Articles Posted in Business Law

By now, it is common knowledge that we have lost Prince, one of the greatest artists of our time. Though he is gone, his legacy will live on in his music, movies, and various other distributions of his image and art. Unfortunately, Prince had no will.  According to various estimates, Prince’s net worth at the time of his death was roughly 300 million with an additional 100 million expected in the next five years alone from fans that will continue to purchase the late singer’s songs and other memorabilia in his honor.  And if this is indeed true, this may be one of the worst business succession failures in recent memory in the music industry.  It just takes a second to recognize that Prince’s impact on society was far greater than just his music.  There were literally hundreds of thousands of tweets, articles and blog posts reflecting the impact Prince made upon them.  In short, Prince was an iconic brand that conducted business at his compound known as Paisley Park Studios just outside of Minneapolis.  Without having a will that established who will control his iconic brand, Prince essentially was running a multi-million dollar business without succession planning.

So why then do you want to have continuity succession planning in place? There are many considerations to take into account and in no particular order they are: mortality, tax planning, life changes or events to just name a few.

Mortality.  The only certainty in this world is that no one is getting out of here alive.   What will happen to your business when you are gone?  This can be a very emotional question and likely the biggest reason why people do not have estate plans.  People don’t like to talk or even think about their own death.  However, if you don’t deal with it, your survivors under the laws of intestate succession will be the ones running your business.  Think about how much effort you placed into getting your business going.  How hard you worked to create that brand and what it stands for.  Do you want your brothers and sisters or children running the show?  What about your business partners? The people with whom you share your personal and professional life may not be suited or capable of successfully working together and picking up the pieces after you did not plan carefully enough.  Truth be told, if you have partners (fellow shareholders), then they are also partly to blame here. While they are not responsible for your estate plan, they are equally responsible for not having a business succession agreement in place.  More on this agreement later.

As shocking as it may be, in this day and age there are still many hospitals and medical-related businesses that have not made sufficient risk assessments relating to patients’ protected health information (“PHI”) and their third party vendors that have access to this information.  This is pertinent to large organizations such as hospitals, smaller organizations like a physician or dental office, and the third party vendors that work with these types of entities (for example- IT and copy repair companies or cleaning services).  Last week, a resolution agreement between the United States Department of Health and Human Services Office for Civil Rights (“OCR”) and North Memorial Healthcare proved that this issue is still extremely relevant and potentially costly. In this instance, North Memorial self-reported to OCR that an unencrypted laptop containing the PHI of approximately 10,000 individuals was stolen from its third party vendor.

Unbelievably, there was no business associate agreement between the hospital and its vendor.  At the conclusion of its investigation, North Memorial agreed to pay 1.55 million dollars to resolve allegations that it violated HIPPA and agreed to enter into a robust compliance program relating how it would enter into business associate agreements (“BAA”) going forward.  If you are interested in reading a copy of the actual Resolution Agreement, please click here.

Before addressing what North Memorial agreed to do going forward, understand that, North Memorial, as a “covered entity,” was required to take certain steps to protect PHI under HIPPA and to report any breach of this obligation directly to OCR.  OCR is the governmental agency in charge of enforcing the rules and regulations surrounding the privacy of individually identifiable health information and has the authority to conduct compliance reviews and investigations of complaints alleging violations of HIPPA rules generally.

On January 4, 2016, Pennsylvania Governor Tom Wolf eliminated the Capital Stock Tax and Foreign Franchise Tax for all taxpayers effective for tax years beginning on or after January 1, 2016. Previously, the Capital Stock and the Foreign Franchise were imposed on all limited liability companies (LLCs), corporations and a few other entities that were formed or doing business in Pennsylvania. These taxes were not imposed however on an entity that was formed as a state law partnership. As a result, the limited partnership was the entity of choice to own real estate.

With these taxes eliminated, Pennsylvania joins the rest of the country with the LLC now being entity of choice for owning real estate. Keep in mind however that with while this is the law right now, there still is no budget in place. The theory is that the elimination of these taxes will spur economic development and create greater tax revenue in the long run at the cost of losing what had been declining capital stock tax revenue.

