Divorce and Summer Breaks for Children

Summer break poses many challenges for parents whether they are together or divorced. Children’s schedules change and it can be difficult for parents that work when their children are out of school.

USDA Clarifies Hemp Production, Use, and Transportation

In December 2018, Congress approved the Agriculture Improvement Act of 2018 (the “Farm Bill”) which authorized the production of hemp and removed hemp and hemp seeds from the DEA’s schedule of illegal Controlled Substances. After passage of the Farm Bill, questions arose with respect to interstate hemp transportation and who could obtain a license to produce hemp. Adding to the confusion, a number of Midwestern states seized hemp traveling through their borders and charged drivers with felonies for interstate drug trafficking.

In response, on May 28, 2019, the Office of the General Counsel for the United States Department of Agriculture (“USDA”) issued a memorandum with key legal opinions meant to provide guidance and direction to the industry and local governments. The USDA confirmed that (1) hemp is no longer a Schedule 1 controlled substance under the Controlled Substances Act; and (2) following publication of USDA regulations for the new hemp production provisions, states and Indian tribes are prohibited from halting interstate transportation or shipment of hemp lawfully produced (a) under a State or Tribal plan or license issued under the USDA Plan or (b) the 2014 Farm Bill; and (3) a person with state and federal felony convictions relating to a controlled substance would be ineligible to produce hemp under the Agricultural Marketing Act of 1946, unless the person was lawfully growing hemp under the 2014 Farm Bill before December 20, 2018 and their conviction occurred before that date.

Additionally, the memo reaffirmed that hemp could be grown only (1) with a valid USDA-issued license, (2) under a USDA-approved State or Tribal plan, or (3) under the 2014 Farm Bill industrial hemp pilot authority. Authority under the pilot program is set to expire one year after the USDA announces a plan for issuing licenses under the provisions of the 2018 Farm Bill. And the memo reminded its audience that states could pass more stringent laws regarding the production of hemp than the federal government has, such as prohibiting the growing of hemp in that particular State or Tribal territory. The USDA expects to release the much-anticipated hemp production regulations by the end of 2019, which would be just in time for the 2020 planting season.

The memorandum helps clarify the status of interstate hemp transportation and should prevent the seizure of legally cultivated hemp transferred across state lines, which previously happened in states including Idaho and West Virginia. USDA’s position was announced the same week that the Transportation Security Administration confirmed that hemp-derived CBD could be transported on airplanes. Some commentators criticized the portion of the memorandum that deems persons with prior controlled substances convictions ineligible to participate in hemp production because it draws an arguably arbitrary distinction between drug convictions and violent crime convictions, like rape or robbery.

Even with this memorandum, many states and tribes are still upset about the impact the USDA’s delay in promulgating regulations has had on potential revenues from hemp production for the 2019 growing season. So far, seven states and eight tribes have submitted hemp production plans to the USDA, which will not be examined or approved until regulations are first promulgated. Some states and tribes have taken further action. For example, a South Dakota tribe sued the USDA this month alleging that the delay in releasing hemp regulations has curtailed receipt of tribal revenue from hemp production at grave cost to tribal members, putting their health, safety, and welfare at risk. Hopefully, we will have the USDA’s regulations this Fall.

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Make Sure to Enter QDROs At The Time of Divorce

We recently received a favorable appellate decision on behalf of our client whose ex-husband tried to manipulate their divorce agreement regarding distribution of his New Jersey PERS pension (“pension”) nearly three decades after the agreement was signed.  We did not represent her at the time of the divorce, but did represent her to defend against this frivolous post-judgment litigation.

The unpublished decision of Tapanes v. Perez is an important reminder to have your Qualified Domestic Relations Orders (“QDRO” – the Order that enables spouses to distribute retirement plans without tax or penalty) prepared and finalized simultaneously with the divorce decree.  QDROs are often the last task performed because you must have a signed agreement or Judgment containing the terms of distribution before the QDRO can be prepared and then implemented.  In this case, letting the QDRO enabled the former husband to collect the former wife’s share of the pension for nearly eight years between his retirement in 2010 and her receipt of benefits in 2018 because the QDRO was not entered and he did not alert the State of her rights when he retired.  Had the QDRO been entered, even decades earlier, it would have been on record.  Even worse, after depriving his former wife of the benefit of her bargain for years, he brought litigation seeking to rewrite the agreement in order to avoid paying the arrears the accrued during that period.  Time finally caught up to him…

The simple facts are as follows.  The parties entered into a divorce agreement in 1993 that provided for equitable distribution of the marital portion of the pension.  The agreement noted that a lump sum payment would be made in limited circumstances, such as his death and/or separation from the plan, which did not occur.  The agreement also noted a pension valuation that the parties never obtained.  The parties did not procure a Qualified Domestic Relations Order (“QDRO”) to distribute the marital portion of the pension following their divorce.

