Late in the evening of April 2, 2020, the U.S. Small Business Administration (SBA) issued its Interim Final Rule (Rule) with respect to the Paycheck Protection Program (PPP) established under the Coronavirus Aid, Relief and Economic Security (CARES) Act. The Rule is a 31-page document that is intended to provide lenders and borrowers with new guidance on various aspects of the PPP’s forgivable loans for small businesses affected by the coronavirus pandemic. The PPP is scheduled to roll-out today, April 3rd.
Although the SBA has announced that additional guidance will be forthcoming regarding issues such as business affiliation analyses, loan forgiveness, religious liberty protections and advance purchases for loans sold in the secondary market, the Rule currently serves as the latest guidance to be followed in today’s roll-out.
Additionally, while the Rule is considered “interim” and requests public comments over a 30-day period, it is expected that lenders will move forward immediately in accepting applications in reliance on this interim guidance.
Application Process and Parameters for Borrowers
According to the Rule, applicants must submit directly to their lender a completed SBA Form 2438 (PPP Application Form) and certain supporting payroll documentation described in the Rule. Although a sample application form was issued earlier this week, SBA Form 2438 is updated and slightly different from the original. E-signatures and e-consents are allowable for application submission purposes.
Borrowers receiving a loan through the SBA Economic Injury Disaster loan program (EIDL) from January 31, 2020 through April 3, 2020, are eligible to apply for a PPP loan so long as the EIDL was not used for payroll costs, in which case the PPP must be used to refinance the EIDL loan.  Additionally, any advance of up to $10,000 received on the EIDL loan will not be eligible for forgiveness under the PPP, although it still does not need to be repaid under the existing terms of EIDL.
Borrowers may apply for only one PPP loan and must apply between now and June 30, 2020; based on these parameters the commentary to the Rule instructs borrowers to consider applying for the maximum amount for which they are eligible.
The maximum loan amount for borrowers may be calculated as follows:
  1. TAKE the aggregate payroll costs from the last 12 months for employees who are US residents.
  2. SUBTRACT compensation in excess of any salary exceeding $100,000 annually.
  3. DIVIDE the total by 12 to determine average monthly payroll.
  4. MULTIPLY the average monthly payroll by 2.5.
  5. ADD any outstanding amount of any EIDL loan made between January 31, 2020 and April 3, 2020, LESS the amount of any advance made under the EIDL loan.
In calculating payroll costs, a business must not count independent contractors as employees. Independent contractors are allowed to apply for their own PPP loans beginning on April 10th.

The Rule explains that the highest allowable interest rate on PPP loans is set at 1% (in contradiction to previous information guidance that interest rates would be .5%) and the maturity date for such loans will be two years (in contradiction to the CARES Act’s provision that the loan term for any amount not forgiven would be ten years).

Underwriting and Other Information for Lenders

All SBA 7(a) lenders are approved to make PPP loans and authorization has been further extended to: (i) all federally insured depository institutions or credit unions; (ii) certain farm credit system institutions; and (iii) financing providers that have originated, maintained and serviced more than $50 million in business loans or other commercial financing receivables during a consecutive 12-month period over the last 36 months or are service providers to an insured depository institution in good standing that has a contract to support such institution’s lending activities pursuant to federal law.

The SBA will allow lenders to rely on the certifications of the borrower in order to determine the borrower’s eligibility for a PPP loan and the maximum loan amount the borrower is entitled to receive.  Lenders will be held harmless for the borrower’s failure to comply with program and certification criteria.

The Rule explains that lender underwriting criteria will consist of the following:
  1. Confirming receipt of borrower certifications;
  2. Confirming receipt of information demonstrating that the borrower had employees as of February 15, 2020;
  3. Confirming average monthly payroll costs by reviewing the payroll documentation provided by borrower; and
  4. Complying with the Bank Secrecy Act (BSA).
After a borrower applies for a PPP loan, lenders must submit SBA Form 2484 (PPP Lender’s Application for 7(a) Loan Guaranty) electronically to the SBA, and maintain the forms and supporting documentation provided by borrower in its files.
In respect of forgiveness, lenders can again rely on borrower documentation and are not required to conduct any additional diligence or verification.  No more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
The Rule addresses informal guidance previously issued by the Department of the Treasury, which indicated that PPP loans may be sold by lenders on the secondary market. Lenders may also request that the SBA purchase the expected forgiveness amount of any PPP loan at the end of the seventh week following the origination of the loan.  The advance purchases will occur within 15 days of the SBA receiving a complete report of the expected forgiveness amount. Notably, the Rule does not set forth a procedure governing a situation in which the actual forgiveness is less than the estimated forgiveness amount.
We expect that this will not be the last word on regulations applying to the PPP loan program. Due to its hasty roll out, additional guidance or regulations will undoubtedly be issued to address issues that arise over the coming days and weeks. We will continue to provide real-time updates.
If you need assistance, contact me at (516) 393-8268 or

Yesterday, Jaspan Schlesinger LLP appeared telephonically, on behalf of a creditor, in the Pier 1 bankruptcy proceedings before U.S. Bankruptcy Court for the Eastern District of Virginia. Pier 1 Imports, Inc., et al., Case No. 20-30805 (KRH) (Bankr. E.D. Va., Apr. 2, 2020). Pier 1 Imports Inc. and its affiliates (collectively, Pier 1) brought an emergency motion seeking financial and administrative relief in light of the COVID-19 pandemic and resulting government-mandated closures. Undoubtedly, this hearing is one of the first of many to come before our bankruptcy courts as businesses assess the viability of continued operation in these uncertain times, and as courts across the country accommodate social distancing requirements by embracing virtual courtroom technologies.

In this instance, Pier 1 sought an order permitting it to, among other things, effectively defer rental payments owed to its various landlords, including our client, for an indefinite period of time. Proceedings began with an air of somber practicality, as the Court noted the unprecedented nature of the circumstances at hand, which it termed a “critical business problem” in need of “business solutions,” rather than “litigation solutions.”

The Court drew a comparison between the Pier 1 proceedings and Modell’s Sporting Goods, Inc., No. 20-14179 (VFP) (Bankr. D. N.J., Mar. 23, 2020), a New Jersey case in which Modell’s and its subsidiaries filed for Chapter 11 bankruptcy shortly before President Trump declared the COVID-19 pandemic a national emergency. Because of the pandemic and government-mandated closures, the Modell’s debtors successfully sought a complete “suspension” of their bankruptcy cases. Specifically, they asked for a temporary suspension of all deadlines and activities in the case (pursuant to Bankruptcy Code § 305 or, in the alternative, Bankruptcy Code § 105), and the right to seek additional time in the future. They also sought to defer payment of all expenses other than those specifically outlined in their modified budget, which excluded any rent payments.

