In An RPAPL 881 Proceeding, Appellate Division Finds That A Licensor May Be Entitled To Recover Damages When Licensee Fails to Provide Proof of Sufficient Insurance[1] 

The adequacy of the insurance required to be provided by a property owner seeking to obtain a license to enter onto an adjacent property in order to perform construction work on his or her own property is one of the most important issues in negotiating a license.  The Appellate Division has now indicated that the failure to provide proof of sufficient insurance may allow the adjacent property owner to obtain money damages, including attorney’s fees in a proceeding commenced pursuant to RPAPL 881 to obtain a license to perform the construction work.  

In Matter of 269-273 14th St NY Corp. v. Stein[2], the Petitioner (“Licensee”) commenced a proceeding under RPAPL 881[3] to obtain a license to temporarily enter premises owned by the adjacent neighbor (“Licensor”) “for the purpose of demolishing existing buildings and constructing a new building on the adjacent property.”[4]  In March 2018, the license was granted upon the condition, among others, that Licensee maintain insurance to protect the Licensor.

Licensee commenced a related action against Licensor “to recover damages for delay in negotiating an access agreement relating to the license and for bad faith conduct preventing the petitioner from performing its work”[5]  Licensor asserted counterclaims alleging that Licensee caused damages to their property.[6]

In the RPAPL 881 proceeding, Licensor sought to suspend Licensee’s license “for failure to provide proof of required insurance coverage.” [7] Licensee moved to reinstate and extend the term of the license. The Supreme Court denied Licensor’s application for damages as a result of its failure to timely provide proof of sufficient insurance coverage.[8]  However, the Appellate Division found that Licensor “may have incurred damages, including attorneys’ fees, which are permitted as damages under RPAPL 881, as a result of the petitioner’s failure to timely provide proof of sufficient insurance coverage.”[9] The Appellate Division remanded the case back to the Supreme Court to address Licensor’s claim “for an award of damages and attorneys’ fees”.[10]

The important takeaway from this case is that a licensee seeking a license must provide proof of sufficient insurance to protect the licensor. Failure to do so promptly may result in damages incurred by the licensor, including, but not necessarily limited to, attorneys fees.   


Whether you are the property owner seeking the license or the adjoining property owner and whether you seek to negotiate a voluntary license or pursue a RPAPL § 881 proceeding, Jaspan Schlesinger Narendran LLP can help you address the many issues related to construction on boundary lines and the issuance of temporary licenses to perform such work.  If you need assistance, please contact Christopher E. Vatter at cvatter@jaspanllp.com or Laurel R. Kretzing at lkretzing@jaspanllp.com.  

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Christopher E. Vatter is a partner in Jaspan Schlesinger Narendran LLP’ s Municipal and Litigation Practice Groups, where he represents both private and municipal clients.  Mr. Vatter focuses his practice in the areas of complex commercial litigation, municipal law, personal injury defense, construction law and banking litigation.

Laurel R. Kretzing is a partner in Jaspan Schlesinger Narendran LLP’ s Municipal and Litigation Practice Groups, where she represents both private and municipal clients in a broad range of matters including personal injury defense, litigated real estate matters, construction matters and civil rights and municipal litigation.

[1] The material in this blog is meant only to provide general information and is not a substitute nor is it legal advice to you.

[2] 2023 N.Y. App. Div. LEXIS 5776 (2d Dep’t 2023).

[3] “RPAPL § 881 provides that ‘[w]hen an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license.’” Normanus Realty LLC v. 154 E. 62 LLC, 2023 N.Y. Misc. LEXIS 22715, *4 (Sup. Ct. N.Y. Cty. 2023).

[4] Matter of 269-273 14th St NY Corp. v. Stein, 2023 N.Y. App. Div. LEXIS 5776, *2.

[5] Id. at *2-3 (“The appeal from so much of the order as granted the petitioner’s [Licensee’s] motion to reinstate the license and denied that branch of Phung’s [Licensor’s] cross-motion which was to revoke the license nunc pro tunc is dismissed as academic because the license expired on December 26, 2020”).

[6] Id.

[7] Id. at *3.

[8] Id.

[9] Id. at *4.

[10] Id. at *5.

As covered in our Transparency-is-in-Your-Future series, Congress enacted the Corporate Transparency Act (“CTA”), requiring certain entities that are not otherwise exempt to file information about their beneficial ownership with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). On December 22, 2023, New York Governor Kathy Hochul signed into law a similar act, the LLC Transparency Act (the “NY Act”), requiring the disclosure of beneficial ownership information to the New York Department of State (“NY DOS”) by limited liability companies formed under the laws of the state of New York and foreign limited liability companies authorized to do business in the state of New York. Below is a brief summary of the NY Act.

What entities are affected by the NY Act?

Under the NY Act, a “reporting company” is defined as a limited liability company covered under the CTA (31 U.S.C.  § 5336(A)(11)(A)), as amended, and any regulations promulgated thereunder. This definition includes limited liability companies formed under the laws of the state of New York and foreign limited liability companies that have filed an application for authority with NY DOS. Curiously enough, the NY Act does not affect corporations or limited partnerships, which are also formed by filings with the NY DOS.

The NY Act defines “exempt company” to have the same meaning as under the CTA ((31 U.S.C.  § 5336(A)(11)(B). The CTA exempts most financial services institutions, including investment and accounting firms, securities trading firms, banks, and credit unions that report to and are regulated by government agencies such as the Securities and Exchange Commission, the Office of the Comptroller of the Currency, or the FDIC, as well as non-profit organizations and certain inactive entities. Additionally, an entity that (i) employs more than 20 full-time employees; (ii) filed in the previous year Federal income tax returns demonstrating more than $5,000,000 in gross receipts or sales in the aggregate; and (iii) has an operating presence at a physical office within the United States is exempt from reporting. As with the CTA, exemption under the NY Act is not automatic – in order to become exempt, a member or manager of the limited liability company will have to sign a statement of exemption and file such statement with NY DOS.

Who constitutes a “beneficial owner” under the NY Act?

The NY Act defines “beneficial owner” to have the same meaning as under the CTA ((31 U.S.C.  § 5336(A)(3)), which is defined as “an individual who, directly or indirectly, through a contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The term “indirectly” means that a reporting company will need to trace its ownership back through any entities in the ownership chain to identify the individual or individuals who own, ultimately own, or control the company.

The term “beneficial owner” does not include (i) a minor, if the minor’s parent or guardian provides the required information; (ii) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; (iii) an employee of the company and whose control over or economic benefits are derived solely from his or her employment; (iv) an individual whose only interest is through a right of inheritance; or (v) a creditor (only in their capacity as such).

