Trademarks blocks

On April 28, 2020, pursuant to the authority provided to it by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the United States Patent and Trademark Office (“PTO” or “Office”) further extended the time to file certain trademark-related documents or fees that would otherwise have been due on or after March 27, 2020.  The PTO also clarified the relief available to trademark applicants or owners who were unable to timely submit a filing or payment in reply to a communication from the PTO due to the COVID-19 outbreak, which resulted in the trademark application being held abandoned or the trademark registration expiring or being cancelled.

In accordance with Section 12004(a) of the CARES Act, the Director of the PTO has determined that, as of April 28, 2020, the emergency created by the COVID-19 pandemic has continued to prejudice the rights of applicants, registrants, trademark owners, or others appearing before the PTO in trademark matters, and has continued to prevent applicants, registrants, trademark owners, or others appearing before the PTO in trademark matters from filing a document or fee with the PTO.  In particular, the Director of the PTO has acknowledged that the spread of the coronavirus has significantly disrupted the operations of numerous businesses and law firms.  As a result, a person who is unable to meet trademark-related timing deadlines due to the COVID-19 pandemic may be eligible for a waiver of certain deadlines.

For any of the following categories, where the due date was due between, and inclusive of, both March 27, 2020, and May 31, 2020, will be considered timely if filed on or before June 1, 2020, 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:

i) 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);

ii) 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);

iii)  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);

iv) priority filing basis under 15 U.S.C. § 1126(d)(I) and 37 C.F.R. § 2.34(a)(4)(i);

v) priority filing basis under 15 U.S.C. § 1141g and 37 C.F.R. § 7.27(c);

vi) 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);

vii)  affidavit of use or excusable nonuse under 15 U.S.C. § 1058(a) and 37 C.F.R. § 2.160(a);

viii)  renewal application under 15 U.S.C. § 1059(a) and 37 C.F.R. § 2.182; or

ix) 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.

The PTO considers the effects of the COVID-19 outbreak to be an “extraordinary situation” within the meaning of 37 C.F.R. § 2.146 for affected trademark applicants and owners.  As such, the PTO is also providing relief in the form of a waiver of the petition fee to revive abandoned trademark applications and cancelled or expired trademark registrations.  In particular, for trademark applicants and owners who, because of the COVID-19 pandemic, were unable to timely submit a trademark filing or payment in reply to an Office communication having a due date of May 31, 2020, or earlier, such that the trademark application became abandoned or the trademark registration was cancelled or expired, the PTO will waive the petition fee to revive the abandoned application or reinstate the cancelled or expired registration.  The petition must include a statement that the delay in filing or payment was due to the COVID-19 pandemic, as discussed above.  The inclusion of the statement that the delay in filing or payment was due to the COVID-19 outbreak will be treated by the PTO as a request for a waiver of the petition fee under 37 C.F.R. § 2.6(a)(15).  In addition, the petition must be filed not later than two (2) months after the issue date of the notice of abandonment or cancellation.  37 C.F.R. §§ 2.66(a)(1) and 2.146(d)(1).  If, however, the trademark applicant or registrant did not receive a notice of abandonment or cancellation, the petition must be filed not later than six (6) months after the date the trademark electronic records system indicates that the application is abandoned or the registration is cancelled or expired.  37 C.F.R. §§ 2.66(a)(2) and 2.146(d)(2).

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 waivers for an extension of trademark filing or payment deadlines or petition fees are available only if the delay is due to the COVID-19 outbreak, as defined herein.  The PTO has stated that it will continue to  evaluate the evolving situation around the COVID-19 outbreak and its impact on the PTO’s operations.

If you have any questions regarding the extension of trademark filings or fees, the waiver of petition fees to revive abandoned trademark applications or cancelled trademark registrations, 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 sfisher@jaspanllp.com.

 

Themis, symbol of law on modern background.

After about ninety years, New York State has revised its fraudulent conveyance rules. Those who obtain and collect money judgments should be aware of the new, more uniform and clearer standards, reduced timelines, and changes in the burdens of proof. Here are some of the highlights of the new law.

  1. What Law Applies?

New York’s new Uniform Voidable Transaction Act applies to transfers made or obligations incurred after April 4, 2020. The old law applies to transfers which occurred before April 4, 2020. Under the new law, New York law will apply if the individual defendant principally resides in New York at the time of the transfer, or in the case of a defendant which is an organization, such as a corporation, New York law will apply if the organization has its place of business in New York.

  1. What transactions are covered?

The old law covered only “conveyances”, which meant “every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or encumbrance.” The new law is broader and defines “voidable transfers”, as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.”

  1. How Far Back Can the Creditor Look For Fraudulent Transfers?

The old law had a generous six year lookback period. Under the new law, there is only a four year lookback with respect to constructively fraudulent transfers or incurred obligations and the later of four years or one year from discovery in the case of intentionally fraudulent transfers. While this is a significant reduction in protection for creditors, it is still better than the lookback period in bankruptcy which is two years from the date of filing of the bankruptcy petition.

Because of the wording of the new law, it seems that the statute of limitations cannot be waived. This remains to be seen, but creditors should be mindful of this when formulating forbearance or other settlement plans.

  1. What Does the Creditor Need to Prove?

The old statute did not assign the burden of proof, but pursuant to case law, the party seeking to set aside the transfer had the burden of proving that the challenged transfer was fraudulent and the defendant had the burden of establishing any defenses to the fraudulent transfer. These rules are now expressly laid out in the new statute. Case law construing the old law applied a preponderance of the evidence (more likely than not) standard for constructive fraudulent conveyance claims and the heightened standard of clear and convincing evidence for intentional fraudulent conveyances. The new law prescribes a preponderance of the evidence standard for both constructive and intentional fraud, which is beneficial to creditors.

The new law preserves the claims of constructive fraud and actual fraud, but changes what has to be proven for each. The new law also adds a provision for insider transactions and does away with the so called “Litigation Defendant Rule”.

(a) Removal of the Litigation Defendant Rule.

The new law removes a provision of the old law which was beneficial to creditors. Under the old law, “[e]very conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for  the plaintiff, the defendant fails to satisfy the judgment.” Under the new law, the debtor’s status as a defendant in pending litigation at the time of the transfer is merely a factor to be considered when determining whether the challenged transfer was made with actual intent to hinder, delay or defraud the creditor.

(b) The New Insider Rules.

The old law had no special statutory rules or defenses for insider transactions, although there was case law which interpreted insider transactions as more suspect than other transactions. Under the new law, a transfer is voidable for one year after the transfer is made when the transfer was made to an insider on account of an antecedent debt, the debtor was insolvent at the time, and the insider had reason to believe that the debtor was insolvent. Available defenses include: new value, ordinary course of business, and a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.

(c) Proving Actual Fraud.

To prove actual intent to hinder, delay or defraud creditors, old case law allowed creditors to prove badges of fraud such as whether:

  1. the transfer or obligation was to an insider;
  2. the debtor retained possession or control of the property transferred after the transfer;
  3. the transfer or obligation was disclosed or concealed;
  4. before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
  5. the transfer was of substantially all the debtor’s assets;
  6. the debtor absconded;
  7. the debtor removed or concealed assets;
  8. the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
  9. the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
  10. the transfer occurred shortly before or shortly after a substantial debt was incurred; and
  11. the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.