Much like the debtors in Modell’s, Pier 1 premised its motion on Bankruptcy Code § 105 and § 305, and legal doctrines such as impossibility and frustration of purposes. It argued that, until ordinary operations resume, it will be unable to make the monthly rent payments of $9.4 million owed to its various landlords. However, Pier 1 conceded that its e-commerce business remains in operation.

Notwithstanding the resounding sympathy expressed by the Court and the U.S. Trustee, as well as certain lenders, vendors, and landlords, concerns remained for the businesses and individuals to whom Pier 1 owes money. Because there is no way of knowing when Pier 1 will be able to resume operations, any order temporarily relieving them of their financial obligations might effectively leave creditors high and dry for many months.

Of those who participated in the hearing, the landlords were undoubtedly most vocal in their concerns since the relief Pier 1 sought offered little means to protect their financial interests if Pier 1 fails to reorganize and must instead liquidate without any assets remaining to satisfy debts “temporarily” set aside. Others argued that the protections typically available to creditors under the Bankruptcy Code were seemingly cast aside in light of the pandemic, and that the relief sought by Pier 1 threatened to stretch the Court’s equitable powers beyond their usual reach at the expense of the rights of Pier’s creditors.

In the end, the “business solution” ruled the day, and Pier 1 will be permitted to cease rental payments to its landlords until either the end of the pandemic is in sight, or a cogent vision of its financial prospects becomes apparent, or until the Court says otherwise. Though it is uncertain whether other debtors will be able to obtain similar relief, it is clear that the pandemic has opened new doors in bankruptcy law, and all signs point to more change ahead. For now, landlords should be prepared to bear the costs of their leased and occupied but otherwise non-operating retail properties. The decisions in Modell’s and yesterday’s proceedings in the Pier 1 bankruptcy will undoubtedly be cited by chapter 11 bankruptcy debtors who seek to halt their cases and rent obligations in their tracks due to the COVID-19 pandemic.

Our firm’s COVID-19 Resource Center is available to you day and night. Our attorneys remain on-call to assist our clients with the unprecedented challenges confronting them. Please reach out to us, your usual firm contacts or a member of our Coronavirus Response Team if you need guidance.

As the novel coronavirus continues to wreak havoc around the world, our Coronavirus Response Team persists in analyzing the more than 800 pages comprising the Coronavirus Aid, Relief and Economic Security (CARES) Act – legislation that makes the 2009 Stimulus Bill and 2008 Wall Street Bailout Package look like child’s play. The CARES Act is the largest stimulus package in United States history, providing for $2 trillion dollars in relief, a massive increase over the 2009 and 2008 stimulus packages, which provided for relief in the amounts of $800 billion and $700 billion, respectively.

The CARES Act appropriates approximately $500 billion to Title IV, known as the “Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy Act” (Title IV). Moreover, in a win for aviation and national defense, about $67 billion has been allocated to specific industries: $46 billion to passenger air carriers, $4 billion to cargo air carriers; and $17 billion to businesses critical to maintaining national security. The remaining $454 billion is allocated more generally to “programs or facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, states and municipalities.”

This post offers a cursory summary of certain portions of Title IV (those addressed to the aviation and national security industries), including how these funds can be utilized and who may be eligible to receive them.

Which Businesses are Generally “Eligible”?

Under Title IV, an “eligible business” is broadly defined as “an air carrier” or “any “United States business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under” the CARES Act. However, the fine print narrows the scope of eligibility significantly, as is well explained by, among others, the U.S. Senate Committee on Banking, Housing and Urban Affairs.

Those businesses for which credit is “reasonably available” may not be entitled to funding. To a similar point, the business must intend that the obligation be “prudently incurred.” Additionally, Title IV provides that a loan guarantee must be sufficiently secured (or that the loan must bear a rate of interest reflecting higher risk), and must be for a time “as short as is practicable,” and for no more than 5 years.

Perhaps most importantly, the business must, as a result of the COVID-19 pandemic, “have incurred or [be] expected to incur covered losses such that its continued operations are jeopardized.” Accordingly, businesses that are still operating but have yet to see the effects of the COVID-19 pandemic, may still be entitled to receive funds if a downturn in business is anticipated.

Where a company receives relief under Title IV, neither it nor any of its affiliates will be able to repurchase stock until 12 months after the loan is no longer outstanding, unless the obligation to purchase stock so arises from a prior contractual obligation. Further, the eligible business may not pay dividends on common stock until 12 months after the loan is no longer outstanding.

Compensation and Operations Requirements

To receive Title IV funding, there are also certain requirements with respect to location of employees and maintaining employment levels. First, the eligible business must certify that it was created or organized in the United States or under United States law, and that it has significant operations in and a majority of its employees based in the United States.

The eligible business must maintain its employment levels as of March 24, 2020 at full compensation and benefits until September 30, 2020, if practicable. If it is not practicable to maintain the workforce at 100%, the business can reduce its employment levels up to 10%.

However, that is not all. With respect to employees or officers who make more than $425,000 in total compensation (including salary, bonuses, awards of stock, and other financial benefits), the eligible business must agree that, during the period beginning on the date on which the agreement is executed and ending one (1) year after the date the loan or loan guarantee is no longer outstanding, no employee or officer will receive total compensation for a 12 consecutive month period exceeding the total compensation received in 2019, or will receive severance pay or other benefits upon termination of employment in excess of two times the maximum total compensation received by said employee or officer in 2019.

As for employees or officers who earn more than $3 million in total compensation, the eligible business must agree that, during the period beginning on the date on which the agreement is executed and ending one (1) year after the date the loan or loan guarantee is no longer outstanding, no officer or employee will receive total compensation during any consecutive 12 month period in excess of $3 million plus 50% of the excess over $3 million of the total compensation received by said employee or officer in 2019.

Compensation to the Government

The government requires businesses receive relief under Title IV to provide something of value in exchange. A public company must provide “a warrant or equity interest” in the A private company must provide “a warrant or equity interest in the eligible business” or “a senior debt instrument issued by the eligible business.”

All warrants, equity interests, and senior debt instruments must provide for a reasonable participation by the government, for the benefit of the taxpayers, in equity appreciation in the case of warrants and equity interests or a reasonable interest rate premium in the case of senior debt instruments. The government must also be able to sell, exercise, or surrender a warrant or any senior debt instrument for the primary benefit of taxpayers; although the Secretary is not permitted to exercise voting power with respect to any share of common stock acquired.


