mediate are relocation cases and cases that involve allegations of abuse that are not independently corroborated. It’s very difficult in those matters to find some middle ground the parties can accept. The other difficult ones are those where the economically dominant spouse is self-employed and his/her income varies significantly from year to year, frequently taking a downturn once the divorce is anticipated. Also, those where the parties’ assets include a business which requires valuation. The valuations are normally miles apart. Sandy: Do you have any advice for attorneys prior to mediation? Judge Mason: Yes, always talk to the mediator and let them know what you honestly think might get the case settled. If there is a problem with the client, let them know. Also, make sure you’ve shared any important documents you intend to rely on at the mediation with the other side in advance so they have a chance to review it. Usually, the other side will totally discount any information they are seeing for the first time at the mediation without an opportunity to check it. As well, they typically resent it being given to them at the last moment, and that can affect their view of the other attorney. Sandy: Do you have any pointers for the parties to maximize their success at mediation? Judge Mason: Be prepared. Don’t wait until the morning of the mediation to prepare your joint property statement unless there is none to speak of. Get your pre-mediation statement to the mediator in time, so they have a chance to review it and any exhibits in enough time to speak to you in advance of the mediation. Have the key documents that support your position readily available during the mediation and share them with the other side in advance. Understand the attorney on the other side is generally not your enemy or being a jerk. Their client has a very different view of the relationship, which they have communicated to the attorney. The attorney is typically acting based upon those facts, which are very different from the ones that guide you. Sandy: What are some strategies for moving the parties past an impasse? Judge Mason: Sometimes, when the parties feel they’ve reached an impasse, I’ve found it helpful to recess the mediation for a few days/weeks. Often after the parties have a chance to get away from the immediate negotiations for a while, they will reassess their positions. On occasion, I’ve also found it helpful to offer the parties a mediator’s suggestion to help bridge a gap. I propose a solution which they are free to accept or reject. Neither party is told if either accepts the proposal unless both do. Judge Michael Mason began practicing law in Maryland in 1974. He spent ten years in the Montgomery County State’s Attorney’s office. He was the head of the Career Criminal Unit when he left in 1984 to set up a small general practice with two other prosecutors, Judy Catterton & Paul Kemp. They were later joined by a third, Martha Kavanaugh. He was in private practice for about ten years, and they did a little bit of everything that involved going to court. In January of 1994, he was appointed by Governor William Donald Shaefer as an Associate Judge of the Circuit Court for Montgomery County. He was sworn in as judge in March of 1994. He served full-time as an Associate Judge until December 2018, when he retired. He continues to sit as a Senior judge on an as-needed basis. He served numerous rotations as a family judge during his almost 25 years full-time on the bench. He occasionally hears some matters as a family judge. Beginning in January of 2019, he began a private mediation practice and has since mediated well over 200 cases. The largest single segment of the cases he mediates are family cases, but he does a wide range of other civil cases.
July 18, 2022
Family Law
Alternatives To Court
Litigation can be scary and expensive, emotionally as well as financially. But you do not necessarily have to go to Court to resolve issues in a divorce. The first step in determining how best to proceed is to discuss your options with experienced counsel who specialize in family law. Family law is a unique area of the law, and only those lawyers with experience have the level of knowledge and sophistication to evaluate your options with you. Often, cases can be resolved by negotiation through counsel. But there are other options available, and since divorce can be complex and complicated, one should consider all of them. Mediation is often used in family law, even if the parties are already engaged in litigation. Trained mediators facilitate agreements. They do not impose their position on either of the parties. Rather, a good mediator will challenge both parties not to expect their “best day in Court.” Reality often sets in, and parties recognize the pros and cons of their positions. Mediation often leads to an agreement, which can be incorporated into a Judgment of Divorce. Many attorneys who specialize in family law are now trained to handle cases in a collaborative process. This process permits the parties to evaluate their goals and explore options in a joint meeting setting. Another option is arbitration, where an arbitrator more or less substitutes for a Judge. However, unlike in a Court situation, the parties are able to select their arbitrator, determine what issues will be presented, set time limits, and control the amount of evidence that must be formally presented. In addition, there is some degree of privacy that is not typical in divorce situations.
July 15, 2022
Labor and Employment
Overturning Roe v. Wade : Potential Effects on the Workforce (Not a Political Speech)
I started thinking of some questions which might occur in the employment context after Dobbs v. Jackson Women’s Health Organizationoverturned Roe v. Wade and all cases following it since 1973. Here are a few. Are people protected from employment discrimination if they end or refuse to end a pregnancy? The Pregnancy Discrimination Act and Title VII of the Civil Rights Act of 1964 should continue to protect employees of companies with more than 15 employees from reproductive health-related discrimination and harassment even after the Supreme Court’s decision, regardless of their state of employment. Some states also have explicit abortion nondiscrimination statutes and/or a fewer employee number threshold. The Third, Fifth, and Sixth Circuit federal Courts of Appeals have held that an employer can’t discriminate based on the employee obtaining an abortion. The EEOC will continue to take this position. But the best course is not to inquire about employees’ health care decisions in the first place. Can an employer fire a person based on religious grounds for having an abortion? Courts generally have held that private employers can’t discriminate based on sex even if the policy purportedly is based on their religious beliefs. However, an exception to Title VII’s discrimination provision bars clergy members from bringing an employment discrimination claim against religious institutions. Can a pregnant person or one who had an abortion be protected from employment discrimination based on the Americans with Disabilities Act? Pregnancy itself isn’t a disability under the ADA unless the person is experiencing complications or aftereffects of pregnancy that impact one or more “essential life functions”; for instance, the mother develops long-term high blood pressure, affecting her ability to work at a broad variety of jobs. It’s also feasible that the aftereffects of an abortion could be an ADA disability if it impacts those functions. There will be more claims of disability and requests for accommodations due to pregnancy. How will this decision impact our current labor shortage? An immediate reduction in the labor force is a logical conclusion. The more pregnancies there are, the more pregnancy-related health issues will exist – leading to more absenteeism, reduced work hours, and disability leaves. Mothers will be out on maternity leave; paid maternity leave is legally mandated in some states. Workers sometimes leave the workforce because of pregnancy. That’s a few thoughts I’ve mulled over. What questions do you have about the effects of the Dobbs decision?