Who knows what will happen if the budget is just a little short of what is needed that the January 4, 2016 repeal isn’t tweaked to bring the budget into balance. Regardless, this is the law as it stands today and we are here to advise you of the best way to invest in real estate while protecting your assets and giving you the most flexible management choices that are available. If you have any questions, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt, P.C.

President Obama recently signed into law The Fixing America’s Surface Transportation Act also known as the “FAST Act”. What people may be surprised to learn is that this new law also adds Section 7345 to the Internal Revenue Code which provides in part as follows:

“(a) In general.—If the Secretary (of State) receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt in an amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport….”

Think about this for a second. Your passport will now be used against you as a collection tool. If notified by the IRS, the Secretary of State may pull your passport; refuse to renew it or even to issue you one in the first place. The monetary threshold for a “seriously delinquent tax debt” is only $50,000. Once you consider this includes interest and penalties, it is easy to see how quickly this threshold can be met.

Over the past few weeks several landlord clients called and asked the same question, “My tenant bolted and left some of his junk behind. Can I throw it out?” The answer to each landlord was slightly different but came from the same source – 68 P.S. § 250.505a – better known as Pennsylvania’s “Disposition of Abandoned Personal Property Act.” This Act became effective a little more than a year ago in December 2014 and actually is the second attempt by the Pennsylvania legislature to provide guidance to both commercial and residential landlords on how to properly get rid of property that has been left behind.

The Act starts off by identifying five distinct circumstances when personal property remaining on leased premises may be deemed abandoned.

(1) The tenant has vacated the unit following the termination of a written lease.

Last September Deputy Attorney General Sally Yates authored a six point Memorandum that identified how the Department of Justice would more effectively go after individuals responsible for corporate wrongdoing. The theory behind the new found emphasis on going after individuals being that corporations only act through individuals. Please click here for a detailed entry I wrote last year on this blog about the Yates Memo.

From an officer or director’s point of view in light of the Yates Memo, they need to take a critical review of the indemnity provisions that are currently in place. By this I mean, what is their employer’s obligations to them if the officers, directors or even high level employees are accused of corporate wrongdoing by either an outside entity like the Justice Department, a disgruntled shareholder in the form of a derivative lawsuit, or perhaps even an internal company investigation? Hiring an independent lawyer to protect your interest in any of these situations is expensive so it is better if the company will pay your legal expenses and even better if your company will advance your legal expenses. Click here for a blog entry I wrote two months ago that explains why it is important to have your own lawyer represent you during these investigations.

To determine what your company will or will not indemnify requires a review of the company’s by-laws. Additional places indemnity provisions can be found are in an employment agreement and not surprisingly, an indemnity agreement. The best protection for an officer or director is actually to have a separate indemnity agreement. Too often I see my clients come to me with their problems but say, “I am not worried, I have indemnification. Look at the by-laws I brought.” Don’t get me wrong, this is a good start, but that is all it is. Do the by-laws require indemnification or is it permissive and require a vote of the board of directors? Even if it is required, are legal fees advanced or only paid after you are found not to have violated your fiduciary duties? Even if the by-laws state it is required and legal fees are to be advanced, what is the process for advancing legal fees? Will the company and its insurance carrier be able to hide behind a convoluted process to delay payments? Does the employer have the ability to restrict your choice of counsel? As you can see there are a myriad of issues even when it seems clear. Even if you have D&O Insurance, keep in mind that the carrier’s policy has exclusions. For example, a typical D&O policy will not cover attorneys’ fee in an internal corporate investigation. Also, D&O policies change year to year as companies are always shopping for better prices so what coverage you have in year one may not be what you have in year two and beyond. However, a well drafted indemnity agreement will require the company to cover all expenses, including legal, incurred in connection with your position as an officer or director of the company to the fullest extent permitted by law and will not change in scope from year to year. These are big differences.

At the end of last year on December 15th , Philadelphia’s Mayor Nutter signed into law an amendment to the city’s Fair Criminal Screening Standards Ordinance. The amendment, which goes into effect on March 14, 2016, limits an employers’ ability to inquire about the criminal history of a potential employee and provides prospective job applicants with criminal records considerable protection.