Clearly, the CARES Act provides support to various entities in an attempt to keep individuals employed and businesses from failing. Stay tuned for a follow-up post about the remainder $454 billion allocated to loans, loan guarantees, and other investments in programs and facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, States or municipalities.

If you have any questions about the contents of this post, the contents of CARES Act, or need assistance, contact any member of our Coronavirus Response Team.

We previously blogged about the Paycheck Protection Program (PPP), an extension of the Small Business Administration’s (SBA) 7(a) loan program authorized by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act appropriates $349 billion for PPP loans to small businesses affected by the COVID-19 pandemic, relaxes some of the requirements for acquiring such a loan, and provides for forgiveness of PPP loans used for certain purposes.

On March 31, 2020, the U.S. Department of the Treasury (“Treasury”) published a “top-line overview” of PPP, an information sheet for lenders, an information sheet for borrowers and an application form. These documents, released just days after the enactment of the CARES Act, are an important step towards the fulfillment of Treasury Secretary Steven Mnuchin’s promise that PPP loans would be available at “lightening speed.”

The top-line overview reiterates the portion of the CARES Act which states that PPP loans will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities. It further elaborates that “at least 75% of the forgiven amount must have been used for payroll.”

The overview also provides the first glimpse into the earliest availability of PPP loans, stating that small businesses and sole proprietors can apply beginning on April 3, 2020, and independent contractors and self-employed individuals can begin applying on April 10, 2020.

The lender information sheet states that “all existing SBA-certified lenders will be given delegated authority to speedily process PPP loans.” It also states that federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to participate in the PPP, and should submit applications to

Lenders are also advised that the underwriting requirements for PPP loans include:

  1. Verification that a borrower was in operation on February 15, 2020.
  2. Verification that a borrower had employees for whom the borrower paid salaries and payroll taxes.
  3. Verification of the dollar amount of average monthly payroll costs.
  4. Compliance with applicable Bank Secrecy Act requirements.

Additionally, lenders are advised as to how they will be compensated, and that PPP loans can be sold on the secondary market.

The borrower fact sheet largely reiterates previously available information and information set forth in the lender fact sheet and top-line overview. It does clarify that each business may only acquire one PPP loan, the manner in which a borrower can apply for loan forgiveness, and that borrowers who use PPP loan proceeds for fraudulent purposes will be subject to criminal charges.

Finally, the loan application is a two-page form accompanied by a two-page instruction sheet. To complete the application, a business must provide the following information:

  1. Business name, address, phone number and taxpayer identification number.
  2. Average monthly payroll amount and number of jobs.
  3. Names, titles, addresses, and social security numbers of all business owners with an interest of 20% or more.
  4. A representation as to whether the business or any owner is presently involved in a bankruptcy or has been barred from engaging in the transaction by any federal agency, or has defaulted on any loan guaranteed by SBA or the federal government in the last 7 years.
  5. A representation as to whether the business or its owners also have an ownership interest in another business or common management with another business.
  6. A representation as to whether the business obtained an economic injury disaster loan between January 31, 2020 and April 3, 2020.
  7. A representation as to whether the business, or any owner with an interest of 20% or more, is subject to criminal charges, or is presently incarcerated, on probation or on parole in any jurisdiction.
  8. A representation as to whether, within the last 7 years, the business or any owner with an interest of 20% or more, with respect to any felony or misdemeanor against a minor, has been convicted, pleaded guilty or nolo contendere, or placed on pretrial diversion, probation or parole.
  9. Information as to citizenship status.

The application makes clear that the application will be denied if the answer to questions 4, 7 or 8 above is “yes,” or if the applicant or anyone with an ownership interest of 20% or greater is not a U.S. citizen or a lawful permanent resident.

The application also requires the borrower to make certain good faith certifications, including that current economic uncertainty makes the PPP loan necessary and that the information provided in the application is true and accurate.

If you are a business owner that requires assistance in obtaining a PPP loan, a lender that needs assistance in processing and closing PPP loans, or a financial institution that would like to become a SBA-approved lender, please contact Jessica M. Baquet at (516) 393-8292 or, or Jothy Narendran at (516) 393-8245 or

Like most other areas of life, the COVID-19 pandemic is impacting trademark deadlines imposed by the United States Patent and Trademark Office (“PTO” or “Office”).  In recognition of the difficulties affecting entrepreneurs, businesses, individuals, and practitioners, on March 31, 2020, the PTO announced extensions to the time allowed to file patent and trademark-related documents and to pay certain required filing fees.  The PTO is taking action pursuant to the temporary authority provided to it by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act signed into law on March 27, 2020.

This post is limited to the extensions applied to trademark-related filings and fees.  Pursuant to the CARES Act, the PTO is extending the time to file certain documents and fees which otherwise would have been due on or after March 27, 2020.

In accordance with Section 12004(a) of the CARES Act, the PTO may toll, waive, adjust, or modify any timing deadline established by the Trademark Act in effect during the COVID-19 emergency period described in the CARES Act, if the Director of the PTO determines the emergency: (1) materially affects the functioning of the PTO; (2) prejudices the rights of applicants, registrants, patent and trademark owners, or others appearing before the Office; or (3) prevents applicants, registrants, patent and trademark owners, or others appearing before the Office from filing a document or fee with the PTO.  CARES Act, Section 12004(e).

As of March 31, 2020, the Director of the PTO has determined that the emergency created by the COVID-19 pandemic has prejudiced the rights of applicants, registrants, trademark owners, or others appearing before the PTO in trademark matters, and has prevented applicants, registrants, trademark owners, or others appearing before the PTO in trademark matters from filing a document or fee with the PTO.

For any of the following categories, where the due date was due between and inclusive of, both March 27, 2020 and April 30, 2020, the due dates will be extended 30 days from the initial date it was due, provided that the filing is accompanied by a statement that the delay in filing or payment is due to the COVID-19 outbreak, as defined below:

  1. response to an Office action, including a notice of appeal from a final refusal, under 15 U.S.C. § 1062(b) and 37 C.F.R. § 2.62(a) and 2.141(a);
  2. statement of use or request for extension of time to file a statement of use under 15 U.S.C. § 1051(d) and 37 C.F.R. § 2.88(a) and 2.89(a);
  3. notice of opposition or request for extension of time to file a notice of opposition under 15 U.S.C. § 1063(a) and 37 C.F.R. § 2.101(c) and 2.102(a);
  4.  priority filing basis under 15 U.S.C. § 1126(d)(I) and 37 C.F.R. § 2.34(a)(4)(i);
  5. priority filing basis under 15 U.S.C. § 1141g and 37 C.F.R. § 7.27(c);
  6.  transformation of an extension of protection to the United States into a United States application under 15 U.S.C. § 1141j(c) and 37 C.F.R. § 7.31(a);
  7. affidavit of use or excusable nonuse under 15 U.S.C. § 1058(a) and 37 C.F.R. § 2.160(a);
  8. renewal application under 15 U.S.C. § 1059(a) and 37 C.F.R. § 2.182; or
  9. affidavit of use or excusable nonuse under 15 U.S.C. § 1141k(a) and 37 C.F.R. § 7.36(b).

