Recently in Business Law Category

April 1, 2014

DO I NEED TO FILE AN S ELECTION IN PENNSYLVANIA - LEGAL RESEARCH ON YOUR OWN: A FOOL AND HIS MONEY ARE SOON PARTED

These are dangerous times to be starting your new business. The economy is tight, money is not readily available and your legal budget is next to nil. You've heard that you need to incorporate to protect your family assets and you keep hearing on the radio that you don't need a lawyer. In fact, you do some quick internet research and feel you can do it yourself. Having practiced for over 20 years now I am confident in stating that yes you can do this on your own but you might make a critical mistake. Doing legal research online without the appropriate background is dangerous. The first answer you get may not be the correct answer and you really are not in a position to recognize whether what you found on the web is just what you "wanted" to find or really the legally correct answer.

For example, after you incorporate you need to decide whether you want to be a C corporation or an S corporation. Usually the S election is preferable for smaller entities because it eliminates taxation at the shareholder level whereas a C corporation is taxed at both the corporate level and the shareholder level. Seems straightforward enough, right? You google S election and click on a link to the Department of Revenue website (click here) where it clearly states that any federal S election is automatically a S election unless you opt out. However, right under the Department of Revenue's link is Pennsylvania's Open for Business website link (click here) that clearly states you must file for S-corporation status within 75 days of incorporation. This is a website that was created for the purpose of assisting new business owners and has the Governor's name on the top yet its advice is 180⁰ opposite the Pennsylvania Department of Revenue.

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March 4, 2014

WHISTLEBLOWER AWARDS IN EXCESS OF $14 MILLION IN 2013

The SEC's Office of the Whistleblower (OWB) awarded individuals over $14 million in 2013 for their "significant and original contributions" to successful enforcement of the securities laws. The OWB is now in its 3rd full year and the number of tips and complaints is trending upward. OWB reports that it received 3,001 tips and complaint in 2012 and 3,238 in 2013. These numbers are certain to increase as the OWB continually expands the whistleblower laws.

For example, in July 2013, a new pilot program was put into place that protected federal grant workers from whistleblower retaliation. In a nutshell, the new program is designed to protect an employee from employment retaliation for reporting mismanagement of a federal grant or contract funding. An employee who claims to have been retaliated against must file a claim with the Inspector General of the agency involved. If no retaliation is found, the employee can then file a complaint in federal court. If successful, in addition to reinstatement and back pay, attorneys' fees and costs will also be awarded

Last month I discussed the new path the Securities and Exchange Commission was embarking upon in its efforts to enforce the securities laws from the outside in with the use of deferred prosecution agreements. I noted this was a philosophical change made from the highest levels of the SEC to pursue companies that violate the securities law by targeting employees of suspected target companies. The questions you need to ask yourself as an employee of a company that is involved in fraud are; do I wait until the government agency contacts me as part of its investigation, or do I contact the government agency when I have knowledge of my employer's widespread fraud? By contacting the government first, you may be entitled to a piece of the substantial awards discussed above. In addition, by taking preemptive action you can protect yourself from being brought down by fellow employees who allege you were part of the fraud.

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February 11, 2014

Pennsylvania's New Tax Collection Power

Just last week a new law went into effect in Pennsylvania with very little fanfare but it's likely to have a major impact on anyone who buys, sells, or owns real estate in the Commonwealth.

Act 93 changed the tax lien law, making real estate tax judgments personal. What does this mean? Before this new law took effect, when a property owner failed to pay their tax bill the municipality would obtain a lien against the property. But because of the way liens worked, this was not a judgment against the owner, only against that one property. This procedure led to a situation in which many property owners simply did not pay their real estate taxes. In cities like Philadelphia, where a lot of rental properties are owned by small investors or passed down between family members, this has created tax collection issues. Since the municipal lien didn't affect the owner's personally, many owners found it advantageous to simply not pay. If a property owner owed more than the property was worth, they could just kept collecting rent until the Sheriff Sale, if it ever happened. The municipality never got paid what was owed, and personal liability never attached.