Now these badges are expressly enumerated in the new law.

(d) Proving Constructive Fraud

Because proving the actual intent of fraudsters is so difficult, much of the old case law was devoted to construing the constructive fraud statute which stated:

“Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.” (emphasis supplied)

(i) insolvency

The old law regarded a person as insolvent “when the present fair salable value of his assets is less than the  amount that will     be required to pay his probable liability on his existing debts as they become absolute  and  matured.” There was no statutory test for insolvency under the old law.

Under the new law, “(a) A debtor is insolvent if, at a fair valuation, the sum of the debtor’s debts is greater than the sum of the debtor’s assets. (b) A debtor that is generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence.”

Under the new law, there are two tests for insolvency for purposes of constructive fraudulent transfer claims by a creditor:

  1. Was the debtor engaged or about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction? or
  2. Did the debtor intend to incur, or believe or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due?

(ii) Consideration

Under the old law, “Fair consideration” has two components, namely “fair value” and “good faith”.

The new law imposes a “reasonably equivalent value” standard, thereby removing consideration of intent in the context of a constructive fraudulent transfer.

Also of note is that the new law curtails the grounds for attack of a properly executed foreclosure sale in that it provides that reasonably equivalent value is given “if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust, or security agreement.”

  1. Attorneys’ Fees

Under the old law, attorney’s fees could be recovered for actual fraud; however, the case law required that both the transferee and transferor manifested fraudulent intent as a condition of an award of attorneys’ fees. Under the new law, attorneys’ fees can now be recovered for both constructive and actual fraud.

The new law has not been tested in New York State Courts yet because the state courts have been closed for all non-essential matters due to the Covid-19 pandemic. The Uniform Voidable Transactions Act has been adopted in many other states, so cases from other states can influence how the statute will be construed in New York. Whether the new law actually will benefit creditors or fraudsters remains to be seen.

If you have any questions about the new law or are considering bringing a fraudulent conveyance action, please contact Antonia Donohue at (516) 393-8217 or adonohue@jaspanllp.com.

Signing the agreement in the contract.

Unlike corporations, which are not required by law to have stockholders agreements (no matter how advisable that may be for its owners), limited liability companies formed in New York are required to have a written operating agreement. The requirement for a written agreement puts New York in a distinct minority of states – while several require operating agreements, most that do permit them to be written, oral or implied.

As the agreement of a limited liability company is required to be entered into before, at the time of or within ninety days after the filing of the articles of organization, the company is necessarily newly formed, and its owners may not want to invest significant time, effort and expense in drafting a lengthy operating agreement when they may be unsure of the viability of the business. As a result, we are often asked by clients to prepare a “simple” operating agreement. But how “simple” can a simple operating agreement be, and is entering into such an agreement advisable?

To start with, the New York Limited Liability Company Law (the “LLCL”) does not provide much detail as to what an operating agreement consists of. Section 102 of the LLCL defines an operating agreement as “any written agreement of the members concerning the business of a limited liability company and the conduct of its affairs and complying with section four hundred seventeen of this chapter.” Section 417 provides just a general guide for what should be in an operating agreement: “the members of a limited liability company shall adopt a written operating agreement that contains any provisions not inconsistent with law or its articles of organization relating to (i) the business of the limited liability company, (ii) the conduct of its affairs and (iii) the rights, powers, preferences, limitations or responsibilities of its members, managers, employees or agents, as the case may be.”

The simplest operating agreement would be one that provided the names, addresses, and the value of initial capital contributions of each of the members and incorporated by reference the default provisions of the LLCL. As a one page document, such an agreement would certainly satisfy a client looking for an inexpensive operating agreement. But would it work?

Operating agreements generally deal with three types of issues, namely management of the company, transfers of interests in the company, and financial/tax issues. As discussed below, the default provisions of the LLCL deal with these issues, but not in a way that is necessarily expected or desirable.

Management

A limited liability company can be managed by one or more managers (if the company’s articles of organization so provide) or by the members themselves. As we are drafting with simplicity as the goal, the company will presumably be member managed, so that we don’t have to deal with how managers are elected and removed and what issues, if any, need to be approved by the members. Assuming our client wants all decisions to be made by a simple majority vote based on the members’ respective ownership, then our simple agreement does the job. Section 402(a) of the LLCL provides, “Except as provided in the operating agreement, in managing the affairs of the limited liability company, electing managers or voting on any other matter that requires the vote at a meeting of the members pursuant to this chapter, the articles of organization or the operating agreement, each member of a limited liability company shall vote in proportion to such member’s share of the current profits of the limited liability company …”, and Section 402(f) states, “Whenever any action is to be taken under this chapter by the members or a class of members, it shall, except as otherwise required or specified by this chapter or the articles of organization or the operating agreement as permitted by this chapter, be authorized by a majority in interest of the members’ votes cast at a meeting of members by members or such class of members entitled to vote thereon.” In other words, the default is majority approval, voting by ownership (not per capita, or one vote per member).

As a technical aside, note that the vote is by a majority of the votes cast as a meeting. If a majority owner is present at a meeting (thereby providing a quorum), but abstains from voting on a matter, that matter could still be approved by a majority of the votes cast, even if such votes were not a majority of the outstanding membership interests.

While the default voting provisions may work, there is one customary management-related provision that is missing from our simple agreement – namely a provision requiring the indemnification of members with respect to claims arising out of the operations of the company. While Section 420 of the LLCL provides that a limited liability company may indemnify and hold harmless members, the LLCL does not require it to do so. As a result, if, for example, a member signs a contract on behalf of the company and then finds himself named in a suit by the other party as a result of having done so, he will be forced to count on the good will of his fellow members with regard to any defense and settlement costs (note that the Business Corporation Law authorizes a court to award indemnification if a corporation fails to do so; there is no corresponding right in the LLCL).

Transfers of Interests

Most business owners are familiar with the ownership and transfer of shares of corporate stock. Absent unusual circumstances, the transfer of a share of stock conveys both the right to vote such share and the financial rights associated with it, such as the right to a pro-rata share of dividends payable by the corporation. The LLCL, however, contains a trap for the unwary, and use of our simple agreement may result in unintended consequences.

Generally speaking, most owners of non-publicly traded businesses do not want the equity interests of their company to be freely tradable. Being told by your now former partner that he’s given his 50% interest in your company to your ex-spouse is presumably not good news. However, like the Business Corporation Law, the LLCL does not preclude transfers of membership interests – only a provision in an operating agreement can do so (in fact Section 603(a)(1) clearly states that unless otherwise provided in an operating agreement, “a membership interest is assignable in whole or in part”). So unless the members are prepared to have new unknown and unlimited co-owners, our simple operating agreement is, to put it simply, too simple.

Having said that, it’s not all bad news. Unlike transferring shares of stock, in the absence of a provision to the contrary in the operating agreement, a transfer of an interest in a limited liability company does not, to the (sometimes unfortunate) surprise of many, convey any rights other than economic rights. Section 603(a) goes on to state, “an assignment of a membership interest does not … entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member” and that “the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled.” Section 604(a) further provides, “Except as provided in the operating agreement, an assignee of a membership interest may not become a member without the vote or written consent of at least a majority in interest of the members, other than the member who assigned or proposes to assign such membership interest.”

