M&A Nuggets
M&A Nuggets: Laws Triggered by a Merger
As part of due diligence, purchasers investigate whether selling targets are in compliance with the myriad of laws governing a target’s historical business operations. Separate and apart from those laws, are laws that are actually triggered by a merger, that is, that would not apply but for the planned merger. Sellers and purchasers must be aware of these laws to determine whether they apply, and if they do, take steps to comply so that the merger is not delayed or prohibited. Here are four examples of laws triggered by a merger: The WARN Act, which stands for Worker Adjustment and Retraining Notification Act. This law requires employers to provide the United States Department of Labor with at least 60 days’ prior notice of any plant closing or mass layoff. The rule generally applies to employers with at least 100 employees when an event occurs that results in a layoff of at least 50 employees. Some states have their own version of the WARN Act. Any merger transaction that involves a plant closing or a mass layoff needs to be vetted to determine whether the WARN Act applies; The Hart Scott Rodino Act. The purpose of this law is to allow the government a period of time to determine that a merger will not violate anti-trust laws. The Act requires notice to be given to the United States Department of Justice and imposes a 30-day waiting period before a merger of a certain size can occur. Generally, if the merger involves a target with a value greater than $92 million or the purchaser and seller have assets or sales of at least $184 million and $18.4 million, the Hart Scott Rodino rules apply; Bulk Transfer Laws. These are state laws that require a buyer of a business that sells inventory to notify creditors in advance of a business sale. Although the Bulk Transfer laws were uniform across all states, many states have eliminated their Bulk Transfer laws. In states with Bulk Transfer laws, it is common for the parties to a merger transaction to agree to waive compliance with the laws. Tax Elections. Many significant tax issues arise in merger transactions. Some of these tax issues require agreements between the seller and purchaser and timely elections of tax consequences to be filed with the Internal Revenue Service. For example, the manner in which the purchase price is allocated in an asset purchase is usually agreed to and requires a common filing with the Internal Revenue Service. In a stock purchase, there is often an agreement to split the tax year into two short tax years, one tax year beginning on the first day of the year of the sale and ending on the closing date and the second tax year beginning on the day after the closing date and ending on the last day of the year in which the sale occurs. This split tax year agreement also requires a filing with the Internal Revenue Service. It is crucial that the seller and purchaser understand which “triggering” laws apply to a merger, so that timely notice under the laws is given, and that closing will not be delayed because of non-compliance. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
July 28, 2021
The Weekly Scenario
The Weekly Scenario: Should You Share Estate Planning Documents with Family Members?
The question as to whether you should share your estate planning documents with your immediate family is one that comes up fairly often. The answer depends on the personal choices and family dynamics of a client. In thinking through this issue at hand, it is important to consider that the primary purpose of an estate plan is to make it easier for the family when a person dies. The assumption for many clients is that family members should have copies of their documents. However, keep in mind there are certain drawbacks of giving copies of legal documents to family members. For one thing, what if the plan changes in the future? What if someone named in the document is later taken out or is in line to receive less in the way of an inheritance. Will this person contest the legitimacy of any later version of a Will? Moreover, would you want to be put in a position to have to explain your reasons for your own plan? The other side of the coin is that giving family members an ‘advance copy’ so to speak may avoid any surprises or conflicts later. There are many clients who are actually very comfortable with family members seeing their documents and financial information. In my experience, I generally tell clients to let family members know (at a minimum) that they have an estate plan and where the documents will be stored. I also like the idea of letting them know where to find bank account information, passwords to phones and tablets, family papers (marriage certificates, divorce orders, etc.) and of course, contact information for attorneys, accountants and financial advisors. Armed with this essential information, it will certainly make it easier for family members to carry out your wishes. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
July 23, 2021
M&A Nuggets
M&A Nuggets: The Due Diligence Barrage - How to React
After the letter of intent for the sale and purchase of a business is signed, the potential purchaser will then deliver its due diligence list to the target company. The due diligence list can be voluminous. It is not unusual for a list to contain twenty pages with more than 200 specific requests. The topics covered include many areas, from financial to tax to corporate and operations. The target’s owner may be inclined to attempt to handle the due diligence list on its own. It is crucial, however, that the target’s advisors be brought in upon receipt of the due diligence list. Here is why: Due diligence lists often are a purchaser’s attempt to “shoot for the moon”, requesting details that may not be needed for time periods that may not be needed. In fact, the due diligence list is negotiable. Your advisors can guide you on which items the potential purchaser should be asked to remove from the list; For the reasons discussed below, it is important that an organized system be created by which each request and answer to it is linked. Your advisors can assist you to set up that system; Documents provided in response to the due diligence requests usually contain information that must later be disclosed in the representations and warranties section of the purchase agreement. It is important for your advisors to be able to determine early on what disclosures in the purchase agreement will need to be made; and In that regard, documents to be provided in due diligence may contain a surprise or two, since many of the documents may be old and/or never have been reviewed. For example, in one transaction I handled in 2019, one of the target’s vendor contracts contained a right of first refusal in the vendor to purchase the target. These kinds of surprises need to be learned about and dealt with soon in the sale process. By asking for the assistance of your advisors early on, the due diligence process can be made much more manageable, resulting in a substantial savings of time and money. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
July 21, 2021
Labor and Employment
COVID-19 “Long-Haulers” and Workplace Accommodations
Employers spent the better part of 2020 and the beginning of 2021 evaluating how to prevent employees from contracting COVID-19 and address COVID-19-positive employees. Now, as employees return to work, employers face new requests from employees who had COVID-19 weeks or months ago but have not fully recovered. These individuals, typically called" long-haulers," often suffer from lasting physical and psychological issues from their illness. With little currently known about long-haulers, the problems and ailments long-haulers face are likely to impact the workplace for the foreseeable future. COVID-19 long-haulers deal with a host of ailments, including shortness of breath, debilitating fatigue, sluggish mental capacity and memory loss, and dizziness. As one can imagine, these symptoms may inhibit an employee's performance or attendance. As a result, employers should consider ways to address these issues and remain compliant with applicable state and federal laws. If an employee expresses concern regarding long-haul COVID-19 symptoms impacting their work performance, employers should consider whether the employee's challenges trigger company obligations under the Americans with Disabilities Act (ADA). While there's little precedent regarding whether COVID -19 long-haulers ailments are a condition covered under the law, employees who request accommodations because of long-haul symptoms will likely qualify for accommodation. The definition of "disability" under the ADA is intentionally broad, and the ADA does not provide a specific list of what conditions are covered. Instead, individuals meet the definition of "disability" if they have "a physical or mental impairment that substantially limits one or more major life activities." While the ADA does not likely cover an employee who contracts COVID-19 and fully recovers within the standard recovery time of two weeks, if an employee has lingering COVID-19 symptoms that limit their ability to perform their job duties, they likely qualify for coverage under the ADA. Similarly, long-haulers who ask for leave may be entitled to it under the Family Medical Leave Act (FMLA). The FMLA defines a serious health condition as an illness, injury, impairment, or physical or mental condition that involves inpatient care or continuing treatment by a health care provider. A serious health condition also includes impairment of more than three calendar days plus two or more visits to a health care provider. An employee suffering from long-term COVID-19 ailments is likely to meet the definition of a serious health condition and may qualify for leave, intermittent or continuous, under the FMLA. Ultimately, as employees return to work, employers should be mindful of handling requests from employees around COVID-19 related illnesses and challenges to ensure they are compliant and do not inadvertently or improperly deny employee requests.