Under the new law, the idea is that the lien will also be against the owner, not just the property. This means you will not be able to finance or sell a different property until the lien on the tax delinquent property is paid. Additionally, your own home may be at risk, and you can no longer just walk away from a property without ever paying the tax due. This makes perfect sense; it's finally giving local municipalities the ability to collect outstanding taxes which is something cities like Philadelphia have spent years clamoring for.

Unfortunately, Act 93 creates as many issues as it solves, something frequently seen in real estate legislation coming from Harrisburg. This new law will clearly mean more work for title insurance companies and Realtors, many of whom didn't see this coming. There are also open questions with regard to how this will affect large entities and REO properties. Clearly, the banks have foreclosed on numerous properties with tax delinquencies. Having those taxes paid will be a boon to local government, but a nightmare for searchers. Additionally, it's easy to imagine the situation where a homeowner lacks the equity to both sell a property and clear the lien arising from another investment. I fear in many parts of the Commonwealth this could really hurt the ability of sellers to get out of low equity or distressed properties.

Finally, we are already seeing the impact of this legislation in lease-purchase and rent-to-own deals. The threat of personal judgments being transferred from out of the county to attach to the seller's property creates the need for a whole new level of due diligence.

Of course, we've always recommended to our clients that investment properties should rarely, if ever, be held in their personal name. Using LLC's, LP's or corporations as an entity to own your investment property can provide numerous benefits and protection from this new law is only one of them.

If you would like to discuss how this new law may affect you, or how to best structure your portfolio in light of these ongoing changes, please feel free to contact H. Adam Shapiro of Danziger Shapiro & Leavitt and we will be happy to review and discuss your situation with you.

January 21, 2014

SEC ENTERS INTO FIRST DEFERRED PROSECUTION AGREEMENT WITH INDIVIDUAL

Late last year the Securities and Exchange Commission announced that it had entered into its first deferred prosecution agreement (DPA) with an individual who worked in an administrative capacity at a large hedge fund. The DPA allowed the SEC to successfully go after hedge fund manager Berton Hochfield who reportedly stole more than 1.5 million from his hedge fund and overstated the fund's performance to investors.

A deferred prosecution agreement is a voluntary agreement between an individual and a government agency, in this case the SEC, where the agency will agree to lesser charge in exchange for the individual's cooperation in connection with the investigation. In the Hochfield case, Scott Herckis voluntarily came to the SEC with concerns over certain accounting irregularities involving Hochfield's hedge fund, Heppelwhite Fund, LP. Herckis produced a substantial number of documents and described in detail to the SEC how Hochfield perpetrated his fraud. Based upon the information Herckis provided, the SEC was able to take emergency action and freeze the fund's assets within weeks of Herckis reaching out to the SEC. While Herckis did not get off "scot free" for his participation in the fraud scheme, he did receive a substantially reduced penalty. For example, instead of being unable to be a hedge fund administer for the remainder of his life, Herckis was only prohibited from being a fund administrator for 5 years. Herckis also had to disgorge the fees (approximately $50,000) he received in connection with the fraud.

This DPA is significant because it seems to support new SEC Chair Mary Jo White's earlier statement that the SEC is going to strongly pursue individuals on the periphery to build its case against greedy insiders and their business entities. By adopting this outside in approach and offering DPAs to periphery individuals, the SEC is placing a significant carrot in front of those who were part of an overall fraud scheme but perhaps feel trapped and want out but do not know how to safely do so.

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January 7, 2014

RECENT CHANGE TO STATE PRIVACY LAW WILL IMPACT COMMERCIAL WEBSITES NATIONWIDE

It seems we cannot go a day without big news regarding online security and privacy or the lack thereof. Most recently it was Target and tomorrow who knows. California has always been at the forefront when it comes to protecting consumers and internet privacy. Thus it comes as no surprise that, as of January 1, 2014, every business with an online presence will need to comply with California's amendment to its Online Privacy Protection Act. This recent amendment has teeth and you must comply if a California resident clicks on your commercial web site either through his computer or mobile phone.