What happens to those non-economic rights, such as the right to vote and inspect books and records? They don’t remain with the transferring member – they simply cease to exist. As provided in Section 603(a)(4), “a member ceases to be a member and to have the power to exercise any rights or powers of a member upon assignment of all of his or her membership interest.”

The net effect of all of this is that the original members may end up with some silent partners, which most business owners would find to be less than an ideal situation. The remaining original members could, for example, be working to benefit a competitor, and at the very least could be working to benefit someone who contributes neither effort nor cash to the business. While the operating agreement could address this issue by, for example, prohibiting transfers outside of the existing members or making any transfer subject to a first refusal, our simple agreement will allow transfers of economic rights to anyone the transferee may choose.

Putting aside the default rules of the LLCL, a normal operating agreement deals with a number of transfer scenarios that the simple agreement does not address. A more fulsome operating agreement usually requires the sale of a member’s interest upon his or her death or disability, and may require sale of a member’s interest if that member ceases to render services to the company, whether as the result of retirement, resignation, or termination by the other members for cause or gross cause.

In terms of death or disability, the remaining members usually do not want to be growing the company for the benefit of non-working heirs, and the heirs usually desire a buy out as the income of the deceased member will have ended. As to work related buyouts, many individuals assume that if a member commits a bad act (whether simply not showing up for work or something as drastic as embezzlement), they can simply terminate the wrongdoer. However, while they may be able to cut off compensation to the wrongdoer, he or she remains the owner of their equity in the company and cannot be divested of their ownership without consent. Absent appropriate language in an operating agreement, two members may continue to devote their full time to growing the business, while the third member relaxes at the beach, content to not receive a salary, but awaiting their share of the operating profits and a payday down the road when the business is sold. So long as the relationship of the members remains harmonious, the simple agreement may work, but using it could make getting a business divorce much more painful and expensive than it would otherwise need to be should issues arise.

Another concern that our simple agreement does not address is the effect of having members which are entities. For example, rather than having three individuals as members of a company, the three individuals may desire to hold their interest through their own entities. One reason for doing so would be to facilitate estate planning by transferring interests in the entity-member. The other members would continue to deal with the entity-member, and would not have to deal with the initial owner’s estate planning transferees. However, holding interests in an entity also gives the owner of that entity the right to do something indirectly that he or she couldn’t do directly – namely make transfers of an entire membership interest, including voting rights. If an individual owned a 25% interest in his or her name and then sold it to a third party, as discussed above the transfer would convey only economic rights, without the other rights that come with being a member. If, on the other hand, the individual owned the 25% interest through an entity, the individual could very easily sell the ownership of that entity to a third party. The owner of the 25% interest would not change (the only change would be with respect to the owner of that owner), meaning that since there was no transfer of that interest, there is no loss of any rights associated with that interest upon the transfer of the underlying interest. The other owners would now be dealing with a new full partner, not just a silent one.

One final thought on this issue – without a provision dealing with the death of a member, the surviving members will now have a new partner – the heirs of the deceased member, a situation that no one may be happy with. The survivors will be continuing to devote their efforts to the success of the business, something the heirs may play no role in, and they may resent having to share the fruit of their efforts with someone who makes no contribution. The heirs, on the other hand, will having no voting rights. While this may be reasonable if they own a relatively small portion of the equity, consider the situation where the deceased member owned, for example, 75% of the equity. What 75% owner would want to have a 0% say in how the business is run?

So while our “simple” agreement can work, it is rare that the members will be agreeable to the application of the default rules of the LLLC with respect to transfers of membership interests. The inability to prohibit even economic transfers (or, as a practical matter, any transfers by a member that is an entity), the inability to remove members under appropriate circumstances, and the loss of voting rights upon the death of a member are all problematic results of using the simple agreement.

Financial/Tax Issues

The LLCL contains a number of default provisions that will work if our members have a truly simple financial structure in mind, with no obligation to make capital contributions other than the initial contributions upon formation of the company, and all allocations of profits and losses and all distributions being made pro rata based on equity ownership. The LLCL doesn’t require a member to make any capital contributions other than those he or she promised to make. Section 503 provides that “[i]f the operating agreement does not so provide, profits and losses shall be allocated on the basis of the value, as stated in the records of the limited liability company if so stated, of the contributions of each member” and Section 504 states, “[i]f the operating agreement does not so provide, distributions shall be allocated on the basis of the value, as stated in the records of the limited liability company, if so stated, of the contributions of each member.”  As a result, our simple agreement will work for situations where the financial and tax understandings are equally simple.

However, if, as is often the case, the members want to require capital contributions beyond those made at formation or provide for preferred returns or allocations or distributions that are not strictly pro-rata, our simple agreement will not suffice.

While the simple agreement may work with respect to contributions and how allocations and distributions are to be made, there is one very important issue that it does not address, namely the making of tax advances. Assuming the limited liability company is taxed as a partnership (which is usually the case), each member will receive a K-1 for his or her share of the company’s profits, regardless of whether they actually receive any distributions from the company (what is known as “phantom income”). The LLCL does not require the making of distributions prior to dissolution; to the contrary, in Section 507 it expressly defers this issue to the operating agreement: “to the extent and at the times or upon the happening of events specified in the operating agreement, a member is entitled to receive distributions from a limited liability company before his or her withdrawal from the limited liability company and before the dissolution and winding up of the limited liability company.”

While presumably each of the members will want to cause the company to distribute at least as much cash as is needed to avoid having reach into their own pocket to pay taxes on the company’s profits, there may be situations where the members don’t cause the company to make tax advances. A legitimate reason may be a prohibition in a (badly negotiated) loan agreement, or because the members truly desire to accumulate cash in the company for working capital or other proper purposes. However, not making tax advances is better known as one of the more typical ways that majority owners can freeze out minority owners, particularly minority owners of lesser means than the majority. By not distributing funds sufficient to pay taxes, the majority can put the minority in a position of having to either pay such taxes out of personal resources or sell their interests to the majority. While maliciously engaging in such tactics may give rise to a lawsuit by the minority owner, the much better approach would be to mandate tax advances in the operating agreement. Our simple agreement, however, is too simple to provide for this.

Finally, our simple agreement does not contain any of the customary tax-related provisions that a more complete agreement would have, such as those dealing with the establishment and maintenance of capital accounts, not requiring members to restore deficits in capital accounts, various regulatory allocations under Section 704 of the Internal Revenue Code (including “qualified income offset,” “minimum gain chargeback” and “partner nonrecourse debt minimum gain chargeback” provisions), and the appointment of a tax matters representative. The ramifications of the absence of these provision is beyond the scope of this article.