What constitutes “beneficial ownership disclosure” under the NY Act?

The NY Act requires each reporting company file an initial report or beneficial ownership disclosure to identify each beneficial owner by (i) full legal name; (ii) date of birth; (iii) current business street address, and (iv) a unique identifying number from an acceptable identification document defined in the CTA (31 U.S.C. § 5336 (A)(1)). Acceptable identification documents include a non-expired passport issued by the United States or a foreign government, and a non-expired identification document issued by a State, local government or Indian Tribe.

When must the information be filed with NY DOS under the NY Act?

Domestic limited liability companies in existence on December 22, 2024 and foreign limited liability companies authorized to do business in New York on such date will have to file their beneficial ownership disclosure information or a signed statement of exemption by January 1, 2025.

Domestic limited liability companies formed after December 22, 2024 and foreign limited liability companies first qualifying for authority to do business in New York on or after such date will be required to file their beneficial ownership disclosure information or a signed statement of exemption at the time of formation or application for authority, as applicable, in New York. While the NY Act is not exactly a model of clarity (as it seems to state that the beneficial ownership information is to be included in the articles of organization or application for authority, which would make such information publicly available), we believe that a more reasonable interpretation of the NY Act would be that the articles of organization or application for authority would need to either confirm that the entity is an exempt company or that it has filed the required beneficial ownership information.

The NY Act permits reporting companies to file a copy of the report they filed with FinCEN pursuant to the CTA to satisfy the New York reporting requirements.

Are Reporting Companies required to update their beneficial ownership information?

Yes. While the NY Act is not particularly well written on this issue (as it seems to state that the  articles of organization or application for authority must be amended to reflect updated beneficial ownership information every time a change occurs in such information, which not only would make such information publicly available but could result in significant legal and filing fees for Companies that have frequent changes in such information), the NY Act does require that this information be current. As Section 211 of the NY Limited Liability Company Law gives LLCs 90 days to amend their articles of organization to reflect the events enumerated in such Section, and the NY Act amends Section 211 to include changes in beneficial ownership, presumably LLCs will have 90 days to report such changes. Given the somewhat lengthy time period, questions will inevitably arise regarding what needs to be reported. For example, if an individual ceases to be a beneficial owner within 90 days after first becoming a beneficial owner, would the Company need to report that such person was a beneficial owner even though by the time the report was filed they ceased to be such?

What are the penalties for failing to comply with the NY Act?

The NY Act establishes civil penalties for noncompliance. A reporting company which has failed to file the beneficial ownership disclosure as required for more than 30 days shall be shown as “past due” on the NY DOS records until an update report is filed. If the failure continues for more than two years, the company shall be shown as “delinquent” on the records of NY DOS after a notice of delinquency has been mailed to the last known business address of such reporting company, and such company has failed to file such information within 60 days of the mailing of such notice.  Such delinquency will be removed from the records of the NY DOS upon the delinquent reporting company filing an up-to-date beneficial ownership disclosure and paying a $250 civil penalty.The penalties are much less serious than those imposed under the CTA, which provides for criminal and civil penalties for willful noncompliance, provides that persons who knowingly provide false or fraudulent information or willfully fail to report complete or updated information may be fined $10,000 and/or imprisoned for up to two years, and imposes a civil penalty of $500 for each day that the violation continues.

An interesting question is how, exactly, the NY DOS will know when a report is past due when the NY DOS only knows of changes when they are reported to it. The most obvious example is a change of the business street address of a beneficial owner. Presumably the NY DOS is not assigning a team of employees to check business street addresses of beneficial owners on a 24/7/365 basis, even assuming there was some way that the NY DOS could ascertain such information. Likewise, we assume that the NY DOS is not scouring court records throughout the world (as beneficial owners could live anywhere) to check name change applications against their database of beneficial owner names. The NY DOS will know of changes in beneficial ownership information when they are informed of the change, at which point the entity will have cured the failure (including by paying the $250 fine, if applicable). Unless the NY DOS is acquiring information via telepathy or is omniscient, we don’t see how companies will ever be listed as past due, other than by a third party or disgruntled employee reporting a company as being in breach (which, given the de minimis consequences, doesn’t seem likely). The simple fix for this would be to require companies when filing bi-annual statements to confirm that there has been no change to their most recently reported beneficial ownership information, with the penalties set forth above for filing to provide either such confirmation or the updated information.

What should LLCs do to comply with the NY Act?

Prior to January 1, 2025, companies should check to see if NY DOS has issued regulations for compliance with the NY Act. Once the rules have been issued, entities should review the regulations to confirm whether they must file an initial report or are eligible to file for an exemption. Additionally, companies should keep updated records of the required information for each owner and enhance their compliance processes to ensure that the required information is being collected and reported to NY DOS in accordance with the NY Act (and FinCEN in accordance with the CTA).

Companies should also include language in their operating agreement or similar document that requires owners of the company to regularly provide any information required to comply with the NY Act. Additionally, companies may want to consider indemnification provisions if an owner fails to timely provide the required information or provides false or incomplete information. If such operating agreement contains a confidentiality provision, it should include an exception to permit the company to report the required information to NY DOS and FinCEN.

Hopefully the legislature will amend the NY Act to provide clarifications with respect to the issues identified above or the NY DOS will promulgate rules and forms to provide such clarification.

For further information or guidance on revising your policies, procedures, and operating agreements, please contact David Paseltiner or Rose Egan.

Governor Signs Bill Limiting Amount Which May Be Withheld For Retainage On Private Construction Contracts[1] 

On November 17, 2023, Governor Hochul signed a bill[2] which, among other things, limits the amount of retainage which may be withheld on private construction contracts which equal or exceed $150,000 to no more than five percent.  This bill amends Sections 756-a and 756-c of the New York State General Business Law which address prompt payment of contractor claims.  The bill also permits contractors to submit a final invoice for payment in full upon reaching substantial completion instead of final completion. In the event that the owner fails to release the retainage as required by the bill, the contractor shall be entitled to recover “interest at the rate of one percent per month on the date retention was due and owing.”

When entering into construction contracts, it is important to understand the impact of this new law. Jaspan Schlesinger Narendran LLP can help you in negotiating construction contracts. If you need assistance, please contact Christopher E. Vatter at cvatter@jaspanllp.com or Laurel R. Kretzing at lkretzing@jaspanllp.com.  

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Christopher E. Vatter is a partner in Jaspan Schlesinger Narendran LLP’s Municipal and Litigation Practice Groups, where he represents both private and municipal clients.  Mr. Vatter focuses his practice in the areas of complex commercial litigation, municipal law, personal injury defense, construction law and banking litigation.