The former husband retired in 2010 and began collecting his benefits.  He did not alert the State of New Jersey that his former wife was entitled to a share of his benefits.  By the time the wife began collecting her share of the benefits in 2017, over $70,000 of arrears had accrued.

In the fall of 2017, the former wife contacted her former husband (he now resides in Florida) to have the appropriate QDRO prepared.  He ignored her.  She hired All Pro QDRO to prepare the draft QDRO and it was sent to both parties for review.  He ignored it.  After her attempts to resolve the issue without the need for litigation, the former wife filed a motion in the trial court seeking to have the QDRO implemented.  He ignored the motion.  Notwithstanding, the trial court gave him more time to sign the QDRO in the initial Order entered in November 2017.  Surprise, he ignored it.  Thus, the trial court entered the QDRO without his signature.

After the Orders were entered, the former husband had two New Jersey attorneys write to the former wife indicating his consent to the form of QDRO but seeking (a) valuation for a lump sum payment that was not applicable and (b) to offset the arrears that accrued because he had wrongfully collected her share of the benefits.

In early 2018, when the former wife finally began receiving her share of the pension, he filed a motion in the trial court to have the QDRO vacated, putting forth arguments that failed for procedural, factual and legal reasons.  Notably, he never appealed or even sought reconsideration of the November Orders even though he was properly served with the underlying motion and the Orders themselves, as well as had two attorneys contact his former wife about the QDRO after it was entered.  Additionally, the language of the parties’ divorce agreement did not permit a lump sum payment except under limited circumstances that did not occur here.  Moreover, while the former husband claimed Anti-Marx language should be read into the agreement, but it simply didn’t exist and Marx (or the coverture fraction) is the appropriate way to distribute the pension.   Even though he filed a Motion under Rule 4:50-1 (that permits vacating  judgments in certain circumstances), the former husband did not meet the standard to have the Orders vacated. Put another way, he did not advance a legal or factual position to have the QDRO vacated. The former husband’s trial court motion was denied in April 2018.

Refusing to just stop there, the former husband then filed an appeal.  In its decision, the Appellate Division stated:

The QDRO fulfilled the terms of the parties’ settlement agreement, whose plain language required an equitable distribution of the value of the marital portion of the pension. The Marx marital coverture formula effectuates a division of the value of a pension. Panetta v. Panetta, 370 N.J. Super. 486, 494- 95 (App. Div. 2004). The settlement agreement did not eschew a Marx formula.

Moreover, other than a self-serving certification authored by his former divorce attorney, defendant provided the motion judge no objective evidence, valuation, or rationale to support his argument why plaintiff should only receive $3,903.21 as her share of equitable distribution from the asset. The settlement agreement’s mention of a lump sum distribution pertained only to defendant in the event he died or separated from the plan. Therefore, notwithstanding defendant’s failure to object to the entry of the QDRO, the record does not support his tortured interpretation of the settlement agreement regarding the pension division.

Our client spent over a year in litigation on this issue that her husband created.  During that time, she was fearful of spending the pension benefits that her former spouse wrongfully deprived her of for approximately eight years.   After defeating her former spouse in the trial court and Appellate Division, she is finally getting the retirement benefits she bargained for over 25 years ago!

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Lindsay A. Heller is an associate in the firm’s Family Law practice, based in its Morristown, NJ office. You can reach Lindsay at 973.548.3318 or lheller@foxrothschild.com.

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The Inability or Refusal to Settle By the Lawyer, Not the Litigant

In one of the earliest posts I did on this blog going back ten years or more, I posited that you can only really settle when the time is right and when both parties are ready.  In fact, I felt then as I feel now, that you can make your best offer, if not an offer that is the other side’s best offer, on day one, and if the other side isn’t ready to settle, the case wont settle.  Worse yet, in those cases, the party rejecting the settlement offer then believes that the offer is just the other side’s starting position – rather than perhaps an overly generous offer meant to get a case over quickly to avoid both the fees and emotional trauma that can be endured during a divorce case.  As a noted then, some times a litigant is just not emotionally prepared for the case to be over and/or be divorced.  I have had several cases of late where one party wanted the divorce and the other wanted to stay married (notwithstanding how horrifically their spouse treated them and/or the kids).  In those cases, if a party is not ready to resolve the case, you need to have patience and at the same time methodically do what is necessary to ultimately settle or try the case, as the case may be.