For purposes of the extension of trademark deadlines due to the COVID-19 outbreak, if a practitioner, applicant, registrant, or other person associated with the filing or fee was personally affected by the COVID-19 outbreak, including, without limitation, through office closures, cash flow interruptions, inaccessibility of files or other materials, travel delays, personal or family illness, or similar circumstances such that the COVID-19 outbreak materially interfered with timely filing or payment, then the waiver request for delay in filing or payment will be approved.

For all other situations not specified herein, where the COVID-19 pandemic has prevented or interfered with a filing before the Trademark Trial and Appeals Board (“TTAB”), a request or motion for an extension or reopening of time, as appropriate, can be made.

It should be noted that the PTO remains open for the electronic filing of trademark and TTAB documents and fees.  Since the PTO remains opens for the filing of trademark documents and fees, the waiver for an extension of trademark filing or payment deadlines is available only if the delay is due to the COVID-19 outbreak, as defined herein.

If you have any questions regarding the extension of trademark filings or fees, or need assistance with either requesting any trademark extensions or with the filing of any trademark documents or fees, contact the Chair of our Trademark Practice Group, Scott Fisher, at (516) 393-8248 or

The spread of the novel coronavirus (COVID-19) has wreaked havoc on a multitude of industries.  As we face the uncertainties of this very unprecedented time, governmental agencies are enacting new programs and legislation in an effort to alleviate growing financial concerns.

On March 21, 2020, the Treasury Department and Internal Revenue Service announced that the federal tax filing due date has been automatically extended from April 15, 2020 to July 15, 2020.  The benefit of this extension is that all taxpayers, including individuals, trust, estates, corporations and other non-corporate tax filers, as well as those taxpayers who are required to pay self-employment tax, (“Affected Taxpayer”) have the ability to defer any federal income tax payments which would have been due on April 15, 2020, to July 15, 2020, without incurring penalties and interest, regardless of the amount due and owing.  Absent a further automatic extension, penalties, interest or additional tax for failure to file federal tax returns by July 15, 2020, will begin to accrue on July 16, 2020.

It is important to note that although the federal tax filing extension does not automatically apply to each state, New York State has followed suit and is extending its tax filing deadline to July 15, 2020.  Additionally, according to a bulletin sent by the New York State Department of Taxation and Finance on March 29, 2020, the deadline for all taxpayers to make payments that otherwise would have been due on April 15, 2020 is extended to July 15, 2020, and there will be no penalties or interest incurred as a result of such delayed payments.

The New York City Department of Finance (“DOF”) has also taken steps to alleviate various financial concerns during this pandemic.  The DOF issued a Memorandum advising that there will be a waiver of penalties for Department of Finance administered business and excise taxes due between March 16, 2020 and April 25, 2020.  Under these rules, there will be no underpayment, late filing or late payment penalties.  Despite these waivers, interest, where applicable, is not being waived.  As such, any interest payment, which is calculated from the original due date to the date of payment, must be paid on all tax payments that are received after the original due date.

As the days pass with only “essential businesses” being permitted to stay open and the rest of the workforce “working from home” to the extent possible, we expect that additional programs and initiatives will be implemented to assist various businesses in an effort to restore financial stability to the economy.

The CARES Act consists of 800+ pages of economic relief legislation affecting individuals, businesses, specific industries, and state and local governments. The Coronavirus Response Team at Jaspan Schlesinger LLP has been hard at work analyzing those provisions that are most likely to be of assistance to our clients. A summary for informational purposes only follows below.

We recognize that the CARES Act is dense and may be difficult to digest. If you need specific legal advice, please contact the Chair of our Team, Jessica M. Baquet, at (516) 393-8292 or

Paycheck Protection Program

We previously provided a summary of the CARES Act’s Paycheck Protection Program (PPP). That summary can be found again here.

Borrowers will be apply for PPP loans through SBA-approved financial institutions once regulations are issued by the government, which is expected to happen in the next two weeks.

Debt Service Relief

Borrowers that already have a Small Business Association (SBA) loan of certain types (7(a) loans (including PPP loans), 504 loans and microloans), or that acquire such loans within 6 months after March 27, 2020, will not have to pay principal, interest or fees for six months. The CARES Act provides funding for the SBA to make those payments on borrowers’ behalves.

Entrepreneurial Programs

The CARES Act authorizes the SBA to make grants to small business development centers and women’s business centers (as those terms are defined in the Small Business Act) for education, training and advising of “covered small business concerns” regarding:

  • Accessing and applying for federal resources relating to access to capital and business resiliency;
  • Transmission and prevention of COVID-19 and other communicable diseases;
  • Potential effects of COVID-19 on supply chains, distribution and sale of products of small businesses and mitigation of those effects;
  • Teleworking to slow the spread of COVID-19;
  • Management and practice of remote customer service;
  • Risks and mitigation of cyber threats relating to remote customer service and telework;
  • Mitigation of the business effects of reduced travel and outside activities due to COVID-19; and
  • Other relevant business practices necessary to mitigate the economic effects of COVID-19 or similar diseases.

SBA Economic Disaster Loans

CARES allocates $10,000,000,000 for Emergency Economic Injury Disaster Loans (EIDLs) through the SBA. EIDLs are meant to provide economic relief to businesses that are experiencing a temporary loss of revenue. This additional funding expands the existing EIDL program in response to the COVID-19 pandemic for the period January 1, 2020 through December 31, 2020.

Small businesses, not-for-profit organizations, cooperatives, tribal small business concerns and ESOPs with 500 employees or less, sole proprietorships and independent contractors are eligible for EIDLs under the expanded program.

Some of the ordinary pre-requisites for these loans are waived or modified as follows:

  • Personal guarantees are not required for advances or loans of $200,000 or less.
  • Applicants need not have been in business for one-year prior to seeking an EIDL, so long as the applicant was in business on January 31, 2020.
  • Applicants do not need to certify that they are unable to obtain credit elsewhere.
  • Approval can be based solely on a credit score without the need for the applicant to submit a tax return.

