Category: Business Organizations

Could the Crypto Downturn Lead to a Spike in M&A?

In 2021, we saw a cryptocurrency boom with record highs and a flurry of activity. However, this year, the cryptocurrency downturn has been significant.  We have seen drops in various cryptocurrencies ranging from 20 to 70 percent, with an estimated $2 trillion in losses in the past few months.

Industry watchers had already predicted a spike in crypto M&A from the beginning of 2022, and in a recent interview with Barron’s, John Todaro, a senior crypto and blockchain researcher at Needham & Company, said he believes this downturn could lead to a wave of mergers and acquisitions in the crypto space for the second half of this year and even into 2023.

Valuations have dropped across the board this year as the market has faced incredible volatility, and Todaro told Barron’s, “The valuations for public crypto companies have fallen by about 70% this year.”  These lower valuations could make these companies increasingly attractive targets for acquisition, and this activity has already started to pick up.

According recent coverage from CNBC, some larger crypto companies are already looking for acquisition targets in order to drive industry growth and to help them acquire more users. Todaro feels most of the M&A activity we will see will be this kind of crypto to crypto acquisition as opposed to traditional buyers, although there is still opportunity for non-crypto companies to capitalize on these lower valuations and some are already doing so.

With more government regulation coming for the crypto sector this year, it could also impact the activity level as well.  Achieving some legal and regulatory clarity could have implications for this uptick in M&A for crypto companies. Our analysis of the SEC’s recent proposed regulations, other government activity in this area, and their potential implications can be found here.

We could of course see a growing number of acquisitions across industries as valuations remain lower than a year ago, but as the crypto sector continues to see this kind of a downturn, the level of activity in this area could be much greater than it has previously seen.  With that said, both the target company and the acquirer should be looking at any transactions with the same level of due diligence instead of rushing into any deal fueled by panic or haste.

Article By Louis Lehot of Foley & Lardner LLP

For more mergers and acquisitions legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Nonbinary Pronoun Usage in the Workplace: What Employers Are Doing to Promote Inclusivity

Using the correct pronouns and honorifics in the workplace has become an increasingly important part of maintaining an inclusive workplace. At the same time, the sensitive nature of this trend and the many variations of pronouns and honorifics in use may leave employers confused as to how to accomplish that goal. Moreover, employers may be concerned with how to comply with employees’ requests in an ever-evolving space and with the increasing use of nonbinary pronouns.

Nonbinary Pronouns and Honorifics

Individuals have traditionally identified with binary sets of pronouns based on male and female gender expressions (i.e. he/him/his and she/her/hers). Increasingly, many individuals are expressing that they do not identify as either a “man” or “woman.” An estimated 11 percent of individuals who identity as LGBTQ in the United States (i.e., approximately 1.2 million people), identity as nonbinary, according to a recent study. The vast majority (76 percent) are between the ages of 18 and 29, the study found.

It is increasingly common for these individuals to go by gender-neutral, nonbinary pronouns, including they/them/theirs. Many others go by other nonbinary pronouns, such as ze (or zie)/zir/zirs; ne/nir/nirs; xe/xem/xir; and ve/ver/vis, or a growing set of nonbinary pronouns that are resurfacing or newly appearing within the U.S. vernacular. Similarly, honorifics, such as Mr., Miss, Mrs., Ms., Sir, and Madame reflect a binary gender view leading some individuals to go by “Mx.,” “Fren,” or another gender-neutral honorific.

The issue has particular significance for employers since the June 2020 decision by the Supreme Court of the United States in Bostock v. Clayton County, Georgia, which found that discrimination against gay and transgender individuals is a form of sex discrimination under Title VII of the Civil Rights Act of 1964. The high court reasoned that an adverse action against an individual because the individual is gay or transgender is a form of discrimination based on sex “because it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.” However, the Court left open several questions on how the ruling applies to sex-segregated restrooms, dress codes, grooming standards, and pronouns.

Following the decision, the Equal Employment Opportunity Commission (EEOC) issued new guidance on June 15, 2021, taking the position that “intentionally and repeatedly using the wrong name and pronouns to refer to a transgender employee could contribute to an unlawful hostile work environment” in violation of Title VII. This suggests there could be potential liability for employers who refuse to use a nonbinary employee’s correct pronouns. Further, while Title VII does not cover every employee in the United States, many state and local laws, such as California’s Fair Employment and Housing Council’s regulations and the New York City Human Rights Law (NYCHRL), provide similar or greater protection from gender identity discrimination.