Sometimes, however, it is the lawyers, not the litigants, that impede settlement.  I recently had a lawyer tell me that she hated to settle cases – not because there was a desire to run up fees – but rather, because she was so fixed in the correctness of her positions, that she would rather have judge decide she was wrong after a trial, then compromise (and I presume in her mind, sell out her client.)  Quite frankly, had I not had several other cases with that lawyer over the years, including a long and ridiculous trial, I would have been shocked though I guess it was still a little surprising to hear out loud what I had surmised all along.  There are other lawyers who, seeing dollar signs when there is money there to pay fees, will either fan the flames and create needless issues, or worse yet, let clients that don’t know better, have them do work, or right letters, or engage unnecessary experts instead of giving the proper advice to avoid unnecessary fees.  There are lawyers that are proud that they try every case – this can’t be good for the client.  There are lawyers who don’t let cases settle until you have prepared for trial and the trial is about to begin.  There are lawyers who take bad positions, way too long, only to sell their clients out on the eve of trial.  I have had complex matters where opposing counsel would not let their forensic accountants concede obvious, objective errors (e.g. they looked at the wrong document/used the wrong number) or even massive math errors.

But what to you do when it is the lawyer, not the litigant, that is the impediment to resolution.   On thing you can do is to try to get a judge to actively case manage the case, get to know the file and weigh in on the issues.  Some judges will do that, many won’t, not because they don’t want matters to resolve, but because there isn’t enough time in the day. Sometimes you can file a strategic motion which may not necessarily provide the desired relief at that moment, but can put the case on the right path.  You can also try to get the case to mediation with a retired judge or respected mediator.   This is often the first setting where a litigant gets an objective, unvarnished assessment of their case (and perhaps finds out for the first time that their entitlements or rights are not how they had been previously sold to them by their attorney.  Sometimes it is the expert that takes over and becomes the problem.  In one case, an expert, when confronted with a multi-million dollar math error, said that it was ok, and that he would just fix that error and change another number to get to the same result.  In that case, a mediator who was also a forensic accountant was helpful in getting the litigant to see that their position was unsustainable.

However, you do it, the goal is to get the case on track where the litigant hears, perhaps for the first time, that they may have to reconsider their position, or get a second opinion, or take control of their own case.

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Eric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

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USPTO Provides New Guidance for Registration of Cannabis and Cannabis-Related Marks

After passage of the Agricultural Improvement Act of 2018 (“The Farm Bill”), many professionals in the cannabis industry wondered how the new law would affect the U.S. Patent and Trademark Office’s (USPTO) stance on trade and service marks for cannabis sativa L species (hemp) and hemp-related goods and services.

In May 2019, the USPTO issued Examination Guide 1-19 confirming its commencement of review of federal mark protection for goods and services that encompass products or cannabidiol (CBD) derived from hemp. The examination guide clarifies the procedure to examine such marks for registration.

The USPTO typically drafts examination guides to clarify standards of application review by the office’s examining attorneys who may encounter issues during their review of applications not previously addressed within the Trademark Manual of Examining Procedure.

The Guide first reminds examiners to refuse registration of marks that show a clear violation of federal law. This includes any products or services related to marijuana, which remains a Schedule I prohibited controlled substance. That said, the Farm Bill amended federal law and removed hemp from the Controlled Substances Act’s definition of “marijuana.” This means that cannabis plants and derivatives, such as CBD containing no more than .3% THC on a dry-weight basis, are no longer controlled substances under the CSA and therefore no longer illegal under federal law.

Next, the USPTO clarified that for applications filed on or after December 20, 2018 (the date the Farm Bill was signed into law), the bill potentially removes the CSA as a ground for refusal of registration of goods encompassing cannabis ingredients or CBD, but only if the goods are derived from “hemp.”

Products and CBD derived from marijuana would still violate federal law and applications for such goods would still fail under the prohibition against goods and services unlawful under federal law. The application must specify that the goods in question are derived/sourced from hemp and contain less than .3% THC.

For applicants who filed before December 20, 2018, the examining attorney at the USPTO would provide them the option to amend the filing date and basis of the application to overcome the CSA as a ground for refusal. Alternatively, applicants could also abandon their applications and refile new ones. If any application was filed before the date as an actual use of the mark in commerce, the applicant would have to amend the filing basis from an actual use mark to an intent to use the mark in commerce. Once applications are amended or refiled, the examining attorney would conduct a new search of the USPTO records for conflicting applications based on the later application filing date.

Additionally, the USPTO carefully reminded applicants that CBD or hemp-derived products not only have to comply with the 2018 Farm Bill, but also with other federal laws, including the Federal Food Drug and Cosmetic Act and the Federal Drug Administration (“FDA”), which prohibits the use of CBD in foods or as a dietary supplement.