July 16, 2021
The Weekly Scenario
The Weekly Scenario: Documents You Should Have Before You Travel
But Particularly if You Fall into a Specific Risk Group No one likes to think of worst-case scenarios before a trip, but there are certain estate planning documents you should have in place before you leave. Like purchasing trip cancellation insurance, making some arrangements ahead of time will provide peace of mind while you are away. Some of these documents become even more critical if you are a person that falls into what I refer to as a category that could be construed as riskier. Last Will and Testament It is important if you have assets to make sure you have a current and legally binding Will that appoints someone to settle your affairs, designates who will receive property, and names guardians for any minor children. If you are an individual who is not married or does not have children, dying intestate (without a Will) can have more drastic consequences because the assets are more likely to pass to unintended family members. HIPPA Authorization Because of the HIPPA Privacy Rule, you'll need to give consent for a traveling companion, friend, or family member to receive medical information should anything happen to you. Durable Power of Attorney A Durable Power of Attorney gives an individual the ability to make decisions on your behalf if you become unable to do so. The document covers financial and legal decisions (usually not medical). Health Care Proxy or Advance Medical Directives Also known as a durable medical power of attorney or advance medical directive, a health care proxy allows your designee to make medical treatment decisions on your behalf if you are unable to do that yourself and establishes a point person for medical communications. If you are not married or do not have adult children, the problem is not having someone for whom the law of the certain state or country would recognize as having the ability to make these decisions. Having a document in place becomes all the more important. Guardian Designation If you have children younger than 18 or are responsible for adult family members who can't care for themselves, it is important to name a guardian. While it would be better to have a full estate plan in place, often naming a trust as the recipient of financial assets for minor children, at a minimum, you should have a responsible person (i.e., a person you trust) named who could serve as guardian. Proof of Parentage Rights If you've crossed the border with a minor child, officials in many countries are vigilant about preventing child abduction. When traveling overseas with a minor child, have proof of relationship such as their birth certificate, or travel and medical consent letters if you are not the child's parent or guardian. Same-sex couples who have families through surrogacy or adoption should finalize parentage rights before traveling to countries that might not be as friendly to same sex-couples. Updated Beneficiaries If you haven't updated your will in years, it might not reflect your current wishes about beneficiaries, especially if you're divorced. If you have a minor beneficiary named on a life insurance policy or retirement plan account, you need to know that the property will be managed by a guardian unless a trust is established to receive those proceeds. Financial and Social Media Account Login Information Make sure someone you trust has login information for financial, social media, and other online accounts. It is not a bad idea to write out a plan of action for social media accounts (keep active, close, etc.) Happy Travels! As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
July 16, 2021
Intellectual Property
It’s a New Game: Pennsylvania Statute Adopted on College Athlete Compensation for Name, Image and Likeness
On June 30, 2021, Governor Tom Wolf signed legislation to allow college athletes in Pennsylvania to earn compensation for the use of their name, image, and likeness ("NIL"). The new law, adopted as part of Senate Bill 381 ("SB 381"), was signed on the same day the NCAA approved a related policy reversing its long-held prohibition against such NIL activity. The new Pennsylvania statute, along with similar laws in other states and the NCAA policy reversal, follows years of mounting pressure from athletes. These reform initiatives reached a clear turning point with the unanimous antitrust decision by the U.S. Supreme Court in National Collegiate Athletic Association v. Alston on June 21, 2021, affirming an injunction against NCAA rules that had limited the education-related benefits schools may offer student-athletes. The NCAA's June 30 policy allows students who participate in intercollegiate athletics to engage in NIL activities consistent with the laws of the state in which their school is located. Those attending school in a state without NIL laws can still participate without violating the NCAA's NIL rules. Other non-NCAA athletic conferences may issue their own rules as well. However, Pennsylvania's new statute does not include those who take part in club or intramural sports or professional sports outside of intercollegiate athletics. SB 381 returns the individual Right of Publicity to college athletes, which was originally denied by prior NCAA regulations. With these regulations set aside, athletes can now take advantage of the same rights enjoyed by other public figures. SB 381 provides much-needed guidance in Pennsylvania for institutions of higher education and for athletes and their potential representatives in this brand-new and unprecedented era of student-athlete endorsements and compensation. Essential analysis and practical takeaways for athletes and schools are presented below. COLLEGIATE ATHLETES SB 381 states that "a college student-athlete may earn compensation for the use of the college student athlete's name, image or likeness." However, athletes should be cautious when pursuing opportunities, as there are specific rules and limitations under this new law. The statute includes detailed provisions about disclosure required by athletes before signing potential NIL deals; avoiding NIL compensation in exchange for participation or commitment to a school; avoiding product and service categories banned for use of NIL; avoiding conflicts with current school sponsorships; hiring professionals for assistance; and bringing a lawsuit if necessary. Under SB 381, athletes must disclose any potential NIL deals "at least seven days prior to execution of the contract to an official of the institution of higher education, who is designated by the institution of higher education." NIL compensation cannot be "provided in exchange ... for a current or prospective student-athlete to attend, participate or perform at a particular institution." This provision is intended to avoid transforming collegiate athletics into some form of a "pay-to-play" scheme. By way of restriction, the law provides that athletes "may not earn compensation . . . in connection with a person, company or organization" associated with these product and service categories: - Adult entertainment, - Alcohol, - Casinos and gambling, including sports betting, - Tobacco and electronic smoking products, - Prescription pharmaceuticals or - Controlled substances Furthermore, athletes may not engage in NIL activities and contracts that "conflict with existing institutional sponsorship arrangements at the time." For example, a school may be able to prohibit an athlete from engaging in an NIL agreement with one athletic shoe company when the school has a prior sponsorship arrangement with a different athletic shoe company. Schools may also prohibit a student's NIL activities based on other considerations, such as conflicts with "institutional values." In addition, schools "shall have policies that specify" the NIL activities in which athletes "may or may not engage." In addition to NIL compensation paid on a fixed-fee basis, athletes may also earn royalty payments. SB 381 requires a party that produces a college team jersey, video game or trading cards "for the purpose of making a profit" to make a royalty payment to each athlete whose NIL or "other individually identifiable feature" is used. It is important to note that payment for royalties or endorsements shall not affect the athlete's eligibility, scholarship, or grant-in-aid. College athletes can hire professional representation for their NIL dealings. These professionals can be: (1) An athlete agent meeting state registration requirements under 5 Pa.C.S. Ch. 33; (2) A financial advisor acting under Pennsylvania law; or (3) An attorney admitted to practice law by a court of record of the Commonwealth. However, "a person that represents an institution of higher education may not represent a college student-athlete in a business agreement." This language in the Commonwealth's new law needs clarification, but some may interpret this to mean that an individual representing the school in some capacity cannot also represent an athlete of that same university in their NIL dealings. These issues regarding potential conflicts for law firms in particular and whether such conflicts can be waived are yet to be determined. Athletes also maintain their right to pursue a private civil action for any violation of SB 381's NIL provisions, and they may receive costs and reasonable attorney fees, in addition to damages, if they prevail. COLLEGES AND UNIVERSITIES Pennsylvania colleges and universities ("institutions") and athletic associations and conferences, including the NCAA, are now prohibited from preventing an athlete from earning NIL compensation. An institution itself cannot be prevented by an association or conference from participating in intercollegiate athletics due to an athlete's NIL dealings. Institutions are not required "to identify, create, facilitate, negotiate or enable opportunities" on behalf of athletes to earn NIL compensation, but they can choose to do so. In addition, institutions are not required by SB 381 to allow athletes to use the school's "name, trademarks, service marks, logos, symbols or any other intellectual property," but again, they can choose to do so. This will open the door to opportunities for institutions to share in a revenue stream should they elect to license the use of their intellectual property as part of an athlete's endorsement campaign. Institutions may prohibit an athlete's involvement in NIL dealings that conflict with existing institutional sponsorship arrangements at the time of the athlete's disclosure. Similarly, institutions can prohibit NIL dealings that conflict with "institutional values." Institutions of higher education "shall have policies" that specify the NIL activities in which athletes "may or may not engage." As discussed above, prohibited NIL activities could include, at the very least, adult entertainment, alcohol, casinos and gambling (including sports betting), tobacco and electronic smoking products, prescription pharmaceuticals, or controlled substances. Schools also have the right to expand this list in accordance with their values and codes of conduct. In addition, schools maintain the right to establish and enforce academic standards and requirements, team rules of conduct or other rules of conduct, disciplinary rules applicable to all students, and policies regarding participation in intercollegiate athletics, such as NCAA rules. Schools must designate "an official of the institution of higher education" to receive notice from students disclosing a possible NIL contract. Also, "any person" who sells merchandise using an athlete's NIL must pay royalties to the athlete. This includes sales of jerseys, cards, or other merchandise that uses an athlete's name, image, or some other feature of identity. While the use of the term "any person" is slightly ambiguous, we believe that this is intended to include institutions of higher education. PRACTICAL TAKEAWAYS Athletes thinking about profiting from their NIL should consider contacting a licensed attorney and/or other professionals to assist them with the process. Endorsement agreements are often long, complicated documents that may contain language that works against the athlete's interests if not carefully reviewed. In addition, students will need assistance to ensure they are abiding by state law, school rules, and NCAA policies. Athletes may also benefit from professional representation if they want to negotiate for the right to use the logos and other intellectual property of their school or conference. Colleges and universities will need to closely address and monitor this issue. In considering opportunities for NIL compensation, an athlete who deems it to be cost-effective may further benefit from seeking federal trademark protection for his/her name, signature, nicknames, logos, and the like. Similarly, athletes should consider registering internet domain names based on such categories. Legal counsel well-versed in the costs and processes associated with intellectual property laws and practices can help to make these economic determinations and strategic filings. Institutions should consider drafting specific NIL rules, including those required by SB 381, and updating other relevant policies. Effective written policies will provide necessary guidance for athletes and protect the interests of the school. Ongoing training for staff and monitoring of NIL activities will also protect the school's interests in the event of a dispute. Policies should identify the official at the school who will be responsible for reviewing and approving contracts disclosed by athletes and address the circumstances under which contracts will not be approved. In order to protect its intellectual property, an institution should also consider expanding its portfolio of registered trademarks and logos to include protection for product categories that are likely to be the subjects of athlete NIL endorsements. Although institutions are not required to facilitate NIL opportunities for students, it will likely benefit the institution to find appropriate ways to assist athletes in such activities. Schools may want to consider relaying such opportunities to their athletes and suggest prospects for mutual participation in these deals. SB 381 constitutes a significant development for collegiate athletes in their longstanding efforts to protect and benefit from their Right of Publicity. However, there are some outstanding questions that remain, including: Will institutions be subject to the statutory provisions requiring royalty payments for the sale of merchandise using athletes' NIL? Can institutions charge athletes a royalty or a flat fee for the use of the institutions' trademark, logo, and other intellectual property in conjunction with the athletes' endorsement deals? What are the parameters of the conflicts provision stating, "a person that represents an institution of higher education may not represent a college student-athlete in a business agreement"? What effect will this have on lawyers and law firms, and can these conflicts be waived? Is there a transparency requirement for these NIL contracts, and must they be disclosed to the public? When a student discloses a potential NIL contract at least seven days prior to its execution, as required by SB 381, what will happen if the school fails to review the contract within this time? Athletes and institutions, as well as companies con-templating endorsement deals with students, should consider working with attorneys and other professionals who have broad experience with the various interrelated aspects of these issues, including the state and federal laws for higher education, intellectual property, sports law, and other relevant subjects. In short, the game has changed in a big way for both college athletes and their educational institutions. We are monitoring these emerging issues and will continue to report on material developments. As these matters evolve over time, individuals and organizations should consult with counsel. This summary of legal issues is published for informational purposes only. It does not dispense legal advice or create an attorney-client relationship with those who read it. Readers should obtain professional legal advice before taking any legal action.