In a nutshell, privacy policies will now be required to include how the website will respond to a web browser's "do not track" security option and if the web site allows third parties to collect personally identifiable information from users and across third party websites. Failure to comply will cost you $2,500 for each violation. However, before any fine is imposed, the noncomplying business will be given 30 days to correct its privacy disclosures.

What is interesting about this new law is that while it places the onus on businesses to state how their website responds to a customer's "do not track" option, it does not require the business to honor that request. We are truly operating in one unified economy and it is becoming increasingly important to be aware of the laws of other states as you do business on the global web.

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December 16, 2013

Danziger Shapiro & Leavitt, P.C. Announces Investigation of NQ Mobile, Inc.

For Immediate Release

Contact: Douglas M. Leavitt
Danziger Shapiro & Leavitt, P.C.
215-545-4830
leavitt@DS-L.com

Danziger Shapiro & Leavitt, P.C.
Announces Investigation of NQ Mobile, Inc.

PHILADELPHIA, PA, December 16, 2013- Danziger Shapiro & Leavitt, P.C., a Philadelphia based litigation law firm, (www.DS-L.com) is investigating securities fraud claims against NQ Mobile, Inc.. (NYSE: NQ). This inquiry centers on allegations that statements issued by NQ Mobile regarding its business operations and the company's financial condition were deceptive and false.

NQ Mobile purports to provide security solutions for the mobile phone market. On October 24, 2013, a report issued by Muddy Waters states that NQ Mobile had engaged in fraudulent practices by, among other things, vastly overstating its market share in China by asserting it had a 55% share of the market when in fact it only had a 1.5% market share and that at least 72% of NQ Mobile's alleged Chinese security revenue is fictitious. Upon the release of this news, in less than 36 hours, shares of NQ Mobile dropped approximately 56%, representing over $500 million in losses to investors

Individuals who purchased NQ Mobile shares between May 5, 2013 and October 24, 2013 who would like to learn more about this investigation, have an interest in joining a class-action lawsuit, or have any questions concerning this announcement and their rights, should on or before December 23, 2013, contact Douglas M. Leavitt, Esquire: (215) 545-4830 or visit: www.DS-L.com. You may also email Mr. Leavitt at leavitt@DS-L.com.

This press release may be considered Attorney Advertising in some jurisdictions under the applicable law and ethical rules.


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December 3, 2013

NEW JERSEY FACEBOOK PRIVACY LAW NOW IN EFFECT

Earlier in the Fall I talked about NJ's proposed privacy bill that would prohibit employers from requiring employees and job applicants to disclose their private social media account information. (Click here for prior post) Well, the law took effect December 1. Be mindful that this new law applies to all employers regardless of size.

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November 12, 2013

New Jersey Votes to Increase Minimum Wage

New Jersey residents voted on November 5, 2013 to approve an amendment to the New Jersey Constitution that resulted in a $1.00 increase in the state's hourly minimum wage. Effective January 1, 2014, the minimum wage rate in New Jersey will increase from $7.25 to $8.25 per hour. What makes this wage increase different from others is that it ties future wage increases to cost of living increases as reflected by the consumer price index. On September 30 of every year, the state will review the minimum wage rate and make a cost of living adjustment as necessary.

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October 8, 2013

"INSTRUMENT UNDER SEAL" - THESE THREE WORDS REALLY DO MATTER

Ever wonder what an "instrument under seal" is? When the word [SEAL] is placed next to the signature block at the end of the written guaranty or loan agreement, does it have any impact? The answer is a big YES.

Earlier this summer, the Pennsylvania Supreme Court confirmed what we have always told our clients when they have asked us this question. When a written contract states that it is an "instrument under seal" and has the word "SEAL" next to or part of the signature block, the statute of limitations to enforce the terms of the written contract in question has been increased from the standard 4 year limitation period to 20 years!

So what is the important take away here? Review your loan agreements and other agreements (a guaranty for example) to make sure this language is standard on all agreements going forward. Not only does this give you a longer time period to decide if you want to bring legal action for nonperformance, but it also makes your negotiable instruments more marketable should you decide to sell them to third parties.