CBD is currently undergoing clinical investigations. Therefore, registration of marks for foods, beverages, dietary supplements, or pet treats containing CBD would still be refused as unlawful under the FDCA. Even if derived from hemp, such goods cannot be lawfully introduced into interstate commerce just yet.

Any applicants referencing “hemp” in their application will need to provide documentation confirming their ability to meet 2018 Farm Bill hemp production requirements.  Although the US Department of Agriculture (USDA) has yet to enact regulations or create its own hemp-production plan, the Bill directed states, tribes, and institutions of higher education to operate under authority given to them under the 2014 Farm Bill for up to 12 months after the USDA administers a plan and regulations.

While the examination guide does not contain any shocking resolutions, it certainly provides clarity for hemp breeders, growers, processors, manufacturers, distributors, and retailers seeking registration of a mark related to domestic industrial hemp products. The guide does reiterate that many CBD products (food, beverages, dietary supplements, and pet treats) still cannot be sold legally in the U.S. without approval by the FDA. Until the FDA issues regulations and rules, trademark registrations for CBD products disallowed by the FDA will not be available.

Therefore, registration for CBD-related products is likely limited to unadulterated CBD extracts, ancillary goods and services as well as those that specifically exclude cannabis, such as “SKUNK DOCTOR” for “odor neutralizing sprays for the removal of cannabis smoke odor” or “CANNATRAC” for “use in connection with business consultation in the medical and recreational marijuana industry.”

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Halfway Thru the Year – More Retailers to Watch for a Bankruptcy Filing in 2019

Earlier this year we noted 10 potential retailer bankruptcies to watch in 2019. Four (4) of those retailers, Payless, Gymboree, Charlotte Russe, and Things Remembered, filed within months of our report.

The following is a revised list of potential Chapter 11 retailer bankruptcy filings to watch for during the second half of the year.

• Francesca’s – Houston-based, boutique women’s apparel and accessory retailer, has struggled tremendously during the last year: six (6) consecutive quarters of double-digit losses in same-store sales; the exit of CEO, Steve Lawrence; closing of at least 20 of its 700-plus stores; and a stock price that has declined -92.50% over the last 52-week trading period. Plus, it’s almost impossible to get someone on the phone when you call the main office. All signs point to a Chapter 11 filing.
• Forever 21 – CNBC reports that Forever 21 is exploring restructuring options, including bankruptcy. The fashion giant struggles competing in the teen clothing retail environment, just like others that filed for bankruptcy in the last few years – Aeropostale, Rue21, and American Apparel. With more than 815 stores in the U.S. and worldwide, the company is reportedly in talks with private equity firm Apollo Global Management about debtor-in-possession financing.
• Perkins & Marie Callender – Restaurant Business reports that the Memphis, Tenn. company is for sale and that a bankruptcy filing is possible. The family-dining chain previously filed in 2011. The company operates more than 400 locations in the two brands, including 400 Perkins Restaurant & Bakery locations (134 company and 266 franchised) and 38 Marie Callender’s restaurants (8 company and 30 franchised).
• Charming Charlie – Part 2? – The company filed for Chapter 11 in December and exited bankruptcy a few months later. It emerged from Chapter 11 with 264 stores. However, the market is quite tight and the real question is whether the company can adapt to consumer demands. The company looks to be on par with other retailers, who filed for Chapter 11, only to refile (a Chapter 22) within a year or two like Payless, RadioShack and Gymboree.
• General Nutrition Centers (“GNC”) – CNN reports that GNC and other retailers are still struggling with too many locations. Since 2017, the company closed more than 700, but that may not be enough to stave off a Chapter 11 filing. The company still operates more than 3,000 stores. With its competitor Vitamin World using the Chapter 11 process in 2017 to rid itself of unfavorable leases, GNC is a likely candidate to do the same in 2019.
• Mattress Firm – Part 2? – The company emerged from Chapter 11 only a few months after it filed in October 2018. Downsizing its locations to 2,600 stores helped, but the company did not receive the initial concessions that it sought from landlords in the restructuring process. The company continues to be under pressure from both e-commerce and big box sellers.
• Dress Barn – Company held a landlord conference call on May 29 requesting 90% of landlord to agree to a wind down of its 650 stores by June 30, 2019. Unlikely that 90% of landlords will agree to this commitment (further this wind down does not stop Dress Barn from filing for bankruptcy). CNN reported that Dressbarn’s parent company, Ascena Retail Group noted that any winddown or bankruptcy would not affect other brands, including Ann Taylor and Loft.
• 99 Cent Only – This discount retailers faces stiff competition from rivals, like Dollar General and Dollar Tree, as well as Walmart and Amazon. Reports show the chain is losing money because of operating expenses. A sure fire remedy for that is to cut retail locations through a Chapter 11 bankruptcy.
• Pier 1 Imports – It seems like Pier 1, year after year avoids a bankruptcy filing. But a $51.1 million loss in 2018 (a more than 500% increase from its loss in 2017) makes the filing almost assured. USA Today reported that Pier 1 announced in April 2019 it could close as many as 145 of its 973 stores. Further, S&P downgraded Pier 1’s credit rating from CCC+ to CCC-.
• PetSmart, Inc. – With 1,500 stores, the company faces heavy competition from e-commerce, including Amazon’s Wag brand launched in 2018. To circumvent this, PatSmart purchased “Chewy” an e-commerce site for a whopping $3.35 billion! This acquisition has added to the company’s existing debt that matures after 2020. If the new acquisition does not stem the losses, expect a 2019 filing.
• Crew – The company tried in 2018 to rehab into more of an upscale retailer. Yet, the strategy apparently did not work. Declining sales and continued store closings do not bode well for this retailer. Earlier this year the company hired restructuring attorneys at Weil, Gotshal & Manges LLP, the firm that recently assisted Sears through its bankruptcy proceeding.
• Neiman Marcus – The Dallas-based luxury retailer’s faces e-commerce competition and changing consumer preferences. However, recent job cuts and digital presence has made a string of quarters positive and the company more likely to turn things around. Still interest expenses are keeping the company in the red and a likely reason for a filing.

