What You and Your Business Need to Know About Copyright Law and Infringement

Copyright law affects one’s rights and ability to use another’s work, including writings, drawings, photographs, paintings, software codes, or even business plans. The purpose of copyright law is to promote the creation of works by giving authors exclusive property rights; copyright law is intended to encourage the dissemination of these works, bolstering a competitive marketplace.

Is Your Work Copyrightable?

For a work to be eligible for copyright protection, it must be an “original work of authorship” that is (1) “fixed in a tangible medium of expression,” (2) original, and (3) possessing a modicum of creativity. “Fixed in a tangible medium of expression” means the work exists in some physical form, for some period of time, no matter how brief. The originality requirement allows for works that are similar to pre-existing works, but may be lacking in quality, ingenuity, or aesthetic merit, so as long as the new work is independently created. The modicum of creativity requirement necessitates some creative effort on the part of the author.

Copyright protection can be granted for literary works, musical works and their accompanying words, dramatic works and their accompanying music, pantomimes and choreographic works, pictorial, graphic, and sculptural works, motion pictures and other audiovisual works, sound recordings, and architectural works. Works that are ineligible for copyright protection include ideas, procedures, systems, methods of operation, principles, or discoveries. The ineligible works fall short of the originality and modicum of creativity requirements necessary for copyright protection. Other examples of noncopyrightable works include short titles and phrases, mere listings of ingredients or contents, works that are part of common property with no original ownership such as a calendar, speeches that have not been written or recorded, and basic plots or character types.

Businesses should be aware that copyright protection is date and fact sensitive. The date of publication determines the duration of copyright protection, as well as the necessity for observing certain formalities related to the copyright protection. For works published after 1977, copyright protection lasts for the life of the author plus seventy years. If the work is for hire, meaning it is done in the course of employment or specifically commissioned, or if it is published anonymously, by a corporation, or under a pseudonym, the copyright lasts between 95 and 120 years, depending on the publication date. At the end of the copyright protection time period, the work becomes part of the public domain. This means the work is available for anyone to use without permission or restriction, but no person or entity can ever own it. All works published in the United States before 1923 are in the public domain.

How Can You Protect Your Work?

Notably, a copyright symbol (©) is no longer required to receive copyright protection. It is nevertheless wise for authors and businesses to include the symbol so that an infringer cannot claim to be unaware of the copyright. Publication or registration in the Copyright Office is not required to secure copyright protection for works created after January 1, 1978: works are copyrighted at the moment they are fixed in a tangible form.

Nonetheless, registering the copyright with the Copyright Office does have certain important benefits and advantages. The most significant advantage is that registration is a prerequisite to filing an infringement suit in court. Meaning, in order to be able to file a lawsuit against an infringer for copyright infringement and stand a chance at recovering any type of damages, you must have a copyright registration for the work or works at issue. Completing registration creates a public record of the author’s copyright claim, which renders an alleged infringer incapable of asserting an innocent infringer defense. If the work is registered within five years of publication, the registration is presumptively true evidence of the validity of the copyright. If registered within three months of publication, or prior to infringement of the work, statutory damages and attorney’s fees are available to the copyright owner in court actions; otherwise, owners can only recover actual damages and the infringer’s profits. Additionally, the owner of a registered copyright may record the registration with the United States Customs and Border Protection to protect against the importation of infringing copies.

What Rights Does Copyright Protection Provide?

Certain exclusive property rights vest in the owner when copyright protection is secured. The right of reproduction encompasses copying some or all of the copyrighted work. The right to prepare derivative works refers to the right to transform, adapt, or recast a work, such as turning a book series into a television series. The right to distribute includes the right to sell, rent, lease, or lend copies of the work. The right to perform is limited to literary works, musical works, dramatic works, choreographic works, pantomimes, motion pictures, and audiovisual works. Finally, the right to display the copyrighted work includes display of pictorial works, graphical works, and sculptural works, in addition to display of works that may be performed.

Any or all of these exclusive rights may be transferred, but for a transfer to be valid, businesses must execute a transfer agreement in writing, signed by the owner of the rights, or the owner’s duly authorized agent. Transfer of a right on a nonexclusive basis does not require a written agreement.

What If Your Works Are Infringed?

If you’re copyrighted and registered work has been infringed, you can file a claim for copyright infringement, but you must do so within three years after discovering the infringing act took place because that is the legal deadline for a copyright infringement claim. Each time a copyrighted work is infringed upon, the owner has three years to file suit; which means each time the infringer uses your work or commits an act of infringement, a new three-year limitations period commences. In some instances, you can file suit more than three years after the infringement occurs or the discovery of the infringement, but you would only be entitled to damages for the three years preceding the date you file suit and not for any infringing activity that occurred prior to then.

A recent copyright infringement case filed against the songwriters of Frozen illustrates the effect of the statute of limitations, Ciero v. Walt Disney Co., Case No. 2:17-cv-08544 GW-MRW (C.D. Cal., filed 2017). Copyright owner Jaime Ciero alleged that the Frozen songwriters copied the hit song “Let It Go” from his Chilean song “Volar” because the two songs had many striking similarities. The alleged infringing conduct—recording the song and incorporating it into the Frozen film—occurred before the movie’s release in November 2013; Ciero did not file his complaint until after the three-year period had ended in 2017. The Central District of California found  the complaint was insufficient because it was generic and conclusory; additionally, the alleged infringing conduct occurred more than three years prior to filing the complaint. The court permitted Ciero to amend his complaint because each time an infringer violates a copyright, the three-year period to file suit re-opens. Therefore, every time “Let It Go” is played on the radio or sung at a Broadway show, there is an alleged violation of the copyright. The court limited Ciero’s potential recovery, however, to only the infringing events that occurred within the three-year time period. Ciero’s amended complaint included more specific musical examples of alleged infringement and references to alleged infringement that occurred within three years prior to filing the lawsuit. The parties agreed to dismiss the case in May 2019.

What Damages Can You Recover?

If a copyright owner is successful in proving infringement, there are three types of damages that may be recovered: actual damages in the form of lost revenue or sales, additional profits of the infringer, and statutory damages. An infringer’s additional profits can only be recovered when those profits exceed the copyright owner’s actual damages. Statutory damages range from $750 to $30,000 per work for non-willful infringement and up to $150,000 for willful infringement; the actual amount awarded is based upon the surrounding circumstances, the seriousness of the infringing act, and the financial worth of the infringer. Copyright owners may recover actual damages plus profits or statutory damages, but not both. As stated above, works must be registered prior to infringement, or within three months of first publication, for an owner to recover statutory damages. Therefore, it is wise for an author to file for copyright protection as soon as possible to preserve the right to sue for statutory damages.

What Defenses Can the Infringer Raise?

Businesses must be aware of possible defenses that may be asserted in a lawsuit for copyright infringement and must be prepared to address them. One such defense is fair use—the idea that a copyrighted work can be used by someone other than the author without permission for public use purposes such as journalism, commentary, criticism, news reporting, teaching, scholarship, and research. A parody or satire may be considered fair use as social commentary or criticism and may even diminish or destroy the market value of the original work, so long as it does not merely appropriate the original. To determine if an alleged infringement is fair use, courts consider (1) the purpose and character of use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.