Best Practices

It is increasingly becoming a commonplace practice for companies to permit employees to include their pronouns in their email signatures or on their social media profiles. This trend might just be the start. In light of the evolving movements in these areas, some employers may be struggling with how to support nonbinary individuals in their workplaces.

Safe Spaces

Some employers will take the stance that it is important to provide safe spaces for employees to identify their pronouns without pressure or the worry of retaliation in order to maintain an inclusive environment. Employers may further want to consider additional training for supervisors and other employees on how to handle everyday interactions regarding pronoun use. For example, employers may want to encourage employees to be comfortable with apologizing and correcting themselves if the wrong pronoun is used. This may be an especially important subject if an employee had started at the company using one set of pronouns and later realizes a different gender identity during the course of employment. A diversity, equity, and inclusion (DEI) committee or diversity liaisons can guide employers in facilitating these conversations.

Privacy Concerns

At the same time, employers are faced with the tension of ensuring respect for each individual’s privacy. In this regard, employers may want to be conscious that individuals generally will not want to be into a situation in which they must choose between using a nonbinary pronoun or facing inappropriate questions about their choice from management or co-workers. It may be necessary to keep pronoun sharing optional and to encourage employees to default to gender-neutral language where possible.

Gender-Neutral Corporate Communications and Record-Keeping

The Biden Administration, in March 2022, announced a series of federal government policy changes to allow U.S. citizens to identify as nonbinary, including allowing U.S. citizens to select an “X” gender marker on their U.S. passport applications. In accordance, the EEOC also announced that it would provide the option to use a nonbinary gender marker in the filing of a charge of discrimination. Several states have further allowed the use of a gender-neutral marker on state identity documents, including drivers’ licenses. Given these developments, employers may also want to consider using gender-neutral language in communications and updating their human resources demographic record-keeping procedures to allow for employees to be identified as nonbinary or with a gender-neutral marker.

Key Takeaways

The Bostock decisions and the proliferation of state and local anti-discrimination laws may require that employers make efforts to allow employees to share and be addressed by nonbinary pronouns. This could be critical in employer recruiting and retention with younger generations entering the workplace that are increasingly comfortable with expressing their nonbinary gender. Also, it is clear that accurate or appropriate pronouns and honorifics will continue to change. Employers may want to remain ready to adjust in this rapidly evolving space in order to provide inclusive environments and keep workplaces free of harassment and discrimination.

Companies seeking to create more inclusive workplaces for nonbinary individuals can find further information and guidance from a number of organizations that provide educational resources and technical assistance.

Article By Kelly S. Hughes, Alan J. Brozovich, and Zachary V. Zagger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

For A Limited Time Only – California Is Giving Away Corporations, LLCs And More!

As a result of the recent enactment of California’s 2022-2023 Budget Bill, the California Secretary of State’s office has announced a temporary waiver of many business entity filing fees.   This waiver will last until June 30, 2023, the end of the state’s current fiscal year.

Here is the Secretary of State’s list of filings for which no filing fee is currently being imposed:

  • Articles of Organization – CA LLC

  • Registration – Out-of-State LLC

  • Articles of Incorporation – CA Corporation – Benefit

  • Articles of Incorporation – CA Corporation – Close

  • Articles of Incorporation – CA Corporation – General Stock

  • Articles of Incorporation – CA Corporation – Insurer

  • Articles of Incorporation – CA Corporation – Professional

  • Articles of Incorporation – CA Corporation – Social Purpose

  • Registration – Out-of-State Corporation – Accountancy or Law (Professional)

  • Registration – Out-of-State Corporation – Insurer

  • Registration – Out-of-State Corporation – Stock

  • Articles of Incorporation – CA Nonprofit Corporation – Mutual Benefit

  • Articles of Incorporation – CA Nonprofit Corporation – Mutual Benefit – Common Interest Development

  • Articles of Incorporation – CA Nonprofit Corporation – Mutual Benefit – Credit Union

  • Articles of Incorporation – CA Nonprofit Corporation – Public Benefit

  • Articles of Incorporation – CA Nonprofit Corporation – Public Benefit – Common Interest Development

  • Articles of Incorporation – CA Nonprofit Corporation – Religious

  • Registration – Out-of-State Corporation – Nonprofit

  • Articles of Incorporation – CA Corporation – Agricultural Cooperative Association

  • Articles of Incorporation – CA Corporation – Cannabis Cooperative Association

  • Articles of Incorporation – CA Corporation – General Cooperative

  • Certificate of Limited Partnership – CA LP

  • Registration – Out-of-State LP

Note that the Secretary of State will continue to impose other fees not listed above.