If you are an owner, developer, and/or landlord it is important to know and understand how these changes will affect your shopping center. Stark & Stark’s Shopping Center and Retail Development Group can help. Our shopping center attorneys regularly represent owner, developer and/or landlord throughout the country, in leasing, buying/selling, 1031 Exchanges, refinancing, as well an enforcement activities. One of our specialties is bankruptcy representation for owners, developers and/or landlords, nationally. Currently, our team is providing value-added services to landlords in a number of Chapter 11 cases including: Sears, Shopko, Toys R Us, Mattress Firm, Payless, EMS and Eastern Outfitters (aka “EMS Part II”), Gander Mountain, Golfsmith, RadioShack, General Wireless (aka “RadioShack Part II), Fairway Market, and A&P.

For more information on how Stark & Stark’s Shopping Center and Retail Development Group can assist you, please contact Thomas Onder, Shareholder at (609) 219-7458 or tonder@stark-stark.com. Mr. Onder writes regularly on commercial real estate issues and is an active member of ICSC, and is State Chair for ICSC PA/NJ/DE region.

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Companion Pets and Divorce

The legal wheel is (slowly) turning toward recognition of companion pets as more than mere “property” in divorce proceedings. The traditional view that family pets are no different from tables or chairs is evolving toward acknowledging of their “special subjective value,” most notably in custody cases but also in divorce cases where no children are involved.

To that end, California recently enacted a statute authorizing courts to determine what is best for the animal based on primary responsibility for its care during the marriage. In Missouri, a Judge ordered a “bonding test.” In New Jersey, the situation is more muddled with some Judges still taking the traditional “property” view and others being (somewhat) more sensitive.

In a case I handled, the Judge ordered the divorcing parties, accompanied by their attorneys, to take the pet dog to a local football field, stand under opposite goalposts, and call the dog who was to be placed on the fifty yard line by the lawyers. After the dog ran to my client, the other party accused her of rubbing meat tenderizer on her clothing to attract the dog. My client stood her ground and kept the dog (I would not want to be the Judge hearing the case a second time).

Seriously speaking, in a society where pets are considered members of the family, and sometimes akin to children, the law is currently playing “catch up.” The scarcity of reported decisions notwithstanding, it is this author’s opinion that New Jersey courts will increasingly recognize the “special status” of pets in divorce proceedings by establishing a hybrid examination of the parties’ rights and the animal’s well-being.

If children are involved, the emotional nexus to a pet may be relevant to parenting time determinations. There is still a long way to go before courts or the legislature adopt formal standards, but as one Judge recently told me, “stayed tuned.”

For persons seeking to avoid the uncertainty, delay, and costs of litigation, a viable alternative is divorce mediation, which allows for more creative solutions like shared pet custody. Pet loving persons contemplating divorce are wise to consult with an attorney familiar with such issues before deciding how to proceed.

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ICSC RECon 2019 Wrap-Up

ICSC’s RECon 2019 in Las Vegas provided a very good vibe for new deals and excitement not seen since before 2007. Unofficial statistics noted that attendance was up, likely above 37,000 with more than 12,000 exhibitors. Low interest rates, heightened consumer demand and an overall positive national economic outlook provided the backdrop for the increased optimism. Here are a few take-aways from this year’s show.

Physical Footprint is Growing.