The author of Who’s Holiday, a one-actress comedic play that makes use of the characters, plot, and setting of the Dr. Seuss children’s book How the Grinch Stole Christmas!, recently requested a declaration from the court stating that the play made fair use of the Dr. Seuss book and did not constitute copyright infringement, Lombardo v. Dr. Seuss Enters., 279 F. Supp. 3d 497 (S.D.N.Y. Sept. 15, 2017), aff’d, 729 F. App’x 131 (2d Cir. July 6, 2018). Seuss alleged that the play infringed on the book’s copyright by using the same rhyming style, setting, and characters as the original. Giving most weight to the first fair use factor, the court discussed whether and to what extent the play was “transformative.” The court found the play was a transformative parody that took the original character’s archetypes, turned them upside down, and made their saccharin qualities objects of ridicule. The play also re-contextualized and subverted Dr. Seuss’s rhyming style while highlighting the ridiculousness of the utopian society depicted in the children’s book. This parody was sufficiently transformative to be a fair use because it added something new and altered the original book with new expression, meaning, and message. The court found the play did not incorporate substantial elements of the book’s characters, setting, and plot; rather, it merely engaged in a distorted imitation, mocking the original. Considering the effect on the potential market, there was virtually no possibility that consumers would go see the play in lieu of reading the book because the book is a children’s book intended for all ages, while the play is a “bawdy, off-color parody . . . clearly intended for adult audiences.” The court found this was “fair use” that precluded the copyright infringement claim.

As another example, Michael Jackson’s estate filed a copyright infringement suit against Walt Disney and ABC in May 2018, MJJ Prods., Inc. v. Walt Disney Co., 2:18-cv-04761-PSG-SK (C.D. Cal., filed 2018). The complaint alleged that “The Last Days of Michael Jackson” prime-time special documentary used a “truly astounding” amount of Jackson’s music, videos, and concert footage from “Thriller,” “Billie Jean,” and many other songs without a license. When the estate contacted Disney regarding the contents of the program, Disney responded that all uses of the music, videos, and footage were fair use because “The Last Days” is a documentary. Disney maintained that the documentary used and incorporated only short excerpts of songs, music videos, and other materials with the purpose of providing historical context and explanation of Jackson’s life and career. The court did not make any findings in this case regarding fair use, and the parties agreed to dismiss the case in December 2019.

In conclusion, copyright protection is available for many types of works, so long as the works meet the statutory requirements of (1) being fixed in a tangible medium of expression, (2) originality, and (3) possessing a modicum of creativity. Copyright protection can last for a very long time, and obtaining copyright registration for photographs, drawings, software codes, business plans, etc. allows businesses to enforce the exclusive property rights that come along with owning a copyrightable work. Copyright registration further allows business to recover damages from infringers in either the form of actual damages and infringer’s profits, or statutory damages. Businesses need to be conscious of the statute of limitations when filing a claim of copyright infringement, and they should also be aware of any potential defenses that may be raised, such as fair use.

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The Communications Decency Act Protects Social Medial Platforms Like Facebook, Instagram, and Reddit from Common Law Right of Publicity Violations

Earlier this month, the Eastern District of Pennsylvania confirmed social media platforms’ immunity under the Communications Decency Act (CDA) for right of publicity violations by users and members of the platforms. Several years ago, Karen Hepp, a newscaster for Fox 29 Philadelphia and co-host of Good Morning Philadelphia, discovered that her image, via a photograph unknowingly taken of her by a security camera in a New York City convenience store, was being used in conjunction with online advertisements for dating websites posted on Facebook. Additionally, the photo had been posted to Imgur and Reddit in several sexually explicit contexts. Not only did she never consent to having her image used for such purposes, she also was allegedly unaware that the photo had been taken in the first place.

In her complaint, Hepp alleged that the unauthorized dissemination of her image has impacted her “image/brand on social media sites” and has caused serious, permanent and irreparable harm to her reputation, brand and image. In a civil suit filed against the social media platforms, Hepp v. Facebook, Inc., No. 19-4034-JMY, 2020 U.S. Dist. LEXIS 98857 (E.D. Pa. June 5, 2020), Hepp alleged that the Defendant platforms violated her common law and statutory right of publicity; importantly, Hepp’s complaint did not allege that the Defendants created, authored, or directly published the subject content.

The social media Defendants moved to dismiss Hepp’s claims as barred by § 230(c) of the CDA, which creates a safe harbor that protects “interactive computer service” providers from liability for claims targeted at the dissemination of third-party content. In order for a defendant to meet the criteria for immunity under the CDA: (1) the defendant must be a provider or user of an “interactive computer service”; (2) the asserted claims must treat the defendant as the publisher or speaker of the information; and (3) the information must be provided by another “information content provider.” Hepp did not dispute that Facebook, Imgur and Reddit were all providers of “interactive computer services” as all are considered social media platforms. Further, based on Hepp’s amended complaint (which failed to allege that the Defendants created, authored, or directly published the content at subject of the lawsuit), the court was able to infer that she sought to treat each Defendant as a “publisher or speaker” of third-party content published on their platforms. Because Hepp’s claims were premised on content posted by a third-party that that were merely hosted on each of Defendants’ respective “internet computer service” platforms, the court held that her claims were not actionable under § 230 because the Defendants met the criteria for immunity under § 230(c).

Hepp, however, maintained that her claim fell within the exception to the CDA safe harbor set forth in § 230(e)(2), which states that “[n]othing in this section shall be construed to limit or expand any law pertaining to intellectual property.” Addressing an issue of first impression within the Third Circuit, the District Court acknowledged a disagreement between the Ninth Circuit and several district courts over whether the CDA preempts state law intellectual property claims; pointing to the Ninth Circuit’s decision in Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102 (9th Cir. 2007), which held that the CDA preempts state-law right of publicity claims, and the U.S. District Court for the Southern District of New York’s decision in Atl. Recording Corp. v. Project Playlist, Inc., 603 F. Supp. 2d 690 (S.D.N.Y. 2009), which held it does not.

Ultimately, the court was persuaded by the reasoning set forth by the Ninth Circuit in Perfect 10: “[a]s a practical matter, inclusion of rights protected by state law within the ‘intellectual property’ exemption would fatally undermine the broad grant of immunity provided by the CDA.” The court further noted Congress’s “expressed goal of insulating the development of the Internet from the various state-law regimes.” Accordingly, the court held that Hepp’s claims did not fall within the safe harbor exception in § 230(e)(2); only federal intellectual property claims are excluded from the scope of CDA immunity. For this reason, Hepp’s statutory and common law right of publicity claims were barred by § 230(c) of the CDA, and the case was dismissed.

In enacting the CDA, Congress stressed that “[t]he Internet and other interactive computer services offer a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity.” § 230(a)(3). CDA immunity was implemented in order to “preserve the vibrant and competitive free market that exists for the Internet and other interactive computer services” by limiting Federal and State regulation. § 230(b)(2). It is obvious that courts, in perpetuating Congress’ intent, want to shield social media platforms from liability stemming from the actions of their individual users in order to leave the Internet largely unfettered by regulation. The Internet, however, has changed drastically since 1996 when the CDA was enacted. Content, whether it be beneficial or detrimental, is no longer exclusively created by administrators of websites; anyone can create and promulgate content on social media platforms. Do social media platforms which promote individual user content creation deserve CDA immunity in order to “preserve the competitive free market” that is the Internet? Oftentimes, the only redress a harmed plaintiff (i.e. Hepp) has is filing suit against one of said platforms since the individuals who post the damaging content are difficult and expensive to track down, may be located anywhere in the world, and may not have the financial resources to make the plaintiff whole. For now, the CDA remains a powerful shield to protect social media platforms from facing liability if they were not responsible for creating, authoring, or directly publishing the content at issue.