Applicants can request an advance with their application, and the SBA can disburse up to $10,000 to eligible businesses within three days of the application’s receipt. That advance must be used to:

  • Provide paid sick leave to employees unable to work due to the direct effect of COVID-19;
  • Maintain payroll to retain employees during business disruptions or substantial slowdowns;
  • Meet increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
  • Make rent or mortgage payments; or
  • Repay obligations that cannot be met due to revenue losses.

Applicants will not be required to repay the amount of any advance, even if they are later denied an EIDL.

SBA provides an online EIDL application here.

Chapter 11 Bankruptcy Relief

The CARES Act modifies the relief available under Chapter 11 of the Bankruptcy Code for certain businesses that seek to reorganize. The Code provides for a streamlined reorganization process for small businesses with aggregate debts of $2.73 million, but CARES increases that limit to $7.5 million for Chapter 11 bankruptcies commenced after March 27, 2020. Additionally, for cases commenced within one year after the enactment of the CARES Act, any federal COVID-19 relief payments are excluded from the calculation of the debtor’s monthly income.

Chapter 11 debtors with reorganization plans confirmed prior to March 27, 2020 may seek modification of those plans. These debtors must demonstrate at a hearing that they have experienced or are experiencing a material financial hardship due, directly or indirectly, to the COVID-19 pandemic. Any modification granted cannot extend the time period for payments by the debtor beyond seven years after the due date for the first payment under the original confirmed reorganization plan.

Employee Retention Credit

The CARES Act creates a refundable payroll tax credit for eligible businesses that retain/continue to pay their employees in certain circumstances.

Businesses are eligible if they carried on a trade or business during the 2020 calendar year and either of the following conditions are met:

    • Business operations were fully or partially suspended during any quarter of 2020 due to a government order relating to COVID-19; or
    • The business remained open but, during any quarter in 2020, experienced a reduction in gross receipts of at least 50%, (this eligibility ends once gross receipts exceed 80% of gross receipts for the same calendar quarter in the prior year).

For each quarter in which a business is eligible, it will receive a credit against the employer portion of the social security tax that is equal to 50% of “qualified wages,” capped at $10,000 per employee, paid after March 12, 2020 and before December 31, 2020. The definition of “qualified wages” depends on the employer’s size.

Employers that had, on average,100 or fewer full-time employees in 2019, may claim a credit for wages (including qualified health plan expenses) paid while their operations were suspended, and in each period during which there was a “significant decline in gross receipts” as defined by the law.

Employers that had, on average, more than one hundred full-time employees in 2019, can claim a credit for wages (including qualified health plan expenses) paid to an employee who was not working/performing services (e.g., was furloughed) due to the pandemic.

The Department of the Treasury is authorized to advance the payment of this tax credit to employer.

Importantly, no employer will be entitled to take advantage of this employee retention tax credit if it obtains forgiveness of a PPP loan.

Payroll Tax Deferral

Ordinarily, employers are required to deposit federal income taxes withheld from employees’ pay, as well as both the employer and employee contributions to social security and medicare, on a monthly or semi-weekly basis. Under the CARES Act, payroll taxes that would otherwise be due in 2020 are deferred such that 50% of such taxes will be due on December 31, 2021, and the remaining 50% will be on December 31, 2022.

Again, an important caveat is that no employer will be entitled to take advantage of this payroll tax deferral if it obtains forgiveness of a PPP loan.

Modifications to Net Operating Loss Rules

Before the enactment of the Tax Cuts and Jobs Act (TCJA), a net operating loss (NOL) could be carried back two years and used as a deduction against 100% of a business’ taxable income. The TCJA changed this by eliminating the permitted two-year carry back entirely for NOL incurred after 2017. It permitted NOLs to be carried forward indefinitely, but limited the amount of the NOL deduction to 80% of taxable income.

The CARES Act changes this. NOLs incurred after January 31, 2017 but before January 1, 2021 may now be carried back five years. The 80% limit on the deduction is also repealed as to both carry-forwards and carry-backs through the 2020 tax year. A separate deduction limit will apply to tax years 2021 and beyond.

Alternative Minimum Tax Credits

The TCJA eliminated the alternative minimum tax (AMT) for corporations, and allowed corporations to claim a credit in tax years 2018-2021 for previously paid AMT. Fifty percent of the credit was to be treated as refundable in tax years 2018-2020, and 100% was to be treated as refundable in 2021.

Under the CARES Act, AMT credits will be 100% refundable beginning in tax year 2019. The Act also creates a special election that permits businesses to take the entire refundable credit amount in 2018 by filing a refund claim before December 31, 2020. The Secretary of the Treasury must review review and determine these applications, and apply or refund any overpayment, within ninety days.


For health care providers, the CARES Act eases certain restrictions in medicare reimbursement for telehealth services.

Under previous regulations, telehealth services had to be conducted in a manner that involved a video component. That requirement has been eliminated, opening the door to telehealth consultations over the phone.

The CARES Act also eliminates a previous requirement that a health care provider could only provide telehealth services to individuals who the provider had seen in person within the last three years.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act—the largest stimulus package in United States history. Among other things, the legislation provides economic relief to individuals and businesses.

Jaspan Schlesinger LLP has launched a multi-disciplinary Coronavirus Response Team to assist our clients in navigating the challenges caused by the COVID-19 pandemic. Among other services, our attorneys will assist clients in interpreting the CARES Act and in pursuing benefits and relief available under it. Click here to read more about our team members.

The following is a summary of just some of the CARES Act’s most salient provisions.

Paycheck Protection Program Loans

Title I of the CARES Act expands the Small Business Administration’s (SBA) 7(a) loan program, which provides financial assistance to small businesses. The SBA is now authorized to issue $349 billion in loans to small businesses affected by the COVID-19 pandemic as part of the “paycheck protection program” (PPP). Among other things, the PPP expands the purposes for which a 7(a) loan can be used, relaxes some of the requirements for receiving such a loan, and provides for forgiveness of loan proceeds used for certain purposes.

Businesses with 500 or fewer employees (and some larger employers in certain industries) who otherwise meet eligibility requirements may obtain a “covered loan,” which can be used for payroll costs, interest on pre-existing mortgage obligations, rent, utilities and interest on other outstanding debts. Payroll costs include: salary, wages, commissions or similar compensation; payment of cash tips or equivalents; payment of vacation, parental, family, medical or sick leave; dismissal or separation payments; payments required for the provision of group health care benefits, including insurance premiums; payment of retirement benefits; and payment of state and local taxes assessed on employee compensation.