July 15, 2021
Business
Employer Restraints on Employee Competition Under Attack
In many employment relationships, particularly those involving employees with management roles, customer contacts or specialized knowledge, employers have sought to restrain the employee from competing with the employer’s business after terminating employment. These so-called “Covenants Not to Compete” have always been subject to court-imposed restraints in order to be enforceable – the covenant may not last for an unreasonable length of time following termination of employment, and the geographic scope of the covenant must be reasonably related to the potential harm to the employer’s business. In recent years, however, an increasing number of states have enacted statutory limitations and, in some cases, bans on Covenants Not to Compete on employees. In 2019, Maryland enacted a law that prohibits the enforcement of Covenants Not to Compete against workers earning less than $15 per hour, or $31,200 annually. This year, Virginia enacted a similar ban on enforcement of such covenants for workers earning less than the average weekly wage of workers in Virginia, $1,204 per week, or $62,608 annually. Similar laws exist in other states, including Colorado, Idaho, Illinois, New Hampshire, Oregon, Rhode Island, and Washington. Significantly, in 2021, the District of Columbia enacted a very broad law that will take effect this fall that will render unenforceable Covenants Not to Compete in all employment agreements entered into by private employers operating in the District of Columbia (with limited exceptions for certain categories including religious or nonprofit organizations and casual babysitters). The law will, therefore, effectively ban employers from requiring employees to enter into agreements that “prohibit the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee's own business.” The effect of this law, therefore, is broader than that of the typical Covenant Not to Compete in that it also would render unenforceable so-called “anti-moonlighting” prohibitions that are often contained in employment agreements or employment handbooks. The law is prospective in effect, so existing Covenants Not to Compete are not impacted. Further, the law specifically carves out Covenants Not to Compete executed in the context of the sale of a business. The law also affirms that other restraints against employees from “disclosing the employer's confidential, proprietary, or sensitive information, client list, customer list, or a trade secret” are not included within the scope of the law. Employers should consult with legal counsel knowledgeable in the laws of the local jurisdiction where they operate before entering into employment agreements that contain Covenants Not to Compete in order to ensure that such agreements are enforceable.
July 14, 2021
Family Law
Why Would I Pay Alimony If My Soon To Be Ex-Spouse Has a Job?
Most people understand that when there is a divorce, one party sometimes has to pay alimony to support the other party. But the details of who pays alimony, and why, can be a bit fuzzy. I deal with divorce proceedings every day, and a common question I am asked is, “Why would I pay alimony if my soon to be ex-spouse has a job?” The short answer is: There is no formula for alimony in Maryland, so a party may have to pay alimony even if their spouse is working 40 hours a week. The long answer is that there are over 10 factors that the court has to consider when determining who pays alimony and how much. Things like the length of the marriage, each party’s income, the age of the parties, the physical and mental health of the parties, the living standards of the parties, and the cause of the breakup of the marriage are all taken into consideration—which means the court ultimately has great discretion in determining how much alimony is to be paid and for how long. Should the payee have a job, but not be able to meet their needs on that salary, the payor will likely be ordered to pay alimony to supplement those needs, or to pay alimony until he/she can become self-supporting—whether that be through additional education or more time in the work force. Of course, the payor will also need to be able to meet his/her own needs while supporting the ex-spouse. The court is not supposed to order the payor to pay more than he/she can afford, because the payor needs to be able to meet personal living expenses as well. To this point, I have experienced cases where a judge orders a payor to pay more than they can afford, which just leads to more legal fees in an appeal or motion to modify alimony. Even so, divorcing parties should be aware that the court will view alimony payments as more important than saving for retirement or going on vacation, and a judge will likely not order a payor to put away money for these types of expenses instead of financially supporting the payee. Navigating divorce and alimony payments can be a bit sticky; as always, it’s best to work with an experienced attorney to help you get the best outcome for your specific situation. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
July 13, 2021
Family Law
Should You Consider a Collaborative Divorce?
A collaborative divorce—or the legal process in which a couple enters a formal agreement to work together, out of court, to settle the terms of a divorce—can be an excellent choice for spouses who are on good enough terms with one another to be able to hash out a compromise. This process usually involves a combination of mediation and negotiation to reach an agreement. One must retain attorneys who are collaboratively trained. Courts in every state encourage couples to opt for collaborative divorce, or a similar process, whenever possible. Even when litigation is filed, most Courts require some type of mediation before a trial date can be set. If an agreement can be reached on some or all of the issues, the divorce process is generally less painful for everyone involved. In every collaborative divorce is a collaborative agreement; one of the fundamentals of this agreement is that, if the collaborative process is not successful and the parties elect to proceed with litigation, the parties are not able to continue on with the representation of their chosen collaborative counsel. This requirement is an incentive for the parties to work harder during the collaborative process, as starting over with new counsel can be both expensive and emotionally taxing. As a result, some are willing to proceed with a similar process, called an informal settlement. The informal settlement does not require a change of counsel if the collaborative process is not productive. While this is not a true collaborative process, it can proceed in a similar manner. In either event, experienced collaborative attorneys have the skills to assist the parties in creating a “win-win” situation that may allow areas of agreement that are not available in the litigation process. Generally, in a collaborative divorce, a financial neutral is incorporated into the team from the start. This mechanism provides both parties with knowledge that an independent expert is gathering the data, reviewing it and preparing it in a way that will be easily understood by all parties. The basis for trust is significantly increased when a financial neutral is involved, and that factor alone significantly impacts the probability of successful resolution. Often a coach is also a part of the team, as emotions can run high, and having someone involved who has the skills to help de-escalate the situation and assist the parties in articulating their goals and concerns in a non-threatening way can be invaluable. A collaborative divorce is just one of many options for a process that may lead to a resolution without the necessity of litigation. In almost every case, there is mediation, negotiation, and, in recent years, arbitration, which will assist those going through the divorce process in arriving at a resolution without the financial and emotional expense of a trial.