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So is there such a thing as a “simple” operating agreement? Certainly. The LLCL’s default provisions, particularly majority voting, no obligation to make capital contributions, and pro-rata distributions and allocations, are often components of the comprehensive operating agreements we routinely draft. But does a “simple” operating agreement make sense? That’s an entirely different issue. The ability to make even just economic transfers without consent, the lack of required tax advances, and the loss of voting rights on death are some default provisions that many owners would find problematic. In addition, common business terms such as being required to make additional contributions, preferred or priority returns, prohibitions on or rights of first refusal with respect to transfers, and supermajority voting on significant actions all require an agreement that goes beyond the bare minimum. The answer is to draft an agreement that works both when you sign it and when circumstances change – an agreement that anticipates events that may happen, rather than assuming they won’t. The best time to discuss and negotiate an operating agreement is when the entity is being formed, when the owners are aligned and before differences arise; if agreement on these issues can’t be reach at inception, it’s certainly not going to happen after issues have arisen and the company has grown to be worth fighting over. As the attorneys in our Litigation Practice Group will confirm, simple doesn’t necessarily mean better, and a few dollars spent up front can save many dollars down the road.

Public Housing Skyscrapers in Manhattan with Colorful Autumn Trees looking towards Downtown Brooklyn in New York City

On April 22, 2020, a series of bills designed to address the effects of the COVID-19 pandemic were introduced in the New York City Council during its first-ever remote session. A number of these bills relate to landlord/tenant matters and, after some debate among the council members, were referred to committees. This blog post summarizes the proposed landlord/tenant legislation and discusses considerations for commercial landlords in New York City in light of potential changes in the law.

Int. 1912-2020

Int. 1912-2020 is a bill that would suspend the enforcement of evictions against individuals and businesses impacted by COVID-19 through at least April 2021.

Among other things, this bill prohibits the city sheriff and marshals from evicting tenants until the “first suspension date,” which is defined as the later of: (i) the end of the first month that commences after the end of the eviction moratorium set out in Governor Cuomo’s Executive Order 202.8 (currently, this moratorium is set to expire on June 20, 2020); (ii) the end of the first month that commences after the end of the eviction moratorium set out in the federal Coronavirus Aid, Relief and Economic Security Act (CARES Act) (currently, this moratorium is set to expire on July 25, 2020); or (iii) September 30, 2020. The bill does contain exceptions—it would permit evictions: (i) when ordered by the governor or mayor, or when necessary to carry out an order by the governor or mayor; and (ii) when ordered in connection with a matter that is under the jurisdiction of the Family Court.

The bill further provides that, except in limited circumstances, the city sheriff and marshals will remain barred from carrying out evictions until the “second suspension date” which is defined as the later of: (i) the end of the seventh month that commences after the expiration of the state eviction moratorium, (ii) the end of the seventh month that commences after the expiration of the federal eviction moratorium; or (iii) April 1, 2021. Evictions will only be permitted during this time if one of the exceptions relevant to the first suspension period is met, or if the tenant “has been provided a reasonable opportunity to show the court…that [he/she/it] suffered a substantial loss of income because of COVID-19 and such court has found that [he/she/it] has not suffered such a loss or has effectively waived [the] opportunity [to make such a showing].”

The bill sets out a list of ways in which a party may show that it has “suffered a substantial loss of income because of COVID-19.” Specifically, where the tenant is an individual, the required showing can be made if, between March 7, 2020 and the first suspension date, the individual experienced two or more weeks in which (i) he or she claimed federal or state unemployment insurance benefits in connection with a claim that was filed on or after March 7, 2020 or (ii) he or she worked fewer than three days and earned less than $504 because of one or more of the following situations:

  1. The person was diagnosed with COVID-19 or was experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  2. A member of the person’s household was diagnosed with COVID-19;
  3. The person was providing care for a family member or a member of the person’s household who was diagnosed with COVID-19;
  4. A member of the person’s household for whom the person had primary caregiving responsibility was unable to attend school or another facility that was closed as a direct result of the COVID-19 state disaster emergency and such school or facility care was required for the person to work;
  5. The person was unable to reach the person’s place of employment because of a quarantine imposed as a direct result of the COVID-19 state disaster emergency;
  6. The person was unable to reach the person’s place of employment because the person had been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  7. The person was scheduled to commence employment and did not have a job or was unable to reach the job as a direct result of the COVID-19 state disaster emergency;
  8. The person became the breadwinner or major supporter for a household because the head of the household died as a direct result of COVID-19;
  9. The person quit a job as a direct result of COVID-19; or
  10. The person’s place of employment is closed as a direct result of the COVID-19 state disaster emergency.

The bill also addresses the ability of the city sheriff and marshals to enforce a money judgment against the guarantor of a lease, stating that such a judgment cannot be enforced against an individual guarantor before the second suspension date if that individual meets one of the ten conditions described above.

Where the tenant is a business, it can show that it suffered a substantial loss of income because of COVID-19 by demonstrating that: (i) it was subject to seating, occupancy or on-premises service limitations pursuant to an executive order issued by the governor or mayor during the COVID-19 period; or (ii) its revenues for any three-month period between March 7, 2020 and the first suspension date, were less than 50 percent of its revenues for the same period in 2019 or less than 50 percent of its aggregate revenues for the months of December 2019, January 2020, and February 2020.

Int. 1932-2020

Int. 1932-2020 is a bill that would prohibit landlords from enforcing a personal liability provision against any commercial tenant impacted by COVID-19, and would make such conduct a form of harassment.

Specifically, the bill would amend the New York City Administrative Code to bar enforcement of a personal liability provision against a business impacted by COVID-19 where the event of default occurred between March 7, 2020 and: (i) the end of the first month that commences after the end of the eviction moratorium set out in Governor Cuomo’s Executive Order 202.8; (ii) the end of the first month that commences after the end of the eviction moratorium set out in the CARES Act; or (iii) September 30, 2020. The term “impacted by COVID-19” largely mirrors the definition of “suffered a substantial loss of income because of COVID-19” set forth in Int. 1912-2020.

The bill also proposes to amend Section 22-902 of the New York City Administrative Code to include within the definition of “commercial tenant harassment” the act of “threatening to or implementing a personal liability provision that is not enforceable” for the reasons described above.

Int. 1914-2020

Int. 1914-2020 would amend section 22-902 of the New York City Administrative Code to bar landlords from threatening a commercial tenant because of its “status as a person or business impacted by COVID-19, or…its receipt of a rent concession or forbearance of any rent owed during the COVID-19 period.” As a result of this amendment, landlords who engage in such conduct would be subject to a fine ranging from $10,000 to $50,000.

Int. 1936-2020

Int. 1936-2020 would amend the definition of “harassment” in the Housing Maintenance Code to include threats against an individual based on their status as a COVID-19 impacted person, their status as an essential employee, or their receipt of a rental concession or forbearance. Such harassment would be subject to a penalty of between $2,000 and $10,000.

Practical Consequences

These proposed bills make it more important than ever for landlords to attempt to privately resolve matters with non-paying commercial tenants. Landlords are likely to have greater latitude in negotiations at this time, before they have to worry about restrictions on “threats” to enforce personal guarantees or take other action as a result of a business’ receipt of a rent concession or forbearance. Additionally, if these bills become law, eviction proceedings over the next year will become more costly because they will involve litigation about tenants’ financial condition and ability to pay rent. Landlords should consider whether it makes sense to avoid these costs by negotiating with tenants now instead. At the very least, negotiations will allow landlords to request documents from tenants to substantiate their financial condition, and these documents will be helpful in future proceedings if they need to be brought.