July 14, 2022
Labor and Employment
Time to Care Act
The Time to Care Act has passed, and beginning on January 1, 2025, most Maryland employees can apply for paid leave from a state fund. Fortunately, while this law took effect June 1, 2022, it isn’t functional until October 1, 2023, when employee and employer contributions start, and employees will not be eligible to take leave until January 1, 2025-allowing employers time to prepare. Essentially, employees who worked at least 680 hours over the 12 months immediately preceding the date on which leave is to begin are entitled to 12 weeks of paid leave for health and caretaking reasons. This leave can run concurrently with FMLA leave and, in many cases, essentially makes FMLA paid leave. That said, for employers who do not fall under the FMLA, it is important to note that the Time to Care Act does contain job protection similar to FMLA. While employers should start to consider next steps related to implementing new leave laws, they have some lead time. While employees won’t be eligible to take leave until 2025, employers should start communicating with employees about the new law next year since they will see contributions to the fund deducted from their paychecks beginning October 1, 2023. There are also a few unanswered questions based on how the law is drafted that I expect we will get answers to over the next 12-18 months.
July 13, 2022
Contractor's Corner
FedEx Purchase Agreements-More Than Just Legal Mumbo-jumbo
Often, when I first speak with prospective FedEx contractors, they are chomping at the bit to get started. They have learned about the industry and are excited about the opportunity to own a part of the booming logistics industry. This excitement often causes them to gloss over the purchase agreement in favor of moving forward quickly, viewing the purchase agreement as merely an obstacle to moving forward with the deal. However, failure to give the purchase agreement the attention it is due can yield complicated and expensive outcomes. The purchase agreement is more than just legal jargon and is the pivotal document dictating any verbal agreement the parties have reached and governs when the parties can terminate the deal, when the buyer gets their deposit back, and what the obligations of the seller between the execution of the purchase agreement and closing and after the sale. Outside the FedEx industry, businesses will often sign the purchase agreement and close on the same day. However, in the FedEx industry, because the sale depends on FedEx approval, the parties sign the purchase agreement and close weeks, if not months, later. This process, which is colloquially referred to as a “sign and delayed close,” leaves a lot of room for issues to arise between the time the parties sign the purchase agreement and closing, including, among other things: Seller failing to keep up the business in the ordinary course, leading to the buyer not getting what they were expecting on the closing date; A buyer failing to obtain or maintain financing; Physical assets falling into disrepair or becoming nonoperational; Employees leaving and the seller failing to hire new ones; and Seller improperly disposing of assets. Additionally, given the need to move forward quickly to start the process of getting FedEx approval, buyers are typically performing due diligence between signing the purchase agreement and closing, which can lead to buyers discovering unsavory details about the seller’s business that make them want to terminate the contract. While these are all real risks of “sign and delayed close” deals, they are palatable risks as long as the parties have a firm understanding of the risk they are each taking on, and the seller’s obligations between signing and close and the purchase agreement contains contingencies and reasonable outs for the buyer. Without proper protections in the purchase agreement, a buyer may have no choice but to move forward with an unexpectedly unsavory deal or risk losing their deposit. The moral of the story is: Don’t gloss over the purchase agreement! It governs the entire transaction, including what the buyer is entitled to between signing and closing and when the parties will go their separate ways.
July 10, 2022
Labor and Employment
Revisit Your Non-Disclosure Agreements or Risk #MeToo Issues
As you probably know, non-disclosure agreements signed by employees are legally binding. These may prevent workers from speaking out about workplace practices, including #MeToo issues. Newly introduced federal legislation targets NDAs that silence employees reporting sexual harassment. This is already a matter of law in some states, including California and Washington. Lift Our Voices, a pro-worker policy group headed by former Fox News anchor Gretchen Carlson, has spurred the House introduction by a Democrat of the SPEAK OUT Act (H.R. 8227). As with the last #MeToo related law passed, SPEAK OUT is backed by several GOP representatives already. Lift Our Voices expects an introduction of a similar Senate bill, apparently to be backed by Republican senators, including Lindsey Graham. Lift Our Voices supported another #MeToo-related bill, H.B. 4445, through its passage. That law nullifies provisions that force workers to arbitrate #MeToo claims rather than have their day in court. The SPEAK OUT Act applies to pre-dispute non-disclosure agreements signed before an issue arises. However, if a business is sued by an employee alleging sex discrimination or harassment, it would still be legal to include an NDA in a settlement agreement or release. Take a look at NDAs you’re using. It might be a good time to revise them, given the bipartisan support of this bill and state bills. I’m speculating here, but a court could go on to invalidate other provisions of the NDA if it contains this type of provision.
July 8, 2022
M&A Nuggets
M&A Nuggets: Be Prepared … for Due Diligence, Before You Seek to Sell Part 1 – Sales Tax
The due diligence process, during which the purchaser requests and analyzes large volumes of information, requires a huge time commitment from the sellers’ personnel. Unknown issues and issues which are known but have not been dealt with in the past, can rear their head during the due diligence process, interrupt the otherwise smooth flow of information exchange and, in turn, cause unnecessary pauses and extensions of the deal. To avoid this, it is wise to address these issues prior to seeking to sell the business. Routine items that are easily buttoned down before negotiations begin include making sure corporate documents are in place, that employment policies are up to date and that intellectual property, such as trademarks, have been properly protected. Other issues are not so routine. This article will focus one of those more unusual, or less thought of, issues – sales tax. The issue is – has the business properly collected, paid and reported all required sales tax. Unfortunately, this issue often arises for the first time during the due diligence process, when the purchaser asks about it. Many states have expanded the application of their sales tax statutes to more and more activities, particularly services, and to more ways that products or services are delivered, particularly on-line and out-of-state sales. Many sellers are surprised to learn during the due diligence process that sales tax had not been properly accounted for. The sales tax number not accounted for, when added to interest and potential penalties owed to state governments, can be a significant number and could result in part of the purchase price being held back at closing. This all can be avoided by conducting a sales tax analysis prior to entering into negotiations. The following questions should be answered: 1) which services and products the company provides are subject to sales tax, 2) are the means by which the company provides the services and products (on-line sales, shipments out-of-state) taxable, and 3) are any of the company’s customers (nonprofits, for example) are exempt from the payment of sales tax. The sales tax analysis can be laborious, given that the laws vary state by state. However, being up to speed on the issue and ensuring that the company is in compliance beforehand can save a lot of time, money and worry during the negotiation process. Look for the next issue – change of control provisions.
July 7, 2022
Labor and Employment
Is the Company’s Non-Compete Enforceable?