July 12, 2021
The Weekly Scenario
The Weekly Scenario: Setting Up Special Needs Trusts
Planning for beneficiaries with special needs can be a challenge. While navigating the requirements for both IRA beneficiaries and trusts has never been without pitfalls, the more recent requirements of the SECURE Act have added even more wrinkles. The goal of the Special Needs Trust is to protect the funds for a person with special needs while not jeopardizing any government benefits to which the individual may be entitled. The trustee can make distributions to the beneficiary with special needs for vacations, food, housing and other personal items to improve and enhance their lives. The goal is not to jeopardize the current and future potential benefits. Under the SECURE Act, beneficiaries with special needs who qualify as disabled or chronically ill are eligible designated beneficiaries (often referred to as “EDBs”) and can still take advantage of the stretch IRA. Under the SECURE Act, there are certain rules that specifically preserve the lifetime stretch for beneficiaries who are chronically ill or have a disability through a trust called a Multi-Beneficiary Trust (MBT). As the name implies, the MBT may have multiple beneficiaries of the trust, in addition to the person with a disability. These other beneficiaries must be designated beneficiaries but do not have to be an eligible designated beneficiary. Examples of designated beneficiaries include other children or siblings (but not a charity or an estate). For example, if Mark creates a special needs trust for the benefit of his daughter with a disability and names the trust as beneficiary of his IRA, and the trust provides that any remaining funds from the IRA be paid to a charity, the trust would not qualify as a multi-beneficiary trust. As such, the minimum required distributions will not be permitted to be stretched over the child’s life expectancy (instead, the 10-year rule would be applicable). However, while these multi-beneficiary trusts are beneficial from a stretch point of view, special needs trusts can be problematic from an income tax standpoint. Because trust tax brackets are highly compressed (reaching the highest income tax rate at fairly low levels), funds retained in the trust will be subject to high trust tax rates. It is for this reason that it is beneficial to explore exchanging assets like traditional IRAs for more tax-efficient assets like Roth IRAs and life insurance. Employing alternative strategies can mitigate the tax bite while providing a source of funding for special needs trusts. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
July 9, 2021
Intellectual Property
Summer School for Intellectual Property
Universities Must Prepare Student-Athlete Endorsement Policies in Response to New NCAA Rules On June 30, 2021, the National Collegiate Athletic Association (“NCAA”) officially adopted a uniform interim policy suspending previous NCAA name, image and likeness (“NIL”) rules for all incoming and current student-athletes in all sports. The move would allow athletes in all NCAA divisions to profit from endorsements, their signatures, public appearances, and other business ventures for the first time in over a century. Background College student-athlete’s ability to receive full compensation has been at the forefront of statutory, litigation and political initiatives for the last several years. In addition to the class action antitrust lawsuit that culminated in the U.S. Supreme Court’s recent ruling in NCAA v. Alston, several states have taken legislative action to address student-athlete endorsements. California’s Fair Pay to Play Act passed in 2019 and is set to become effective on January 1, 2023. New Jersey’s NIL law will become effective in 2025, but efforts are underway to move up that date. Indeed, several other states have also taken up the baton with more immediate effect: similar endorsement laws in Alabama, Florida, Georgia, Mississippi, and New Mexico already went into effect on July 1, 2021. The NCAA’s Board of Governors had previously proposed expanding its NIL rules in April 2020, but the Divisions failed to take action. Apparently, the abrupt implementation on June 30, 2021, of the new interim policy was likely prompted by the recent outcome in Alston, along with concerns that the state-by-state approach could give rise to further litigation and complications for recruitment and compliance. The NCAA has signaled that this expansive new policy is only temporary and that it intends to pursue a federal solution with Congress that would provide clarity on a national level. The New Rules The new NCAA policy provides the following guidance to college athletes, recruits, and member schools: Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for student-athletes regarding state law questions. College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness. Individuals can use a professional services provider for NIL activities. Student-athletes should report NIL activities, consistent with state law or school and conference requirements, to their university. Additionally, students are allowed to sign with agents or other professional representatives to help them acquire endorsement deals with the following caveat – students cannot stipulate that the agents would represent them in future negotiations outside of the NCAA. Some restrictions still remain in effect. NIL compensation cannot be contingent upon enrollment at a particular school, nor can the school compensate an athlete in exchange for the use of the student’s NIL. Compensation for athletic participation or achievement, or pay-for-play, remains prohibited, as affirmed by the U.S. Supreme Court in NCAA v. Alston. Next Steps for Colleges and Universities The change in NCAA policy means that higher education institutions nationwide will have to accelerate their response over this summer in time for the fall athletic season. Such preparation may be especially important, as the NCAA policy encourages student-athletes to turn to their schools for information about their state’s NIL law. Schools in states that have adopted NIL laws may have the benefit of such state rules as a guideline, but all schools will have to confront some common issues: Whether to permit the student-athlete to use the school’s trademarks in endorsements and, if so, what kind of reasonable restrictions should be put in place? Would the school require an approval process for the endorsements? How do the NIL rules affect the school’s other policies (for example, its social media use policy) or the school’s existing relationships with sports retailers? What new resources should be made available to help the school and the students navigate the legal and compliance issues related to student endorsements? While some schools, such as Louisiana State University, will allow students to use its official logos and facilities in endorsements so long as the athletes ask for written permission, not all schools will adopt such a broad policy. Schools may want their policies, training, and related communications on this issue to reflect possible complications and disputes. For example, how will the school approach a situation where a student enters into an endorsement agreement for products or approach that could give rise to further litigation and complications for recruitment and compliance? The NCAA has signaled that this expansive new policy is only temporary and that it intends to pursue a federal solution with Congress that would provide clarity on a national level. For this summer, at least, schools have their hands full with a significant intellectual property homework assignment. This summary of legal issues is published for informational purposes only. It does not dispense legal advice or create an attorney-client relationship with those who read it. Readers should obtain professional legal advice before taking any legal action.
July 6, 2021
Labor and Employment
Separate Pay for Restaurant “Side Work?” Maybe.
Anyone who has ever worked in the restaurant industry is familiar with the term "side work." For most servers, side work, typically consisting of folding napkins, setting tables, restocking, and other maintenance tasks, often make up a significant portion of their work hours. This is especially true when the restaurant is slow and there isn't much for servers to do. Side work, which is untipped work, is typically regarded as undesirable grunt work that is a necessary evil of waiting tables. Often, since restaurant owners can reduce servers' hourly rates well below the minimum wage to account for tips, employees are making as little as $2.13 per hour. However, a rule proposed by the DOL is seeking to change the way employees are paid for their side work, creating a dual approach where employees are paid at one rate when completing tip-producing duties and another when completing other tasks. Under the proposed rule, individuals who spend a "substantial amount of time" on untipped side work would be entitled to the full minimum wage for certain hours worked. The DOL defines a "substantial amount of time" as (a) spending more than 20% of their hours worked in a workweek on side work (otherwise known as the 80/20 rule), or (b) spending more than 30 minutes of uninterrupted time on side work must be paid standard minimum wage. Thus, per the proposed rule, if an employee spends a substantial amount of time on untipped work, the employer will not take a tip credit and lower the employee's minimum wage for the time the employee spends on untipped work. The comment period for the DOL's proposed tipped rule closes on August 23, 2021. If it is adapted, restaurants will need to shift from simply tracking the hours employees work to documenting what employees are doing during those hours.
July 2, 2021
The Weekly Scenario
The Weekly Scenario: Health Care Directives
A common mistake is to assume that estate planning is solely about ‘death’ planning and writing wills (and trusts) to make sure that your property is distributed according to your wishes after your death. Planning for incapacity or disability planning is often overlooked, but it can be essential because it addresses what happens if you are unable to make medical decisions or handle your financial affairs because of an injury or medical condition. In most states, your wishes regarding your medical treatment may be made known by executing an advance directive to express your healthcare wishes. A healthcare directive often contains both healthcare Power of Attorney provisions in addition to a “Living” Will. Healthcare directives will allow you to express which kinds of medical treatments should be withheld. For example, you may specify that you would not want surgery, respirators, or other life-prolonging procedures to be used if there is no reasonable expectation of your recovery. Once you have executed a healthcare directive, you have the option to change it or revoke it at any time. Living wills take effect when your death can no longer be significantly delayed by treatment. Healthcare directives, in contrast, will generally become effective as soon as you are unable to speak for yourself due to a terminal or end-stage medical condition or coma. The healthcare Power of Attorney allows you to appoint an agent to make healthcare decisions on your behalf should you become unable to communicate your healthcare wishes yourself. You can specify that your agent must make healthcare wishes according to what is stated in your healthcare directive. If your healthcare directive does not address a particular situation, or your desire is to give your agent authority to make all medical decisions for you, you can direct your agent to decide based on the preferences you have expressed to that person (within or outside the document). In addition to making healthcare decisions on your behalf, your agent can be empowered to: Check you in and out of hospitals and medical facilities Hire and fire medical staff responsible for your care Receive information concerning your care Review your medical records Speak to insurance providers It is essential to have a medical directive as part of any estate plan. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
July 2, 2021
Intellectual Property
What Does the Future Hold for College Athletics after the Supreme Court Decision in NCAA v. Alston?