According to IHL Research, tenants operating more than 50 locations opened about 3,800 more stores than they closed in 2018 and pure play e-commerce stores plan to open approximately 850 brick-and-mortar locations over the next five years. Further, about 85 percent of retail purchases are still made in brick-and-mortar locations.

Retail Not Being Overbuilt.

Marcus & Millichap stated that retail is no longer being overbuilt. Statistics show that between 2014 and 2019, the market added 263 million square feet of retail space, which is about as much that came online in 2007 and 2008 alone, at the peak of the last market cycle.

Creating More Time for the Consumer.

CBRE noted that more stores, like WalMart, are moving pick-up and return areas to the front of the store as well as establishing designated areas for ride sharing apps. Grocers, like Kroger, continue to blend technology with convenience, “rolling out” autonomous delivery vehicles in the Houston market. Azor Realty Services stated that within the next few years, half of all 7-Eleven stores are expected to be cashier-less.

Medical as a Driver in Leasing.

Phillips Edison & Company anticipates that 15 to 20 percent of the leases it executes in 2019 will be medical related. Health and wellness services traditionally located in office buildings, like dental, physical therapy, and medical imaging providers, are relocating or expanding into grocery-anchored shopping centers. These tenants bring in a sustained level of foot traffic for shopping centers. JLL reports that medical tenants also have overall higher credit ratings, which can provide further stability to the centers that house them.

Smaller Formats.

The show also highlighted a number of major retailers testing smaller spaces. For instance, Aldi UK implemented “Aldi Local” in London, which totals 6,500 square feet. Topgolf created “Fore-front”, a golf entertainment venue opening small-format locations. Further, Whole Foods opened “Daily Market” in Manhattan, a store dedicated to grab-and-go with self-checkouts.

Stark & Stark’s Shopping Center and Retail Development Group assists national, regional and local owners and developers throughout the tri-state area. Gathering the strength, education and real world knowledge of more than 25 interdisciplinary attorneys, our Group is dedicated to all aspects of the market, including leasing, sales and refinance, land use, liquor licensing, franchising, environmental, enforcement, compliance, mixed use, construction, tax appeals, and condemnations. Our attorneys are actively involved in the shopping center and retail development industry, holding leadership positions within a number of organizations. These industry groups provide us with insight and knowledge on the most up-to-date issues you face.

For more information on how Stark & Stark can assist you, please contact shareholder Thomas Onder at (609) 219-7458 (tonder@stark-stark.com), Dolores Kelley at (609) 791-7005 (dkelley@stark-stark.com) or Eric Goldberg at (609) 791-7013 (egoldberg@stark-stark.com).

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Invasion of the Copyright Trolls: What to Do If You Have Been Sued by Strike 3 Holdings or Malibu Media over Alleged BitTorrent Downloads

Over 2700 additional copyright infringement lawsuits were filed in U.S. federal courts in 2018 compared to 2017. That increase was due in large part to cases that pornography studios, Strike 3 Holdings and Malibu Media, filed against John Doe internet downloaders alleging illegal downloading of the studios’ videos over file-sharing services like BitTorrent.

BitTorrent is a peer-to-peer file-sharing protocol that allows users to exchange large amounts of data in short periods of time. Unlike other download methods, BitTorrent maximizes transfer speed by gathering pieces of the file users want and downloading these pieces simultaneously from people who already have them. Moreover, once a user downloads the pieces, which together combine to create the complete video, the protocol shares them with other users downloading the same content. Thereby, users who download videos using BitTorrent are also inadvertently sharing and distributing that content with other users.

Strike 3 and Malibu Media use third party forensic internet investigators who establish direct TCP/IP connections with a defendant’s Internet Protocol (IP) address in order to download from the defendant one or more pieces of the digital media files containing the studio’s motion pictures. After that, the studios file suit against the IP address and utilize subpoenas to force internet service providers, such as Comcast, to furnish a list of subscribers that use/pay for the identified IP address and then send demand letters to the identified defendant(s) threatening to name them personally in a lawsuit unless they pay a settlement That settlement is typically several thousands to tens of thousands of dollars depending on the volume of alleged infringement. Usually, each of these copyright infringement matters filed against an IP address are privately settled without being litigated on the merits given the sensitive nature of the allegations and the desire of private individuals not to be named in a pornography infringement lawsuit.

Because these plaintiffs have accounted for a sizable portion of all copyright cases filed in the United States last year, Judges have referred to these studio plaintiffs as “copyright trolls” —owners of valid copyrights who bring cookie-cutter infringement actions “not to be made whole, but rather as a primary or supplemental revenue stream.” Some courts have issued sharply critical rulings that question the use of methods such as geolocating IP addresses or subpoenaing internet service providers (ISPs) based upon alleged downloading using an IP address. These outspoken rulings are few and far in between but nevertheless offer hope for defendants who have the wherewithal and gumption to fight back.

