BLT: September 2019

     

    Featured Articles

    Business & Corporate

    What Every Business Lawyer Needs to Know About Tax Issues in Bankruptcies and Workouts

    Jeffrey M. Sklarz

    Good representation of business clients, both large and small, requires solutions through all of a businesses’ life-cycle including financial distress. It is not unusual for counsel (or other business advisors) to deal with liquidity challenges resulting in an inability to make tax payments that may ultimately culminate in a visit from the Internal Revenue Service (“IRS”). This article provides guidance on how to identify and address tax issues regularly confronted by vulnerable businesses.

    Business & Corporate

    Distressed Lending after Ultra Petroleum: When Does Risky Business Become Too Risky?

    Nicole Fulfree

    Contractual prepayment premiums—also called make-whole provisions or prepayment penalties—offer yield protection to a lender in the event a borrower repays its loan prior to its scheduled maturity date. Such provisions are often found in higher-value loans with longer terms, including those offered to distressed companies trying to clean up their balance sheet or restructure debt in an attempt to avoid a bankruptcy filing. Some categorize prepayment premiums as a hedge against the risk of loss of future interest resulting from a borrower’s early payoff, whereas others describe the premium as the price a borrower pays for the autonomy to prepay or refinance its debt. Whichever way you put it, prepayment premiums endeavor to increase predictability for lenders.

    Business & Corporate

    States’ Divergent Approaches to Unfair, Deceptive, and Abusive Acts and Practices Reveal Consumer Protection Priorities

    Allen H. Denson, Latif Zaman

    Until recently, legal principles surrounding unfairness, deception, and abusiveness have been defined primarily at the federal level, yet with perceived federal retrenchment from consumer protection, states have increasingly taken a hard look at their roles in protecting their citizens from unfair, deceptive, or abusive acts or practices (UDAP/UDAAP). Recent legislative changes in Maryland and Arkansas highlight the different approaches states are taking in how they regulate UDAP/UDAAP and through those changes are choosing to either prioritize consumer protection or protect industry from perceived overreach.

    Business & Corporate

    What Business Lawyers Need to Know About Wage Advance Products

    Stephen T. Middlebrook

    From the intersection of the gig economy, faster payments technology, and legislators’ failure to address the dearth of small-dollar credit options, there has emerged a new type of payment product that gives workers immediate access to their wages even if their next payday isn’t scheduled for another week or more. These products go by a number of names—wages-on-demand, advance wage payment, earned income access, wage-based and work-based advances—but all make it possible to deliver payments within minutes of a worker’s request. Studies tells us that many people live paycheck to paycheck, would not be able to cover an unanticipated expense of a few hundred dollars, and lack access to credit at reasonable rates. For these workers, immediate access to wages that have been earned but are not due to be paid can be an important benefit. Immediate access products are also popular with “gig workers” who drive for rideshare companies, deliver food and groceries, or perform other piecework tasks and who want to be paid immediately at the end of their shift.

    Business & Corporate

    Effectiveness of Contractual Receivership Clauses for Operating Companies

    Aaron Walden, Sheryl Toby, Matt Ochs

    A receivership occurs when a court appoints a third party to exercise independent oversight on specific assets. Although receiverships are commonly involved in real estate transactions, they can also arise when commercial borrowers are in distress, in cases of corporate deadlock, and in the event of litigation where the rights of the parties cannot otherwise be fully protected. In some cases, even for large operating companies, courts have appointed receivers and granted the receivers authority to take complete control of defendant’s business operations, including determining whether to sell or wind-down business affairs.

    Business & Corporate

    Recent Amendments to Delaware’s Entity Laws

    Norman M. Powell, John J. Paschetto, Tammy L. Mercer

    The Delaware legislature recently adopted amendments to the Delaware Revised Uniform Limited Partnership Act (DRULPA) that permit the “division” of Delaware limited partnerships (LPs), formation of “statutory public benefit” LPs, judicial cancellation of an LP for abuse, and formation of LP “registered series.”[1] Those amendments are in most respects similar to amendments adopted in 2018 to the Delaware Limited Liability Company Act (DLLCA).[2] In addition, the recent amendments have, among other things, made Delaware corporations’ use of e-mail for stockholder notices valid except as to stockholders who opt out (thus switching from the prior opt-in regime) and clarified the law regarding the use of electronic transmission and electronic signatures under the DRULPA, the DLLCA, and the General Corporation Law of the State of Delaware (DGCL). Except as otherwise indicated, all of the amendments discussed below took effect on August 1, 2019.

    Business & Corporate

    When Must E-mails Be Produced in DGCL Section 220 Books and Records Actions?

    Michael Blanchard

    Since common law, stockholders have enjoyed a qualified right to inspect the corporation’s “books and records” for any “proper purpose”—i.e., a purpose reasonably related to the stockholder’s interests as a stockholder. Codified in state corporation statutes such as section 220 of the Delaware General Corporations Law (DCGL), these stockholder inspection rights were exercised infrequently until the Delaware courts began to encourage stockholders to utilize these “tools at hand” to obtain information necessary to plead demand excusal in derivative actions. As the Delaware Supreme Court noted in the seminal decision of Rales v. Blasband: “Surprisingly, little use has been made of section 220 as an information-gathering tool in the derivative context.” 634 A.2d 927, 935 n.10 (Del. 1993). Over the last 20 years, “Delaware courts have encouraged stockholders to use the ‘tools at hand’ (e.g., Section 220) to gather information before filing complaints that will be subject to heightened pleading standards.” Lavin v. West Corp., 2017 WL 6728702, at *9 (Del. Ch. Dec. 29, 2017). The significant increase in section 220 litigation over the last decade is a testament to the plaintiffs’ bar heeding the Delaware courts’ admonitions.

    Business & Corporate

    Limited Liability Limited

    Daniel S. Kleinberger

    Limited liability companies went mainstream in 1988, began to capture the market for closely held businesses in 1997, and now have the lion’s share of that market. Since the advent of limited liability companies, a corporate-like liability shield, in addition to pass-through status under federal income tax law, has been one of two hallmarks of a limited liability company. Indeed, for many years courts have described the limited liability company as “a hybrid business entity [that] provides members with limited liability to the same extent enjoyed by corporate shareholders.”

    Business & Corporate

    AI Product Liability Issues and Associated Risk Management

    Stephen S. Wu

    Robots, and autonomous vehicles (AVs) in particular, act in the physical world. Accidents involving these systems are inevitable. Some of these accidents will cause catastrophic injury for those involved in the accident. Even worse, if a defect or cyber attack could compromise every instance of a particular robot or an entire network, fleet, or industry, the defect or attack could cause widespread simultaneous accidents throughout the country or even the world. Imagine, for instance, a future in which regional transportation centers in metropolitan centers control the dispatch and navigation of AVs in the region. Imagine further that a sudden defect causes all the AVs under control of the system to crash all at once in a major metropolitan area like New York. The impact of such an event in terms of harm, property damage, injury, and deaths could easily exceed an event like the attacks on September 11, 2001.

    Business & Corporate

    Six Steps to Take Back Control of Your Information Landscape

    Randolph A. Kahn

    A plaintiff is seeking class-action status in his lawsuit against Square, the electronics payments company. The facts as alleged are that the plaintiff received treatment from a medical provider who used Square to execute a credit-card payment for the medical service. Inexplicably thereafter, “Square allegedly sent a text message linking to a digital invoice with information about the treatment he received to a friend (of the patient allegedly without authorization).”

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