On June 21, 2021, the United States Supreme Court issued a unanimous decision in National Collegiate Athletic Association v. Alston. The long-anticipated decision affirmed the injunction against NCAA rules that limited the education-related benefits schools may offer student-athletes. But perhaps equally as important as the majority decision is the concurring opinion by Justice Kavanaugh. BACKGROUND Current and former student-athletes in men’s Division I FBS2 football, and men’s and women’s Division I basketball brought a class-action claim against the NCAA and eleven Division I conferences, alleging that their agreement to restrict the compensation colleges and universities may offer the student-athletes who play for their teams violated the Sherman Anti-trust Act. The District Court’s March 2019 ruling enjoined the NCAA from enforcing “rules limiting the education-related benefits schools may offer student-athletes—such as rules that prohibit schools from offering graduate and vocational scholarships.” However, the District Court decision also allowed the NCAA to maintain its rules limiting athletic scholarships to the full cost of attendance and restricting compensation and benefits unrelated to education. The Ninth Circuit affirmed, and the injunction took effect in August 2020. SUPREME COURT DECISION On appeal, the Supreme Court only considered the injunction’s legality. The Court unanimously held that “[t]he district court’s injunction is consistent with established anti-trust principles” and that the NCAA’s compensation restrictions were “properly subjected to antitrust scrutiny under a ‘rule of reason’ analysis.” The Court determined that: First, “the NCAA enjoys ‘near complete dominance of, and exercise[s] [monopoly] power in, the relevant market’” of “athletic services in men’s and women’s Division I basketball and FBS football.” As a result, the NCAA and its member schools are able to “restrain student-athlete compensation in any way and at any time they wish, without any meaningful risk of diminishing their market dominance.” Second, while the NCAA was concerned that the injunction would result in “micromanagement” of its business, the Court noted that the injunction applies only to the NCAA’s rules “limiting the education-related benefits” that conferences or schools may offer student-athletes. Relaxing these restrictions will not “blur the distinction between college and professional sports,” and the NCAA can achieve the “same procompetitive benefits” by significantly less restrictive means than its current rules provide. Finally, because the injunction applies only to the NCAA and multi-conference agreements, the Court reasoned that the injunction both leaves the NCAA with “considerable leeway” and leaves the individual conferences and their member schools “free to impose whatever rules they choose.” With this in mind, the Court upheld the injunction prohibiting the NCAA from enforcing its rules limiting education-related benefits that conferences and schools may provide to student-athletes, including those rules limiting scholarships for graduate or vocational school, payments for academic tutoring, and paid post-eligibility internships. These education-related benefits could not “be confused with a professional athlete’s salary.” The Court also held that the NCAA may continue to limit cash awards for academic achievement, but only if those limits are no lower than the cash awards currently allowed for athletic achievement (currently a maximum of $5,980 per year, but the NCAA is free to reduce the amount). To the extent the NCAA is concerned that schools might exploit the injunction to give student-athletes “unnecessary or inordinately valuable items” that are only nominally related to education, the Court held that the NCAA can specify and enforce “rules delineating which benefits it considers legitimately related to education” and forbid questionable benefits. Finally, the NCAA and its member schools can propose a definition of “compensation or benefits related to education,” and the NCAA is free to regulate how conferences and schools provide them. TAKEAWAYS Alston may bring student-athletes one step closer to receiving full benefits for their services. Looking forward, Justice Kavanaugh’s concurring opinion may give hope to student-athletes that further ground can be gained on this issue. Justice Kavanaugh directed his attention to the NCAA’s remaining compensation rules and suggested that they also “raise serious questions under the antitrust laws.” He found that these rules should also be scrutinized under “rule of reason” analysis, “absent legislation or a negotiated agreement between the NCAA and the student-athletes.” In such a case, Justice Kavanaugh leaves little doubt about how he would rule: The NCAA’s business model would be flatly illegal in almost any other industry in America . . . Price-fixing labor is price-fixing labor . . . No-where else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate. And under ordinary principles of anti-trust law, it is not evident why college sports should be any different. The NCAA is not above the law. Alston and the threat of potential future litigation may spur the NCAA to negotiate an agreement with conferences and schools, or even with student-athletes if they become unionized, out of concern that another court will use “rule of reason” analysis to dismantle its remaining compensation rules or otherwise “micromanage” its business. A negotiated agreement would at least allow the NCAA to maintain some control over whether any of its remaining compensation rules remain intact. The NCAA may also explore other options to achieve more robust compensation for student-athletes, including further expansion of the rules on how student-athletes may use their name, image and likeness beyond the NCAA Board of Governors’ proposed rules from April 2020. Read the Court’s ruling in Alston here: https://www.supremecourt.gov/opinions/20pdf/20-512_gfbh.pdf. This summary of legal issues is published for informational purposes only. It does not dispense legal advice or create an attorney-client relationship with those who read it. Readers should obtain professional legal advice before taking any legal action.
June 28, 2021
The Weekly Scenario
The Weekly Scenario: Retirement Funds from Previous Employers – Weighing the Options
The year 2020, and so far 2021, has been a reset of sorts. The ever-changing landscape has resulted in people deciding to retire, move or literally reset their careers. For most people, their retirement accounts represent a significant amount of wealth for them. What to do with retirement funds from a previous employer is an important decision. This discussion should be had with an advisor before jumping in. I will discuss 3 of the primary options for most people. Option #1 is to keep the funds in a company plan. A great reason to do so is that these plan assets receive federal creditor protection under ERISA. ERISA protection is a very high bar in bankruptcy, lawsuits and other judgments against the plan participant. Creditor protection should be considered before rolling these funds out of a company protected plan. Another reason to stay in the company plan has to do with the age 55 plan exception. If a participant is age 55 or older in the year he separates from service, keeping the 401(k) money in the plan means there will be no 10% early withdrawal penalty. If a rollover to an IRA is done, the age 55-exception on this money is lost. IRA withdrawals prior to age 59 ½ will generally be subject to the 10% early withdrawal penalty. Option #2 is to roll over the plan to a traditional IRA. IRAs have a number of benefits. Typically, IRA rollovers permit flexibility in making changes more quickly without the administrative hurdles that other plans can impose. Many employer-based plans can be more restrictive for example in terms of permitting trusts to be beneficiaries or will need spousal consents. IRAs do not have such requirements so for the most flexible and favorable post death payout, the better choice is almost always rolling the company plan into an IRA. Plan participants that take distributions from employer plans thinking there will be no 10% penalty if the funds are used for higher education expenses or (first time) home purchases are mistaken. The exceptions to the penalty only apply to withdrawals from an IRA. IRA plans can also generally offer more diverse and wide-ranging investment options. Option #3 is to convert to a Roth IRA. A conversion can be done within the plan if the plan permits this. If there is no Roth component to the employer plan, rolling plan money to a Roth IRA is the only way to get into a Roth. It is permissible to roll over part of the plan to a traditional IRA and part to a Roth IRA. This type of rollover to a Roth IRA would qualify as a valid conversion. However, it is not necessary to move the entire plan to a traditional IRA and then convert. For most people, it is recommended to roll after tax dollar plans (if applicable) into a Roth IRA (this would qualify as a tax-free conversion). After tax money rolled into a traditional IRA will create cost basis in the IRA and will need to be accounted for going forward.
June 25, 2021
Family Law
Courts Treat Pets as Personal Property in Divorces, and that is Unlikely to Change Anytime Soon in Maryland
In divorces in Maryland, pets are treated as mere personal property. In other words, the Court is not going to put a visitation schedule in place for a pet if the parties are unable to agree on who gets the pet. At most, the Court will determine the value of the pet and perhaps award a certain sum to the party who is not keeping the pet. I have thankfully never had to have a Court determine ownership or the value of a pet for a client, as my clients are generally able to reach an agreement on the issue. As the owner of an eleven-year-old rescue dog named Bernice, who cannot manage to get out of the veterinarian’s office for less than $300 a visit, I generally tell clients that the value of a pet is not worth the attorney’s fees of fighting over the pet, if the parties are unable to reach an agreement. While I love Bernice, she is more of a liability than an asset. I also know firsthand the emotional connection that you can have with a pet. In the recent case of Anne Arundel County v. Reeves, 2021 Md. Lexis 259 (Md. Ct. of Appeals June 7, 2021), however, the Court declined a suggestion that the Court re-examine the classification of pets as personal property and treat a pet as something worthy of emotional damages in the case of injury or death. I first became aware that Maryland has a statute capping damages for the injury or death of a pet as a first-year associate, when the managing partner of my former firm asked me to handle a trial involving a claim of damages to a very old, pure-bred dog. It was the type of case that older attorneys love to give to first-year associates. The client was devastated, but the statute capped damages, and the defendant disputed liability. Half-way through a full-blown trial, my client testified so well regarding her upset that the defendant offered a settlement, which my client accepted. While the emotional significance of pets has become even more accepted in the twenty years since that shining moment in my legal career, the Reeves case makes clear that Maryland is no closer to changing the legal significance of pets. In Reeves, the Court held that damages for the shooting death of a pet by a police officer were limited by statute to $7,500 and were limited to compensating for the fair market value of the pet, in the case of the pet’s death, and veterinary bills to care for an injured pet or care of a pet prior to death. The Court ruled that the statute did not allow for noneconomic damages for the death or injury of a pet, such as pain and suffering. The Reeves case and the decision not to change the legal standing of pets avoids numerous complications that would arise if the Court had decided otherwise. An obvious negative consequence that the outcome avoids is increased liability for veterinarians and kennels. A not so obvious potentially negative outcome would have been the increased complications in divorce cases if a pet is considered something more significant than personal property. Thankfully at least for family lawyers, if not pet owners, the custody of pets will not be an issue that can be disputed in Maryland divorces. If you have questions about this or any other Family Law issue please contact Catherine H. “Kate” McQueen at (240) 507-1718 or kmcqueen@offitkurman.com.