There’s a lot of fuss nationwide about whether agreements signed by employees not to compete after their employment are allowable. The FTC has now said that it is going to pursue a regulation banning non-competes. I have reviewed and written many non-compete agreements over the course of my career. Many of them are likely unenforceable under existing law. Here are some possible reasons (this list is not exhaustive): Agreements may be overbroad. For example, it may be that an agreement trying to ban someone from working worldwide when they only had a U.S. role is unenforceable. Depending upon where the person lives or is sued, the court might not let the employer revise the scope to make it enforceable. It would simply be thrown out, in that case. Employers: don’t overreach! Agreements may apply to employees who can’t be restricted. If the person is working in a state in which non-competes are void, even if the person is brought into a different state court, they might not be held to the agreement. D.C. passed an ordinance banning non-competes last year. Agreements don’t protect a legitimate business interest. Is there a legitimate business interest in disallowing a person (who has signed a confidentiality agreement) from working in the mailroom of a competitor? Agreements may restrict a person’s right to free speech. Just try to enforce an agreement not to disparage a company (and its employees, services, products, etc.) forever. Agreements don’t offer the employee any type of consideration for signing. In some states, merely letting someone continue to work for an employer is not enough value to the signer to enforce the non-compete. Most employees think nothing of signing these agreements – they want their jobs – or are not allowed to receive valuable things such as stock options if they don’t. But when the employee is moving on, they are faced with this dilemma: will I be sued if I ignore the non-compete? My advice is to consult a lawyer experienced in non-competes and non-solicitation agreements to learn more about yours. And employers, beware of the above common problems with non-competes; the law is changing very quickly on this subject. It’s wise to have your agreements reviewed often, given the number of recent court decisions and many new state laws limiting these provisions.
June 30, 2022
Bankruptcy
When Does the Automatic Stay Protect Companies that are Not in a Bankruptcy Proceeding?
In June 2022, Reuters published an article titled “How a “Bankruptcy Innovation” Halted Thousands of Lawsuits from Sick Plaintiffs.” The mechanism used to halt ongoing lawsuits was the automatic stay triggered by the bankruptcy filing of an affiliate of the defendant companies. The “bankruptcy innovation” is the so-called Texas Two-Step. The Texas Two-Step is not a lottery game or a country dance, or “a controversial legal maneuver,” as Investopedia calls it, but a statutorily established corporate transaction. It allows a company to complete a divisional merger under Texas corporate law, i.e. to separate assets and liabilities of a company into two different entities by creating a new entity and then liabilities and some assets are transferred into the newly created entity. The entity is then placed into bankruptcy to invoke the automatic stay. The main asset remaining with the entity that takes on the liabilities is a funding agreement, whereby the entity keeping the assets agrees to pay certain of the liabilities of the other (typically for mass tort claims). The primary benefit of the Texas Two-Step is that it keeps an operating company outside of bankruptcy but provides to the operating company the benefits of a bankruptcy filing. The Reuters article highlights four companies that used the Texas Two-Step: Georgia-Pacific, Saint-Gobain, Trane Technologies and Johnson & Johnson. The company that is currently in the spotlight for using the Texas Two-Step is Johnson & Johnson (“J&J”), and in particular, one of J&J’s subsidiaries – Johnson & Johnson Consumer Inc. (“J&J Consumer”). Following certain pre-2015 intercompany transactions, J&J Consumer assumed responsibility for all claims alleging that J&J’s talc-containing baby powder and other products caused ovarian cancer and other diseases. In October 2021, J&J Consumer engaged in a divisional merger under the Texas corporate statute. As a result of the divisional merger, J&J Consumer ceased to exist and two new companies, LTL and Johnson & Johnson Consumer Inc (“New J&J Consumer”) were created. LTL assumed all talc-related liabilities of the old company and filed a bankruptcy petition (initially in North Carolina but the case was transferred to New Jersey in November 2021). The talc plaintiffs challenged the filing and the use of Texas Two-Step. The bankruptcy court ruled in favor of J&J/LTL and rejected the challenge. The bankruptcy court’s decision is now on appeal (review of this challenge will be included in one of our next issues). Meanwhile, LTL had asked the bankruptcy court for permission to extend the automatic stay to thousands of cosmetic talc-related claims with respect to J&J, J&J Consumer, New J&J Consumer. The automatic stay serves to protect the debtor that filed a bankruptcy petition, by stopping all collection efforts, including not only halting pending lawsuits but any acts that constitute an attempt to exercise control over assets subject to bankruptcy protection, thereby giving the debtor a respite from creditors and a chance to attempt a repayment or reorganization plan. Technically, the stay is not extended. Rather, the bankruptcy court issues an injunction having the effect of “extending” the stay to the entity not in bankruptcy. Although the scope of automatic stay is broad, its protections typically apply only to debtors in bankruptcy, not non-debtor defendants. Shortly after the commencement of the bankruptcy proceeding, the North Carolina bankruptcy court granted a temporary restraining order and enjoined the prosecution of talc claims against the non-debtors (“Initial PI Order”). After the case was transferred to New Jersey, on February 25, 2022, the New Jersey bankruptcy court issued a decision that would extend the duration of relief granted under the Initial PI Order, including the issuance of a preliminary injunction for the duration of the Chapter 11 case, subject to the court revisiting continuation of the automatic stay and the preliminary injunction on June 29, 2022, and every four months thereafter. The court found that Section 362 of the Bankruptcy Code and Section 105 provide independent bases for granting an injunctive relief to non-debtor parties. The critical factor in the Court’s analysis was the impact of the non-debtor litigation on the bankruptcy estate. The Court concluded that continued litigation against the non-debtor parties would liquidate pending tort claims, as well as indemnification claims, against LTL outside of Chapter 11 and potentially deplete available shared insurance coverage, thereby frustrating the purpose of the automatic stay. Since the claims against the debtor and the non-debtor parties involved the same products, same time periods, same alleged injuries, and same evidence, continued litigation could prejudice the debtor. For guidance on this matter, contact Albena Petrakov at apetrakov@offitkurman.com or at 212.380.4106.
June 30, 2022
Business
Executive Playbook: Business Owners & the Changing Economy
In this episode, Russell Berger and Mike Cammarata discuss the impact of changing economic conditions on business owners. While the news is filled with stories about inflation and a slowing economy, Mike and Russell talk about the practical challenges this creates for businesses and actions that businesses can take to prepare for economic uncertainty.