Borrowers do not have to provide personal guarantees or collateral, nor certify that they are unable to obtain credit elsewhere. Covered loans are guaranteed by the federal government. The borrower must certify that the loan will be used to retain workers, maintain payroll, and make mortgage, rent or utility payments.

Generally, the maximum loan amount is the lesser of $10,000,000 or 2.5 times the employer’s average monthly payroll costs (excluding individual salaries to the extent they exceed $100,000 per year) in the preceding twelve months.  Payments of interest, principal and fees are deferred for at least six months and no longer than one year.

PPP loans issued from February 15, 2020 to June 30, 2020 will be eligible for forgiveness in an amount equal to that spent by the borrower during the 8 weeks after the loan’s origination date on: payroll costs (excluding the compensation of any individual employee in excess of $100,000 prorated during the covered period); interest on mortgages issued prior to February 15, 2020; rent payments for leases in force prior to February 15, 2020; and utility payments for service in force prior to February 15, 2020.

The dollar amount forgiven will be reduced in proportion to the percentage difference between the average number of full-time employees per month during the covered period and either: (1) the average number of full-time employees per month from February 15, 2019 through June 30, 2019; or (2) the average number of full-time employees per month from January 1, 2020 through February 29, 2020. The borrower can choose which of these metrics should be used.

The amount forgiven will also be reduced by the dollar amount of any reduction in salary exceeding 25% for any employee whose annualized pay rate (in all pay periods in 2019) was $100,000 or less.

If, between February 15, 2020 and April 26, 2020, an employer decreases employees or salaries in a manner that would reduce its entitlement to loan forgiveness, there are steps it can take to rectify the situation. Such an employer can re-hire a sufficient number of employees and/or eliminate the offending reductions in compensation by June 30, 2020 in order to restore its entitlement to the maximum amount of loan forgiveness.

To the extent a PPP loan is forgiven, the amount of the forgiveness will not be included in the borrower’s gross income for tax purposes.

Any portion of the loan not forgiven would have a maximum term of 10 years, and an interest rate capped at 4%. There is no pre-payment penalty.

Assistance for Individuals and Businesses

Title II of the CARES Act provides monetary relief for individuals. It provides for $1,200 refundable tax credits for individuals and $2,400 for joint taxpayers, in addition to $500 for each dependent child, subject to certain income limitations.

It also permits individuals to withdraw up to $100,000 from qualified retirement plans for “coronavirus-related” reasons, and waives the 10% penalty ordinarily associated with such withdrawals by persons younger than 59 ½ years old. “Coronavirus-related” reasons include the diagnosis of the plan participant or his/her spouse with COVID-19, or adverse financial consequences resulting from the plan participant’s quarantine, furlough, lay-off or reduction in work hours due to COVID-19, the plan participant’s inability to work due to a lack of child care resulting from the virus, or the closing or reduction in hours of a business owned or operated by the plan participant for such reason.

Withdrawals under this provision are not subject to tax if repaid within three years. If not repaid, individuals are permitted to report the amount of the withdrawal ratably over three years in order to defer some of the tax liability.

Title II also provides for the delay of estimated tax payments for corporations in certain circumstances. It also provides for the deferral of 50% of certain employer payroll taxes until December 31, 2021, and deferral of the remaining 50% until December 31, 2022.

Through December 31, 2020, employers may also provide employees with a student loan repayment benefit of up to $5,250 annually, that can be used for principal and interest. Such disbursements are not taxable to the employee.

The CARES Act also allows some businesses to take net operating losses (NOLs) earned in 2018, 2019 or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is suspended.


These are just some of the benefits provided under the CARES Act. We will continue to provide updates as our attorneys digest this massive piece of legislation.

If you have questions or we can be of assistance, contact any member of our Coronavirus Response Team.

With the unprecedented COVID-19 (coronavirus) pandemic devastating cities and states throughout the United States (and the world), and all but bringing the U.S. economy to a screeching halt, business owners are searching for mechanisms to offset the devastating economic impact this virus has wreaked on them. Understandably, many are therefore asking, “Do any of my business insurance policies cover the loss caused by this virus?” The insurance industry is examining this question with equal interest. In any other time, the seemingly simple answer to this question would be an unequivocal, “No.” However, in these strange times, the more likely answer in some jurisdictions may be, “It depends.”

Determining Whether Commercial Property Policies Insure Losses Arising from COVID-19

Every insurance policy is a stand-alone document that must be read carefully and in its entirety before any determination of coverage can be made. Careful consideration of the Declarations, the Insuring Agreement, the policy Conditions, the policy Exclusions, and any endorsements to the policy must be given before a coverage determination can be made, because the specific policy language and specific facts of the claim will ultimately determine whether there is coverage under the policy. That said, there are general guiding principles that can be applied to determining whether a policyholder can reasonably expect to have insurance coverage for business interruption losses caused by the coronavirus under a commercial property insurance policy.

First, look to the insuring agreement to determine what type of commercial property insurance is at issue, i.e., named peril or all-risk? If the policy is a named peril policy, then only the perils named in the policy are covered. For example, if the policy names sinkholes, windstorm, hail, etc., and does not name viruses (or anything arguably akin to a virus), then the policy would not likely be found to include coverage for losses relating to the coronavirus. By contrast, if the policy names bacteria and viruses or only viruses, then there would be a strong likelihood that losses arising from the coronavirus would be covered under the policy assuming no policy exclusions apply. If the policy names contaminants, there may be arguments for and against coverage for losses relating to the coronavirus, depending on the definition of contaminant, if any, and the jurisdiction deciding the issue.

Unlike a named peril policy, an all-risk policy typically covers any risk of direct physical loss or damage unless specifically excluded by the policy. However, physical loss or damage typically must occur to trigger any coverage under the policy. With respect to loss arising from COVID-19, the legal issue would be whether businesses have suffered “direct physical loss or damage” to property as a result of the coronavirus. The intuitive answer to the insurance industry and those who represent insurers would likely be that there is typically is no coverage for losses arising from the coronavirus. However, in light of recent events, whether that result holds true might depend on the jurisdiction determining the issue and will certainly depend on the actual facts and circumstances of each claim, and maybe even what we continue to learn about the COVID-19 virus itself.