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Update to PPP Loan Forgiveness Application

The Small Business Administration (SBA) released updates to the Paycheck Protection Program loan forgiveness application. A majority of the updates reflect the changes from the Paycheck Protection Program Flexibility Act (Flexibility Act). You can find our alerts regarding the Flexibility Act here and the SBA’s Updated Interim Final Rule here.

Additionally, the SBA released Form 3508EZ, which is a streamlined version of the forgiveness application for eligible borrowers that requires fewer calculations and documentations than the full PPP Loan Forgiveness application. Borrowers are eligible to file Form 3508EZ if:

• The Borrower is self-employed, an independent contractor, or sole proprietorship and has no employees; or
• Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or
• Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period.

If you have any questions in applying for forgiveness for a PPP Loan you can contact Rachel Lilienthal Stark, Dolores Kelley, or Eric Stevenson.

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Probating a Copy of a Will

In order to admit a Will to probate with the county surrogate’s office, the original Will, which has the original signatures of the decedent and the witnesses, must be produced. At times, however, the original copy of the Will cannot be located.

If a copy of the Will is found, a party may seek to admit to probate a copy of the Last Will and Testament. If all potential beneficiaries of the estate agree that the copy of the Will should be admitted to probate, an action can be commenced which will thereby result in the copy of the Last Will and Testament being admitted to probate. On the other hand, should a party dispute the admission of the copy of the Will to probate, contested litigation will follow.

In general, if the original copy of the decedent’s Last Will and Testament cannot be located, it is presumed that the decedent intentionally destroyed and revoked this document. This rebuttable presumption can be overcome, however, by clear and convincing evidence introduced by the proponent of the Will the decedent did not intend to revoke his Will in order to admit the copy to probate. On the other hand, if there is evidence that the decedent did not possess the original Last Will and Testament prior to its alleged destruction, the party seeking to challenge the admission of the copy the Last Will and Testament to probate will bear the burden to demonstrate that the decedent did in fact revoke this instrument.

Typically, if there is evidence that the decedent did not have in his possession the original copy of his Last Will and Testament at the time of his death, and the original cannot be located, the court will allow a copy of the Will to be probated. Anyone seeking to challenge the admission of this Last Will and Testament to probate would have to prove its invalidity by clear and convincing evidence.

On the other hand, if evidence is produced that the decedent had access to his Last Will and Testament and the original cannot be located at his death, the court may conclude that there is a rebuttable presumption that the Will was destroyed. Under such circumstances, the proponent of the copy of the Will would have to demonstrate by clear and convincing evidence that the original was not intentionally destroyed or revoked. Obviously, what constitutes access to the Will is fact specific to each case. For instance, if the Will was stored in a safe in the decedent’s basement, access would be presumed. On the other hand, if the Will was stored at a remote location, access will likely not be presumed. Once again, this is a highly fact sensitive inquiry that will be decided at the time of trial.

As such, if an original Last Will and Testament cannot be located, the proponent and/or the opponent of the proposed Last Will and Testament should consult with an attorney to make sure their interests are protected.

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20 Retailers to Watch for a Bankruptcy Filing in the Second Half of 2020

The unprecedented global pandemic has created a limbo for most retail tenants, and in some cases, left landlords without payment of rents. Further, some states have placed moratoriums on eviction actions, allowing tenant to stay and not pay. However, as states begin to open back up for business there appears to be light at the end of this tunnel. Still, expect a host of retailers to file for protection in July and August to eliminate stores and try to renegotiate rents.

Although we normally provide a list of 10 retailers to watch, we have increased the list to 20 given the current state of affairs. Following are the top 20 to retailers to watch for possible Chapter 11 filing(s) in the remaining year:

1. Chuck E. Cheese’s – Secret Pizza Selling Flopped. The Complex reports that the company’s plan to secretly sell pizza under Pasqually’s Pizza & Wings on delivery apps, a reference to a musician who plays in Chuck E. Cheese’s band, flopped. The Wall Street Journal cited that its parent company, CEC Entertainment, was almost $1 billion in debt as it asked lenders for a $200 million loan to keep the business open. With 610 locations across 47 states that provide primarily closed quarters space for kids, it’s hard to see how this company does not file.
2. AMC – Let’s Go to the Movies? According to the Hollywood Reporter, the company is expected to disclose first-quarter financials showing a $2.4 billion loss due to the pandemic. Some analysts think the company can hold out until October 2020 before making a bankruptcy call. However, the real test will be will moviegoers feel safe to go to the cinemas when they open this summer?
3. Brooks Brothers – Nowhere to Wear a Suit. Forbes reports revenues have been flat for the last three years, and the 202-year-old company recently took a loan of $20 million from Gordon Brothers, the bankruptcy liquidator. Bloomberg notes that Authentic Brands Group and Simon Property Group are discussing purchasing the company in a Chapter 11 filing. Brooks Brothers faced a difficult market prior to the outbreak with relaxed dress codes. Adding the cancellation of a host of events this year, like weddings and other formal functions, does not bode well for the retailer.
4. Bed Bath & Beyond. According to The Motely Fool, the company ended fiscal 2019 with $1.4 billion of cash and investments, up from $1 billion a year earlier. Yet, the company instead of using this time of closed stores to remodel or re-envision itself, has the same old floor plans. Further, it continues to have difficulties in online sales, unlike its competitors The Home Depot, Target, and The TJX Companies.
5. Victoria’s Secret – Closing a ¼ of stores. USA Today reports in May 2020 that the company planned to permanently close approximately a quarter of its 1,000 stores in the U.S. and Canada in 2020. Prior to the pandemic, the company suffered from lack luster sales and slower foot traffic. Perhaps a smaller footprint will help.
6. Ascena Retail Group. With more than 3,400 stores, the owner of women’s clothing brands, including Loft, Ann Taylor, Justice, Lane Bryant, and Catherines has been hit hard by the pandemic. Many landlords have failed to receive any rent payments from the brands since the stay at home orders were issued. With stores closed and tough competition with on-line sales, bankruptcy appears to be the only option.
7. LA Fitness – A Reduction in Footprint? Last year the Irvine, California company was named number one on Club Industry’s Top 100 Clubs list for the sixth consecutive year. However, the difficulties in operating a club in this environment are clear. If this company does file, expect it to use the filing as a true footprint reduction to consolidate stores. The company could follow in the footsteps of Gold’s Gym and 24 Hour Fitness, which both just recently filed.
8. GAP – Falling into Bankruptcy? The company, which owns Banana Republic and Old Navy, announced it would close 230 stores prior to the pandemic. Reuters reported in late April, the company stated that it was suspending rent and needed to borrow more money. Fortune reports that CEO, Sonia Syngal recently called on landlords to be flexible and work with retailers to get through the biggest crisis in retail’s modern history. The San Francisco Chronical predicts that the retailer will be in bankruptcy court, but that it can use its good credit ratings and relatively little debt to stave off the filing for a bit.
9. Guitar Centers – Filing Towards End of Year? Bloomberg reports that the company gained some reprieve with new bonds for old debt. The largest U.S. retailer of musical instruments and equipment fulfilled its previously skipped debt payments. However, with concerts and other venues not opening, it may be difficult for them to stave off bankruptcy this year,
10. GNC – Filing in August in Pittsburgh? The Trib reports that the Pittsburgh-based company secured a deal to extend time to pay down debt. However, the deal is only good through mid-August. The company closed 900 stores last year and S&P downgraded the company. Many thought that GNC would follow competitors like the Vitamin World, which filed in 2017. Bloomberg reports that the company continues to hoard cash and not pay rent to landlords.
11. Party City – Is the Party Over? RetailDive reports the company carries significant debt from a leveraged buyout and was hurt from a helium shortage last year for balloon sales. This coupled with a poor Halloween and the pandemic with cancelled graduations and prohibitions against large gatherings could lead to a filing soon.
12. The Men’s Wearhouse and Jos. A. Banks – Two for One Filing? Bloomberg reports that Tailored Brands, the retailers’ Houston-based parent company, is trying to restructure more than $1 billion in debt. Kirkland & Ellis and investment bank PJT Partners are advising Tailored Brands on restructuring, The parent and its affiliates have struggled as demand for suits and other formal wear has declined.
13. GameStop – The New Blockbuster Video. RetailDive reports that the company has a miserable 2019 – closing about 200 of its stores and sales dropping 28%. Moody’s and S&P both downgraded the retailer prior to the pandemic hit. Unlike Blockbuster, the company has a strong balance sheet and flexible leases. But it is difficult to see how it can continue in this new environment where gamers can get there content on-line.
14. Francesca’s. According to Alpha Street, the Houston-based, boutique women’s apparel and accessory retailer, continued to cut costs by closing more than 10 of its 700-plus stores and laying off a sizeable chunk of its corporate staff. However, last summer, the company secured $10 million in new financing. Despite the belt tightening, the company appears poised for a possible Chapter 11 filing as it struggles to both drive traffic towards its key fashion trends and compete due to the continuing shift in customer demand away from physical stores to on-line venues.
15. Stein Mart. RetailDive reports that despite a positive profit in first quarter 2019, the company’s top sales have fallen for the past few years. The company has taken steps to install self-service Amazon lockers in about 200 of its 283 stores in an effort to drive traffic. With tight margins and online retailers, the company faces difficulties and could be forced to file for bankruptcy protection.
16. Rite Aid. Investor Place reports with more than 2,400 stores, Rite-Aid remains challenged and is engaged in a never-ending turnaround plan. Although the bankruptcy filing of Fred’s retail pharmacy freed up some market share, the company continues to fight for survival in a competitive pharmacy environment. Further, the pandemic is keeping people away from stores, including drug stores.
17. Hobby Lobby – Divine Intervention? According to Business Insider, the company’s founder reportedly told employees a message from God in informed his decision to leave stores open amid the start of coronavirus outbreak. The decision was quickly changed with the closing of all stores in April. All though some have started to re-open, the company could use a bankruptcy filing to reduce its footprint.
18. 99 Cents Only – Will Consumers Continue to Treasure Hunt? – RetailDive reports that the company recently made a deal with creditors and its private equity owners to trade debt for equity. The announcement caused S&P to downgrade the retailers credit rating, to CC. The deal is reminiscent of Charlotte Russe, which obtained the same relief for only a brief respite prior to filing for Chapter 11. Will people go back to the retailer, which is essentially a “treasure hunt” for consumers sifting for deals, or will the virus’ log lasting impact change consumer behavior to avoid such “treasure hunting” stores.
19. RetailDive reports that prior to the virus, the company had a CCC+ or lower rating from S&P. Now with the last few months of stay in orders, many consumers have been making their purchases online, using familiar sites like Amazon. Can the pet store company pivot to more of an online mode or will its heavy focus on physical stores lead it to a filing?
20. Best Buy – Can its Customer Focused Approach Work? According to MarketWatch, the company’s reopening strategy is focused on one-on-on service. The Street recently listed them as one of the top 15 to watch for a filing. However, the question is will the company’s customer-focused approach work with consumer behavior in the new normal?