It is unlikely that this temporary suspension of fees will have any significant impact on the number of business entities being formed under California law.  Historically, these fees have been relatively modest.  For example, the fee for filing articles of incorporation is $100.  Cal. Gov’t Code § 12186(c).  The real costs are the ongoing costs associated with the crushing tax and regulatory burdens placed on businesses by the state.  According to the Tax Foundation, California ranks 48th in business tax climate (just ahead of New York and New Jersey).

Article By Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP

For more corporate law legal news, click here to visit the National Law Review.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP

5 Questions You Should Be Asking About Succession Planning for Your Family Office

Succession planning for family offices is often a difficult process. It is emotional. It takes longer than it should. But succession planning that is deliberate, collaborative, and strategic can offer so much opportunity.

Katten recently hosted a conversation with Jane Flanagan, Director of Family Office Consulting at Northern Trust, who discussed a survey conducted with former family office CEOs to capture their experience with succession and succession planning. The results were illuminating, and the survey participants spoke loud and clear about two major points: 1.) they wished they had begun the process sooner, and 2.) they wished they’d known what questions to ask along the way.

We’ve pulled together a series of basic questions about succession planning to help you consider your own approach.

Why should I create a succession plan?

Like it or not, a succession will take place eventually. The last thing you or your family office want is the chaos, acrimony, and setbacks an unexpected succession can cause.

Putting a plan in place can give your current leadership peace of mind, ensure buy-in and collaboration throughout the family, and prepare potential internal successors or identify key attributes for external candidates.

When should I start?

Now! It’s never too early to begin planning, and there are some easy steps you can take right away to set you on the right path.

If you aren’t sure where to begin or what a planning process looks like, you’re in good company. According to Northern Trust’s recent survey, 64 percent of family office CEOs expect a succession event in the next three to five years.

What is included in a succession planning process?

The planning process will differ from family to family, but Northern Trust created a checklist to help you think through your own approach.

Taking on the entire process at once can be daunting. To build momentum (and buy-in), consider starting small by documenting the responsibilities of the current leadership.

Once you have a good sense of the current role’s responsibilities, think about the knowledge and relationships critical to the role’s success.

These should be top considerations throughout the succession planning process.

Where should I begin?

First, consider putting an emergency succession plan in place as soon as possible while you develop a long-term succession plan.

You want to give this process the time, attention, and consideration it deserves. An emergency plan will help immensely if an unexpected succession is needed, so focus first on getting that in place before you set out on a long-term planning process.

How do I find the right successor?

This is why the planning process is so important. These decisions can have a big impact, so you want to have a plan in place well before you need it.

Consider what works and what could be improved about the current role. Are there creative approaches or changes to consider? (Such as shifting to a CIO/CEO hybrid role, refocusing the role’s priorities, or even expanding into a multi-family office.)

Northern Trust’s survey participants were evenly split on their choices to hire an external successor or grow a successor from within. There are pros and cons to each approach, but so many of the factors to consider will be specific to your situation.

Article By Adam M. Damerow, Abby Feinman, and Saul E. Rudo of Katten

For more family law legal news, click here to visit the National Law Review.

©2022 Katten Muchin Rosenman LLP

THE OLD 9999 SCAM?: Plaintiff Alleges Defendant Made 5000 Illegal Phone Calls to his Number–But is it a Set Up?

So ostensiby the case of Mongeon v. KPH Healthcare, 2022 WL 1978674 Case No. 2:21-cv-00195 (D. Vt. 06/06/2022) is simply a case about the definition of “consumer” under the Vermont Consumer Protection Act (“VCPA”), 9 V.S.A. § 2453.