June 24, 2021
Family Law
Recent Case Makes Clear that Guardians in Maryland Cannot Change Beneficiary of Life Insurance Policy of Ward Without Prior Court Order
There is a saying that is common among guardianship attorneys, namely: “When in doubt, let the Court sort it out.” In other words, if the guardianship statutes or rules do not specifically allow you to do something, get a court order blessing your action in advance. The recent case of United Bank v. Buckingham, 472 Md. 407, 247A.3d 336 (Md. 2021) reinforces that saying, as the Maryland Court of Appeals found that the guardian could not change the beneficiary of the ward’s life insurance policy without prior court approval. The Court noted that a section of the guardianship estate addressing a guardian’s authority as to life insurance policies, namely Maryland Ann. Code, Estates and Trusts § 15-102(t), did not specifically give the guardian the authority to change the beneficiary, although the statute gave the guardian authority to conduct several other life insurance transactions. The Court rejected the reliance upon 13-203(c)(1) of the Estates and Trusts Article for authority. Section 13-203(c)(1) gives a guardian, except with specific limitations, “all the powers over the property of the minor or disabled person that the person could exercise if not disabled or a minor.” The Court found that this general language was insufficient to authorize a guardian to change a beneficiary of a life insurance policy. In the Buckingham case, one could argue that the outcome could have been due, in part, to the bad facts of the case, as it was alleged that the beneficiary designation was changed in an effort to avoid a creditor of the ward from collecting the funds after the ward’s death. The court found that the change was contrary to the guardian’s duty to preserve a ward’s estate of the ward’s heirs. Most cases I have been involved in, however, whether I have represented clients seeking guardianship, or I have been appointed guardian for someone, have starkly different facts. In many of these cases, a ward has been financially exploited by a family member, friend, or caregiver. In those cases, it is quite common for the exploiter to not only try to steal the ward’s money while the ward is living, but also to try to manipulate the ward’s estate planning framework, including beneficiary designations, asset titling, and the ward’s will, to inherit from the ward when the ward dies. I already counsel clients to seek court approval, prior to attempting to change any type of beneficiary change or other term of an estate planning framework. The Buckingham case makes clear that the Court also believes that guardians should abide by the “when in doubt” rule. If an action is not expressly authorized by the guardianship statute, a guardian is better off seeking court approval in advance, especially where there is likely to be a dispute over an asset or estate. If you have questions about this or any other Family Law issue please contact Catherine H. “Kate” McQueen at (240) 507-1718 or kmcqueen@offitkurman.com.
June 22, 2021
Real Estate
Distressed Real Estate and COVID-19 - The Future is Here, Act Now
While COVID-19 restrictions and moratoriums may be coming to an end, COVID-19’s impact on real estate will continue to unfold. Landlords and tenants must still follow best practices: in short, know your contract, know your rights and remedies, and analyze the effect and cost of exercising those rights and remedies on your business and relationships. As retailers had to convert or expand online, curbside, and delivery services, real estate owners will need to reimage their space and the future demands and uses for their space. Short and long-term solutions will require creative and forward-thinking. Real estate has been down, but with a lot of capital still to be deployed across sectors, it is not out. Whether you view COVID-19 as an apocalypse or an accelerator of change already on the horizon, there is no better time than now to reimagine the future and consult your advisors to better understand the promises and pitfalls of the emerging real estate landscape.
June 21, 2021
The Weekly Scenario
The Weekly Scenario: The Importance of Digital Assets in an Estate Plan
When creating an estate plan, it is important to consider how to deal with your digital assets. Technology is constantly evolving, and so what constitutes a digital asset now may evolve into something completely different in a few years. What are some common examples of digital assets? Social media accounts Digital copyrights or trademarks Online bank accounts or investment accounts Digital photos, videos, or written works that produce income Email accounts Online photos Virtual currencies Credit card rewards Information or documents stored in the cloud Because digital assets usually do not have a tangible financial value, people often ask why you need to account for digital assets when planning your estate. The answer to this question is that creating a plan for digital accounts, whether they are financially ‘valuable’ in their nature, will make it easier for your family to retrieve these assets after you pass away. Estate planning for your digital assets eliminates the need for your loved ones to track down passwords and gives the beneficiaries of your estate the legal right to your passwords. Additionally, specifically for online financial accounts, estate planning for digital assets protects income that your digital assets can generate, such as royalty income or online records from a business. From a legal perspective, digital property is similar to other kinds of property. However, as digital property laws are still evolving, gaining access to digital assets or digitally encoded financial information can present challenges to those other than the original owner. For example, take passwords. If a family member does not know a password, he or she may not be able to access phone or computer and the digital assets on these devices. Aside from the password, data encryption is a complicating factor. Encryption can destroy data in a single file, device, or in the cloud, making it impossible for anyone without the proper passcode to unscramble it. Most digital assets exist on new technology, such as smartphones, that have advanced encryption. Thus, it is vital that you leave passwords behind or risk your family losing all of your information. All this has to be navigated around data privacy laws, which make it so online account service providers are unable to give the contents of electronic communications to anyone without the lawful consent of the data’s owner. The upshot is that this could leave your heirs unable to access photos, messages, online accounts, and other data. In order to address these difficult problems, the first step in the planning process is to inventory your digital assets (e.g., keep track of your online accounts and passwords). Next, you should determine how you want to manage your assets. You must decide what you want your estate or family to do with each of your digital assets when you pass away. You will also want to choose who you want to manage your assets –the executor of your estate, a family member, or perhaps a professional advisor. Finally, it is advisable to put any digital asset plan in writing. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
June 18, 2021
Family Law
Who Gets the Dog?
“But who gets the dog?” This is a question I get often. In a situation like divorce, deciding where the dog will go can be tricky, as animals often feel like part of the family. And while just a few states (Alaska, Illinois, and California) have treated dog ownership disputes like custody cases, in most states, animals are considered a type of “chattel,” or personal property—just like jewelry, clothes, and artwork. Of course, in an ideal world, the parties are able to work out an agreement in regard to their animals, but if there is no written agreement as to who gets the dog and when the dog is likely to stay with the spouse who has possession. That is, if partner X moves out of the house, partner Y, who is still living in the house with the dog, will most likely get the dog. Most people are not aware of this, but it’s something both parties should keep in mind when considering moving out. Now, if there are minor children involved, that is a different story. I am seeing a trend in case law wherein the dog is ordered to follow the children. This makes sense, as children are often bonded to their pets and the judge will not want to separate the children and the dog; in other words, the children’s happiness takes precedence over parental preferences. Even when the decision is clear, such as when children are involved, logistics can still be a little sticky. For example, in a case of split custody in which the children travel back and forth between parents, arrangements must be made for the dog while the children are staying with the other parent. In some cases, the dog will travel to and from the parents’ houses with the children, but if the children attend school or daycare, the parents will have to separately agree to transition the dog from one house to the other. There are also situations in which, children or no children, the parties agree that if the party in possession of the dog must travel, they will give the other party the right of first refusal before seeking third-party care (such as a kennel). Each situation is different and will require legal expertise to get the right agreement in place. When considering who will “get” the dog, it’s important for parties to have an experienced attorney draft language to include who will have the dog, how the dog will be transferred between the parties, and how the dog’s expenses will be paid—this will help move things along more quickly and give the party in question a higher chance of a favorable outcome.
June 17, 2021
Business
The Fab Five’s $2 Billion Crypto-Fraud Flop
On May 28, 2021, the U.S. Securities and Exchange Commission (“SEC”) commenced an enforcement action against five U.S. individuals who, between January 2017 and January 2018 participated in BitConnect’s fraudulent scheme, which collectively raised an eye-popping $2 billion from investors throughout the world. The complaint alleges that: (i) the Fab Five promoted investments into a “lending program” to U.S. retail investors, promising significant return on investment; (ii) the sale of these investments into BitConnect’s lending program was an illegal, unregistered securities offering, sold without a valid exemption from the SEC’s securities registration requirement; and (iii) that the crew were part of a network of promoters selling these investments. BitConnect represented to its investors that the company could “deploy investor funds to trade in and profit from the volatility of Bitcoin,” promising monthly returns of up to 40%, or over 566% a year. In return for his promotion efforts, each defendant received compensation based on a percentage of investor funds received by BitConnect. The BitConnect complaint is one of a long list of SEC enforcement actions asserting that the sale of products promising returns, whether from trading in cash or cryptocurrency, are sales of securities. Others include Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust and In the Matter of Erik T. Voorhees. It is also a reminder that promoters cannot profit from the sale of securities—even unregistered securities—without being a registered broker-dealer, or affiliating with a licensed broker. Indeed, the complaint explains that receipt of transaction-based compensation, which often occurs “in the form of a percentage of the funds raised for investments,” is an important hallmark of a broker-dealer. (In a somewhat analogous anti-touting law, the SEC has obtained cease and desist orders against celebrities such as Floyd Mayweather, Jr., DJ Khaled and Steven Seagal for promoting securities sold via initial coin offerings or ICOs without publicly disclosing the compensation paid for these promotions.) The global reach of the BitConnect fraud also highlights how the SEC often cooperates with its overseas companion-agencies. Indeed the press release made specific mention of the assistance it received from the Cayman Islands Monetary Authority, the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, the Ontario Securities Commission, the Romanian Financial Supervisory Authority, and the Thailand Securities and Exchange Commission. Ultimately, the BitConnect enforcement action serves as a reminder that the SEC is actively investigating the offer and sale of digital asset securities and fraudulent conduct surrounding these assets, even offerings as far back as the 2017 ICO Boom. Click here to learn more about the FinTech team at Offit Kurman.