June 29, 2022
Tax
Operating Agreements – One Size Does Not Fit All
A recent private letter ruling highlights the danger of using a form or template blindly. PLR 202219005 involved a limited liability company (the “Company”) that sought, but failed, to be taxed as an S-corporation. On the effective date of the Company’s organization, the Company duly adopted a written operating agreement. The problem was the written operating agreement contained provisions appropriate for partnerships but not S-corporations. Specifically, one provision of the operating provided, “the proceeds from liquidation will be allocated to members with positive balances in their respective capital accounts, pro-rata, in proportion to the positive balances in those capital accounts.” Provisions like this one are seen routinely in operating agreements for entities taxed as partnerships for federal income tax purposes but are wholly inappropriate for entities taxed as S-corporations. Recall an S-corporation may have only one class of stock. While an S-corporation can have voting and non-voting shares, all shares must have identical rights to distribution and liquidation proceeds. The problem is partnership allocation provisions, such as the one at issue here, do not confer identical rights to distribution and liquidation proceeds. More of a problem among the DIY community who grab forms off the internet; this also can happen with attorneys who create limited liability companies (and operating agreements for those LLCs) without understanding what the agreements actually say and do. The allocation and distribution provisions of an operating agreement are the meat of the agreement because these provisions determine how members get money (or don’t get it) (distributions) and how they are taxed on money (or not taxed) (allocations). You don’t go to your dentist for heart surgery, and you don’t go to your cardiologist to fill a tooth. Lawyers are the same. When setting up a new company, turn to a lawyer well-versed in business and tax matters. The PLR does not discuss how the operating agreement came to contain partnership tax allocation provisions, only that it did. This PLR serves as a cautionary tale – do not use forms blindly. With operating agreements, one size DOES NOT fit all. Each operating agreement should be tailored to the facts and circumstances of the particular transaction and the parties’ intended tax treatment. In the case the Company was fortunate, the Service granted relief. Still, the need for (and cost of) a PLR easily could have been avoided had the taxpayer carefully reviewed the operating agreement. Scott Tippett is a member of Offit Kurman, where he focuses his practice on business and tax planning. Offit Kurman counsels business owners on strategic business, tax, and risk management techniques. The views expressed herein are solely those of the author’s and do not constitute and are not intended as legal or tax advice.
June 22, 2022
Labor and Employment
Defamation Claims: Johnny Depp Pulled Off a Miracle
Clients very frequently approach our lawyers with a keen interest in suing someone for defamation, a la Johnny Depp. I strongly discourage these claims. It’s a very tough row to hoe. First, defamation (libel is written defamation and slander is spoken defamation) requires a statement of fact, not opinion. For example, “John Doe is a racist” is not a defamatory statement because “racist” is an opinion (versus “John Doe used a racial slur.”) It also requires publication – sharing the statement with others. That means that a person could tell you off when you’re in a room alone, and it’s not defamation. Also, there are exceptions: for example, special standards apply to statements about people in the public eye. Almost anything goes with political figures, for instance. Finally, you have to prove actual damages. It might have hurt your feelings that someone published something very negative about you or your business, but did it lead to monetary harm? More than your legal bill would be if you sued? If the above requirements don’t eliminate the possibility of filing a defamation claim, I still think it’s a very tough one. As clearly revealed at the Depp v. Heard trial, it is “he said, she said” all the way. The plaintiff must prove by a preponderance of the evidence (that’s 51%) that the defendant’s statement was defamatory. Looking at the example above, how does John Doe prove that he did not make the racial slur? It’s his word against someone else’s word. Somehow, Depp pulled off this miracle. Defamation suits are only for people who lost a lot of money or suffered a huge indignity via the statements and have money to burn. Depp lost a pirate movie and other commercial opportunities; it’s extremely embarrassing to be labeled as a domestic abuser, and he is very wealthy. I shiver to think what he paid his lawyers for that win – against a person who filed a successful counterclaim for defamation against him; likely can’t pay it because the verdict is so large; and, at the bare minimum, won’t be paid for quite a while during the appeals process. I wonder if he feels it was worth it.
June 22, 2022
Estates and Trusts
Is Same-Sex Marriage in Jeopardy?
This article has been updated. The Supreme Court’s decision overturning Roe v. Wade has sent abortion-rights advocates reeling. In a 6–3 opinion, the Court ended a constitutional right that was the law of the land for nearly half a century. The ruling could put other constitutional rights in jeopardy as well. Many in the LGBTQ community are asking, “Is same-sex marriage next?” Like the right to abortion, the right to same-sex marriage hinges on the Due Process clause of the Constitution’s 14th Amendment. This amendment was adopted after the Civil War as part of Reconstruction. Over the years, the Supreme Court has interpreted the amendment to guarantee the right to use birth control (Griswold v. Connecticut, 1965), to be intimate with someone of the same sex (Lawrence v. Texas, 2003), and to marry a person of one’s choosing (Obergefell v. Hodges, 2015). Writing for the majority in Dobbs v. Jackson, Justice Samuel Alito doesn’t mince words. He argues that Roe v. Wade was wrongly decided because the Constitution doesn’t explicitly mention abortion, and because a woman’s right to end a pregnancy isn’t “deeply rooted in this nation’s history.” This argument is misguided, if only because it runs afoul of stare decisis, the legal doctrine that obliges a court of law to follow prior court decisions when making a ruling on a similar case. The reasoning behind Justice Alito’s opinion may nevertheless form a road map for overturning same-sex marriage and other 14th Amendment rights. For those of us in the LGBTQ community, the question is what we can do to protect ourselves and our hard-won right to marriage. Those of us in same-sex relationships should prepare for the unexpected by drawing up estate plans. It is important to remember that a Supreme Court decision overturning Obergefell would not make same-sex marriage illegal. It would simply leave it to states legislatures to determine whether to allow gay marriages in their state. The Maryland Legislature has already done this. In 2012, it passed a bill legalizing same-sex marriage in the Free State. The law took effect on January 1, 2013, after winning approval from a majority of Marylanders in a statewide ballot referendum. Maryland’s same-sex couples who are already married can therefore take comfort. In the wake of a Supreme Court decision overturning Obergefell, our unions should survive, at least at the state level. But continued federal recognition of gay marriage would be less certain, and a national patchwork of laws and policies might necessarily develop. A marriage recognized in Maryland could suddenly be considered invalid in other states, and by the federal government. That could mean the end of important federal benefits, such increased Social Security payments to a surviving spouse. With that in mind, many same-sex couples are rushing to tie the knot. This is especially true of couples whose marriage plans were delayed by the Covid-19 pandemic. Whether we are disposed toward marriage or not, those of us in same-sex relationships should prepare for the unexpected by drawing up estate plans. Most plans include a will, financial power of attorney, and advance medical directive for each partner. These essential documents will authorize your partner or someone else you trust to manage your finances and health care if you ever become incapacitated. They will also help to ensure the efficient transfer of your assets upon your death. Marriage confers significant legal benefits, but a marriage license alone isn’t enough. No matter what the future holds for same-sex unions, an estate plan will help protect your relationship from some of life’s most significant uncertainties.