The plaintiff alleges his receipt of 4000 calls from the Defendant after the Defendant promised to stop calling was an act of “fraud” and “deceit” under the VCPA. But since the Plaintiff has not alleged facts establishing he is a “consumer” within the meaning of the Act the Court dismissed the case, without prejudice.

Pretty blasé.

But let’s back up. Why would Defendant–seemingly a local pharmacy–blast the Plaintiff’s number so many times?

Well the Plaintiff’s full number is not set forth in the decision–but the last four digits are “9999.”

Many years ago before I became a TCPA class action defense lawyer I–like many out there–had a very low impression of the TCPA. I remember a guy in law school who made tuition bring junk fax cases. And I had a colleague who was locked in mortal battle with some clown who was bringing a series of small claims TCPA suits in Southern California arising out of calls to a “designer phone number”: 999-999-9999.

Hmmmmm.

Much like the old case of Stoops in which the Plaintiff had over 80 cell phones–or the recent case of Barton in which the Plaintiff had a cell phone purchased specifically to set up TCPA suits–a 9999 scammer will pick up a “designer number” like 999-999-9999 and wear it is for a legitimate purpose. “I run a real estate agency, etc.” Looking deeper there is rarely any utility behind the number–although other designer numbers like (800) 444-4444 are very helpful–and the numbers are often just used to net TCPA lawsuits.

The reason it works is rather obvious.

When I walk into my local Sports Clips for my monthly trim there is no way I’m going to give them my private cell phone number. So I give them 999-999-9999. (Of course, I also give them my email of no@no.com.) It works perfectly well for check in, and I never receive any texts or calls from them reminding me to come back to style my luscious used-to-be-black locks.

Apart from folks providing the number 999-999-9999 to a business, many companies will knowingly have their agents enter the number as a default when the customer does not otherwise provide their number. This was the case in the old “small claims bandit” run of suits I mentioned earlier–apparently a local hospital group was engaging in this practice, which lead to an endless number of TCPA suits being filed against them by an enterprising Plaintiff.

Well Mongeon appears to be the same issue. Per the ruling: , Defendant’s representatives advised Plaintiff “that his phone number was attached to multiple other customers who had prescriptions at the pharmacy” because Plaintiff’s phone number, XXX-XXX-9999, is “the ‘default’ number for all new or current customers in [Defendant’s] system without a phone number.” 

Pro tip: the 9999 play is arguably the oldest manufactured lawsuit trick in TCPAWorld. Don’t fall for it. Never use 999-999-9999 (or any other series of numbers) as a “default” setting for customer phone numbers. And if you do, you definitely want to suppress dialing to those numbers.

Stay safe out there TCPAWorld.

Article By Eric J. Troutman of Troutman Firm

For more communications, media, and internet news, click here to visit the National Law Review.

© 2022 Troutman Firm

Inflation Woes: Four Key Ways for Companies to Address Inflation in the Supply Chain

The U.S. economy is grappling with the highest inflation in decades, with extensive inflation in the supply chain affecting companies worldwide. Supply chain disruptions undoubtedly have contributed to rising inflation, as extensive delays and skyrocketing costs continue to plague the industry.

In March 2022, the consumer-price index (or CPI) — a measure of the prices consumers pay for products — rose at an annual rate of 8.5%, which is the highest increase in 47 years.1 Meanwhile, the producer-price index (or PPI) — a measure of inflation meant to gauge the impact on suppliers — similarly rose significantly at an annual rate of 11.2%.2 Finally, the employer cost index (or ECI) demonstrates that, from March 2021 to March 2022, total compensation rose 4.5%, wages and salaries rose 4.7%, and benefit costs rose 4.1%.3

Because inflation increases the prices of goods or services, negotiations about who bears that risk in business partner relationships and the consequences of that risk allocation will have significantly greater financial impacts than we have seen in recent memory. As a result, ensuring your business teams are well versed on the impacts of and means of mitigating inflation in new contracts has a direct impact on your bottom line.

In this article, we provide ways for companies in the supply chain to address high inflation and alleviate associated pressures, including (1) how to revisit and use existing agreement provisions to address inflation risk, (2) approaches to negotiating new agreements and amendments to existing agreements, (3) approaches to limit inflationary exposure, and (4) strategies for cost reduction.