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October 1, 2013

CLIENT REMINDER: OCTOBER 31, 2013 DEADLINE LOOMS FOR COMMERCIAL USE BUILDINGS IN PHILADELPHIA IN EXCESS OF 50,000 SQUARE FEET

The October 31, 2013 compliance deadline under Philadelphia's Energy Conservation Act is fast approaching. As previously detailed in my earlier blog entry (click here), commercial landlords have only until the end of October 2013 to comply and register their building's electrical and water usage rates as well as other building characteristics. Fines will be levied for noncompliance.

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September 17, 2013

ACA EXCHANGE NOTICE DEADLINE OCTOBER 1, 2013 MUST BE PROVIDED BY ALL EMPLOYERS

Critical deadlines under President Obama's Patient Protection and Affordable Care Act are quickly coming. HR departments of large companies are aware that if there are more than fifty (50) employees, the company is required to provide employees with health insurance as of January 1, 2014. However, even companies with as few as 1 employee have a compliance deadline under the ACA.

The ACA requires that on or before October 1, 2013 all employers must deliver a notification to each of their employees that informs them of: (1) the availability of public insurance exchanges; (2) the federal premium tax credit (under certain circumstances) if the employee purchases a qualified health plan through an insurance exchange; and (3) the possibility of losing the employer contribution if the employee purchases through the exchange.

The Notice must be delivered either by First Class mail or email. Going forward all new hires must receive this Notice within fourteen days (14) of being hired and commencing as January 1, 2014, at the time of hire. Two model forms are available on the Department of Labor's website (one form if you offer health insurance and another form if you do not).

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September 4, 2013

NEW JERSEY PASSES FACEBOOK PRIVACY LAW

Governor Christie signed into law on August 29 a privacy bill that prohibit employers from requiring employees and job applicants to disclose their private social media account information. The law will become effective December 1, 2013. Click here for a related blog entry I wrote on a similar law in Philadelphia.

First off, the law will apply to ALL NEW JERSEY EMPLOYERS regardless of size. Yes that is correct; there is no minimum number of employees for this law to apply. There is a minor exception relating to state and county jails and parole officers but for purposes of this entry, this law applies to ALL NEW JERSEY EMPLOYERS.

Under this law, an employer will not be able to force an applicant or a current employee to disclose any password, user name or other account login information to any social media that is used exclusively for personal communications and is unrelated to a business purpose of the employer. It will be a violation of this law if you even ask a prospective job applicant or current employee if they have a social networking site. However, there is nothing in this law that would prevent an employer from doing his own search to see if the prospective employee has her own social media accounts at Facebook and similar sites.

Like most laws, there are exceptions. In certain limited circumstances, an employer will be allowed to compel an employee to disclose his or her username and password. For example, disclosure may be required for (1) the employer to comply with a state or federal statute; or (2) employer investigations of workplace misconduct or theft of proprietary or confidential information. In each workplace investigation, the employer must be acting on credible and specific information and not be conducting a fishing expedition.

The law has anti-retaliation provisions designed to protect the applicant or employee from adverse actions of an employer who violates this law. If an employer does violate this law it will be fined $1,000 for the first violation and $2,500 for each successive violation. The proceeds will be collected by the Commissioner of Labor.

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August 13, 2013

PUBLIC BENEFIT CORPORATIONS ARE NOW AN OPTION IN DELAWARE

Delaware recently joined the fast growing Benefit Corporation "club". Effective August 1, 2013, Delaware became the 20th state to adopt its own version of the Benefit Corporation. The provisions governing this new business entity can be found under new Subchapter XV of the Delaware General Corporation Law. Earlier this year you may recall (click here) I discussed how Pennsylvania became the 12th state to adopt its version of the Benefit Corporation.