More details about negotiation and litigation strategies for commercial landlords can be found here in our prior blog post. If you need assistance, please contact Steven Schlesinger at sschlesinger@jaspanllp.com or Marci Zinn at mzinn@jaspanllp.com.

Virus coronavirus Covid-19

Although a large portion of the funds from the CARES Act is going to certain air carriers and businesses critical to national security, some $454 billion is allocated to the Federal Reserve Board to help provide financial relief to other eligible businesses. Specifically, that money will fund the Federal Reserve’s programs and facilities that promote financial stability and lending to eligible businesses or, as stated in the Act, the funds will be allocated 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.”

​The funds will be used to: (1) purchase obligations or other interests directly from the issuers, (2) purchase obligations in secondary markets, and (3) make loans, including loans or advances secured by collateral. One such Federal Reserve program is the “Federal Reserve Direct Loan” program and, as part of that program, banks and other lenders receive funds in order to make direct loans to eligible businesses, with between 500 and 10,000 employees, who do not qualify for a Paycheck Protection Program loan.

What is a “Direct Loan”?

In this context, a “direct loan” is “a loan under a bilateral loan agreement that is (1) entered into directly with an eligible business as borrower; and (2) not part of a syndicated loan, a loan originated by a financial institution in the ordinary course of business, or a securities or capital markets transaction.” It cannot be forgiven.

Which Business Are Eligible for Direct Loans?

The Secretary may make a loan, loan guarantee or other investment as part of a program or facility that provides direct loans only if the eligible business receiving the direct loan agrees to certain requirements:

  • First, the business must be organized and domiciled in the United States, and have significant operation in and a majority of its employees based in the United States.
  • Second, the business must agree that for the length of the direct loan, plus one (1) year, it will not, on any national securities exchange, repurchase an equity interest in itself (or any parent company). As one exception, however, an eligible business may repurchase an equity security if such repurchase is required by a contract in effect on the date the CARES Act was enacted.
  • Third, the eligible business cannot, for the length of the loan plus one (1) year, pay dividends or make other capital distributions with respect to its common stock.
  • Finally, the eligible business must comply with the limitations on compensation set forth in section 4004 of the CARES Act.

Of course, the Secretary has the discretion to waive the aforementioned requirements “to protect the interests of the Federal Government.”

What is Section 4004 of the CARES Act?

​As we discussed in a prior blog post, Section 4004 of the CARES Act addresses limitations on certain employees’ compensation. The Section’s requirements apply to businesses receiving loans from the $46 billion allocation, and also to certain eligible businesses discussed in this post.

​Under section 4004, the eligible business must agree that officers and employees who, in 2019, made more than $425,000 (including salary, bonuses, awards of stock, and other financial benefits) will not receive (1) total compensation exceeding, during any consecutive 12-month period, the total compensation received in 2019, or (2) severance pay or other benefits upon termination of employment in excess of two (2) times the maximum total compensation received in 2019.

​Section 4004 also requires the eligible business to agree that no officer or employee who earned more than $3 million in 2019 will receive, in any consecutive 12-month period, total compensation in excess of $3 million plus 50% of the compensation received in excess of $3 million in 2019.

Direct Loans for Mid-Size Businesses

​Additionally, the Secretary is instructed to endeavor to implement a Federal Reserve program that will, to the extent practicable, make direct loans to mid-sized profit and nonprofit businesses that have between 500 and 10,000 employees. Such loans will be subject to an annual interest rate no higher than 2%, and no principal or interest payments are due for the first six (6) months.

To be eligible for this type of loan, the business, in addition to requirements set forth above, must certify that: (1) the uncertainty of the economic conditions makes the loan application necessary to support ongoing operations of the business, (2) the borrower is not a debtor in a bankruptcy proceeding, (3) the borrower will remain neutral in any union organizing effort for the term of the loan, and (4) that the borrower will not abrogate existing collective bargaining agreements for the length of the loan plus two (2) years. Additionally, the eligible business cannot pay dividends with respect to its common stock, cannot repurchase an equity security listed on a national securities exchange (with the exception as set forth above), and cannot offshore or outsource jobs for the length of the loan, plus two (2) years.

More importantly, the business must certify that the direct loan it receives will be used to retain at least 90% of the business’s workforce at full compensation and benefits until September 30, 2020 and that the business intends to restore at least 90% of the workforce of the borrower that existed on February 1, 2020, which includes restoring all compensation and benefits to the workers no later than four (4) months after the termination date of the public health emergency declared by the Secretary of Health and Human Services.

Conclusion

​While this is only an introduction and summary of certain provisions of Title IV of the CARES Act, it is clear that the CARES Act is providing support to businesses to encourage the retention of employees and encourage payment of employees during these difficult times. As always, if you need assistance or have any questions about the CARES Act, contact any member of our Coronavirus Response Team.

Eviction Notice On Door

​New York Courts have resumed some of their operations despite the physical closing of most courthouses and a continued moratorium on the filing of new non-essential cases. Proceedings, including conferences and oral argument of pending motions, are now primarily conducted by videoconference through Skype.

​As it concerns landlord/tenant matters, the statewide moratorium on evictions remains in place through June and may be extended. The prohibition on evictions by New York City marshals also continues to be effective “until further notice.”

​Several bills have been introduced in the New York State legislature concerning landlord/tenant issues. Some legislators have proposed pro-tenant legislation that would: (i) extend the moratorium on evictions until December 2020; and (ii) cancel rent obligations altogether for 90 days. Another proposed bill is favorable to landlords, and seeks to have vouchers sent from the State directly to landlords for payment of tenants’ rent. None of these bills have been voted on as of today.

Many commercial landlords are wondering: what’s next?

​The Realities of Future of Landlord/Tenant Litigation

​With many commercial tenants not paying any rent, commercial landlords may find themselves planning to litigate at the first opportunity. However, they must keep in mind the practical realities of life in a post-coronavirus world in deciding how to proceed.

​When courts resume full operations and the moratorium on evictions is lifted, there will be a torrent of landlord-tenant cases and inordinate delays as a result. Substantial time and money will need to be expended if litigation is pursued. There will also be more risk involved, as judges with equitable powers may favor commercial tenants that were forced to close their businesses during the height of the pandemic.

​Landlords who bring proceedings will need to seek discovery of their tenant’s finances to determine if the tenant actually had the financial ability to pay rent. Certain businesses, such as grocery stores, garment businesses that manufacture masks or surgical gowns, and retailers with significant online sales may have had the ability to pay rent due to a consistent revenue stream or, in some cases, revenue growth.

​Discovery of this type is time-consuming whether conducted as of right in a plenary action, or after obtaining court approval in a landlord/tenant proceeding. Therefore, by the time documents are demanded and produced, many months will have expired, all while the landlord is not receiving rent and its own financial obligations continue. Given this, what can a commercial landlord do besides wait to litigate?

Alternatives to Litigation

​Landlords should consider whether their business plans and financial circumstances would be better served by negotiation and private resolution. Has an entire building of tenants stopped paying rent? If so, reaching resolutions that quickly bring cash through the door might be critically important. How important is your location to the continuing viability of the tenant’s business? If the tenant cannot easily operate from a different location, you may have significant leverage in negotiations. On the other hand, could the premises easily be rented to a different tenant if the current tenant vacates the space? How would the rental rate charged to a new tenant compare to the current rental rate? Depending on the answer to these questions, the landlord may have more or less incentive to compromise.