Laurel R. Kretzing is a partner in Jaspan Schlesinger Narendran LLP’s Municipal and Litigation Practice Groups, where she represents both private and municipal clients in a broad range of matters including personal injury defense, litigated real estate matters, construction matters and civil rights and municipal litigation.

[1] The material in this blog is meant only to provide general information and is not a substitute nor is it legal advice to you.

[2] https://www.nysenate.gov/legislation/bills/2023/A4167

Continuing our Transparency-is-in-Your-Future series, we now turn our focus to the beneficial ownership reporting requirements established in the (i) Corporate Transparency Act (“CTA”) and (ii) related regulations adopted by U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

FinCEN’s final rule is effective January 1, 2024. As this deadline approaches, we thought it would be helpful to take a deeper dive into the final rule to understand its requirements and exemptions. Our current topic is: who is a beneficial owner?

Who is a beneficial owner of a reporting company?

A “beneficial owner” of a reporting company is “any individual who, directly or indirectly, either exercises substantial control over such reporting company (“Substantial Control”) or owns or controls at least 25 percent of the ownership interests of such reporting company” (“25% Ownership”). Each (and every) individual that satisfies either of these two criteria and is not otherwise excluded, must be reported as a beneficial owner. FinCEN notes that at least one individual should satisfy the “substantial control” criterion.

A beneficial owner is not:

                (a)          a minor child, as defined under the law of the State or Indian tribe in which the reporting company is formed (or in which it is registered for a foreign reporting company); however, the reporting company must still report the required information of a parent or legal guardian of such minor child if such child has either Substantial Control or 25% Ownership;

                (b)          an individual acting as a nominee, intermediary, custodian or agent on behalf of another individual; however, the reporting company must still report the required information for the individual upon whose behalf such nominee, intermediary, custodian or agent is acting, if such individual has either Substantial Control or 25% Ownership;

                (c)          an employee, acting solely as an employee, whose substantial control over or economic benefits from such entity are derived solely from the employment status of the employee, provided that such person is not a senior officer as discussed below;

                (d)         an individual whose only interest in the reporting company is a future interest through a right of inheritance; however, the definition of ownership interest (discussed below) does broadly include other forms of future interests, options or other arrangements; or

                (e)          a creditor of such reporting company, who would otherwise constitute a beneficial owner, solely through rights or interests for the payment of a predetermined sum of money, such as a loan covenant or similar right that is intended to secure the right to receive payment or enhance the likelihood of repayment.

What is “Substantial Control”?

An individual exercises Substantial Control over a reporting company, if such individual:

                (a)          serves as a senior officer (e.g. president, chief financial officer, general counsel, or any other officer, regardless of official title, that performs a similar function);

                (b)          has authority to appoint or remove a senior officer or a majority of the board of directors or a similar body;

                (c)          has substantial influence or determines important decisions made by the reporting company; or

                (d)         has any other form of substantial control over the reporting company.

Examples of clause c (substantial influence over important decisions) include, but are not limited to, whether to (i) sell, lease or mortgage principal company assets, (ii) reorganize, dissolve or merge the company, (iii) amend the corporate governance documents (such as the bylaws, operating agreement or formation documents), (iv) issue equity or incur debt, (v) enter into or terminate substantial contracts, or (vi) expand into new lines of business or geographic areas.

Can Substantial Control be indirectly exercised?

Yes. An individual may exercise Substantial Control over a reporting company, directly or indirectly, including as a trustee of a trust or through control of one or more intermediary entities that separately or collectively exercise substantial control over the reporting company. FinCEN’s final rule also provides direct and indirect exercise of Substantial Control may be through board representation, control of a majority of the voting power, or any other contract, arrangement, understanding, relationship, or otherwise.

What is an “ownership interest”?

An ownership interest is broadly defined to include:

                (a)          any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights;

                (b)          any capital or profit interest in an entity;

                (c)          any instrument convertible, with or without consideration, into any share or instrument described in (a) or (b) above, any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest described in (a) or (b) above, regardless of whether characterized as debt;

                (d)         any put, call, straddle, or other option or privilege of buying or selling any of the items described in (a), (b) or (c) above, without being bound to do so, except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; or

                (e)          any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.

Before you ask – Yes, indirect ownership or control of ownership interests is covered in the FinCEN final rule as well.

An individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise. For example, indirect ownership may be established through:

                (a)          joint ownership;

                (b)          another individual acting as a nominee, intermediary, custodian, or agent on behalf of such individual;

                (c)          a trust or similar arrangement that holds such ownership interest, either as (i) a trustee of the trust or other individual (if any) with the authority to dispose of trust assets or (ii) a beneficiary who: (x) is the sole permissible recipient of income and principal from the trust, (y) has the right to demand a distribution of or withdraw substantially all of the assets from the trust, or (z) a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust; or

                (d)         ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.

How do I calculate my total ownership interest of a reporting company?

Step 1: Add the total ownership interest that you, directly or indirectly, own or control, presently and treat any options or similar interests as exercised.

Step 2: Divide the sum from Step 1 by the total outstanding ownership interests of the reporting company.

Step 3: Multiply the quotient from Step 2 by 100 to determine your percentage of ownership interest in the reporting company.

Note:     For any reporting company that issues capital or profit interests, the individual’s ownership interest is the capital or profit interests calculated as a percentage of the total outstanding capital and profit interests of the reporting company (following the steps as described above).

For any reporting company that issues shares of stock, the applicable percentage of an individual’s ownership is the greater of: (a) the individual’s total combined voting power of all classes of ownership interest as a percentage of total outstanding voting power of all classes of ownership interests entitled to vote, or (b) the individual’s total combined value of the ownership interests as a percentage of the total outstanding value of all classes of ownership interests.

Finally, if the circumstances within the reporting company do not allow the calculations described in the two preceding paragraphs to be determined with reasonable certainty, then any individual who owns or controls 25 percent of more of any class or type of ownership interest should be deemed to own or control 25 percent of more of the reporting company, and thus be reported as a beneficial owner of such reporting company.

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In the next few months, each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will require its owners to timely disclose the information required to be provided under the regulations and provide for consequences for failing to do so.

For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan.

The Apple TV streaming series Ted Lasso is unlike any television show I’ve encountered. With the explosion of online streaming content, many high quality streaming series (GoT, Ozark, Chernobyl, Bloodline, etc.) pride themselves on grittiness and high drama.  Ted Lasso is the antithesis.  The series consistently provides uplifting, feel-good viewing on a humorous backdrop.  Compared to our current polarized environment, Ted Lasso promotes empathy, kindness, and understanding (while being enjoyable and funny).  