June 16, 2021
Business
Five Phases of a Deal from a Sell-Side Perspective: Letter of Intent
Congratulations, you’ve received a letter of intent (LOI) to sell your business. What is your next step? Do you sign it because the valuation seems fair and the letter states the terms are not binding? Or do you ask your advisors, especially your legal counsel, to fully review? If you picked option two, you are a very smart seller. The letter of intent is frequently the “highwater mark” for seller deal terms. If the seller does not negotiate material commercial points and legal points, the ability to do so later in the transaction becomes compromised. Yes, the LOI is typically non-binding on the parties. However, it is an expression of goodwill and credibility. As the transaction process gets deeper, it is hard to negotiate material changes to the terms unless the seller is committed to walking away. If closing (and money) is within reach, many sellers will roll over on key items due to deal fatigue, lack of understanding, or buyer pressure. For a seller, leverage is paramount to negotiate the best transaction terms possible. The seller has the most leverage at the LOI stage. In addition, it is always better for a seller to know that a deal will fail on day 1 than day 45 when much time, energy and costs have been incurred. Make certain to have your attorney review all letters of intent before signature! Anatomy of the Deal 5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement Pre- Transaction Planning Phase Rule: Find and eliminate skeletons; create multiple options Phase I: Letter of Intent Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark Phase II: Due Diligence Phase Rule: Disclosure is your friend Phase III: Contracts Phase Rule: Confirm Business terms and Phase IV: Closing Phase Rule: Time is your enemy Phase V: Post Closing Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions Post-Transaction Planning Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business Sell Side M&A: Three Rules of Thumb for the Transaction Rule #1: You haven’t sold your business until you’ve sold your business Rule #2: Get your money upfront (as soon and as much as possible) Rule #3: Reduce and eliminate your trailing liabilities
June 16, 2021
Real Estate
This Week in Real Estate: Commercial Leases — Net Leases
This Week in Real Estate continues its current series on Leases. This week, we’ll remain focused on commercial leasing and discuss the different types of net commercial leases. The net lease is a highly adjustable commercial real estate lease. The base rent for a net lease is fixed (typically with an escalation which is set at the outset of the lease), but is lower than a gross lease. The tenant also pays fixed operating expenses such as property taxes, insurance, and common area maintenance (CAM) items. There are four types of net leases: Single Net Lease: In a single net lease, tenants pay a set rent and a piece of the property tax (which would be negotiated with the landlord). The landlord then pays building expenses, while the tenant pays utilities and other services directly. Double Net Lease: A double net lease is similar to the single net lease, except the tenant also pays a piece of the property insurance along with the property tax. The landlord is responsible for maintenance of the common area, but the tenant is still responsible for his or her own utilities and garbage services. Triple Net Lease: For the triple net lease, also know as “net net net leases” or “NNN Leases”, the tenant pays the base rent and in addition three primary operating expense categories, hence the “NNN” definition. These categories include (1) CAM (Common Area Maintenance charge), to cover the landlord’s property management, waste, water, landscaping and general maintenance, (2) property taxes, and (3) building insurance. In addition to the base rent and NNN charges, the tenant also pays their own utility charges for the subject premises, contracted directly with the service provider. Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate, or pro-rata share. Triple net leases are generally the most landlord-friendly commercial lease type, and tenants should always scrutinize NNN charges and negotiate limits on the amounts they can be increased annually. NNN charges can also fluctuate monthly as operating expenses increase or decrease, making it harder for a business to forecast and budget their occupancy costs. Absolute Triple Net Lease: This is the triple net lease on steroids. The tenant takes on all costs enabling them to have sole responsibility of the building. The benefit to the tenant in this lease is that the tenant can virtually own a building without buying it. The benefit to the landlord is she collects rent, but has little to no responsibility to maintain the property. Next week’s edition of This Week in Real Estate will discuss the base year and percentage leases.
June 14, 2021
The Weekly Scenario
The Weekly Scenario: Witnesses and Wills
Some clients ask why all the formalities when we execute estate planning documents such as a Will. When a client comes in to sign a Will, we always assist the client with witnesses and a notary. In many states, a Will is not valid if not witnessed by at least two individuals. A DC case from the D.C. Probate Division illustrates this point. The probate court allowed the probate of a Will that had been signed without any witnesses. D.C. law requires two witnesses to sign a Will in order to be legally valid. In this case, the court admitted certifications from people who had personal knowledge of the circumstances surrounding the execution of the Will. When the case went to the Court of Appeals, the Court held that there is no getting around the requirement to have two witnesses for the Will to be valid. The distinction is that the court said the law could allow a Will to be admitted to probate even if the two witnesses could not be reached at the time the Will was probated. Nevertheless, it was not a substitute for having actual witnesses.
June 11, 2021
Labor and Employment
Are you National Labor Relations Act (NLRA) compliant?
In 1935, Congress enacted the National Labor Relations Act (NLRA) intending to protect workers from harmful labor practices and encourage collective bargaining. Out of the NLRA came the National Labor Relations Board (NLRB), an independent federal agency created to enforce the NLRA. While the NLRA granted employees the right to form or join a union and engage in activities aimed at improving working conditions, many employers are unaware of the impact of the NLRA beyond its unionization rights. The NLRA applies to all private workplaces (unionized and non-unionized) in the United States, and all businesses must ensure that their policies and practices do not violate the NLRA's protected activity provisions. Under the NLRA, employees have the right to act with co-workers to address work-related issues. These rights materialize in many ways that go above and beyond employees circulating a petition or joining together to protest working conditions. Concerted protected activities include employees talking openly about pay and benefits, talking to the media about working conditions in the workplace, and refusing to work in unsafe conditions. It is also important to note that it does not take several employees engaging in the activity for it to be a "concerted protected activity." Individual employees may be engaging in protected activity if they are acting on the authority of other employees, bringing group complaints to the employer's attention, trying to induce group action, or seeking to prepare for group action. Ultimately, employers should not prohibit employees from talking about their pay and benefits and must be mindful of their confidentiality, workplace conduct, conflict of interest, and solicitation policies and whether they are NLRA compliant. Overly restrictive policies, while appearing reasonable on their face, may run afoul of the NLRA. For example, while an employer may prohibit an employee from posting something maliciously false or disparaging on social media, broad policy language prohibiting employees from posting anything negative or unsavory about an employer is likely unlawful.
June 10, 2021
Real Estate
Setting A Price For A Minority Ownership Interest
This Week in Real Estate continues its current series on Leases. This week, we’ll remain focused on commercial leasing and discuss the different types of net commercial leases. The net lease is a highly adjustable commercial real estate lease. The base rent for a net lease is fixed (typically with an escalation, which is set at the outset of the lease) but is lower than a gross lease. The tenant also pays fixed operating expenses such as property taxes, insurance, and common area maintenance (CAM) items. There are four types of net leases: Single Net Lease: In a single net lease, tenants pay a set rent and a piece of the property tax (which would be negotiated with the landlord). The landlord then pays building expenses, while the tenant pays utilities and other services directly. Double Net Lease: A double net lease is similar to the single net lease, except the tenant also pays a piece of the property insurance along with the property tax. The landlord is responsible for maintenance of the common area, but the tenant is still responsible for his or her own utilities and garbage services. Triple Net Lease: For the triple net lease, also known as “net net net leases” or “NNN Leases”, the tenant pays the base rent and, in addition, three primary operating expense categories, hence the “NNN” definition. These categories include (1) CAM (Common Area Maintenance charge), to cover the landlord’s property management, waste, water, landscaping and general maintenance, (2) property taxes, and (3) building insurance. In addition to the base rent and NNN charges, the tenant also pays their own utility charges for the subject premises, contracted directly with the service provider. Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate or pro-rata share. Triple net leases are generally the most landlord-friendly commercial lease type, and tenants should always scrutinize NNN charges and negotiate limits on the amounts they can be increased annually. NNN charges can also fluctuate monthly as operating expenses increase or decrease, making it harder for a business to forecast and budget their occupancy costs. Absolute Triple Net Lease: This is the triple net lease on steroids. The tenant takes on all costs enabling them to have sole responsibility of the building. The benefit to the tenant in this lease is that the tenant can virtually own a building without buying it. The benefit to the landlord is she collects rent but has little to no responsibility to maintain the property. Next week’s edition of This Week in Real Estate will discuss the base year and percentage leases.