Beginning next March 2016, employers will no longer be able to inquire into an applicant’s prior criminal history until a conditional job offer has been made to the prospective employee. Employers are precluded from categorically denying an applicant an offer of employment based upon a criminal conviction without first making an individualized assessment that analyzes whether the criminal record serves as a legitimate basis for withdrawing the conditional employment offer. The employer should consider the following 6 factors when making this individualized assessment:

  1. The nature of the offense.

Earlier this year a Pennsylvania federal district court decided that a defendant could invoke his Fifth Amendment right to avoid self-incrimination by refusing to provide production of his smartphone passcode. In this case, the court denied a motion filed by the Securities and Exchange Commission (SEC) asking the Court to compel the defendant to produce his passcode. The Court held that the production of the passcode was personal in nature thus the defendant properly invoked his Fifth-Amendment rights.

The SEC tried to argue that because the smartphone was not the defendant’s personal property but rather the property of his employer, combined with the fact that the documents the SEC were interested in reviewing were company records, the employee was more akin to a custodian of records. Based upon this, the SEC argued that compelling the employee to produce his passcode was not a communication subject to the Fifth Amendment. The Court did not buy into the SEC’s argument.

The Court stated that the SEC’s reliance on the underlying documents was misplaced. The application of the Fifth Amendment does not turn on the nature or character of the underlying documents but rather on the production of the documents themselves. In this case, the production of the documents required testimony (in that he needed to provide the password) and could not be characterized by a “physical act”. The Court stated that where an act requires the use of the contents of a person’s mind or personal thought process… it cannot be “fairly characterized as a physical act”. Based on this, the Court held that the Fifth Amendment was properly invoked to preclude the defendant from being ordered to provide his passcode to his company smartphone.

Annually, New Jersey employers must provide to their employees on or before December 31 a copy of the Gender Equity Notice that can be found on Department of Labor and Workforce Development website. The sample set forth on the Department of Labor’s website is in both English and Spanish and also has an acknowledgment section for each employee to sign that should be placed in each employee’s human resource file.

If an employer has 10 or more employees, there is a second notice that New Jersey companies must provide to their employees on or before December 31 – the required notice under the Conscientious Employee Protection Act also known as the Whistleblower Act. As with the Gender Equity Notice, this too can be found at the Department of Labor and Workforce Development website in both English and Spanish. Please be sure to fill out the appropriate contact information before handing these forms out to your employees. Please know that to satisfy your obligation under the Act, you cannot just have a copy of the notice in your employee handbook, but rather you must deliver a copy of the notice to each employee AND post it in a prominent place in your company.

Should you have any questions regarding this or any other aspect of your business operations, please feel free to contact Douglas Leavitt, one of the attorneys with Danziger Shapiro & Leavitt, P.C. to discuss this and business concerns in greater detail.

In today’s business climate we cannot seem to go a few weeks without the next big company fraud that has been foisted upon the public. The current scandal du jour is Volkswagen and tomorrow it will be who knows. At some point however, either as a result of a whistleblower or anonymous tip, a corporation will conduct an internal investigation to (1) uncover the facts surrounding the current problem and (2) advise management, including the board of directors, of the potential liability and suggest a course of action. It is a “best practice” that when conducting an internal investigation, that a company retain an outside law firm specifically for the investigation to show that the directors of the company are zealously discharging their fiduciary duties to investigate suspected wrongdoing. While these outside attorneys will undoubtedly have access to all company documents and emails, including servers, a large part of the investigation will center upon these attorneys and their interviews with company employees.

If you find yourself in the situation where you are about to be interviewed in connection with a company investigation you need to ask yourself two questions. Do I need a lawyer? Who pays? If you truly played no role in what the company is investigating you don’t need a lawyer. However, if you are a key insider who has information that will shed important details on what transpired you certainly would want to retain your own lawyer. There are many reasons why and I will address them below.

First, consider that earlier this year the Department of Justice set forth a Memorandum that identified that it would go after the individuals responsible for corporate wrongdoing and work its way inward towards the corporate hub. In addition, Justice conditioned any corporate cooperation credit that a corporation could hope to receive would be conditioned upon the disclosure of all corporate wrongdoings and all of the individuals that performed them. Think about this for a second. If the company you are working for is the subject of an investigation and wants in effect what is leniency in its “corporate sentence,” it must turn you over to Justice.