Who, what is Ted Lasso? I’ll tell you…AND I will tell you the lessons I, as a 35-year plus transactional legal veteran, learned from the wonderful series when ruminating about my transactional law practice.

However, before we go any further, there are Ted Lasso spoilers ahead and I (as your self-appointed streaming/content counsel) advise you to continue reading at your streaming peril unless and until you complete the three-season series.

The titular character (Ted) is a successful NCAA Division II (American) football coach.  He is hired away by the owner (Rebecca) of a failing British soccer club with the goal of making the team flounder to upset her ex-husband (Rupert) from whom she received the club in divorce settlement. His star players are Jaimie Tartt and Roy Kent. The club’s kit man (locker room attendant) is Nate and the team’s PR director is Keeley. Along his sojourn from his success at Wichita State football, Ted brings along his assistant, Coach Beard.  Throughout the team’s struggles, there are uplifting lessons to be learned and laughs to be had (including some of the best scenes in comic streaming history).

Now, a brief digression (which served as my muse for writing this piece) follows. Ted is from Kansas.  On his journey from home, he brings along his constant companion Coach Beard to a land run by Rebecca where he meets meek Nate, not so smart Jamie, and heartless Roy. SOUND FAMILIAR? Yes, I recognized that Ted Lasso is the Wizard of Oz (especially in Season 3 ). It is not a determining or dominant factor throughout the series; but the Wizard of Oz undercurrent is constant. I’d be happy to debate with you all of the ways in which the show draws upon the Wizard of Oz: overtly in the “There’s no place like home” signs around the Richmond football team stadium and Ted’s red sneakers (clicked together three times during a victory dance) as well as to much more subtle callbacks.

However, we are not going to go down that rabbit hole (pun intended) and dig deeply into things like how “Scarecrow” Jamie Tartt progressed from a simpleton to becoming one of the more thoughtful and astute characters throughout the show (after getting his metaphorical brain) or why Keeley can be viewed as the nice witch Glenda.

When questioning my land of Oz hypothesis, I started to think about how Ted Lasso (above and beyond the wonderful messages and life-coaching advice the show overtly renders episode to episode) lends to other walks of life. In so doing, I settled upon my own legal practice. Let’s take the major Ted Lasso  characters one by one and see how their attributes harken to transactional legal practice:

“Dorothy” Ted:  The Dorothy in any negotiated transaction is each lead attorney in the transaction. Counsel must navigate a number of obstacles (and adapt using lessons learned along the way) to achieve a favorable “go home” closing result for her client.

“Scarecrow” Jamie: Counsel must draw upon knowledge base and augment it from time to time.

“Lion” Nate: In any negotiation, a transactional attorney must pick the appropriate deal points to display courage and effectively advocate for client objectives.  Remaining neutral throughout the course of a deal as a rule will fail when faced with a situation that calls for one’s roar of controlled aggression.

“Tin Man” Roy:  In negotiating a transaction, counsel must be able to empathize and understand the counterparty’s desires for certain terms.  Having this type of heart/understanding enables your side of the transaction to achieve its own most-desired negotiated deal points.

“Toto” Beard –  Every negotiating advocate Dorothy needs a trusted support system including junior counsel, paralegals, technology, and support staff.

“Be a goldfish” –  One Lasso saying is “be a goldfish.”  The basis for Ted’s pithy advice is that there are situations where having a short memory is beneficial to your maturation as a person and professional.  Apparently, goldfish have a memory span of only a handful of seconds.  Many times, while I am slugging out deal points in a financing or M&A transaction, the other party will digress and focus on the history of negotiations or “how we got here.”  In that situation, it may very well be best to focus the transaction parties on the NOW (rather than the past)…be a goldfish. 

The entirety of the subject transaction is the Richmond UK suburb of London (Oz) and serves as the landscape for the evolving journey of getting a significant transaction closed to the satisfaction of your client.  It is in Oz (Richmond, the deal) that you/Dorothy navigate the steps that your Wizard (Rebecca, your client) laid out in order to overcome the hurdles to achieve a homecoming closing.  Chief among those hurdles may be the Wicked Witch of the West — that’s Ruppert (heck, in the show he owns the West Ham Football Club archrival). 

I liken the Ruppert hurdles in a transaction to things like adverse discoveries in due diligence, difficult to obtain third party consents, regulatory approvals, financing contingencies, tax planning, documentation, and purchaser/seller remorse.  I BELIEVE a competent transactional attorney needs to be smart, courageous, empathetic, and able to draw upon her support team when needed in order to step out of  the Crown and Anchor Pub (metaphorical Munchkinland) and touch down in a deal closing  (metaphorical Kansas).

Look for my next blog release “Game of Thrones, Commercial Litigation, and You” coming in November 2023.

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Author Robert Londin is a partner in the Jaspan Schlesinger Narendran LLP Commercial Transactions Practice group regularly negotiating M & A, Emerging Growth Company, Executive Compensation, Private Equity, Secured Lending and Complex Litigation Settlement Transactions.

As previously discussed here, Congress enacted the Corporate Transparency Act (the “Act”) to require certain entities to file information about its beneficial ownership with the intent to prevent and combat money laundering, corruption, tax fraud and other illicit activity. Pursuant to the Act, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) has adopted regulations and will establish a private national database for the information collected.

FinCEN’s final rule is effective January 1, 2024. As this deadline approaches, we thought it would be helpful to take a deeper dive into the final rule to understand its requirements and exemptions. In the coming weeks, we will discuss various related topics including who is a beneficial owner, what entities are exempt and why to apply for a FinCEN identifier.

Who must file the report with FinCEN?

Each reporting company is responsible for filing accurate and complete information with FinCEN regarding the reporting company itself and the beneficial ownership of such company. An individual acting on behalf of the reporting company must certify that the information submitted is true, correct and complete.

A “reporting company” is “any entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or tribal jurisdiction,” and includes corporations, limited liability companies, limited partnerships and, where they exist limited liability partnerships. A reporting company can be either a domestic entity or a foreign entity formed under the law of a foreign country that registers to do business in any state or tribal jurisdiction.

A “beneficial owner” is any individual who, directly or indirectly, either exercises substantial control or owns or controls at least 25 percent of the ownership interests of a reporting company.

What information must be filed with FinCEN?

Reporting companies must provide identifying information about the company itself and its beneficial owners. If the company was formed on or after January 1, 2024, then the report must include information on the company applicant (as defined below) as well.