June 21, 2022
Tax
North Carolina Enacts Pass – Through Entity Tax
Recently the North Carolina General Assembly changed the law to permit pass-through entities (partnerships and s-corporations) to pay entity-level tax, thereby joining a majority of states (29 at last count) in doing so. The change is effective for tax years beginning January 1, 2022. As with most states, paying tax at the entity level is optional (mandatory in Connecticut). If a partnership pays tax at the entity level, the tax paid is a separately allocable item to the individual partners, so the net effect is the same, which begs the question, then why pay tax at the entity level. Originally pass-through entity tax (PTET) laws came about as a workaround for the state and local tax (SALT) limitations imposed by the Tax Cut and Jobs Act of 2017 (TCJA). Recall the TCJA limits deductions of state and local taxes to ten thousand ($10,000) annually, but taxes paid y an entity are business expenses, not subject to the 10K cap. There are two potential drawbacks of PTET. First, not all states give their residents credit for PTET paid in other states. Second, in some states, PTET is paid at a state’s top marginal rate (or more), so the advantage may be illusory at best. But let me suggest an additional aspect of PTET – asset protection. In the traditional model, a partnership would, at a minimum, make distributions to its partners to cover the taxes for the income allocated to each partner. Within the partnership, and here we are talking about a limited liability company taxed as a partnership, not a true general partnership, assets held within the LLC are beyond the reach of an individual partner’s creditors. However, when a tax distribution is made, the funds out of the LLC and into the individual partners’ bank accounts where the funds then become subject to set-off by the bank, garnishment by a judgment-creditor, withdrawal by a joint account holder, not to mention subject to the joint account holder’s judgment creditors, or, in extreme cases, prejudgment attachment. Depending on the amount of income allocated to a partner, the tax distribution could be substantial. Imagine the disgruntled, secretly planning to separate spouse who waits until the tax deposit is made to drain the joint bank account, leaving the partner/member without immediate liquid assets with which to pay tax liabilities. On the other hand, if the entity elects PTET, then the funds never leave the entity and are paid by the entity directly to the relevant tax authorities and the tax paid is allocated to the individual members/partners as though the tax distribution had been made to them and they, in turn, paid their respective tax obligations. No doubt, neither the North Carolina General Assembly nor any other state legislative body that enacted a PTET did it for asset protection purposes, but every now and then, life has its little bonuses. Scott Tippett is a member of Offit Kurman, where he focuses his practice on business and tax planning. Offit Kurman counsels business owners on strategic business, tax, and risk management techniques. The views expressed herein are solely those of the author’s and do not constitute and are not intended as legal or tax advice.
June 16, 2022
Labor and Employment
Anti-SLAPP and Section 230 Ruling
In a rare ruling on April 26, 2022, the Circuit Court for Baltimore City granted our Anti-SLAPP Motion to Dismiss in a defamation case brought by Joshua Harris, a former Green Party candidate for Mayor of Baltimore, against our clients Courtney Fix and Get Your Fix, LLC. Ms. Fix, who was the owner of a local donut shop, Full Circle Doughnuts, was sued by five different men in three separate lawsuits for defamation based on her social media posts that shared the stories of other women and their alleged loathsome experiences involving the men who filed suit. While two of the lawsuits were ultimately resolved out of court, the case filed by Mr. Harris was dismissed on several grounds, including Anti-SLAPP and Section 230 of the Communications Decency Act. In granting Ms. Fix’s Motion, the Court found that Mr. Harris brought the case against Ms. Fix in bad faith, his case lacked merit, Ms. Fix’s speech was protected under the First Amendment, and Mr. Harris’s status as a public figure, as well as the content of Ms. Fix’s speech in the context of the MeToo and Times Up movements, made Ms. Fix’s speech a matter of public concern. In making its ruling, the Court noted Mr. Harris’ request that the Court force Ms. Fix to submit to a mental evaluation “particularly offensive.” I was honored to have worked with my colleague Mark Dimenna to secure this outcome for our client. While Maryland’s Anti-SLAPP law has been on the books since 2004, these matters are rarely before Maryland courts, and there is just one reported case analyzing the law. On April 29, 2022, Mr. Harris appealed the Baltimore City Circuit Court’s decision, and the case is now pending before the Court of Special Appeals, providing just the second opportunity for Maryland’s appellate courts to consider the Anti-SLAPP statute. Check out the Baltimore Business Journal article on this case here: Judge dismisses defamation lawsuit against former Full Circle Doughnuts owner
June 3, 2022
Business
Executive Playbook: Planning for Your Exit
In this episode, Russell Berger and Mike Cammarata discuss strategies for preparing and planning for an exit from your company.
June 1, 2022
Bankruptcy
Chapter 7 Trustee's Perspective: Selling Litigation in Bankruptcy is Prohibited?