​If you conclude that your business needs are best served by negotiating now rather than waiting to go to court, reach out to your tenants and suggest that accommodations can be made during this time, while reserving your right to later pursue collection of the full amount of rent due. During negotiations, you may ask tenants to prove financial hardship by providing you with financial statements and revenue information. Although such information may be beyond that which is usually exchanged when leases are negotiated, landlords will be justified in requesting it to determine if a tenant actually needs rent relief or is taking advantage of the current situation.

Accommodations that a landlord might make include:

  1. Rent deferral: Under such an arrangement, a tenant may repay the amount of rent arrears in installments over a period of months or years, together with future monthly rent as it becomes due. If the tenant defaults, all past and future rent may be accelerated and a judgment may be entered. Other potential terms might include an extension of the leasehold term or a landlord’s right to terminate the lease early.
  2. Temporary monthly rent reductions: Rent may be reduced for a brief period of time to an amount that the tenant can afford.
  3. Extension of the lease term in exchange for a decrease in monthly rent.
  4. Use of security deposit for current rent with an agreement that the tenant will replenish the security deposit in the future.
  5. Addition of a personal guarantor to a lease that did not have one, or that previously only had a “good guy” guaranty, in exchange for a partial rent concession for a limited period of time.
  6. Rent reduction in exchange for the tenant’s release of the landlord from all COVID-19 claims and a waiver of its defenses to non-payment.

​Note that any agreement between landlord and tenant should be reduced to writing. Consideration must be given as to whether to include confidentiality provisions, ratification of the existing lease, an express reservation of existing rights, and estoppel provisions. Further, if there was a guarantor on the original lease, the guarantor should affirm and agree to any modifications or additional terms.

Encouraging the Recalcitrant Tenant to Negotiate

​If a tenant is not even receptive to an overture to negotiate, consider:

  1. Sending a 5-day rent statement, which is required as a predicate for any landlord/tenant proceeding, and should be sent each month during this period anyway to preserve rent claims. Note that the statute requires sending this notice via first class mail, return receipt requested. However, during this time in which tenants may not have access to the premises, the notice should be sent in that manner to meet the statutory requirements, and via regular first class mail to every known address of the tenant, its owner or agent, and any guarantor. You may even consider sending a copy of the notice to the tenant by e-mail to ensure the tenant receives it.
  2. Serving a 14-day statutory rent demand. However, this can be costly, as a process server will likely need to make multiple attempts to serve the notice before “nailing and mailing” it, given that a business’ premises will likely be closed. Serving this notice is a way to let the tenant know that the rent is still due and that the landlord is prepared to commence a proceeding as soon as the moratorium is lifted. Sending the notice to all additional addresses for the tenant, in addition to the business premises, may be a way to protect against a tenant later defending itself by saying that it had no idea that its business had been served, since it was required by order not to go into its premises and may not even have received business mail.  

​If a tenant decides to commence negotiations after receiving these rent demands, the landlord should make sure to send the tenant a notice of “reservation of rights”, including a statement that the service of the 14-day notice remains in full force and effect and is not waived by engaging in negotiations.

​If all else fails, a landlord should have a petition drafted so that it can be served on the tenant as soon as the eviction moratorium is lifted. This will enable the landlord to file its papers with the court expediently and, hopefully, put its case towards the front of the line of cases on the court’s calendar.

Conclusion

​Although it may feel like the world has come to a halt, this is no time for landlords to sit on their hands. Taking a pragmatic but proactive approach to non-paying tenants will help to insulate a landlord from the chaos that will undoubtedly ensue when the moratorium on evictions is lifted.

As governmental orders and legislation can change daily and may alter a landlord’s decision and strategy, staying informed is of the utmost importance. If you need assistance, please contact Steven Schlesinger at sschlesinger@jaspanllp.com or Marci Zinn at mzinn@jaspanllp.com.

Business woman examining insurance policy
Business woman showing insurance document over white desk at office

A new bill introduced by New York Assembly members Robert Carroll and Patricia Fahy would effectively force insurers to provide retroactive coverage for claims filed by businesses that have closed or lost revenue due to the COVID-19 pandemic. Recent weeks have seen similar measures proposed in Ohio, Massachusetts and New Jersey as a means of offering additional support to businesses impacted by the pandemic.

Assembly Bill A10226A, which was introduced on March 27, 2020, would apply to businesses that: (1) have fewer than 100 “eligible employees,” meaning full-time employees who work at least 25 hours per week; (2) had policies “insuring against loss or damage to property” including, but not limited to, business interruption or loss of use coverage; and (3) such policies were in full force on or after March 7, 2020, the date Governor Cuomo announced a state of emergency. While coverage would be subject to the limits of the policy, it would encompass losses suffered through the duration of the emergency.

If enacted, this legislation would significantly alter the scope of coverage for many property policies, most of which require that a business interruption be due to direct physical loss to property. It might also override certain measures employed by insurers after the SARS outbreak in 2003, which included the implementation of exclusions from standard commercial property policies for viruses, pandemics and contagious or infectious diseases. Such exclusions are known commonly as “virus exclusions.”

To prevent certain insurers from bearing the brunt of the financial costs associated with this proposed change in the law, the bill further provides that insurers can seek reimbursement from the New York Superintendent of Insurance, who will collect money from all insurers doing business in the state. This is known as a “special purpose apportionment.” Moreover, the bill provides that the Superintendent will employ measures to protect against the submission of fraudulent claims.

Nonetheless, the insurance industry is wary of the effects such legislation might have on the industry, especially with the looming threat of an expectedly active hurricane season. Retroactively offering coverage for which no premium was collected may create uncertainty and instability in the sector.

Even if it were to pass, however, the measure would likely be challenged on constitutional grounds, as the contracts clause of the U.S. Constitution limits the ability of states to interfere with private contracts. Regardless, in light of the introduction of such legislation, all policyholders should carefully review the terms of their property policies and provide their insurers with timely notification of any potentially covered losses.

If you have questions about business interruption insurance claims, please contact me at (516) 393-8291 or rmorgenstern@jaspanllp.com.

Trademarks blocks

Despite the global COVID-19 pandemic, some entities continue to seek to profit by sending misleading fee-requesting trademark maintenance and renewal solicitations to unsuspecting entrepreneurs, businesses, and consumers. Recently, we had at least two clients receive misleading trademark solicitations. Fortunately, they exercised sound business judgment and conferred with legal counsel before unsuspectingly paying the unwarranted fees, and we advised them that the solicitations were a sham.

The misleading trademark solicitations usually resemble invoices and are issued by private companies with names sounding like official government agencies, such as “Patent and Trademark Office” and “Patent&Trademark Bureau.” The solicitations typically offer services or purport to provide notice of upcoming filing deadlines, usually requiring a fee. They also usually seek to convince the recipient businesses, entrepreneurs, and consumers that they need to pay the fee requested in order to maintain their trademark registrations. The trademarks referred to in the solicitations are the actual trademarks owned by the recipient, and are accompanied by the official United States trademark name and registration number. The names, addresses, and trademark registration information are all publicly-available and accessible in the database maintained by the United States Patent and Trademark Office (“PTO”).