A reporting company must provide, its:

                (i)           full legal name,

                (ii)         all tradenames and doing business names regardless of whether such name is registered with any governmental authority,

                (iii)        current street address for the company’s principal place of business in the United States. If the company’s principal place of business is outside the United States, then the primary location in the United States where it conducts business. Companies cannot provide P.O. boxes or third party addresses (such as the address for the company formation agent),

                (iv)        jurisdiction of formation, whether state, tribal or foreign. Foreign reporting companies must also provide the jurisdiction where it first registered to do business in the United States, and

                (v)         taxpayer identification number.

For every beneficial owner, reporting companies must provide, his or her:

                (i)           full legal name,

                (ii)         date of birth,

                (iii)        current residential street address, and

                (iv)        the unique identifying number and the issuing jurisdiction from one of the following documents (including an image of such document): (a) a non-expired U.S. passport, (b) a non-expired identification document issued by a state, local government or Indian tribe, (c) a non-expired driver’s license issued by a state, or (d) if none of these documents have been issued to such individual, then a non-expired, foreign-issued passport.

Additionally, reporting companies formed on or after January 1, 2024, must provide the above information for every individual who directly files the document that creates the reporting company (the “company applicant”). If the company applicant formed or registered the company as part of their business, then the street address of such business may be provided instead of the company applicant’s residential street address.

When must the reporting company file the report with FinCEN? (Below has been revised as of January 12, 2024)

Where must the reporting company file the report with FinCEN?

As of January 12, 2024, FinCEN is now accepting beneficial ownership information reports. Filing is simple, secure, and free. To find out more about the reporting process, visit https://www.fincen.gov/boi.

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In the next few months, each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will require its owners to disclose the information described above.

For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan. You can follow our blog for more information as it becomes available.

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For anyone who thinks they can develop, deploy, use, or market artificial intelligence with impunity, think again.

Today the Federal Trade Commission (FTC), the Department of Justice Civil Rights Division (DOJ), the Consumer Financial Protection Bureau (CFPB), and the U.S. Equal Employment Opportunity Commission (EEOC) released a joint statement (the “Joint Statement”) reminding the public that “[e]xisting legal authorities apply to the use of automated systems and innovative technologies just as they apply to other practices.” (See Joint Statement on Enforcement Efforts Against Discrimination and Bias in Automated Systems.) Specifically, the Joint Statement warned that “automated systems marketed as ‘artificial intelligence’ or ‘AI’” have the potential to magnify problems that fall under agency enforcement authority, including “the potential to perpetuate unlawful bias, automate unlawful discrimination, and produce other harmful outcomes.” (See Joint Statement on Enforcement Efforts Against Discrimination and Bias in Automated Systems.) In other words, automated systems/innovative technologies/artificial intelligence/AI are subject to agency authority and rules.

The Joint Statement outlined that these federal agencies are “responsible for enforcing civil rights, non-discrimination, fair competition, consumer protection, and other vitally important legal protections” and listed some of each agency’s prior advice concerning the potential negative impact automated systems labeled “artificial intelligence” or “AI” could have on such rights. (See Joint Statement on Enforcement Efforts Against Discrimination and Bias in Automated Systems.)

Regarding unlawful discrimination in automated systems, the Joint Statement noted that (1) data and data sets, (2) model opacity and access, and (3) design and use can each contribute to potential discrimination in automated systems. (See Joint Statement on Enforcement Efforts Against Discrimination and Bias in Automated Systems.) These warnings, however, are not new, and the Joint Statement reminded the public of this fact, outlining previous warnings given by each agency concerning the “potentially harmful uses of automated systems.” The Joint Statement outlined the following such oversight warnings:

If the Joint Statement was not clear enough for anyone designing, deploying, marketing, and using automated systems and artificial intelligence to understand the seriousness of this Joint Statement, the FTC’s release of the Joint Statement was even clearer, stating these federal agencies “resolved to vigorously enforce their collective authorities and to monitor the development and use of automated systems.” (See FTC Chair Kahn and Officials from DOJ, CFPB and EEOC Release Joint Statement on AI.) The FTC release went on to remind the public: “There is no AI exemption to the laws on the books, and the FTC will vigorously enforce the law to combat unfair or deceptive practices or unfair methods of competition.” (See FTC Chair Kahn and Officials from DOJ, CFPB and EEOC Release Joint Statement on AI.)

What is the Takeaway?

In my prior article Beware, Quack-Quack Is In the AIr: Is Artificial Intelligence/AI Really So Smart?, I concluded: “Like the characters in 1984, today’s artificial intelligence speaks not with a brain but a larynx. It produces ‘noise uttered in unconsciousness’—at least for now.  We are still the humans in the room with voices connected to our brains—at least for now. It is time to use them to guide the conversation.”

In my article Unpacking the FTC’s Warning to “Keep Your AI Claims in Check”, I concluded that “the FTC is warning developers, sellers, and marketers of AI products to be very careful about testing, labeling, and advertising AI products and to ‘Keep your AI claims in check’ or risk experiencing the serious p(ai)n of a FTC investigation or enforcement action.”

My takeaway here is that the days of the wild west for the design, development, deployment, and marketing of artificial intelligence/AI are over; the proverbial federal agency sheriffs are coming to town. And just behind them are the litigators.

In December 2021, Shannon Boettjer, Esq. successfully completed the course Artificial Intelligence: Implications for Business Strategy through the Massachusetts Institute of Technology (MIT) in conjunction with MIT Sloan School of Management and MIT Computer Science and Artificial Intelligence Laboratory (CSAIL). Shannon has presented to the New York State Bar Association (NYSBA) Commercial and Federal Litigation Section Data Security and Technology Litigation Committee concerning the role of federal agencies in regulating the use, development, deployment, and marketing of artificial intelligence and the inherent potential benefits and risks AI poses to society.

AI, Machine learning, robot hand ai artificial intelligence assistance human touching on big data network connection background, Science artificial intelligence technology, innovation and futuristic.

On February 27, 2023, the Federal Trade Commission (FTC) business blog released a not so thinly-veiled warning to AI developers, sellers, and marketers that they have a duty of care when using the term “artificial intelligence” to market a product, stating: “one thing we know about hot marketing terms is that some advertisers won’t be able to stop themselves from overusing and abusing them.” The article advised that the FTC is prepared to use enforcement actions to keep AI claims in check. (See Federal Trade Commission Business Blog Keep your AI claims in check.)

Specifically, the article noted that “the companies that do the developing and selling” and the “marketers” behind the products are now on notice that AI products (1) must work as advertised and (2) must pass the efficacy versus risk test. (See id.) To punctuate the seriousness of this point, the FTC business blog warned: “false or unsubstantiated claims about a product’s efficacy are our bread and butter.” (bold emphasis added.) In other words, the FTC intends to take enforcement action against deceptive AI business advertising. (See id.)