A Chapter 7 bankruptcy trustee may receive the opportunity to pursue a large claim for an avoidable transfer, such as a fraudulent conveyance, a preferential transfer or a pre-petition claim that the debtor holds. However, such litigation may be expensive to pursue and there may be a large risk of loss. Should the trustee engage in “Bet the Farm” litigation at the trustee’s personal financial risk when outside counsel will not accept the case on a contingency fee basis and there are no other assets in the Estate? Should the trustee abandon the claim to the detriment of the creditors? The best alternative may be to sell the litigation, but is the sale barred by old common law principles? This scenario involves the principles of maintenance, champerty and barratry (the “Principles”), which trace back supposedly to ancient Greece. The Supreme Court found that 1) maintenance is helping another prosecute a suit; 2) champerty is maintaining a suit in return for a financial interest in the outcome, and 3) barratry is a continuing practice of maintenance or champerty. In re Primus, 436 U.S. 412, 425 (1978). The Principles were intended to prevent the manufacturing of frivolous or vexatious litigation. The fifty states are not uniform in their treatment of the Principles, with some states upholding the common law doctrines of champerty and maintenance in some form[1] and others having abolished the doctrine altogether or not recognizing it.[2] According to the Fourth Circuit, most jurisdictions no longer recognize causes of action for damages based on champerty and maintenance and such actions arose only where the alleged wrongdoer had no interest in the litigation.American Hotel Management Associates, Inc. v. Jones, 768 F.2d 562, 570 (4th Cir.1985), but Maryland still does. See Rojas v. Huntington Neighborhood Ass'n, No. DLB-21-28, 2022 WL 616815, at *4 (D. Md. Mar. 1, 2022). Similarly, see In re DesignLine Corp., 565 B.R. 341 (Bankr. W.D.N.C. 2017) (holding that a proposed agreement between trustee and entity that had agreed to finance trustee's pursuit of litigation against debtor's insiders was prohibited by champerty under North Carolina law and could not be approved.) Of course, the bankruptcy court may need to address which state law to apply in any case. See Koro Co., Inc. v. Bristol-Myers Co., 568 F.Supp. 280 (D.D.C. 1983) (the court determined that New York law of champerty, rather than New Jersey law, applied to invalidate the assignment of claims.) Also, see Riffin v. Consol. Rail Corp., 363 F. Supp. 3d 569, 575 (E.D. Pa.), aff'd, 783 F. App'x 246 (3d Cir. 2019) Barratry and the other Principles may be defined by statute in some states and may cover a multitude of sins. See e.g. Md. Bus. Occ. & Prof. Code Ann. § 10-604(b).[3] As stated by the District Court of Maryland, the conduct proscribed by the current statute was first made a statutory offense in Maryland in 1908. “Before then, the officious stirring up of, maintaining, or meddling in litigation in which a person had no interest constituted the common law crime of barratry, maintenance, champerty, or embracery, depending on the particular nature of the conduct.” Abbott v. Gordon, No. CIV.A. DKC 09-0372, 2011 WL 828646, at *17 (D. Md. Mar. 7, 2011). Both champerty and barratry require proof that the intermeddler expected to personally gain from or share in the outcome of the litigation. Now let’s go back to our creative and diligent Chapter 7 trustee. In the case of In re Simply Essentials LLC, No. 20-305, 2022 WL 1026045 (Bankr. N.D. Iowa Apr. 5, 2022), the trustee proposed a sale of a potential worthwhile avoidance action against a creditor to another creditor that would litigate those suits in the best interest of the estate. The trustee sought authorization to sell the right to bring avoidance actions under Chapter 5 of the Bankruptcy Code regarding preferential and fraudulent transfers. The trustee believed the claims could provide the estate with a large recovery, but the Estate could not afford to pursue them. The bankruptcy court approved a settlement under which the trustee would sell the Estate’s right to bring avoidance claims to a creditor holding a $23.4 million claim over the potential defendant’s competing offer. The Court overruled an objection that these claims were not included in “property of the estate” and recognized the practicalities of the situation stating that: "To allow parties otherwise facing meritorious … avoidance claims to escape those claims because the trustee cannot afford to pursue them and they cannot be sold or transferred would be an absurd result.” The court reasoned that Section 541(a)(7) of the Bankruptcy Code recognizes these claims as assets of the Estate that can be sold under Section 363(f) of the Bankruptcy Code and B.R. 9019(b). Regardless of whether a debtor or creditor opposes or supports the sale of litigation in bankruptcy by a trustee, one should not forget to check the applicable statute or the common law Principles under governing law before making an argument to the court. [1] These states include, among others, the bankruptcy-friendly Delaware and New York as well as Alaska, D.C., Florida, Kentucky, Maine, Maryland, Mississippi, New York and Pennsylvania. [2]Arizona, California, Connecticut, New Jersey, New Hampshire, New Mexico, Oklahoma, Texas and recently Minnesota, among others, do not recognize the principles. [3] (b) Without an existing relationship or interest in an issue: (1) a person may not, for personal gain, solicit another person to sue or to retain a lawyer to represent the other person in a lawsuit; (2) a person who is not a lawyer may not, for personal gain, access a report for the purpose of soliciting another person to sue or to retain a lawyer to represent the other person; and (3) a lawyer, except as provided in the Rules of Professional Conduct, may not: (i) for personal gain, solicit another person to sue or to retain a lawyer to represent the person in a lawsuit; (ii) directly or indirectly employ or in any way compensate or agree to employ or compensate any person as an expert witness or otherwise for the purpose of having that person solicit or attempt to solicit clients for the lawyer; (iii) knowingly represent a person who retained the lawyer as a result of solicitation prohibited under this section; or (iv) cause a case to be instituted without the authority of a client.(c) Any solicitation involving acts described in this section is prima facie evidence that the person soliciting is acting for gain. (1) a person may not, for personal gain, solicit another person to sue or to retain a lawyer to represent the other person in a lawsuit; (2) a person who is not a lawyer may not, for personal gain, access a report for the purpose of soliciting another person to sue or to retain a lawyer to represent the other person; and (3) a lawyer, except as provided in the Rules of Professional Conduct, may not: (i) for personal gain, solicit another person to sue or to retain a lawyer to represent the person in a lawsuit; (ii) directly or indirectly employ or in any way compensate or agree to employ or compensate any person as an expert witness or otherwise for the purpose of having that person solicit or attempt to solicit clients for the lawyer; (iii) knowingly represent a person who retained the lawyer as a result of solicitation prohibited under this section; or (iv) cause a case to be instituted without the authority of a client.(c) Any solicitation involving acts described in this section is prima facie evidence that the person soliciting is acting for gain.
May 27, 2022
The Weekly Scenario
The Weekly Scenario: Virtual Maryland Wills and Trusts
Effective April 21, 2022, people can now sign their Maryland Wills and Trusts virtually. Senate Bill 36 is new legislation initiated in 2021 in response to the COVID-19 pandemic; in passing this legislation, Maryland will join several other states that permit electronic wills. To execute a valid Will in Maryland, an individual has to sign his Will in the physical presence of two witnesses. This new law allows an individual signing her Will to meet with their witnesses virtually (in their “electronic presence”) and sign their wills via an interface that supports videoconferencing and electronic signature, thus bypassing the requirement to meet in person. Thus, individuals who are hospitalized or for other reasons prefer not to visit the law office in person can put the Wills in place. After the document is electronically signed in the presence of two witnesses, a “certified paper original” of the Will is created either by the client or client’s attorney or by the client himself, in which case it must be notarized. Senate Bill 36 also made it possible to remotely execute a notarized trust agreement. It became possible to remotely execute other important estate planning documents (Powers of Attorney and Advanced Medical Directives) in 2021. While it is now possible to sign these documents electronically, I believe most attorneys will still want clients to come to the office to sign documents in person. Signing in person will allow questions to be asked and changes to be made if need be in a more formal setting.