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 bankruptcy attorneys regularly represent owners, developers and/or landlords 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: Stage Stores, Modell’s, 24 Hour Fitness, Sears, Toys R Us, Houlihan’s, Shopko, Charming Charlie Part 2, and A&P.

For more information on how Stark & Stark’s Shopping Center Group can assist you, please contact Thomas Onder, Shareholder, at (609) 219-7458 or tonder@stark-stark.com or Joseph Lemkin at (609) 791-7022 or jlemkin@stark-stark.com. Messrs. Onder and Lemkin write regularly on commercial real estate issues and are both active members of ICSC. Mr. Onder is State Chair for ICSC PA/NJ/DE region.

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A “Simple But Momentous” Decision: LGBTQ Rights Are Protected By Title VII

“An employer who fires an individual merely for being gay or transgender violates Title VII.” There it is. Simple. Direct. Clear. Groundbreaking.

In its landmark decision issued June 15, 2020, the Supreme Court of the United States ruled in Bostock v. Clayton County, Georgia that Title VII of the Civil Rights Act of 1964 protects, gay, lesbian, and transgender employees from discrimination in employment.

Writing for a 6-3 majority of the Court, Justice Neil Gorsuch made several powerful statements in the Court’s historic decision. He wrote:

Today, we must decide whether an employer can fire someone simply for being homosexual or transgender. The answer is clear. An employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undisguisable role in the decision, exactly what Title VII forbids.

The Court further expressed: “[b]ecause discrimination on the basis of homosexuality or transgender status requires an employer to intentionally treat individual employees differently because of their sex, an employer who intentionally penalizes an employee for being homosexual or transgender also violates Title VII”; and “it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.”

The question presented in Bostock v. Clayton County, whether the characteristic of sex protected by Title VII extends to and includes sexual orientation, gender identification, and transgender status, was presented to the Supreme Court by way of a trio of consolidated cases. The operative facts in each of the three cases were essentially the same.

Gerald Bostock worked for Clayton County, Georgia, as a child welfare advocate. Despite having been an exemplary employee for the county for a decade, Bostock was fired for conduct “unbecoming” of a county employee soon after it was discovered he began participating in a gay recreational softball league.

Donald Zarda was a skydiving instructor for a privately-owned company (Altitude Express) in New York. Days after mentioning to a student he was gay, the company fired him.

Aimee Stephens worked for a funeral home company in Michigan. She presented as a man when she started her employment with the company. Six years into her employment, she explained to her employer that she planned to live and work as a woman (per her treating clinician’s recommendation). The funeral home then terminated her employment because it was “not going to work out.”

The Supreme Court accepted review of these cases because they presented a circuit split and disagreement among the federal courts as to whether Title VII protected homosexual and transgender employees. The Supreme Court seized the opportunity to settle this polarizing debate, bring uniformity to how Title VII is applied, and create equal rights under federal law for LGBTQ employees across America. The ruling reverberates across our country at a time when principles of unity, justice, equality, and civil rights already command our undivided attention.

The Court wrote that the statute imposes liability on employers that “fail or refuse to hire,” “discharge,” “or otherwise . . . discriminate against” someone because of a statutorily protected characteristic like sex. “An individual employee’s sex is “not relevant to the selection, evaluation, or compensation of employees.” In short, an employer should not consider or make decisions based upon an individual employee’s sexual orientation or transgender status.

The Court went further and explained that if the LGBTQ employee’s “sex” is a “but-for” cause for the discrimination suffered by the employee, Title VII has been violated. The Court wrote: “the adoption of the traditional but-for causation standard means a defendant cannot avoid liability just by citing some other factor that contributed to its challenged employment decision.” It makes no difference if other factors besides the employee’s LGBTQ status are considered by the employer in making an employment-based decision (hiring, firing or other disciplinary action). If the employee’s LGBTQ status is considered in connection with the adverse employment action, it is a “but-for” cause and Title VII has been violated.

The Supreme Court’s ruling is not – and was not intended to be – limitless in scope and application. Justice Gorsuch’s opinion included several caveats. For example, the Court’s holding does not extend to sex-segregated bathrooms, locker rooms and dress codes. Likewise, the Court recognized that some employers might have religious objections to hiring LGBTQ employees. That issue was not before the Court and, therefore, the Court did not squarely address it. Similarly, the Court expressed that “[w]hether other policies and practices might or might not qualify as unlawful discrimination or find justifications under other provision of Title VII are questions for future cases.”