The article set forth the following list of mistakes to avoid when developing, selling, and marketing AI products:

  1. Avoid deceptive advertising of AI products through exaggeration of AI claims. If the developer, seller, or marketer of an AI product has exaggerated what the AI product (or any AI product for that matter) can do, or has failed to rigorously test the AI product, or has failed to account for and address potential bias in outcomes, the FTC could bring an enforcement action for deceptive advertising. Specifically, the FTC warns: “Your performance claims would be deceptive if they lack scientific support or if they apply only to certain types of users under certain conditions.” (See Federal Trade Commission Business Blog Keep your AI claims in check.)
  2. Avoid overpromising the benefits of an AI product. The FTC guidance in this area was short and sweet: if you are advertising AI product enhancement to increase the price of a product or to influence human decision-making, you must be able to provide “adequate proof” to support any claims made about the AI product. Period. (See Federal Trade Commission Business Blog Keep your AI claims in check.)
  3. Know the risks of your AI product. AI products, often produced by third parties, may be developed through machine learning (ML) and/or deep learning (DL). The FTC warns that those who put AI products to market cannot rely on the “it wasn’t me” defense or the AI “black box”[1] defense to avoid liability for the “reasonably foreseeable risks and impact of your AI product[.]” This means that developers, sellers, and marketers of AI products alike must seriously consider and explore the risks and impact of any AI product prior to the AI product being released. (See Federal Trade Commission Business Blog Keep your AI claims in check.)
  4. Make straightforward and accurate AI claims. If the product claims to be AI-powered, the AI claim must be accurate. The FTC warns that inaccurate AI claims can and will be sniffed out by the FTC. (See Federal Trade Commission Business Blog Keep your AI claims in check.)

What is the Takeaway?

The takeaway from this recent FTC business blog guidance: the FTC is warning developers, sellers, and marketers of AI products to be very careful about testing, labeling, and advertising AI products and to “Keep your AI claims in check” or risk experiencing the serious p(ai)n of a FTC investigation or enforcement action.

In December 2021, Shannon Boettjer, Esq. successfully completed the course Artificial Intelligence: Implications for Business Strategy through the Massachusetts Institute of Technology (MIT) in conjunction with MIT Sloan School of Management and MIT Computer Science and Artificial Intelligence Laboratory (CSAIL).

[1] AI black box refers to “any artificial intelligence system whose inputs and operations aren’t visible to the user or another interested party. A black box, in a general sense, is an impenetrable system.” (See What is Black Box AI?) For a further explanation of how deep learning and neural networks operate to create the so-called AI black box, see id.; see also, my prior blog on Artificial Intelligence Beware: Quack-Quack is in the Air.

As he watched the eyeless face with the jaw moving rapidly up and down, Winston had a curious feeling that this was not a human being but some kind of dummy. It was not the man’s brain that was speaking, it was his larynx. The stuff that was coming out of him consisted of words, but it was not speech in true sense: it was a noise uttered in unconsciousness, like the quacking of a duck.  

Orwell, George. 1984. Penguin Classics (2021).

Anyone who has read George Orwell’s 1984 might remember this passage, or any of the other references to such mindless quacking. Orwell wrote about the importance of maintaining the connection of the human brain to individual (and collective) thinking, acting, and speaking, and warned of the dire consequences that would come if humans allowed their brains to disconnect. If ever there were a time to heed Orwell’s warning, it is now.

In November 2022, a new duck developed by the company OpenAI powered by Large Language Model (LLM) machine learning (ML) descended onto the world scene. Its name—ChatGPT. (See OpenAI, “Introducing ChatGPT”.) The launch promised that the AI-powered chatbot “interacts in a conversational way” and can “answer followup questions, admit its mistakes, challenge incorrect premises, and reject inappropriate questions.” (See id.) The seemingly so-cool bot has since made talking about AI fashionable among non-techies (and even lawyers). With AI on the (and manipulating) the brAIn, I figured this would be a good time to start writing about it in a way that non-techies (and lawyers) can appreciate and understand.

Though artificial intelligence has been lurking under the surface of much of what we do for years—think, for example, Siri, Alexa, Grammarly, chatbots, your Roomba—many, if not most, ordinary people still do not know much about it. The United States Congress, too, is struggling to understand the role of AI in society and legislation. Even the Supreme Court is confounded by these issues. It was only last month during oral arguments in the case Gonzalez v. Google LLC that several Supreme Court justices expressly stated that they were confused by the arguments before the Court concerning algorithms and the internet.[1] Thus, regardless of education level, many people find AI and algorithms befuddling. And only several months ago, before ChatGPT became all the rage, they also found the subject boring.

But AI and algorithms have very serious implications for society, business, and law. It is therefore time for average people, businesspersons, and lawyers (gasp) to begin understanding at least the basic principles of artificial intelligence. Otherwise, how can we engage in (as opposed to be confused by) the conversation, debate, and hype. 

To understand and follow AI, you must have a working relevant vocabulary. Below I have provided a few key terms with understandable definitions, explanations, and references to provide a good starting point for non-tech people in business and law to learn the common vocabulary to begin engaging in discussions and decision-making about AI.[2]

Key Vocabulary and Concepts

Artificial Intelligence. In describing artificial intelligence (AI), IBM writes: “At its simplest form, artificial intelligence is a field, which combines computer science and robust datasets, to enable problem-solving.” (See, What is Artificial Intelligence? By IBM.) The definition of artificial intelligence by IBM continues: “It also encompasses sub-fields of machine learning and deep learning, which are frequently mentioned in conjunction with artificial intelligence. These disciplines are comprised of AI algorithms which seek to create expert systems which make predictions or classifications based on input data.” (See, id.) Significantly, this definition references both machine problem-solving, the “simple form” of AI, and the sub-fields that have been pushing the boundaries of AI for the past several years, such as machine learning and deep learning, described below.

Algorithm. According to TechTarget, “[a]n algorithm is a procedure used for solving a problem or performing a computation. Algorithms act as an exact list of instructions that conduct specified actions step by step in either hardware – or software-based routines.” (See Techtarget.com/what is/definition/algorithm.) This definition of algorithm is easy to understand and visualize; it allows you to think of an algorithm like a recipe. When the recipe is well-written and followed exactly, the dish turns out as anticipated. When the recipe is missing ingredients, is printed out of order, and includes the wrong temperatures and measurements, the dish is prone to fail. In other words, the exactness of the recipe—and the algorithm—has a direct correlation to the outcome. 