May 20, 2022
Family Law
When to File for Divorce in Maryland
Many people looking to file for divorce don’t know where to start or how urgently they should proceed with the filing. Some couples, in the emotionally-charged act of separating from one another, make the mistake of jumping straight into filing without considering all of their options. Generally speaking, it’s best if the parties can work things out with counsel before filing for divorce; this approach is ideal and may save them a lot of financial and emotional stress in the long run. Once a party files, the attorney’s fees tend to increase due to court-imposed deadlines, so avoiding that time crunch altogether is beneficial for everyone involved. If the parties manage to work with counsel to exchange all of the information and documentation before filing, counsel may be able to help the parties come to a resolution outside of court; if they are reaching an impasse, the next step may be to try mediation. If mediation fails and they’ve exhausted all settlement efforts, counsel may then recommend that they go ahead and file. Obviously, some divorces are messier than others, and parties cannot always be collaborative like this, so sometimes it is necessary to file immediately—especially if the court needs to quickly intervene with regards to children and custody issues. The first step when deciding to file for divorce should always be to seek the help of an experienced divorce or family law attorney. In the state of Maryland, it’s possible that certain forms must be filed days or weeks before the trial (depending on the county)—an experienced divorce lawyer should be able to help you keep on top of these due dates. Some of the forms you may need to fill out may include documents detailing your property and how each party thinks it should be divided, financial documentation, request for financial support from one party to another, and more. The many forms, as well as the varying practices of each court, can make the process of filing for divorce a little muddy, which is why pursuing divorce without legal representation can be risky business.
May 19, 2022
Family Law
Traveling with Toddlers on Planes
Here are nine tips for traveling with Toddlers in today’s world: Be prepared for dirty objects that find their way to your toddler. Bring along plenty of sanitizing wipes and keep them within easy reach. Pack at least two extra outfits as, sometimes, one is just not enough. Ask every flight attendant and gate agent you see if the flight is full. If not, ask if they can move people around so that your family gets a coveted free middle seat. Always carry a small medical kit with you – should include travel-size essentials – Band-Aids, Neosporin, Tylenol, Benadryl, and keep it in your carry-on for easy access. There may be some in the plane’s medical kit, but who knows for sure! Take loads of snacks in small containers or ziplock bags. Choose a variety to keep the little one satisfied – fruit, vegetables, pouches, biscuits, crackers, cheese nibbles, etc. There may be delays, and the stuff you can buy at the airport is expensive! Take a large scarf that you can wrap around the little one. Sometimes feeling snug as a bug helps them unwind and relax. Changes in air pressure can be very difficult for little ones, so take pacifiers and empty bottles that you can refill with water or juice supplied by the airlines to help them a bit. Stretch your legs and walk up and down the aisle. It really helps change the scenery for the little ones, and you may actually get some smiles and fist-bumps from adult passengers on the aisle. If you are traveling with another adult, send them on first to get some overhead compartment space for your carry-on, and then wait until the last minute to board with your child. It may seem insignificant, but those extra 10 minutes before boarding are treasured moments.
May 18, 2022
Family Law
Avoid the Common Mistake of Commingling Assets
In divorce cases, it is not unusual to find that a client has at some point during the marriage commingled nonmarital assets with marital assets, making it difficult or impossible to prove that the assets should be retained by the client at the time of divorce. In Maryland and the District of Columbia, assets acquired by a spouse prior to the marriage or by gift or inheritance are that spouse’s nonmarital property. Commingling of assets occurs when a marital asset is mixed in with a nonmarital asset. One example of this common mistake is when a client has funds in a bank account that existed prior to the marriage and then begins depositing funds earned during the marriage into that same account. Another example is when a spouse receives an inheritance or a gift during the marriage and commingles the inherited or gifted funds with marital funds acquired during the marriage. In those situations, the separate property can lose the quality of being nonmarital, meaning that the commingled funds might be deemed marital property and divided by the court at the time of divorce. To ensure that nonmarital assets will not be deemed marital property at the time of divorce, the best course of action is to keep them separate during the marriage by maintaining a separate bank account. It is also prudent to execute a prenuptial agreement prior to the marriage identifying which property will remain nonmarital at the time of divorce. To prove that an asset is nonmarital at the time of divorce, retaining documentation is vital. Account statements are frequently used to prove that funds in an account are a spouse’s nonmarital assets. If you have nonmarital assets that you want to remain your separate property, hold on to those old account statements establishing how and when you acquired the assets because they might not be available from banks or other financial institutions 10, 20, or 30 years later when you are getting divorced. It might also be necessary to employ a forensic expert to prove that the assets are nonmarital, depending upon the situation. Everyone goes into their marriage hoping it will last forever, but you would be wise to avoid the common mistake of commingling just in case it doesn’t.
May 16, 2022
Labor and Employment
You Can’t Arbitrate That!
Making an agreement to arbitrate an issue may be a great way to limit expense, save time, and preserve the confidential nature of the dispute. I often consider these when I draft contracts like severance agreements, non-compete agreements, and employment agreements. This has been a tool to keep information that might damage a company’s reputation out of the press. However, a new federal law says that employers can’t force employees to arbitrate claims about workplace sexual harassment or assault, even if they agreed in writing. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act had widespread bipartisan support. Employees may now choose (regardless of what they signed) how to bring any sexual harassment or assault claims against a company – in court or through arbitration. They also can’t be forced to waive their rights to join others in a lawsuit claiming sexual harassment or assault, regardless of what they signed. Note that some states also have laws forbidding employers from requiring an employee who’s alleged sexual harassment or assault to sign a non-disclosure agreement. This type of law is pending in a number of states, too. There’s obviously a strong sentiment among lawmakers to discourage an organization’s ability to keep such claims private. For those reasons, employers should consider updating anti-harassment policies and training programs (which are legally required in some states). Employers should also review and revise employment agreements that contain mandatory arbitration clauses and/or joint-action waivers – or just lower expectations of privacy.
May 13, 2022
Business
How to Avoid Derailing Your Sell Side M&A Transaction
There are many items and considerations that can derail your sell side M&A transaction. Active litigation, titling issues to assets and employee/benefit matters all could lead to the quick demise of your sale. Most times, these items are found when due diligence commences in earnest by your buyer. However, the single most item that will tank your deal (or have buyers pass before a deal commences) relates to sloppy financial books and records. A seller’s financial data is generally the first substantive intersection with a buyer. Even before a letter of intent is submitted, a buyer will want to see some financial records of the potential target. If the seller’s records are disorganized and not in accordance with proper standards, most buyers will move on. For all business owners having good financial statements is vital to operating a successful business; for sellers in the market, hoping clean records is a must-have. The inability to show the buyer financial value and clean operations is the foremost deal killer for a seller. Sellers wanting to sell their business should have their books and records scrubbed before going into the marketplace to make certain their finances are clean, normal and what would be expected by a buyer. Failure to do so may prevent a seller from landing that large payday.