The Court’s holding is significant and comes during a pivotal time in our nation’s history. More than one-half of the states do not have statutes protecting employees based on their sexual orientation or gender identity/status. Also, the protections afforded by Title VII do not provide blanket protection to all employees; Title VII by its own language is self-limiting and applies only to employers having “15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.” Nevertheless, the Court’s decision outlawing anti-LGBTQ employment discrimination will provide new protection to most LGBTQ employees across the nation. For many, this is a freedom they previously did not enjoy.

As a result of this momentous ruling, employers (at least those having 15 or more employees under the “payroll method” of determining employees) should revisit their equal employment, anti-discrimination, and other policies and procedures (i.e. hiring policies), and should work with legal counsel to ensure compliance with the Court’s ruling. Internal grievance procedures, whistleblower policies, and anti-harassment and anti-discrimination training programs likewise must be adjusted. Employers also should consider reviewing sex/gender neutral policies to ensure that none will have a disparate impact on LGBTQ employees. Meanwhile, employees who have been subjected to discrimination or adverse employment action because of their sexual orientation or gender identification, or who have witnessed such discrimination, should not hesitate to contact legal counsel to discuss their rights under the law.

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New Jersey Attorney General Orders the Release of Police Officers’ Names Who Committed Serious Misconduct

New Jersey Attorney General, Gurbir Grewal, directed all New Jersey law enforcement agencies to disclose the names of officers who have been fired, demoted or suspended for more than five days. The directive requires the disclosure of fired, demoted or suspended officers names by the end of the year. The directive further mandates the ongoing release of this information.

The directive comes amid nationwide protests against police brutality and demands for police reform.

The Superintendent of the New Jersey State Police disclosed that it plans on releasing the records of all state troopers who have committed major violations over the past two decades. The New Jersey State Police plans to release 400 records by July 15^th.

Police unions have threatened to commence litigation seeking to block the release of these records.

A novel, interesting, and important legal battle will likely follow.

Presumably, those in favor of the release of these records will assert that their release will help police departments gain trust. Further, an argument may be made that the potential release of disciplinary records would serve a deterrent for excessive force, brutality, racial profiling, and discrimination.

Those against the disclosure will likely assert that it violates officers’ privacy rights and subjects current and former police officers to harassment for incidents that occurred a long time ago.

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5 Things to Keep in Mind for Your Business During the Coronavirus Pandemic

With each passing day, we are one step closer to finding a vaccine that will bring this devastating chapter in our personal, and business lives to a conclusion. Until that day comes, there are multiple steps businesses should take in order to protect the health and safety of employees, and customers while ensuring the survival of your business.

Understand and Apply for Government Loans and Protection Programs

Federal and state governments enacted legislation aimed at helping businesses survive the pandemic. It is essential that businesses understand and apply for available, helpful governmental assistance. Moreover, it is important for businesses to understand the program rules to maximize benefits. My partner, Rachel Stark can also offer assistance on this topic.

Stay In Touch With Employees

Many employees are working remotely. It is important to try to mimic the interaction we once enjoyed when we worked collaboratively in the office. Schedule regular video chats using Microsoft Teams or Zoom to keep employees engaged and to provide opportunities for socialization. I recommend video chatting over conference calls because it gives remotely working employees a reason to “freshen up,” and is closer to in-person interaction than a phone call.

Unfortunately, working remotely coupled with mandated shut downs can make employees more prone to mental fatigue, depression, and reduced productivity. Regularly scheduled video conferences should be used to communicate with employees and keep them motivated.

The Philadelphia Eagles implemented a virtual program to build teamwork and to keep their players and coaches engaged, which is a great example to follow.

Regularly Communicate With Your Customers

It is important to regularly engage with and keep in touch with your customers. Regularly update your company’s website to let them know how you are conducting business (curbside pick-up, home delivery, in-store services). Let your clients know the steps your business is taking to ensure their safety and the safety of your employees.

Clearly communicate your safety rules to customers so they feel safe and come prepared to do business with your company pursuant to your policies and procedures. Your customers want to know what steps your business is taking to ensure their safety. Simple steps such as placing hand sanitizers throughout your office spaces will help make customers feel safer, reduce the spread of the virus, and will send the right message to your customers that safety is a top priority.

Be Obsessive About Hygiene

Keep your employees and customers safe by being as proactive as possible about cleanliness in the work space. Think about, implement, and enforce safety rules and procedures, such as requiring employees and customers to wear face masks, putting up sneeze guards and separators, maintaining social distancing, and prohibiting sick employees and customers from entering your business. The CDC offers guidance for cleaning and disinfecting workplaces, businesses, and homes.

If your business requires face masks for in-store purchases and services (recommended) make sure your employees and customers are adhering to those rules.  Being consistent and disciplined about hygiene reassures and protects your customers, guests, and employees. Consistently consult the CDC’s website for recommendations how to protect your employees, guests, and customers.

Industry Trade Organizations Can Offer Ideas, Solutions and Help

Use industry specific trade organizations as a resource, as they understand the specific needs, concerns, and challenges your business faces. Like you, they are thinking about the challenges COVID-19 is creating for your industry. They are also thinking about solutions. We recommend you use these solutions to help your business get through this difficult time.

We hope this and our other blog posts about COVID-19 are useful and helpful. Stark & Stark has been serving our communities and clients since 1933. We have always been there when it matters most, and we will all get through this together.

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Paycheck Protection Program Update

On June 11, 2020, the Small Business Administration (“SBA”) issued an additional Interim Final Rule to amend the First Interim Final Rule that was issued April 2, 2020. The June 11^th Interim Final Rule was released to reflect the modifications to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act (“Flexibility Act”) that we summarized here. Most of the June 11^th Interim Final Rule is a reiteration of the Flexibility Act, however the Interim Rule provides a clarification concerning payroll costs and loan forgiveness.

The Flexibility Act amended the requirement under the PPP that borrowers must use 75% of the PPP loan towards eligible payroll costs to only 60%. The June 11^th Interim Rule provides that the SBA will apply the 60% payroll costs requirement as a proportional limit as opposed to a threshold.

For example, if a borrower uses 59% of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs. The Interim Rule provides an example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54%) of its loan on payroll costs, then because the borrower used less than 60% of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount).

For additional guidance on the PPP please contact Rachel Stark, Dolores Kelley, or Eric Stevenson.

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Pools (and Some Other Amenities) are Opening in New Jersey! Should You Open Yours?

Governor Murphy has now announced that community association pools may open in New Jersey on June 22. If you didn’t hear that announcement, you probably did hear the collective cheers from Cape May to Mahwah.

But, just because pools and some other amenities may open, you must ask: should you open yours?

In making this important decision, board members will have to seriously consider all of the issues and discuss them with their vendors, insurance agent, management, and legal counsel. Among those issues to consider:

• Is there full understanding of all of the requirements from the various Executive Orders and the Board of Health guidelines? Are there additional municipal or county requirements? Can the association comply? What will enforcement look like?
• Is there full understanding of the CDC recommendations for social distancing and cleaning protocols? Can the association comply? What will enforcement look like?
• Is there full understanding of the potential consequences of not following and/or enforcing these requirements and recommendations (including to the board personally)?
• Has the association’s insurance agent given an opinion about insurance limitations relating to COVID-19? Is there full understanding of the impact of this to the association?
• Is there full understanding of the association’s contractual options for maintaining and operating the amenity?
• Have all necessary rules and obligations been adopted for use of the amenity and have members acknowledged them? Have the rules, acknowledgements, and waivers been discussed with legal counsel?
• Have the additional costs necessary for opening, maintaining, and operating the amenity been fully evaluated?