Machine Learning. “Machine learning is a subfield of artificial intelligence, which is broadly defined as the capability of a machine to imitate intelligent human behavior. Artificial intelligence systems are used to perform complex tasks in a way that is similar to how humans solve problems.” (See Machine Learning Explained, Sara Brown, MIT Management Sloan School, April 21, 2021.) The operative phrase in this definition is “imitate intelligent human behavior.” Though machine learning (ML) can cause the machine to appear like it is thinking, reasoning, and using human-like judgment, it is not. Rather, the machine is typically describing, predicting, or prescribing outcomes based upon its interpretation of large data sets. (See, id.) For more information about AI generally and its future implications, see, Artificial Intelligence and the Future of Work.)

Neural Networks. IBM explains: “Neural networks, also known as artificial neural networks (ANNs) or simulated neural networks (SNNs), are a subset of machine learning and are at the heart of deep learning algorithms. Their name and structure are inspired by the human brain, mimicking the way that biological neurons signal to one another. (See, What are Neural Networks by IBM.) Diagrams of neural networks in action depict how the machine takes in particular data/information, passes it through layers of neural networks working with the inputs (sometimes referred to as a black box), and produces an outcome after the process. (See, id.) The point here is that humans do not control or teach the machine algorithms as the inputs pass through the neural networks (and often do not even understand it). Rather, the machine learns on its own during the process; hence the term “machine learning.”[3] Much of the concern about bias and explainability in AI center around neural networks, machine learning, and deep learning. It goes without saying that machines working with garbage input will produce garbage output.

Deep Learning. “Deep learning is a subset of machine learning, which is essentially a neural network with three or more layers. These neural networks attempt to simulate the behavior of the human brain—albeit far from matching its ability—allowing it to “learn” from large amounts of data. While a neural network with a single layer can still make approximate predictions, additional hidden layers can help to optimize and refine for accuracy.” (See, What is deep learning? By IBM; see also, What is Artificial Intelligence? By IBM.) In case you missed it, deep learning (DL) “attempts to simulate the behavior of the human brain” to “learn” from large data sets. But just as I noted in the section on ML, this sub-section of ML is still only a facsimile of intelligent human behavior.

Natural Language Processing. “Natural language processing is a field of machine learning in which machines learn to understand natural language as spoken and written by humans, instead of the data and numbers normally used to program computers.” (See Machine Learning Explained, Sara Brown, MIT Management Sloan School, April 21, 2021; see also, What is natural language processing (NLP)? By IBM.) Natural language processing (NLP) “allows machines to recognize language, understand it, and respond to it, as well as create new text and translate between languages. Natural language processing enables familiar technology like chatbots and digital assistants like Siri or Alexa.” (See Machine Learning Explained, Sara Brown, MIT Management Sloan School, April 21, 2021.) NLP is what drives language-based AI programs. Until recently, it has been somewhat underwhelming for general application[4] to certain fields (like law).

Large Language Models.

Techopedia explains: “A large language model (LLM) is a type of machine learning model that can perform a variety of natural language processing (NLP) tasks, including generating and classifying text, answering questions in a conversational manner and translating text from one language to another.” (See, Techopedia Definition of Large Language Models.) The operative word in the term large language models is “large,” which “refers to the number of values (parameters) the model can change autonomously as it learns. Some of the most successful LLMs have hundreds of billions of parameters.” (See, id.)[5]

Generative AI. “Generative AI is a type of artificial intelligence technology that can produce various types of content including text, imagery, audio and synthetic data.” (See, What is Generative AI? Everything You Need to Know, by George Lawton.) George Lawton’s article provides a more detailed explanation of how generative AI has evolved and works. The key takeaway for this article is that generative AI generates content that looks and sounds impressive to humans. It is the AI that drives ChatGPT and a slew of other new technologies coming to market at record pace. Generative AI, unlike traditional NLP, is not underwhelming but overwhelmingly catching on (even in law).

Generative AI v. AI. “Generative AI produces new content, chat responses, designs, synthetic data or deep fakes. Traditional AI has focused on detecting patterns, making decisions, honing analytics, classifying data and detecting fraud.” (See, What is Generative AI? Everything You Need to Know, by George Lawton.)

Weak/Narrow AI. The terms “weak” or “narrow” AI have been used to describe the current state of artificial intelligence. As explained by IBM, however, the terms may be misnomers in that they suggest that the machine is not strong or powerful, which is not necessarily the case:

Weak AI—also called Narrow AI or Artificial Narrow Intelligence (ANI)—is AI trained and focused to perform specific tasks. Weak AI drives most of the AI that surrounds us today. ‘Narrow’ might be a more accurate descriptor for this type of AI as it is anything but weak; it enables some very robust applications, such as Apple’s Siri, Amazon’s Alexa, IBM Watson, and autonomous vehicles. (See, What is Artificial Intelligence? By IBM.)

The development of AI today has created a path of narrow AI bricks that, when combined and extended, are likely forming the path to general AI, described below, (a/k/a Nirvana (?), heaven (?), hell (?), human extinction (?)). Where this AI path takes us, in my view, will depend on how quickly and thoughtfully leaders, lawyers, and general citizens get involved in directing the future of AI.

Strong/General AI. I turn again to IBM to describe strong/general AI:

Strong AI is made up of Artificial General Intelligence (AGI) and Artificial Super Intelligence (ASI). Artificial general intelligence (AGI), or general AI, is a theoretical form of AI where a machine would have an intelligence equaled to humans; it would have a self-aware consciousness that has the ability to solve problems, learn, and plan for the future. Artificial Super Intelligence (ASI)—also known as superintelligence—would surpass the intelligence and ability of the human brain. While strong AI is still entirely theoretical with no practical examples in use today, that doesn’t mean AI researchers aren’t also exploring its development. In the meantime, the best examples of ASI might be from science fiction, such as HAL, the superhuman, rogue computer assistant in 2001: A Space Odyssey. (See, What is Artificial Intelligence? By IBM.)

The key to general AI is that a machine with general AI would not be mimicking the intelligence, consciousness, and judgment of humans, it would actually possess those traits and surpass humans.

Why Talk About Orwell and AI Now?

AI is rapidly becoming ubiquitous in business and society, and generative AI technology will only hasten its prevalence. Now is the critical time for leaders and citizens alike to understand the machines that are guiding us–literally. Very recently, MIT professor Aleksander Mądry spoke before Congress, urging lawmakers to get involved in shaping the future of AI and not leaving it up to Big Tech, testifying:

We are at an inflection point in terms of what future AI will bring. Seizing this opportunity means discussing the role of AI, what exactly we want it to do for us, and how to ensure it benefits us all. This will be a difficult conversation but we do need to have it, and have it now[.]