Figure 1:

Percent Change in CPI March 2021 versus March 2022

CPI March Chart

Bureau of Labor Statistics, U.S. Department of Labor, Consumer Price Index – March 2022, issued April 12, 2022

Four Key Ways to Mitigate the Effects of Increasing Inflation in the Supply Chain

1. Revisit and Use Provisions in Existing Agreements

Companies faced with rising costs must review their supply agreements to determine if they already contain mechanisms the company can use to address inflation. On the buy side, companies should look in their agreements for terms relating to fixed prices. On the sell side, companies should investigate ways to pass increased costs on to customers. Most supply contracts contain a variety of provisions that may assist in combatting inflationary pressures.

(a) Pricing Provisions

From a seller’s perspective, a contract may include index-based price escalation provisions, which tie contract prices to one or more indices. The underlying indices may be (i) broad economic indices such as the PPI or “market basket” indices tied to all items and all urban consumers, (ii) targeted indices such as ECI for a specific location, or (iii) tied to the cost of a specific commodity used in the underlying product. Contracts will sometimes incorporate several commodity indices based on the percentage those commodities are used in the product that is the subject of the agreement, in order to accurately reflect the costs associated with producing the good.

Allocations under these pricing provisions vary depending on negotiation power. They could put all of the risk on one party, share the risk equally, or share the risk according to particular percentages. The latter two options represent ways to avoid a “win/lose” approach.

Sellers will want to see whether their agreements allow for periodic negotiations for updated prices and take advantage of those opportunities. A buyer, meanwhile, may look for provisions that allow it the flexibility to limit the quantities ordered, enabling it to reduce costs as necessary or to seek a more cost efficient alternative. A buyer also will want to determine if the contract prohibits the seller from changing prices.

Regardless of the existing provisions, the real impact of inflation is likely to trigger commercial discussions to address rising costs; this is true both for hard goods supply agreements and indirect services agreements with longer terms such as outsourcing and managed services relationships.

(b) Force Majeure as a Mechanism to Adjust Price?

Outside of pricing provisions such as the above, however, a party may look to other contract provisions, such as force majeure, to see if its performance under the contract could be excused; increased costs alone are not enough to constitute a force majeure event. In order for a force majeure to arguably apply, the increase in costs must be caused by an event that itself is a qualifying force majeure event under the terms of the applicable contract (which may include events like a labor strike or pandemic).

Force majeure provisions are intended to excuse performance under a contract but not to act as a pricing adjustment mechanism. However, force majeure and its extra-contractual cousin, commercial impracticability, can be used as tools to bring the parties to the negotiating table where events beyond either party’s reasonable control are impacting the ability to produce and deliver products.

2. Negotiate Amendments to Existing Agreements

To the extent sellers have fixed-price contracts with their customers, sellers should consider negotiating with such customers to adjust these contracts in order to keep the prices they charge their customers in line with their input costs. When entering these discussions, companies that wish to implement a price adjustment, or eliminate fixed pricing entirely, should consider meaningful ways to incentivize their customers to agree to such changes. Would the customer be willing to agree to a price adjustment in order extend the agreement or adjust the quantity? Any items that maintain the relationship between the parties while also allocating cost increases in an equitable way should be considered.

Conversely, buyers faced with price-increase requests should carefully consider their options:

  • First, a customer receiving a price-adjustment request should confirm the request is actually tied to inflation and not just an attempt by a supplier to increase its bottom line. Seek detailed calculations supporting the price adjustments, and require suppliers to demonstrate how much their costs have increased above expectations.
  • Second, customers should consider what items they would like to request in return for accepting a given price-adjustment request, such as whether they would like to adjust their quantity or timing of delivery.
  • Third, a customer faced with a price increase request should consider whether the request should include the opportunity for the customer to obtain pricedowns in the future, in the event there are changes in the pricing environment.

3. Pricing Tied to Indexing and Other Ways to Limit Future Inflationary Exposure when Drafting New Agreements

When drafting new agreements, companies should consider how best to mitigate the effects of inflation.

For nearly 40 years, we have enjoyed relatively low and steady levels of inflation, which explains why existing agreements may not adequately address the allocation of significant and unexpected economic change.

Many of those at the upper echelons of leadership today have never dealt with a high inflationary environment. To put it in perspective, the CEO of Walmart, the No. 1 company on the Fortune 500 list for 2021, was 19 years old when inflation was last a newsworthy topic.