In order to maintain a trademark once it has been registered by the PTO, between the 5th and 6th year after the registration date, owners of registered trademarks must file with the PTO a Declaration of Use and/or Excusable Nonuse under Section 8 of the Trademark Act, which can be combined with a Declaration of Incontestability under Section 15 of the Trademark Act. Thereafter, between the 9th and 10th year after the date of registration, and during the period between every subsequent 9th and 10th year, trademark owners must file a Declaration of Use and/or Excusable Nonuse and Application for Renewal under Sections 8 and 9 of the Trademark Act. A Declaration of Use and/or Excusable Nonuse is a signed statement that: i) the trademark is in use in commerce with the goods and services listed in the registration or ii) the trademark is not in use in commerce due to special circumstances that excuse nonuse. A Declaration of Incontestability is a signed statement that the trademark owner claims incontestable rights in the trademark and continuous use of the trademark for five (5) years.

Certain private companies try to take advantage of the trademark filing requirements by searching the PTO database and sending solicitations to trademark owners seeking a fee to file the required trademark maintenance and renewal documents. The solicitations generally contain fine print where the soliciting companies state that they are private companies not affiliated with the PTO or any government agency. The solicitations often ask the recipient to sign the solicitation and pay a fee before any action will be taken by the soliciting company. Notably, the solicitations usually do not specify what services are being provided, do not indicate whether a Declaration of Use under Section 8 will be filed alone or combined with a Declaration of Incontestability under Section 15 of the Trademark Act, do not specify what type of information the trademark owner needs to provide in order for the maintenance and renewal trademark documents to be filed, and do not indicate whether legal counsel will be either reviewing and/or submitting the applicable trademark filings with the PTO.

In addition, the solicitations often contain inaccurate information. One of the common practices is for the solicitation to misrepresent the trademark registration date which dictates the filing time periods. For example, if a trademark was registered by the PTO on March 1, 2016, the first filing period would be between the 5th and 6th year after the registration. In this example, that would mean a Declaration of Use and/or Excusable Nonuse under Section 8 of the Trademark Act (either alone or combined with a Declaration of Incontestability under Section 15 of the Trademark Act) would need to be filed with the PTO between March 1, 2021 and March 2, 2022. However, the solicitations typically change the registration date to make it one-year earlier (which would be March 1, 2015 in the example). That means that the soliciting companies are seeking a fee to file trademark maintenance and renewal documents one-year earlier than required by the PTO.

The PTO recognizes the pervasiveness of the misleading solicitations and has posted a notice on its website titled, “Caution: misleading notices”. In its notice, the PTO informs trademark owners not to be fooled by potentially misleading offers and notices from private companies and not to pay fees to private companies mistakenly thinking they are required fees charged by the PTO. In fact, the PTO warns that, “We do not endorse any of the private companies and you are not required to use them.” In addition, the PTO warning notice provides that official correspondence will be addressed from “United States Patent and Trademark Office” in Alexandria, Virginia and emails will be from the domain “@uspto.gov”. The PTO further warns that trademark owners should not be fooled by company names that sound like government agencies or offers that contain government data.

The PTO maintains a list of private companies who send trademark solicitations about which the PTO has received complaints. Some of those private companies include the following:

  • “Patent and Trademark Office” with addresses in Washington, D.C. and New York;
  • “Patent&Trademark Bureau” with addresses in Philadelphia and New York;
  • “Patent & Trademark Agency” with an address in New York
  • “Trademark Renewal Service” with addresses in Washington, D.C. and New York; and
  • “Trademark Safeguard – Trademark Monitoring Service” with an address in New York.

For a full list of soliciting companies for which the PTO has received complaints, you can go to the PTO website address cited above.

The PTO is not an enforcement agency and does not have legal authority to stop private companies from sending trademark related offers and notices. If you are a trademark owner and receive a solicitation informing you of upcoming trademark filing deadlines and/or offering services for a fee, or if you have any questions regarding trademark registration or trademark maintenance and renewal deadlines, feel free to contact the Chair of our Trademark Practice Group, Scott Fisher, at (516) 393-8248 or sfisher@jaspanllp.com.

Text Eviction Notice typed on retro typewriter

On April 7, 2020, Senator Brad Hoylman, Assemblyman Jeffrey Dinowitz and Senator Liz Kruege introduced a new bill entitled the “NYS Tenant Safe Harbor Act” (the Act) in the New York State legislature. While Governor Cuomo has already prohibited landlords from evicting tenants for non-payment of rent through June 20, 2020 (90 days from Executive Order 202.8), this bill would extend that moratorium until six months after the end of the current state of emergency.

Senator Hoylman stated that the bill “prevents an impending eviction disaster by providing tenants who’ve lost their jobs a safe harbor to get healthy and back on their feet while our country recovers from this economic disaster.” Assemblyman Jeffrey Dinowitz called the expiration of the current moratorium on evictions a “ticking time bomb for many tenants who have lost all sources of income during the COVID-19 pandemic….”

An unusual twist under the Act is that, although landlords would be barred from evicting their tenants, they would still be entitled to demand payment of rent, and could even seek and recover a money judgment against a tenant for unpaid rent. This part of the bill has been criticized as “deeply flawed” by tenant advocates, who see a landlord’s right to obtain a money judgment and enforce it against a tenant’s assets as another way to punish tenants who have lost income.

For landlords, this Act leaves open the question of whether they could seek unpaid rent in a “summary proceeding,” which is the usual form of landlord-tenant proceeding. Summary proceedings are typically less expensive and take less time to resolve. If landlords are forced to seek unpaid rent in a “plenary” action, they would likely face significant delays and higher costs.

While the Act would ultimately require the payment of rent at the end of the moratorium, another bill currently in committee in the New York State Senate would totally forgive rent for certain residential tenants and small business commercial tenants, as well as mortgage payments for landlords, for a 90-day period.

Stay tuned as to whether any of this legislation is signed by the Governor and whether any other intervening orders or acts change the state of affairs for landlords and tenants in light of COVID-19. For questions or assistance, please contact Steven Schlesinger at sschlesinger@jaspanllp.com or Marci Zinn at mzinn@jaspanllp.com.

Eviction Notice On Door

​As of today, by virtue of Governor Cuomo’s executive orders related to the COVID-19 pandemic, most of New York’s businesses are physically closed. On March 16th, the Governor also imposed a 90-day moratorium on evictions. Despite both of these facts, commercial tenants have not been relieved of their obligation to pay rent.

A host of issues for both landlords and tenants has resulted from theses circumstances, including:

  • ​For tenants: what defenses will a tenant have regarding its failure to pay rent once the moratorium on evictions is lifted? Will any of the unpaid rent be waived by the landlord and/or the State of New York through changes in the law?
  • For landlords: can a commercial landlord take certain actions now, while the moratorium is in place, such as serving notices of default or statutory rent demands?
  • For both parties: what analysis should be made now to prepare for future litigation or to determine whether negotiation is a better alternative?

This post will examine these questions in light of new laws, proposed legislation and existing legal principles.