The most common approach to determining whether “direct physical loss or damage” occurred requires that the policyholder demonstrate physical injury or destruction to property resulting in “direct physical loss or damage” to the property, e.g., a fire at the premises. Absent a showing of something actually damaging the property, coverage under the policy would not be triggered. However, some jurisdictions have further found that “damage” that is invisible to the eye can trigger coverage under the policy, e.g., noxious fumes/gases.

In that vein, at least one policyholder in Louisiana has already filed a declaratory judgment action relating to damages caused by the closure of a restaurant due to the coronavirus. That policyholder alleged that its all-risk policy “covers all risks unless clearly and specifically excluded” and seeks coverage for business losses arising from the coronavirus on the theory that the policy at issue “does not provide any exclusion due to losses, to business or property, from a virus or global pandemic.” See Cajun Conti LLC et al. v. Certain Underwriters at Lloyd’s, London et al. (Civil District Court for the Parish of New Orleans State of Louisiana, No. 2020-02558). Recognizing that the policy at issue addressed exclusions for certain pathogens, the policyholder alleged that because the policy “only excluded losses due to biological materials such as pathogens in connection with terrorism or malicious use, thereof” it necessarily “provid[ed] coverage to other viruses or global pandemics.” In short, the policyholder asserted that “the covered causes of loss means direct physical loss unless the loss specifically excluded or limited in the policy.”

In support of those contentions, the policyholder alleged that: “[t]he virus is physically impacting public and private property, and physical spaces in cities around the world” and that “the deadly virus physically infects and stays on the surface of materials and, ‘fomites,’ for up to twenty-eight days, particularly in humid areas below eighty-four degrees.” Asserting that the virus is akin to “the intrusion of lead or gaseous fumes,” the policyholder asserted the coronavirus “constitutes a direct physical loss under insurance policies that would need to be remediated.”

Setting aside any other potential legal infirmities, such contentions would likely strike an experienced insurance professional as absurd because insurance companies are in the business of insuring known risks, not every unknown risk. Moreover, coverage typically extends to actual damage, not the preventative actions taken to avoid actual damage. That said, analogizing the current crisis to other novel (and catastrophic) events, Chris Cheatham, the founder of RiskGenius, a provider of software for insurance professional including underwriters, brokers, and most other insurance professionals, recently opined that a policyholder contending there is coverage of the coronavirus by silence may gain traction in some jurisdictions. See also How Silence May Impact Commercial Insurers on COVID Cover.

Legislative Intervention

Some members of Congress have urged the insurance industry to provide coverage for the coronavirus. For example, on March 18, 2020, a bipartisan group of U.S. House members asked insurers to retroactively recognize financial losses relating to COVID-19 under commercial business interruption coverage for policyholders. The representatives (much like the Louisiana policyholder) argued that the shelter-in-place orders being issued throughout cities and states during the pandemic should qualify for business interruption losses sustained as a result of civil authority prohibiting or impairing access to the policyholder’s business premises (despite a lack of damage to the property). However, as explained by industry leaders in response to this call for action, the policies at issue do not apply to preventative measures; were never intended to insure a global pandemic, and the premiums changed did not contemplate coverage for such risks.

Similarly, New Jersey proposed a law requiring coverage for the business losses arising from the coronavirus (see New Jersey Bill A-3844), though that proposal has since quieted somewhat.

Additionally, numerous states have turned to the insurance industry to provide guidance and assistance to states and policyholders through this crisis. As explained more below, New York was the first state to take such action. To date, New York, Wisconsin, Florida, California, Indiana, Washington, Georgia, and W. Virginia have made such overtures.

The New York Department of Financial Services’ Initial Responses to the Coronavirus

On March 10, 2020, the New York State Department of Financial Services (DFS) sent a letter to all authorized Property/Casualty Insurers regarding business interruption and related coverage written in New York under commercial property insurance, which DFS defined to include business owner policies, commercial multiple peril policies, and specialized multiple peril policies. In that letter, DFS instructed insurers to provide a host of information to DFS. It also required insurers to provide the information requested to every commercial property policyholder in New York.

Among other things, insurers were directed to provide “a clear and concise explanation of benefits” to policyholders and to “indicate whether the policy contains a requirement for ‘physical damage or loss’ and explain whether contamination related to a pandemic may constitute ‘physical damage or loss.’” Insurers’ responses were due to DFS on or before March 18, 2020.

Thereafter, DFS posted a Frequently Asked Questions (FAQs) section to its website providing an explanation of typical benefits under those policies. The FAQs mirror the policy language, intent of the insurance industry’s business interruption coverage and provide in relevant part:

What does my business interruption insurance cover? 

Business interruption coverage typically can only be triggered if you have property loss that leads to the business interruption. One example could be that a fire in your office has caused you to suspend your business activities.


I have a policy that is called a contingent business interruption insurance policy — how is that different from a regular business interruption policy?

As explained in ‘What does my business interruption insurance cover?’ above, business interruption coverage requires a related property damage…


How does my business interruption insurance policy treat the novel coronavirus (COVID-19)?

[A]ny claim would still need to be related to your property damage for coverage to be triggered….


Does my business interruption insurance policy cover me if my employees stay home from work out of concern about COVID-19?

As explained … above, business interruption coverage requires a related property damage. Fear of COVID-19 alone is unlikely to trigger business interruption insurance coverage….


Does the Governor’s declaration of a State of Emergency affect my business interruption insurance policy?

The State of Emergency declaration does not change the terms of your business interruption policy….


The FAQs posted illustrates that proof of “property damage” will be the critical legal and factual issue to determine what, if any, coverage exists for business interruption losses arising from the coronavirus.

The Takeaway for Insurers and Policyholders

The losses arising from the coronavirus will be staggering. Though Congress is attempting to pass legislation to assist companies with offsetting losses from the virus, federal and state governments have already looked to the insurance industry to absorb some of the losses businesses are experiencing. However, the insurance industry neither prepared for nor charged premiums for this global pandemic and will therefore likely continue to resist such government pressure. Policyholders’ attorneys have already begun filing suit to test the scope of coverage under certain policy terms and will presumably continue to do so in an effort to obtain coverage for their clients.