(See, MIT professor to Congress: “We are at an inflection point” with AI Aleksander Mądry urges lawmakers to ask rigorous questions about how AI tools are being used by corporations, MIT Washington Office Publication Date March 10, 2023.) I could not agree more.[6]

I love reading George Orwell and learning about (and using) AI, but both require effort, thinking, and conscious intent. Like the characters in 1984, today’s artificial intelligence speaks not with a brain but a larynx. It produces “noise uttered in unconsciousness”—at least for now.  We are still the humans in the room with voices connected to our brains—at least for now. It is time to use them to guide the conversation.

In December 2021, Shannon Boettjer, Esq. successfully completed the course Artificial Intelligence: Implications for Business Strategy through the Massachusetts Institute of Technology (MIT) in conjunction with MIT Sloan School of Management and MIT Computer Science and Artificial Intelligence Laboratory (CSAIL). Shannon is passionate about fostering partnering with machines in business and law and empowering leaders and general citizens to engage in shaping the future of artificial intelligence in business, law, and society.

[1] (See also Transcripts of the oral arguments.)

[2] The purpose of this article is not to provide a comprehensive, technical explanation of artificial intelligence. Rather, it is meant to be a guide for business and legal professionals to become familiar with AI.

[3] This overly simplified description is intended to highlight the general process of machine learning. For a more detailed and technical explanation, see the referenced articles.

[4] Though I would argue that AI has been exciting and overwhelmingly underused by the vast majority of attorneys (particularly in eDiscovery), in part, because law schools and law firms alike have not yet made technological competence/literacy a core part of legal training for every law student and practicing attorney.

[5] For a more robust explanation of Large Language Models and their impact on AI, see The Next Generation of Large Language Models by Rob Toews published by Forbes.com.

[6] While this article was being reviewed for print, Elon Musk and others signed an open letter seeking a six month pause on giant AI experiments .(See Pause Giant AI Experiments: An Open Letter.) Responding in large part to GPT, the Open Letter asserts: “AI research and development should be refocused on making today’s powerful, state-of-the-art systems more accurate, safe, interpretable, transparent, robust, aligned, trustworthy, and loyal.” (See id.) Like Professor Mądry, the signatories to the Open Letter opine that Congress and policy makers must be involved in the process, stating: “AI developers must work with policymakers to dramatically accelerate development of robust AI governance systems.” (See id.)

lawsuit

 

The Adult Survivors Act (“ASA”) took effect in New York State on November 24, 2022.  The ASA amends the statute of limitations in New York for civil actions arising from sexual offenses committed against persons over the age of 18.  Survivors of sexual assault have a one-year window – until November 24, 2023 – to file civil lawsuits for their claims regardless of how long ago the abuse occurred and irrespective of whether the original statute of limitations has already expired.  In addition to the alleged abusers, potential defendants in ASA civil lawsuits can include employers and institutions based on negligent or intentional acts in allowing and/or facilitating the alleged abuse to occur.  The ASA covers a broad array of sexual offenses, ranging from groping and forcible touching to rape and sodomy.

The ASA is modeled on the Child Victims Act (“CVA”), which became effective in August 2019, and which amended the statute of limitations in New York for civil actions arising from sexual offenses committed against persons under the age of 18.  The one-year window for CVA civil lawsuits (extended due to the Covid pandemic) expired in August 2021.  Aside from alleged abusers, frequently sued employers and institutions in CVA lawsuits included schools, religious institutions, and scouting organizations.  Those same employers and institutions will also likely face additional civil lawsuits under the ASA.  However, the pool of potential defendants likely to face civil lawsuits under the ASA has broadly expanded to include virtually all business entities, municipalities and government agencies, not-for-profit organizations, hospitals and health care providers, and professional services firms, to name a few.  Survivors of sexual abuse will be able to sue employers and institutions in cases where the alleged sexual abuse occurred in or was associated with the employment relationship.

So what can employers and institutions do in anticipation of possible ASA civil lawsuits and/or upon being named as defendants in ASA civil lawsuits?  This article will present strategies for employers and institutions to consider when faced with ASA civil lawsuits, especially since some of the claims could involve alleged sexual abuse that occurred decades ago.

If you are aware of claims and/or allegations of sexual abuse in the workplace which may not have been pursued at the time that the sexual abuse occurred, you should search, gather, review, and preserve available paper and electronic files, correspondence, and documents related to any such historical claims.

To the extent any such material is still available, you should search, gather, review, and preserve paper and electronic files, correspondence, and documents relating to any historical office policies and procedures for the reporting of any claim of sexual abuse occurring in the workplace or otherwise associated with the employment relationship.

If you are sued in a ASA civil lawsuit:

  • determine the existence of any liability insurance policy (including excess policies) which could have been in effect at the time of the alleged abuse which affords coverage for your business or organization;
  • if any such liability insurance policies are located, provide timely written notice of claim (including a copy of the lawsuit) to the liability insurance carrier with a request for a defense and indemnity;
  • conduct a diligent search for all paper and/or electronic files, correspondence and documents which are available concerning the plaintiff victim and the alleged abuser(s); and
  • if a liability insurance policy cannot be located, determine the existence of alternative proof of liability insurance coverage – that can include a variety of options ranging from written correspondence with an insurance broker or agent to reviewing prior litigation and historical records.

Depending on whether the plaintiff/victim commenced the lawsuit anonymously or by  pseudonym, you should be able to identify potential or actual witnesses who may have information concerning the alleged abuse, the plaintiff/victim, the alleged abuser, or anything pertaining to the policies/procedures in effect at the time of the alleged abuse.  If any potential or actual witnesses are still employed, you should interview them for relevant information about the allegations of abuse.  If any potential or actual witnesses are no longer employed, determine their last known addresses to provide to counsel to be interviewed during the investigatory stage of the lawsuit.

If you are unable to locate information establishing liability insurance coverage for the time of the alleged abuse, you may have to consider establishing financial reserves to protect against any possible settlement or judgment which may be obtained against your business or organization by the survivor plaintiff.

Even though the survivor plaintiff bears the burden of proving their claims in any ASA civil lawsuit, there are actions an employer can take to maximize the effectiveness of their defense while trying to minimize the financial exposure of an influx of ASA civil lawsuits.

If you have any questions or need any assistance in the defense of a ASA civil lawsuit and/or in determining the existence of liability insurance coverage to defend and indemnify you against a ASA civil lawsuit, please contact Scott Fisher in our Litigation Practice Group at (516) 393-8248 or at sfisher@jaspanllp.com