Stark & Stark has represented defendants in these type of lawsuits and are familiar with the studios’ playbook. If you have been sued or threatened by Strike 3 Studios, Malibu Media, or any other copyright trolls, you should speak with one of our knowledgeable, experienced attorneys today.

As a reminder, to sue for copyright infringement, the plaintiff party bringing the suit must establish that he or she is:

• The owner of the applicable right of copyright;
• There is a substantial similarity between the works in questions;
• The defendant had access to the plaintiff’s work; and,
• The defendant made an unauthorized use or copy of plaintiff’s copyrightable expression.

It is also possible to bring a claim for vicarious liability or contributory infringement by third parties under the Copyright Act.

Cobbler Nevada, LLC v. Gonzales, 901 F.3d 1142 (9th Cir. 2018) (filed Aug. 27, 2018)

In the Ninth Circuit Court of Appeals, the court upheld a federal district judge’s dismissal of a case where Cobbler Nevada, the owner of the rights to Adam Sandler’s “The Cobbler,” alleged unauthorized downloading and distribution of the film through peer-to-peer BitTorrent networks against the unknown holder of an IP address identified as “John Doe.”

The panel held that Cobbler’s bare allegation that the defendant was the registered subscriber of an Internet Protocol address associated with infringing activity was insufficient to state a claim for direct or contributory copyright infringement. Cobbler filed suit, subpoenaed Comcast, obtained the IP addresses that were registered to Gonzalez, an operator of an adult foster care home, and amended its complaint to name him as the sole direct infringer, or in the alternative, the contributor to another party’s infringement by failing to secure his internet connection.

The court found the mere fact that Gonzalez was the registered subscriber, without anything more, did not create a reasonable inference that was the infringer because simply identifying the IP subscriber solves only part of the puzzle when multiple computer devices and individuals connect to and utilize an IP address. Additionally, there could be unknown third parties who piggyback on unsecured wireless connections.

The court also held that allegations of contributory infringement could not survive without alleging intentional encouragement or inducement of infringement, because in their absence, an individual’s failure to take affirmative steps to police his internet connection is insufficient to state a claim for contributory infringement.

The court noted that identifying an infringer is even more difficult in situations where numerous people live in and visit a facility that uses the same internet service. And with contributory infringement claims, parties suing must allege that the defendant is the “one, who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another.” The court was wary to create an affirmative duty for private internet subscribers to actively monitor their service for infringement, which would expose them to a large risk of liability.

The appellate court also affirmed the lower court’s award of attorney’s fees to the defendant. That fee award was upheld because it focused on the unreasonable conduct of plaintiff instead of a “one-size-fits-all disapproval of other BitTorrent suits.” This award of fees should encourage other-improperly-named IP subscriber defendants (and their attorneys) to defend their innocence rather than pay to settle the case to avoid litigation.

Strike 3 Holdings, LLC v. Doe, 351 F. Supp. 3d 160 (D.D.C. 2018)

Strike 3 Holdings brought copyright infringement claims against an unknown IP address subscriber in the District of Columbia, but the court denied Strike 3’s motion to subpoena the defendant’s ISP to discover the subscriber’s identity. The court dismissed the case without prejudice.

The court found that the discovery request did not satisfy the balancing test: balancing the plaintiff’s need for discovery with a potentially innocent defendant’s right to be anonymous, where interests of privacy may call for a measure of extra protection.

Strike 3 tried to argue for a protective order that would allow the defendant to anonymously challenge the subpoena. But the court found that method unfair since it dragged defendant into court and put the burden on him of hiring a lawyer or defending his reputation on his own, all before he had even been served with a legal complaint.

Judge Lamberth explicitly referred to Strike 3 as a “copyright troll” and attacked Strike 3’s reasoning of identifying an infringer based on an IP address due to virtual private networks and onion routing, spoof IP addresses, the insecurity of routers and other devices, malware cracks, passwords and open backdoors, multiple people using the same address, and the fact that a geolocation service might randomly assign addresses to some general location if it could not more specifically identify another address. The court also acknowledged how IP-address billpayers would be forced into settling out of fear of having their name turn up in a google search next to pornography titles and studios.

The D.C. Judge’s strong use of disapproving language conveys a message to owners of copyright material that they should not try to replicate this type of potentially frivolous litigation. Unfortunately for IP-address billpayers, not all federal judges will deny subpoena motions on the same basis and will have to come to their own conclusions about whether to allow pre-service subpoenas.