Naturally, all of us who have been faithfully staying at home and socially distancing for the last three months are eager to get back to normal. But complying with all of the recommendations and requirements to reopen amenities will be anything but normal. Board members must seriously consider all of the above, understand responses from vendors and legal counsel, and carefully weigh costs, risks, and benefits before opening any amenity, including the pool.

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New Reported Decision Confirms that Partition Remains an Equitable Remedy for Unmarried Cohabitants Without a Writing Despite 2010 Palimony Amendment

A new reported trial court decision, S.N. v. C.R.was released today, confirming that the remedy of partition is still available when non-married parties purchase a home together and there is evidence that the purchase is a joint venture, even if they do not have a writing as required by the 2010 amendment regarding palimony (addressing support for non-married cohabitants).  In other words, there is still an equitable remedy available for unmarried couples with a joint property (exclusive of title) notwithstanding the writing requirement for palimony.

It’s not often that trial court decisions are reported so when they are, we know it’s important!  As the court notes, this is an issue of first impression:

“Whether, in the absence of a writing, partition of a residence remains an equitable remedy among unmarried, cohabitating intimates engaged in a joint venture.”

As always, the facts are important.  Here:

• The parties began their romantic relationship in 2010 and moved in together.
• They purchased a home in 2012.  The home and mortgage were titled individually to the plaintiff, but the defendant was heavily involved, including:

“He selected and communicated with the realtor. He provided $10,000 of the $15,000 down payment. He chose and paid the inspector. He received the inspection report, which listed him solely as the client. He chose the closing attorney. He negotiated a $10,000 seller’s concession. Finally, both C.N. and S.R. were, and remain, named insureds on the homeowners’ insurance policy. On closing, C.N. thought he and S.R. ‘would live there forever.'”

• They became engaged in 2016.
• They had a destination wedding “ceremony” in 2018 with guests.
• Despite the “ceremony”, they were never legally married.
• They broke up in 2019.
• While they lived together, the mortgage payments were drawn directly from the plaintiff’s bank account, having made a majority of the payments (87-90 of 96 total) and the defendant paid the remaining payments when the plaintiff was out of work.
• In 2019, the defendant took a 401(k) loan to reduce the principal on the mortgage in order to eliminate the private mortgage insurance and reduce the monthly payment amount.
• The defendant paid for the upkeep for the home (utilities, security, landscaping, pest control, and the like), purchased furniture for the home and oversaw contractors working on the home, as well as worked with a lawyer to appeal a tax assessment.

In July 2019, the plaintiff filed a complaint in the non-dissolution unit of the family part, which is dedicated to separating couples who were never married (i.e.: not eligible for marriage “dissolution”).  The plaintiff initially sought only child-related relief.  The defendant filed a counterclaim for child-related and financial relief and, in September 2019, amended the counterclaim to seek partition of their residence.  Following a failed mediation process, the court held a trial on the limited issue of partition, which lasted for two days, included testimony from both parties and “voluminous exhibits”, and the above facts were found by the court.

Notably, during trial, the plaintiff present testimony that was not credible, including that she perceived the home as her individual investment (even though she delegated significant tasks to the defendant) and she was evasive about the source of the down payment for the home.   Moreover, despite the claims about her “own” investment, when she completed her Case Information Statement, the plaintiff listed March 2012 as “date of marriage” and listed an engagement and wedding ring under personal property.

So, what is the court to do when one party to a relationship is heavily involved in the purchase, maintenance and increased equity to an asset titled in the other party’s name and they were never married?  Partition.

As the trial court noted here, “‘[p]alimony is the enforcement of a broken promise made for future support’ made between unmarried parties involved in a marriage-like relationship. ”  As of the 2010 amended statute (section (h) of N.J.S.A. 25:1-5) all palimony agreements entered after the amendment must be in writing and comply with the Statute of Frauds.

While S.N. and C.R. did not have such a “promise”, and they certainly did not have a writing, the court found that it didn’t matter because palimony is different than partition.  As compared to palimony,  a party to a partnership or joint venture is entitled to accumulated assets, as demonstrated by the following from Connell v. Diehl, a 2008 palimony case before the Statute of Frauds applied to post-amendment palimony agreements:

“Generally, a mere promise to provide lifetime support does not extend to a claim against assets owned solely by the promissor. However, unmarried cohabitating persons “who have engaged in a joint venture to purchase property in which they reside, are entitled to seek a partition.” Joint venturers are entitled to seek a partition of their property when their joint enterprise comes to an end.”  

Going a step further, the court reviewed the amendment to the statute and specifically found it does not apply to partition.  Upon making this precedential finding, the court moved on from palimony analysis to partition analysis, relying upon Mitchell v. Oksienik, a partition case with facts similar to the instant matter (they purchased a home during their relationship titled in only one party’s name and the mortgage in the name of the same party, received a loan from the other party’s parents for the down payment, and ultimately separated).  There, the Appellate Division found that partition is appropriate for unmarried cohabitants who engage in a joint partnership to purchase property and that formal agreements are not required because “a joint enterprise can be ‘inferred from conduct of the parties'”, and that title is “‘essentially irrelevant to an equitable action'”.

Not only did the trial court equate Mitchell to this case, but it further found that the current facts are even more compelling because the defendant contributed $10,000 of the $15,000 down payment and he resided in the home longer than the non-titled partner in Mitchell, as well as took charge in all of the processes leasing to the closing of sale, he is named on the insurance policy and made 10% of the mortgage payments, as well as paid most of the other house-related expenses.

To close the loop in the decision, the court reviewed the law of joint venture, which is defined as a “limited-purpose partnership” with “some or all of the following elements”:

1. contribution “of money, property, effort, knowledge, skill, or other asset to a common undertaking”;
2. joint property interest;
3. right of mutual control or management;
4. expectation of profit, or presence of an adventure;
5. right to participate in profits; and
6. “limitation of the objective to a single undertaking.”

Based on all of the above, the court found that even without a writing, the defendant is entitled to the equitable remedy of partition, which survived/is not impacted by the palimony amendment, for “unmarried, cohabitating intimates engaged in a joint venture.”

The takeaway from this case carries a lot of weight.  We are equipped to prepare Cohabitation Agreements outlining each party’s expectations in a signed writing and I still recommend that parties are always safer to have a writing to rely upon.  However, when you do not have such a writing, this case tells us that unmarried cohabitants can still achieve equitable relief and receive their share of an asset without the ability to pursue equitable distribution had they been married.

Notably, the case did not address what would have happened if one party was seeking support from the other, which would fall under palimony.  There, the support request without a writing that meets the Statute of Frauds would still fail as the relationship began after 2010 (thus, so too would have been the promise to provide support in the future), while the partition action could survive.

Final tip – pay attention to your documents.  Note how that trial court made a point to reference the plaintiff’s Case Information Statement, use of the “date of marriage” and listing engagement/wedding bands, which contributed to the lack of credibility finding.

For more reading, here is a link the prior palimony blog posts: https://ift.tt/3hjI0gY

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Lindsay A. Heller is a partner 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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If You Refuse Over Time, Are You Underemployed?