The Delaware Benefit Corporation is almost identical to the Pennsylvania Benefit Corporation. Both acts are designed to allow "social" entrepreneurs to focus not only on the bottom line but to also consider other non economic societal factors (community, environment, employees etc...). Both acts have provisions governing allowed purposes, accountability and transparency requirements (although Delaware has an every 2 year reporting requirement as opposed to Pennsylvania's every year).

One interesting difference between the two states relates to derivative litigation (click here for link to derivative information on Danziger Shapiro & Leavitt website). While Pennsylvania is silent with respect to minimum share ownership requirements for shareholders to bring derivative actions, Delaware decided to establish minimum share ownership requirements. Most likely, this is a reflection of Delaware recognizing the practical consequences that will follow by allowing officers and directors to consider subjective societal concerns when making business decisions. Namely; not everyone shares the same political, religious and social concerns. By placing a minimum share ownership requirement in order to bring a derivative action, Delaware is just trying to reduce the strain on an already overburdened court system.

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August 5, 2013

NEW JERSEY ANGEL INVESTOR TAX CREDIT PROGRAM RULES PUBLISHED TODAY (HOPEFULLY) IN NEW JERSEY REGISTER

An angel investor who invests in a "qualifying" New Jersey emerging technology business in tax year 2012 and beyond is now eligible to receive a tax credit of up to 10% of the total amount invested. This law is designed to stimulate investment in emerging New Jersey technology companies by allowing the investor to use the 10% tax credit as a direct offset against an investor's New Jersey business or gross income tax. While Governor Christie signed this act, known as the New Jersey Angel Investor Tax Credit Act, into law on January 31st of this year, the underlying rules do not come out until today, August 5, 2013, in the New Jersey Register.

The act defines both "qualified investment" and "New Jersey emerging technology business" and I will not bore you with every detail here. However, in brief; in order for an investment to be a "qualified investment," the investment must be a non-refundable transfer of cash to a "New Jersey emerging technology business" in exchange for rights to participate in the upside of the business or to use or market the technology.

To be considered a "New Jersey emerging technology business," the act specifies the physical connection the company must have to New Jersey as well as the technological areas the business must be involved with. For example, the New Jersey business must have fewer than 225 employees, of whom at least 75 percent work in New Jersey. The company must also transact business, own property, or maintain an office in New Jersey. Finally, the company is required to operate in one of the following industries: advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology or renewable energy technology.

For investments made on or before July 1, 2013, an investor must submit a completed application before July 1, 2014. For all other investments, an investor must submit a completed application within one year of the date of the qualified investment. There are application fees not to exceed $1000 and approval fees that will be offset against the tax credit.

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July 31, 2013

PHILADELPHIA HAS NEW ENERGY AND WATER USE REPORTING REQUIREMENTS FOR OWNERS OF LARGE COMMERCIAL USE BUILDINGS

Owners of commercial buildings located in Philadelphia in excess of 50,000 square feet are now required to measure energy and water usage and report the results into the EPA's Energy Star Portfolio Manager annually. Bill No. 120428A titled "Energy Conservation" went into effect last month on June 13.

Under this new ordinance, the owner of a "covered building" must report the required information no later than June 30 of each year for the previous calendar year. For 2013 only, information must be entered into the EPA's system by October 31, 2013.

Required information will include the building's energy and water usage as well as the building's "characteristics". A building's characteristics are defined to include not only the street address and year the building was built, but also specific items such as the percent of the building heated or air conditioned and the number of computers and refrigeration/freezer units in the building. The ordinance requires that each building's characteristics must be updated annually. Failure to comply will result in the City assessing fines against the building owner.

What does this mean from a landlord and tenant perspective going forward? From the landlord's point of view, it means that you are going to have to immediately notify tenants of the new reporting requirements and the associated deadlines. Going forward landlords should consider default and penalty provision language as possible additions to new leases.

From the tenant perspective, a tenant should consider what impact this new legislation will have on a landlord. Will public access to the results contained in the Energy Star Manager force landlords to update their mechanical systems? If so, will such improvements be passed onto the tenant? Can carefully crafted representations and warranties in the lease protect the tenant from these types of improvements being passed onto the tenant?

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