Strike 3 Holdings, LLC v. Doe, No. 18CV0449ENVJO, 2019 WL 2022452, at *1 (E.D.N.Y. Mar. 21, 2019)

Just like hundreds of other cases in the Eastern District of New York, Strike 3 filed a copyright infringement suit and sought leave to engage in expedited discovery to subpoena the internet service provider associated with the identified infringing IP address. The court denied the request. The court held that Strike 3 did not establish good cause required for expedited discovery for several reasons, acknowledging that granting the request would allow Strike 3 to coerce the identified subscribers into paying a lot of money to settle claims that may be frivolous in order to avoid litigation or public embarrassment. Strike 3’s promise to be ethical with the information was not enough since there was no realistic prospect of meaningful judicial oversight of that promise.

The court determined that good cause is not shown where the plaintiff would use expedited discovery to acquire information that would not actually be used under judicial supervision to resolve the case on the merits. The fact that in over a third of its resolved cases, Strike 3 could not demonstrate that the named defendant was the alleged infringer undermined the proposition that good cause existed to allow expedited discovery. The Judge also concludes that allowing discovery of the information would not suffice to deter any future copyright violations. The court bluntly stated “attacking the problem [of insufficient copyright law protection] by asking judges in hundreds of cases in just one district (and presumably thousands across the country) to consider the same motion and achieve a patchwork of results is plainly inefficient.” This case offers more helpful language innocent internet service provider billpayers who are accused of copyright infringement can use to fight back.

Strike 3 Holdings, LLC v. Doe, Case No. 19CV20761UU

Lastly, a judge in the Southern District of Florida recently denied Strike 3’s motion for leave to serve a third-party subpoena on Cogeco Communications, an ISP, to obtain information identifying the subscriber associated with a certain IP address.

The court held that Strike 3 could not show how geolocation software could establish the identity of the defendant, how the defendant could even be found in the Southern District of Florida, or why the case should not be dismissed for improper venue. There was nothing that specifically linked the IP address location to the person downloading and viewing the videos and established whether that person lived in the Southern District of Florida for the court to have jurisdiction to hear the case. The infringing activity could have taken place in a public network in a library or coffee shop conducted by someone who lives and resides far outside of the district because he is stopping in, traveling, or visiting. Therefore, good cause was not established to obtain leave to serve a subpoena or to prevent the court from dismissing the case for improper venue.

This decision serves as an additional favorable outcome for account holders of internet connections, particularly because the court even dismissed the case in its entirety for improper venue in order to prevent any further waste of the defendant’s and the court’s time and money.

While the above cases present favorable outcomes for subscriber defendants, federal judges in New Jersey and Pennsylvania are nevertheless routinely granting similar motions for pre-discovery subpoenas on internet service providers in copyright infringement cases brought by Strike 3 and Malibu.

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The Real Estate Hunt Is On: New Jersey to Issue Up to 108 Additional Medical Cannabis Licenses

On June 3^rd, the New Jersey Department of Health (DOH) announced it is seeking applicants to issue 108 additional medical marijuana licenses across the state. License applications will be available online July 1^st and must be submitted by August 15^th.

The expansion of medical cannabis facilities intends to accommodate the 30,000 new patients now qualified for medical marijuana under Opioid Use Disorder, Tourette’s syndrome, migraine, anxiety, and chronic pain conditions. New Jersey now has more than 47,000 medical marijuana patients, an exponential increase from the 17,000 patients in 2018.

The licenses for medical cannabis centers will be distributed throughout the state based on the needs and population of each region: up to 38 in northern NJ, up to 38 in the central region, and up to 32 will be in the southern region.

NJ currently has 12 licensed facilities, only half of which are in operation. All current licenses are for vertically-integrated centers, meaning the cannabis is grown, processed, and sold in-house. The NJ DOH will now diversify the industry by issuing separate licenses for growers, processors, and retailers.

The 108 new licenses will be split into three different types of endorsements:

• 54 dispensary endorsements
• 24 cultivation endorsements
• 30 manufacturing endorsements

To allow small and medium-sized businesses to participate in the program, cultivation endorsements will be available in three sizes: 5,000 square feet, 20,000 square feet, and 30,000 square feet. Another big opportunity for smaller businesses is retail, since they will no longer have to grow and process it themselves.

On July 1st, application forms for permits will be available at www.nj.gov/health/medicalmarijuana. The date for announcing the awards will be determined based on application volume.

The billion-dollar medical marijuana industry offers un-matched economic opportunities. As New Jersey greatly expands its existing legal medical marijuana program and looks to pave the way for adult use legalization, Stark & Stark’s Cannabis Legal Services practice group serves the specialized needs of individuals, professionals, businesses, and partnerships entering or participating in the burgeoning cannabis industries. Contact us for help applying for a license and strategic guidance on all related legal matters.

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