May 13, 2022
Family Law
Consider Whether an Expert is Necessary for Your Family Law Case
In “My Cousin Vinny,” arguably one of the best movies of all time, the character Mona Lisa Vito, played by Marisa Tomei, testifies as an automotive expert in a criminal case and provides an opinion about an automotive issue (positraction) that wins the case and results in the acquittal of two young men charged with murder. Experts are often necessary in litigation to provide professional opinions on complex issues in a wide range of cases. In any family law case, one of the strategic decisions a client must make with their attorney at the outset is whether to hire an expert. The following are some of the experts that parties to a family law case should consider hiring depending upon the issues in your family law case: Forensic accountant: Investigates whether a party has hidden assets and income, traces parties’ assets to nonmarital sources such as premarital assets, inheritance or gifts, or rebuts claims by the opposing party that certain property is nonmarital or marital. Business evaluation expert: Determines the economic value of a business owned by one of the parties in a divorce case so that the Court can consider the value of the business in the distribution of marital property. Real estate appraiser: Determines the value of the marital home, vacation homes, commercial properties owned by the parties, and any other real property that may be subject to distribution. Custody evaluator: Makes recommendations as to legal and physical custody of children after interviewing the parties, third parties, and the children, observing the parties and children, reviewing relevant documents, and in some cases performing psychological testing. Vocational expert: In cases involving claims for alimony, testifies as to the ability of a party to obtain and maintain employment and the amount of income the party is capable of earning. Attorneys’ fees expert: A lawyer who has substantial experience practicing family law and opines as to the reasonableness of attorneys’ fees incurred by the parties for the purpose of obtaining an award of attorneys’ fees or opposing a claim for attorneys’ fees. Courts often impose deadlines for the designation of experts early in the case. Failure to designate an expert by the court-ordered deadline can result in a party not being permitted to have an expert testify. An expert will explain complex issues to the Court in the presentation of your case and can rebut the opinions of experts hired by the opposing party. An expert can also provide valuable advice during the discovery process, preparation for trial, and settlement negotiations. That is why it is so important to retain an expert in accordance with the court’s deadline and have the expert begin working on the case. It also helps to have an attorney who knows the expert, has worked with the expert in the past and is confident that the expert will provide compelling testimony and opinions that will be accepted by the court at trial.
May 6, 2022
The Practice of Law
How to Find an Attorney – Regardless of Your Budget
I am sometimes called into situations where clients have hired other attorneys and aren’t happy with their services (or bills). I mean, I’ve heard some loud complaints. Another scenario I’ve encountered: the client comes to me with an employment-related agreement that lacks basic terms (hopelessly vague) or isn’t enforceable. So it becomes obvious to me that either 1) the client found something on the internet and copied it, or 2) prior counsel didn’t know what they were doing or did not do it carefully. What to do? If you’re an individual reading this and you don’t have money for a regular attorney’s rate, you may apply to various state or local agencies for free or reduced-cost help with some types of matters. You may also file certain litigations on your own behalf (although not all) and ask that the Court appoint you free counsel – yes, even in a civil case. Call your state’s bar association, as well; they may have other suggestions, such as working with supervised students at a law school. If you are looking for counsel on a business matter, then as Mama said, SHOP AROUND. Here’s how: Look for a specialist in the particular area(s) of law involved. Don’t call your neighbor because he’s the only attorney you know. Don’t rely on your best friend (that can get messy) or even their recommendations without doing your own research. To find a specialist, you may turn to the web, but don’t defer to the attorneys at the top of the page (they paid Google for the privilege). You could also look in local recent publications for “Best Lawyers” lists, but only those where attorneys are peer-selected. How long have they been practicing in that area? Do they claim so many specialties that it’s a bit suspect? After locating some attorneys who list the area as a specialty, contact several attorneys. Describe your situation, ask how often they handle this type of matter and for how many years. Just like a surgeon, you’re looking for someone who’s handled this procedure many times. Don’t go to the firm your organization “has used forever” unless you are very comfortable with the expertise and experience of the current lawyers at the firm (and their rates; ask). Ask: who will handle the bulk of the work, the experienced partner or the new associate? Get quotes from qualified attorneys. There is a huge range of billable rates for the same work from very similar lawyers. Recently I was on a call with lawyers from a firm (who aren’t as experienced). The two of them on the other end of the phone cost their client almost three times what I charged my client. These might seem time-consuming. But these efforts could save tens of thousands of dollars. Best regards, Katherine
May 4, 2022
Labor and Employment
May Your Business Require Employees Not to Mask?
As more and more businesses mandate that workers return to the workplace, management is wondering about masking requirements. Some business owners feel strongly that they don’t want to require their employees to wear masks. Others do not want to create the impression that the location isn’t safe for customers and feel that this might be exacerbated by masked public-facing employees. Some feel strongly that it’s their right as an employer to impose a no-mask policy for other reasons. Is that a good idea? If an employee decides to defy the no-mask policy, they may have a legal claim (backed by science) if the business fires them for disobeying the policy. The CDC (Centers for Disease Control) is still recommending public masking. An employee might even bring a whistleblower claim under state law if the employee complains about the safety of the workplace to management and/or health authorities. An employee could also complain to OSHA. Although the Supreme Court struck down the OSHA Emergency Temporary Standard requiring safety measures, OSHA will still enforce a masking policy if it determines that the location is unsafe (at least for certain employees) without masking. Finally, it bears repeating that an employee with a disability who’s protected by the Americans with Disabilities Act (or equivalent state law) and whose healthcare provider advises that masking is required should be allowed to mask. That claim (depending upon the exact facts, of course) would make it past a motion to dismiss and cost the business a lot to litigate. I haven’t seen a case on this topic yet, but for these reasons, I wouldn’t advise a mandated no-mask policy right now. Why not create a mask-optional policy if the business feels strongly? It might yield very similar results. Update on last week’s blog on the no-poach agreement criminal trial: the jury found the defendants not guilty. However, this was a criminal trial, and it’s easier to prove liability in a civil case (remember, O.J. Simpson). It’s still ok to mandate mask-wearing on the job.
April 29, 2022
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