An individual’s child support obligation is calculated utilizing several factors, the most important of which is the income that the individual earns. Usually a person’s income is calculated by looking at the salary and any appropriate deductions, including taxes, health insurance premiums, mandatory retirement or union dues. Some people have the opportunity to work overtime, which adds to their yearly income. The New Jersey Child Support Guidelines contains a provision that states if a person has sporadic income as a result of overtime or a second job, an average will be calculated for purposes of child support. The guidelines further provide that the court is able to exclude sporadic income if the party can demonstrate that it would not be available in an equivalent amount in the future.

However, what happens if an individual is offered over time, but declines to take it? Is the court able to take this” extra” income into consideration? Generally, a court is entitled to find that a person is voluntarily unemployed or underemployed. Then, the court will “impute” income to that person. For example, if an individual is only working part time, the court can calculate child support based upon the presumption that the person should be working full time.

Recently, in the case of Ferrer v. Colon, both parties were police officers. One of the police officers worked overtime and agreed that the overtime should be utilized to determine income for purposes of child support. However, the other party said that in addition to the overtime actually worked, there was an offer of even more overtime. The argument was the additional, offered over time should be added to the income for purposes of the child support calculation.

The court rejected this argument, saying it was only going to use the actual overtime worked. The court found that the police officer was fully employed, and she did not have an obligation to take on additional employment simply for the purposes of calculating child support. The court based its decision on what the police officer had earned in the past in overtime.

The court recognized that support obligations must take into account past earnings as well as the ability to earn. A party is unable to manipulate his or her income so as to improperly reduce their support obligations. Moreover, a party cannot shield income earned beyond his or her full-time employment from the calculation of child support. This does not mean however, that a person should be imputed income based on a scenario that is inconsistent with the historical data. Cases must be evaluated considering the quote, “reasonableness” and “relative advantages” under the totality of the circumstances.

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Fake News: Facebook Reaches Settlement for Infringing Ads

Kristel Oreto, a Philly tattoo artist, acquired nearly one million followers on her social media platforms, specifically Facebook and Instagram. Her inspiring weight lost journey can be appreciated for her large following. Over the course of several years, Oreto shed more than 120 pounds, and 14 dress sizes through extensive dieting and exercising. Throughout her journey, she posted numerous before-and-after photos in order to document her achievements and in hopes of inspiring others.

The photos Oreto used to share her story, document her achievements, and inspire others began popping up on Facebook and Instagram as part of an illegitimate weight-loss product advertisement campaign. In June 2018, Oreto filed suit against the social media giants seeking monetary damages and an injunction to stop their alleged knowing approval of and profiteering from advertisements that used her image, name, likeness, and trademarks without her consent. Oreto claimed her social media followers, eager for dieting solutions and tips on losing weight, clicked on the illegitimate ads because they were under the impression that Oreto had sponsored or endorsed them. She allegedly believed the ads were not only demeaning toward her, but also detrimental to her personal and professional reputation.

At the time of Oreto’s suit, Facebook and Instagram presented how they diligently review submitted advertisements to prevent this type of harmful use through their advertising policies. Their policy stated, in relevant part: “Before ads show up on Facebook or Instagram, they’re reviewed to make sure they meet our Advertising Policies…. We will check your ad’s images, test, targeting, and positions . . . Your ad may not be approved if the land page content . . . doesn’t match the product/service promoted in your ad”. Facebook’s advertising policies further prohibited content that promoted the sale or use of unsafe supplements, infringed upon any third party’s trademark rights, or contained false or misleading information. The policies also included particular restrictions on ads that contained body transformation photos with unlikely results.

Despite this seemingly stringent policy, Oreto maintained how Facebook and Instagram failed to prevent the misleading and unconsented-to advertisements from surfacing. Even with their self-imposed regulation, Facebook admitted to having a huge “fake news” and “fake advertising problem,” as they managed to collect ad revenue exceeding $40 billion dollars per year.

On November 6, 2018, an order was entered by the Federal District Court in Philadelphia dismissing the case due to settlement, the details of which were not disclosed.

Digital data, such as the content Oreto posted, is the fuel of the new economy; a resource that allows for the creation of new products and services and the expansive marketing of them. But much like physical pollutants, unchecked digital information has the ability to pollute on a massive scale. The first step in addressing the problem is to focus on those platforms and look for ways to disincentivize the generation and dissemination of factually false or unconsented-to content. For the individual user, it is troubling to learn that proprietary information posted to social media may be used, without consent, to promote illegitimate products. The concern remains over the effectiveness of the platforms’ private solutions in light of their own economic incentives in the advertising marketplace.

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Paycheck Protection Program Flexibility Act

On June 3, 2020 Congress passed the Paycheck Protection Program Flexibility Act (the “Flexibility Act”). Below are some of the highlights from the Flexibility Act:

• Extending the Paycheck Protection Program (PPP) until December 31, 2020;
• The extension includes extending the safe harbor for borrowers to rehire employees or reverse salary reductions from June 30, 2020 to December 31, 2020. The amount of forgiveness a borrower can receive will not be affected by a reduction in employees if the borrower can document:
  • an inability to rehire individuals who were employees of the borrower on February 15, 2020; and
  • an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
  • borrower is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19;
• The “covered period” for loan forgiveness is extended from eight-weeks following the disbursement of the loan to the earlier of 24 weeks from loan disbursement or December 31, 2020. Any borrower who received a loan before the enactment of the Flexibility Act can elect to continue using the eight-week covered period;
• The Flexibility Act reduces the 75/25 rule for use of loan proceeds. Borrowers are now allowed to use 60% of the loan for payroll costs and 40% for eligible nonpayroll costs;
• The six-month deferral of payments due under PPP loans will be eliminated and replaced with loan deferral until the date on which the amount of loan forgiveness is remitted to the lender. If a borrower fails to apply for loan forgiveness within ten-months after the last day of the covered period for PPP loan forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan;
• Eligibility for a PPP loan will remain the same; expanding eligibility to nonprofits other than 501(c)(3) organizations was not included in this legislation;
• Loan maturity is extended to five years and applies to PPP loans made on or after the enactment of the Flexibility Act. However, lenders and borrowers are not be prohibited from mutually agreeing to modify the maturity terms of prior-disbursed PPP loans; and
• Lastly, the Flexibility Act removes the provision restricting employers who receive PPP loan forgiveness from deferring payroll taxes incurred between March 27, 2020 and December 31, 2020.

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Don’t Forget New Jersey Taxation of IRAs, 401(k)s and 403(b)s

The federal tax treatment of IRAs, ROTH IRAs, 401(k)s, and 403(b)s has been the subject of countless books, articles, seminars, and commentary. But, there is precious little regarding the New Jersey state income taxation of these accounts, which is often vastly different. Understanding New Jersey taxation rules is important, not only for distributions made to the account owner during lifetime, but also as part of the owner’s overall estate plan.

Contributions Not Deductible

Many people are surprised to learn that New Jersey does not allow a deduction for contributions to IRAs and 403(b) plans, even if they are deductible for federal income tax purposes. It is only since 1984 that New Jersey began to allow a deduction for employee contributions to 401(k) plans. The New Jersey Division of Taxation explains:

The New Jersey Gross Income Tax Act does not contain any provisions similar to the Internal Revenue Code that allow an individual to deduct contributions to an IRA. Contributions to an IRA are subject to New Jersey Income Tax in the year they are made.

For the reasons described below, it is critical to preserve your tax records showing the amount of New Jersey income tax paid on IRA, 401(k), and 403(b) plans. At the time of distribution, account owners are entitled to exclude from New Jersey taxable income the portion of their retirement accounts on which they have already paid New Jersey income taxes paid in prior years.