The CARES Act

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed by President Trump on March 27, 2020. It imposes certain restrictions on landlords who have federally insured mortgages (e.g., Fannie Mae, Freddie Mac, FHA, HUD, VA) or are renting properties participating in a covered housing program, such as the Section 8 voucher program, rural housing voucher program, Low-Income Housing Tax Credit and properties covered by the Violence Against Women Act. Among other things, the CARES Act imposes a 120-day moratorium on evictions by these landlords based upon non-payment of rent, and prohibits these landlords from charging fees, penalties or other charges to a tenant related to the non-payment of rent.

The CARES Act also imposes a moratorium upon any covered landlord or owner of a property which prohibits them from serving or sending eviction notices, notices to vacate, and rent demands. This includes New York Real Property Law 14-day rent demands, but it appears that it does not to apply to five-day rent notices.

Executive Order 202.8

Governor Cuomo’s Executive Order No. 202.8, dated March 20, 2020, provides that, beginning on March 22, 2020 at 8 p.m., “there shall be no enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days.” This Order does not include a moratorium on service of any predicate notices, default notices or demands. Therefore, these notices may be served during this time. Additionally, “essential” filings, such as landlord lockouts, serious house code violations, and repair orders can still proceed before the courts.

Although landlords are still entitled to serve predicate demand notices, it is unclear how Courts will treat notices served when businesses are closed and employers/owners are unable to work from the business premises.  In particular, it is not clear that Courts will uphold service of a 14-day statutory notice, which must be served at the premises, when a tenant/owner’s business is temporarily closed. In these cases, the tenant/owner may not even know that a notice has been posted on its premises, or have access to the mailings that were required to be served. It is, therefore, a possibility that a Court may deem it unjust to determine that a tenant failed to comply with such a demand without proof that the tenant or its agents actually saw the notice and/or obtained the mail. In such an event, summary proceedings based upon these predicate notices might be dismissed and landlords may be required to re-serve the notices, thereby delaying the entire eviction process.

Conversely, a Court might favor the landlord, since Executive Order 202.8 does not prohibit service of notices during this moratorium period, and a commercial tenant would surely know that it had intentionally failed to pay rent despite being obligated to do so. Thus, a Court might rule for a good faith landlord that continued to pay taxes and expenses on the building and expended costs for the notice, while the tenant purposefully refused to pay rent.

Even in these circumstances, a court might consider whether the tenant continued to profit and operate its business, albeit not in the physical leasehold premises. That could be determined in discovery, and could favor a landlord if a tenant purposefully failed to pay rent despite having the means to do so.

These and other issues are simply unknown at this point.

New York Senate Bill S8125

Senate Bill S8125 is currently in committee in the New York State Senate and has not yet been signed by the Governor. If enacted, it would forgive rent payments and certain mortgage payments for 90 days for certain residential tenants and small business commercial tenants.

After the Moratorium, Lease Terms Will Be Key

Once the stay of evictions and other landlord/tenant proceedings and leasehold actions has been lifted, many tenants and landlords will need to address months of non-payment. Landlords will need to consider what action to take. Tenants will need to consider which defenses can be asserted. And, both parties will need to decide whether litigation is the best business decision under the circumstances. Therefore, now is the time for both landlords and tenants to analyze their leases and to evaluate the alternative of negotiating an immediate settlement.

Landlords may find leverage in the fact that they are still entitled to serve default notices, and even termination notices. They might use this to negotiate rent reductions, waivers, or early lease terminations.

Landlords and tenants should also review whether guarantees exist. Defenses that might be available to tenants under the lease, such as force majeure, frustration or impracticability/impossibility of purpose, may not be available to the guarantor, who could remain fully liable. This might give landlords additional leverage, and could lead the parties to negotiate over rent reductions, waivers, and the use of security deposits, which the tenant could agree to replenish after the lifting of the moratorium.

Force Majeure Clauses

A defense of force majeure excuses a party’s performance based on extraordinary events, if an agreement so provides. Each lease will have different provisions that may excuse a tenant’s performance based on events outside of a tenant’s control. Some clauses may identify specific unanticipated events, such as: war, strikes, labor disputes, acts of God, judicial orders, riot, fire, terrorist acts (commonly included in leases since 9/11) or other acts beyond the reasonable control of the party.  Most provisions will not include “pandemics” or “causes related to an illness or disease”. Instead, the broadest language is likely to be the most successful defense relating to the current situation, such as “forces beyond the tenant’s reasonable control.”

Even where a force majeure provision enumerates an unforeseen circumstance that might apply, tenants must examine whether there are carve-outs.  Many leases expressly exclude the payment of rent from the obligations of which the tenant may be relieved under a force majeure clause.

Ultimately, how courts will interpret force majeure clauses in the COVID-19 context is still unknown. In prior case law involving the use of force majeure clauses, most tenants have been unsuccessful.

Compliance with Laws Provisions

Many leases contain catchall provisions stating that “both parties agree to comply with all provisions of the law.” These clauses may provide a better defense for a tenant, who might argue that its business was closed and it was unable to pay rent because it was complying with governmental regulations, orders or laws. Again, it is unknown whether this provision would be a viable defense to non-payment of rent.

Common Law Defenses

A common law defense that a tenant may use, and that landlords should take note of, is impracticability or impossibility of  performance resulting from the COVID-19 pandemic and governmental stay-at-home orders.

Landlords may argue that a tenant’s business continues to exist, and even thrive, even though its physical premises has been closed (i.e., doing business via a website, from a remote/home location), thereby not making performance “impossible”.

Similarly, the doctrine of frustration of purpose applies when both parties to a contract can perform under it, but their mutually expected performance, that is, the very purpose of the commercial lease, is made impossible or impracticable (i.e., the “use” clause is for a particular business, and the tenant’s customers no longer exist, its contracts are cancelled, etc.).

Again, on the landlord side, it could be argued that the main purpose of the lease–the tenant’s business–continues, albeit not in the physical premises. The tenant still may have the ability to earn revenue and pay rent, regardless of whether it cannot access its physical premises.  

Settlement Negotiations 

With so much uncertainty, it may be prudent for both parties to negotiate an early settlement. It is unknown how tenants will fare in asserting these or other defenses in light of the COVID-19 pandemic. Landlords may be left with vacant buildings or with new tenants willing to pay rental amounts that are significantly below what could have been negotiated with prior tenants. Additionally, there is likely to be a flood of litigation once the moratorium is over, and attendant delays in the court system. There is also a growing view that Courts may attempt to balance the need to keep tenant businesses in place with the needs of landlords who have continuing obligations to pay taxes and other costs of maintaining their buildings. Given the broad spectrum of possible outcomes, many landlords and tenants will be better suited to reach an agreement between themselves.

Conclusion

It is impossible for a landlord or tenant to know precisely how any non-payment litigation will be determined once the eviction moratorium is lifted. The only way to achieve a certain outcome is through negotiation and settlement. Given that no new proceedings can be commenced through June, landlords and tenants should use the coming weeks to analyze their leases, consult with counsel and open a dialogue with one another.

If we can be of assistance, please contact Marci Zinn at mzinn@jaspanllp.com or Steve Schlesinger at sschlesinger@jaspanllp.com