Given these competing interests and differing views, whether and to what extent policyholders will have business interruption coverage under commercial property policies will likely hinge of the specific facts of the claim and the jurisdiction in which the claim is filed. Below are suggestions for policyholders and insurers alike for navigating these uncharted waters:


  • Identify any and all insurance policies that might provide coverage for losses arising from the Coronavirus (commercial property, worker’s compensation, general liability (third-party claims, etc.).
  • Gather complete copies of those policies, including Declarations and endorsements.
  • Review the policies carefully with your risk manager, broker, and/or coverage attorney, paying particular attention to the specific language in the insuring agreement, including definitions, exclusions, and endorsements.
  • Document any and all damage and loss arising from the coronavirus. For example, if your business was advised that someone who had tested positive for the Coronavirus or was believed to have been exposed to someone who had tested positive for the Coronavirus and, as a result, the business was shut down for remediation and/or other measures, document with as much detail as possible the evidence of exposure/potential exposure and the specific losses arising from that exposure/potential exposure.
  • Keep careful records of any information concerning actual exposure to the virus or information of potential actual exposure on the property, the steps taken to mitigate damage from the exposure, and the costs of such actions.
  • Consider working with professional evaluators to quantify and demonstrate any loss.
  • Put your broker and insurance company on notice of any claim/s and provide supporting details of same. Work with your risk manager, broker, and/or attorney in detailing the claim. Timely notice is a condition of coverage under all insurance policies and the failure to provide timely notice of a claim can prevent a policyholder from obtaining coverage of insured losses.
  • Respond promptly to any requests by the insurance company for additional information and/or documentation and adhere to any “duty to cooperate” condition set forth in the policy/ies.


  • Be aware of and adhere to any additional inquiries and/or requirements set forth by various states concerning the handling and assessment of claims arising from the Coronavirus.
  • Provide timely information to policyholders concerning any information requested by a particular state and/or required by any state statute.
  • Engage in careful analysis of the particular policy language at issue and the facts provided in any notice of claim when making a coverage determination. Provide such analysis to the policyholder in any declination of coverage and/or reservation of rights letter issued.
  • Consider consulting outside coverage counsel regarding the interpretation of property damage and loss as they related to the specific policy provisions at issue prior to making coverage determinations for the Coronavirus.
  • Consider consulting with outside coverage counsel regarding implementing best practices for claims handling under the circumstances.

In light of business interruptions caused by COVID-19 and the resulting executive orders issued by Governor Cuomo and President Trump, there is no better time than now to consider and prepare for liability that may arise when the tide turns and business resumes, at least to some degree, throughout the state and the nation. Those able to do so should use this time to take a close look at contracts new and old – as those contractual relationships already affected by the pandemic may give rise to litigation, and those still in good order may yet be tested.

Below is a cursory review of some of the many legal doctrines and concepts that may come into play when dealing with a potential breach of contract due to COVID-19.

Termination for Non-Performance

One of the first questions to ask is whether the contract contains a provision for termination in the event of non-performance and, if so, whether it provides for immediate termination upon non-performance. In the alternative, it might specify some permissible window of delay — a certain number of days, i.e. 30 days — within which to cure the alleged breach. Moreover, the clock on that hypothetical 30-day window might not even begin to run until one party issues the other notice of the alleged breach. Whether the contract specifies that “time is of the essence” may also be relevant, though such may be implied if not explicitly stated.

Force Majeure

A force majeure clause is a contractual provision that may exempt a party from liability for breach of contract where the breach is caused by “circumstances beyond the control of the parties,” such as “act of God.” See Kel Kim Corp. v Cent. Mkts., Inc., 70 NY2d 900, 902 (1987). Such provisions are construed narrowly under New York law, and where a contract does not contain a force majeure clause, the parties cannot rely on force majeure as a defense. See id.

Moreover, where the parties have listed examples of what constitutes a force majeure event, i.e. flood, storm, war, rebellion, etc., a force majeure provision will generally apply only in those circumstances. See e.g. Reade v Stoneybrook Realty, LLC, 63 AD3d 433, 434 (1st Dept 2009). Even if the list is followed by a catchall phrase, such as “or other circumstances,” the Court is likely to apply the principle of ejusdem generis, and consider only circumstances of the same kind or nature as those expressly listed. See Kel Kim Corp., 70 NY2d at 903. Accordingly, whether the current COVID-19 pandemic will constitute a force majeure will depend on the specific language of the contract and, therefore, may only be determined on a case-by-case basis.

While it is reasonably common for force majeure clauses to contemplate some form of national emergency or government intervention, it is less common for them to contemplate a “pandemic.” However, that is not to say the pandemic is not a force majeure. In Touche Ross & Co. v Manufacturers Hanover Trust Co., the court stated, inter alia, that epidemics are generally accepted by international practice as “Force Majeure.” 107 Misc 2d 438, 441 (Sup Ct, NY County 1980). In that case, however, the parties were dealing with a volatile political situation, so the inclusion of “epidemic” in the clause was not determinative of any legal issue.

Material Adverse Change

A “material adverse change” (“MAC”) is generally understood to be a change in one party’s business or financial condition that prevents the fulfillment of a contractual obligation. See Katz v NVF Co., 100 AD2d 470, 471-472 (1st Dept 1984). The term “material,” however, though commonly understood to mean “significant,” is not clearly defined. Whether changes such as those caused by COVID-19 are significant enough to constitute a “material adverse change” will depend on the specific language of the contract, and the context of the dispute.

Impossibility and Frustration of Purpose

Those unable to rely on either a force majeure or MAC clause may nonetheless be able to rely on the common law doctrines of impossibility and frustration of purpose. The doctrine of impossibility generally applies to situations where performance was physically impossible. See e.g. Warner v Kaplan, 71 AD3d 1, 5 (1st Dept 2009). However, it also may apply where impossibility is legally impossible and/or due to an act of government. See e.g. Metpath, Inc. v Birmingham Fire Ins. Co., 86 AD2d 407, 411 (1st Dept 1982). However, in all cases, performance must have been objectively impossible, and the event that rendered it so must have been unforeseeable.

A similar precept, known as the doctrine of frustration of purpose, may also be relevant with respect to COVID-19. It applies when a change in one party’s circumstances makes performance “virtually worthless” to the other. See e.g. PPF Safeguard, LLC v BCR Safeguard Holding, LLC, 85 AD3d 506, 508 (1st Dept 2011). However, the obligation allegedly frustrated must have been central to the contract such that, without it, the contract would have made little sense. See id. Moreover, as with impossibility, the event that allegedly frustrated the contract’s purpose must have been unforeseeable. See id.


In many instances, the application of the above doctrines will be affected by whether one party has given notice to another, be it notice of an alleged breach, notice of an attempt to cure a breach, or simply a notice memorializing that an event, such as a flood or emergency, has in fact occurred. In certain circumstances, the failure to provide such notice might later be construed as a waiver of the right to rely on the above doctrines. Accordingly, even if neither party intends to litigate, it may be worthwhile to seek the advice of counsel to determine what remedies may be available, and if necessary, when and how to reach out to your counterparty regarding the contract.