Distributions Rules

For New Jersey income tax purposes, withdrawals from IRAs, 401(k)s, and 403(b)s will generally be deemed taxable to the extent the withdrawal exceeds the amount that has already been taxed when it was contributed. Contributions made before moving to New Jersey are treated the same as if they had been earned while living in New Jersey.

The taxable portion of the withdrawal is a fraction share of the amount withdrawn, determined by dividing the taxable portion of entire account by the total account value. It is critical, therefore, to permanently maintain tax records to be able to determine how much of the account has been taxed and how much has been contributed tax-free. You may overpay if you cannot determine the taxable portion of the distributions. These records are also important for the beneficiaries of your retirement account, who will taxed under the same rules.

The only exception to these rules is for Qualified Distributions from ROTH IRAs, which are not subject to New Jersey income tax. Qualified Distributions are those which are made more than five-years after the first contribution to account and must be made:

1. On or after the date on which the individual reaches age 59½;
2. To a beneficiary (or the individual’s estate) after the individual’s death;
3. To an individual who is disabled; or
4. To a qualified first-time home buyer distribution as defined by federal law.

Partial Exclusion

As of 2020, New Jersey completed a four-year process of phasing in a partial exclusion of pension income. Depending on an individual’s total income, qualified taxpayers may be able to exclude a substantial portion of their pension income for New Jersey income tax purposes.

Don’t Forget your Beneficiaries

Distributions to a beneficiary will be partially taxable under the same rules. In addition, New Jersey residents must be aware of the effect of the New Jersey Inheritance Tax, which is applied to 100% of the balance in these accounts. Spouses, lineal descendants (children, grandchildren, etc.), lineal ascendants (parents, grandparents, etc.), and charities are not subject to inheritance tax, but everyone else is. Inheritance Tax rates range from 11% to 16%, depending on the relationship of the beneficiary to the account owner and the value of the estate. For these reasons, planning for these accounts is very important.

Conclusion

There are important differences between the way in which the federal government and the state of New Jersey tax IRAs, 401(k)s and 403(b)s. Those differences have a major effect on lifetime and post-death planning tax and estate planning. Failure to understand and address these issues can increase the overall tax burden during lifetime and after death. Estate planning options, including trusts, should also be considered when passing these accounts to your beneficiaries.

This has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

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Prenuptial Agreement and Full Financial Disclosure Withstands Marriage Ending by Death and Not Divorce

Most of our cases dealing with enforceability of prenuptial agreements stem from marriages that end by divorce and involve one party seeking to enforce the agreement and the other party seeking to invalidate the same document, or vice versa.   You can read about many of those cases on our NJ Family Law Blog.  However, the recent unpublished (non-precedential) decision of In the Matter of the Estate of James J. Gillette, addresses the enforcement of a prenupital agreement upon the husband’s death, when the wife sought to invalidate the agreement in order to claim her elective share from his estate in lieu of the terms of the agreement.  The case tells us that the rules for prenuptial agreement enforcement upon a spouse’s death are the same as they would be in the event of divorce.  Interestingly, both prenuptial agreements and a spouse’s waive of his/her right to elective share require the same financial disclosure as described in N.J.S.A. 37:2-38(c)(1) (for prenuptial agreements) and N.J.S.A. 3b:8-10 (for waiving right to elective share).

In this case, the parties entered into a prenuptial agreement on August 29, 2013 prior to their marriage in November 2013.  Both parties had independent counsel.  They affixed schedules of their full financial disclosure to the prenuptial agreement and acknowledged within the document they had time to review the agreement  with their respective counsel.  The parties agreed to share in certain assets, to keep premarital assets separate and to waive their right to elective share of the other spouse’s estate.

The husband passed away on April 21, 2017.  The wife received the proper notice of probate on May 11, 2017.  Pursuant to the relevant statute, she had six months to seek to enforce her elective share.  The wife, through counsel, provided letter notice of such intent on September 18, 2017.  However, she did not file the complaint until July 12, 2018 – fourteen months after the probate notice and, thus, out of time.  As part of her complaint, the wife sought to invalidate the prenuptial agreement, claiming that the husband did not provide full financial disclosure, which is the relevant issue for this post.

The wife was unsuccessful both in her initial application and her reconsideration application.   Note that in her reconsideration application, the wife claimed to have “newly discovered evidence” as to the husband’s financial circumstances that she claimed demonstrated his failure to provide full financial disclosure for the prenuptial agreement, but the evidence was not new because the wife/her daughter had the documents for over a year before she even filed the complaint and, even if it was new, the court found that it did not demonstrate what the wife claimed.  This appeal followed.

As noted by the Appellate Division, the plaintiff/wife bears the burden to demonstrate that the prenuptial agreement is unenforceable based upon the factors within N.J.S.A. 37:2-38(c)(1), which provides:

The burden of proof to set aside a premarital or pre-civil union agreement shall be upon the party alleging the agreement to be unenforceable. A premarital or pre-civil union agreement shall not be enforceable if the party seeking to set aside the agreement proves, by clear and convincing evidence, that:a.The party executed the agreement involuntarily; or
b.(Deleted by amendment, P.L.2013, c.72)
c.The agreement was unconscionable when it was executed because that party, before execution of the agreement:

(1)Was not provided full and fair disclosure of the earnings, property and financial obligations of the other party;
(2)Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided;
(3)Did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party; or
(4)Did not consult with independent legal counsel and did not voluntarily and expressly waive, in writing, the opportunity to consult with independent legal counsel.

d.The issue of unconscionability of a premarital or pre-civil union agreement shall be determined by the court as a matter of law. An agreement shall not be deemed unconscionable unless the circumstances set out in subsection c. of this section are applicable.

Regarding subsection (c)(1), the husband’s financial statement was attached to the prenuptial agreement and, importantly, Article X of the agreement explicitly stated that the wife reviewed the husband’s financial statement and “retained independent counsel ‘to review and represent her in conjunction with’
the Agreement prior to signing it.”

In order to support her claim that the financial disclosure was insufficient, the wife relied on the unpublished (non-precedential) decision of Orgler v. Orgler, claiming that the husband was required to produce proof of how the value of his assets were established and provide supporting documentation for same.  The Appellate Division specifically rejected this argument, stating:

In Orgler, the court noted that the “‘easiest device’ to evidence” knowledge of a party’s financial condition “is by annexing to the agreement a list of assets and their approximate values.” Id. at 349 (quoting Marschall v. Marschall, 195 N.J. Super. 16, 33 (Ch. Div. 1984)). The court found the prenuptial agreement unenforceable in part because “the parties appended no schedule of their respective assets to the agreement.” Ibid.

However, in the matter at hand:

• The wife had the benefit of the husband’s financial statement attached to the agreement;
• The financial statement identified a list of assets with approximate values, as set forth in Orgler;
• The wife had independent counsel before signing the prenuptial agreement;
• Within the agreement, the wife acknowledged that she read and understood the agreement and had the necessary time to discuss same with counsel.
• The wife, nor her attorney, ever asked for additional financial information before the agreement was finalized.

The lesson here is similar to many of our prenuptial agreement cases and the guiding statute, above – always, always, always be sure to affix the financial statement of each party to the prenuptial agreement, ensure that each party has independent counsel and, here, we learn the importance of including language within the agreement acknowledging that each party had sufficient time to review the agreement and financial disclosure with respective counsel prior to signing the agreement.  When dealing with a prenup, you want to be extra careful to follow these directives because you have to assume that at some point in the future, one party will be unhappy with the agreement at the time of divorce, or death.  To protect yourself against what may be the inevitable, you need to make sure that the agreement can withstand efforts to invalidate the document.

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Lindsay A. Heller is a partner 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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