June 4, 2021
The Weekly Scenario
The Weekly Scenario: Estate Planning in 2021
What may be the best word to describe estate planning in 2021? I submit ‘uncertainty.’ This year may be the year to account for potential changing circumstances. The typical estate plan for a married couple leaves all property to the other. In the case of retirement plan benefits, the spouse is named as the primary beneficiary and the children as contingent beneficiaries. Children will usually wait to receive their inheritance after the surviving spouse’s death. One twist on the standard plan is through the use of disclaimers. A disclaimer provision allows your named beneficiary to say, I don’t want the money, give it to the next in line. If you include disclaimer provisions in your wills, trusts, and in the beneficiary designations of retirement plans, your surviving spouse generally has up to nine months after your death to consider how much to keep and how much to disclaim to your children. Your children would also be able to disclaim into trusts for the benefit of their own children. For example, if the surviving spouse had executed a disclaimer in 2019 of at least a portion of the IRA (e.g., $1,000,000), that amount would be transferred as an Inherited IRA directly to the children. The disclaimer would have allowed the children to defer income taxes on their Inherited IRA, and perhaps would have saved the family a million dollars or more in estate taxes. The rules in effect in 2019 (as opposed to 2020 and beyond under SECURE) allowed the stretch of the Inherited IRA, resulting in a good result for the family. In contrast, if an IRA owner dies after January 1, 2020, there may not be as big of an income tax incentive to disclaim IRA dollars due to the inability to secure the stretch payments. But in some circumstances, there is still incentive. In addition, there may be an incentive to disclaim after-tax or non-IRA dollars. The big point is there is a constant uncertainty surrounding what laws will be in effect when you die. You can’t control Congress, the market, or many other things. Furthermore, for each type of asset, whether it is an IRA, a Roth IRA, a brokerage account, life insurance, an annuity, real estate, or other assets, there might be compelling reasons to do something that cannot be predicted today. A change in circumstances could change the optimal choice of which beneficiary gets which asset. The key concept here is disclaiming. In this type of plan, you can’t force anyone to accept a bequest. The plan works by allowing the beneficiary of an asset to accept the property for him/herself, or to say, I don’t want that asset, or any part of it. If there is a disclaimer of all or part of an IRA, for example, we look to see who is next in line, or if we want to use the official term, the contingent beneficiary. The ability for the primary beneficiary to make a partial disclaimer adds enormous flexibility to the plan. This means that he or she can accept part of the asset and let the contingent beneficiary have the rest. If a surviving spouse needs all the money, that is fine ¾ if he or she can keep everything left to him or her. But if the surviving spouse doesn’t need the money, or more likely doesn’t need all of the money, then he or she can disclaim either all, or again more likely, a portion of it, in favor of the next beneficiary on the list (i.e., the children). The child can also decide to accept the property or disclaim it further down the line. With traditional planning and traditional estate administration, children do not get any inherited money until both spouse’s deaths. Grandchildren do not get anything until their parents are gone. Incorporating disclaimers into the estate plan allows the children to receive money at the first death, which not only has potential tax advantages but also can help them out while they are younger and may need it more. Disclaiming can not only reduce taxes after your death but also get money to younger generations sooner when they have a greater financial need for it. It is too tough to guess what the best strategy will be after the first and second death. Therefore, you will want to build flexibility into the estate plan with disclaimers. Ultimately, you might be able to get the right assets to the right beneficiaries at the right time and save money on taxes along the way. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
June 3, 2021
Labor and Employment
Delaware's Contractor Registration Act – 19 DEL. C. CHAPTER 36
EFFECTIVE JULY 1, 2021 After a lengthy delay caused by the COVID-19 pandemic, the Delaware Contractor Registry will “go live” on July 1, 2021. Any Contractor who performs construction or maintenance services in Delaware must be registered before performing those services. If the services include work on any public project, the registration must be completed by August 1, 2021. Failure to become registered can result in severe penalties, some of which will effectively put the Contractor out of business. Registration is being handled online through the Delaware One-Stop system (https://onestop.delaware.gov) and is currently in a testing phase with contractor volunteers. Assuming that one has all of the necessary information at their fingertips, the process appears relatively simple and painless. The annual fee is $200 for Contractors performing only private work, $300 for only pubic work, and $500 for those who perform both. A two-year registration discount exists for Contractors who are on the registry for two years with no violations. Most of the information necessary to register is straightforward (FEIN, NAICS Code, contact information, business, and related licenses) if also somewhat intrusive (contact information for all persons with a financial interest in the business). Proof of participation in unemployment and workers’ compensation is required, as well as having an OSHA-compliant safety plan. One item likely to cause confusion and discontent is the disclosure of “labor law violations” during the prior six (6) years. The form asks if the Contractor has received “notifications” from the Department of Labor that it has incurred a violation but fails to distinguish between mere allegations and actual, proven violations. And penalties, of course, there are penalties. They range from being denied registration or having registration revoked (and thereby the ability to work) to being required to post a surety bond to civil penalties ranging from $5,000 to $85,000 (no, that last one is not a typo). One unusual aspect of this statute is that while appeals to the Secretary of Labor are allowed (as with other labor law statutes), there is also a right of appeal from the Secretary’s decision to the Superior Court. Any business that performs construction services or maintenance work must register and do so quickly. For further information, go to the Department of Labor website at CONTRACTOR REGISTRATION ACT - Delaware Department of Labor. This site has FAQs, a copy of the statute, a brochure and checklist of the required information, and links to the Delaware One Stop and the application.
June 3, 2021
Labor and Employment
What to Ask a Lawyer When Starting a Business
(Note: to navigate through the video, click on the YouTube button on the bottom right of the video to open the full version with time controls.) I sat down with Dave Lorenzo on the Inside BS Show to discuss what business owners should consider when hiring an attorney and the importance of having a team of subject matter experts available to help when needs arise. During my conversation with Dave, I answer several questions regarding how I engage with clients and what business owners need to know when dealing with legal issues impacting their business, including: Do I need a lawyer to start a business? Should I work with a litigator of a transactional attorney? What questions should I ask a lawyer before I hire her? Check out the interview for the answers to these questions and more. You can use the timestamps below to navigate through the interview: 00:00 - What to Ask a Lawyer When Starting a Business 01:47 - Business Lawyer Profile: How do you become a business lawyer? 02:22 - What is the biggest challenge you face as a business lawyer? 03:40 - What challenges do you face related to the law and COVID? 05:24 Why is it important to work with a lawyer who knows litigation as well as transactional work? 06:47 What is the definition of Complex Commercial Litigation? 08:00 Why your attorney must ask the right questions when you are a business start-up. 09:53 Do I need a lawyer to start a business? 11:48 How do you protect trade secrets when you hire employees? 14:53 How to get business clients as a lawyer 16:16 How to use LinkedIn and Blogs for law firm marketing. 18:00 Examples of strategic alliance marketing for law firm business development 19:40 How do I find the right lawyer for my small business? 21:18 What unique insight has being a general counsel given you as a business lawyer? 24:36 What is the biggest challenge for a small business owner in working with a lawyer? 26:33 How to get in touch with a business lawyer
June 1, 2021
M&A Nuggets
M&A Nuggets: Know Your Buyer
Many times, a business seeking to sell is in discussions with the wrong buyer – a mismatch. Negotiating with a mismatched buyer can be a waste of time, money and resources and lead to either the demise of a potential transaction or a transaction taking longer with much greater effort, all of which could have been avoided. It is therefore very important that a seller conduct its own due diligence on potential purchasers. This due diligence should include the following: Checking the background of the owners of the potential purchaser – in conducting this check, treat the owners as you would a job applicant; The potential purchaser’s experience in the M & A arena – has the potential purchaser acquired any businesses? The potential purchaser’s finances – requests should be made for the potential purchaser’s financial statements and for evidence of the source of its purchase price funding; References – ask the potential purchaser for the names and contact information of the owners of other companies that have been acquired and contact those references; NDA – insist that any potential purchaser sign a non-disclosure agreement up front. Any reluctance to do so should be a warning sign; The potential purchaser’s objectives – obtain a clear understanding of the purchaser’s objectives, which can vary greatly depending upon whether the purchaser is strategic or financial; and Time Frame – ask the purchaser for a definite time frame in which it anticipates closing the transaction. A reluctance to state a time frame could indicate that you are dealing with a purchaser which is always exploring but never willing to commit. By following the above suggestions, a seller can go a long way to assure that its purchaser is a match. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
May 28, 2021
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