In the future, however, we expect far fewer agreements to have long-term fixed prices, as sellers negotiating agreements will want to incorporate a variety of strategies that allow for pricing flexibility and avoid longstanding, fixed prices. One such strategy is tying prices to an index. As discussed above, this could be a general index such as the CPI or PPI or be much more specific depending on the item sold. There are numerous indices for various products and commodities that parties may use to reflect accurately the costs of producing the goods that are the subject of their agreement. Parties may consider incorporating a mechanism for revisiting these provisions, especially in the event that inflation slows. Caps on inflation risk also may be incorporated as a backstop.

If not tying prices to an index, selling parties will want to shorten the term of their agreements or require the parties to renegotiate prices at set points throughout the duration of their agreements. Alternatively, parties may consider price increases of a certain percentage that are automatically implemented periodically. The seller may even want to leave the pricing open and establish pricing at the time the order is placed.

On the other hand, customers will want to incorporate provisions that cause the supplier to bear the inflationary risk. Principally, this means locking in prices for as long of a period as the seller will agree to and ensuring prices are fixed upon the issuance of purchase orders.

If and when sellers push back on extended fixed-pricing provisions, there are a variety of methods parties may use to meet in the middle:

  • Pricing arrangements that are tied to one or more indices may be capped to a certain percentage, ensuring the customer will know its upward exposure.
  • Include thresholds of index movement such that the price remains static unless and until the percentage threshold is exceeded.
  • Allocate increased cost exposure so a certain percentage range of index movement is allocated to one party and then the next percentage range is allocated to the other party. Parties then may share any exposure above those ranges.
  • Additionally, index-based pricing can be clarified to include both upward and downward movement, ensuring that customers, while risking inflationary costs, may also receive the benefits of deflationary environments.

4. Think Strategically to Reduce Costs

Aside from considering purely contractual methods to combat inflation, companies should think strategically about ways to reduce costs more efficiently.

  • Streamlining. In order to pursue this strategy, companies need to determine which areas are driving increased spending and consider ways those areas may be managed differently. For example, companies may consider whether there are different inputs that can be used to lower costs or processes that may be streamlined. Companies can review their inventory management, labor inputs, and other areas to determine where cost cutting may be an option without sacrificing product or service quality. This streamlining might include ending product lines with lower levels of profitability.
  • Technology & Innovation. In addition, with labor constituting such a high percentage of the cost increases companies are experiencing, a company may want to double down on technology and innovation that reduces headcount. Or, as prices rise, a company may pursue other pricing models. For example, a heavy equipment manufacturer may opt for a pay-per-use model in lieu of the traditional sale model.
  • Diversification of the Supply Chain. Another method companies may use is diversifying their supply chains, ensuring they provide the flexibility and sustainability needed to weather turbulent periods. Though adding links to supply chains will not lower costs in the near term, it can help ensure a business continues to function smoothly even in the event of price shocks, material shortages, or other disruptions.

The stressors driving inflation are unlikely to be relieved any time soon. Companies should use every resource available to leverage their current contracts and negotiate new terms to address inflation’s serious repercussions on their bottom line.

FOOTNOTES

1 How High Is Inflation and What Causes It? What to Know, Wall Street Journal (April 12, 2022).

2 Supplier Prices Rose Sharply in March, Keeping Upward Pressure on U.S. Inflation, Wall Street Journal (April 13, 2022).

3  Employment Cost Index – March 2022, U.S. Department of Labor, Bureau of Labor Statistics (April 29, 2022).

Article By Vanessa L. Miller, Kathleen E. Wegrzyn, Leah R. Imbrogno, James R. Kalyvas, and Austin R. Kissinger of Foley & Lardner LLP

For more financial institutions and banking news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Not So Fast—NCAA Issues NIL Guidance Targeting Booster Activity

Recently, the NCAA Division I Board of Directors issued guidance to schools concerning the intersection between recruiting activities and the rapidly evolving name, image, and likeness legal environment (see Bracewell’s earlier reporting here). The immediately effective guidance was in response to “NIL collectives” created by boosters to solicit potential student-athletes with lucrative name, image, and likeness deals.

In the short time since the NCAA adopted its interim NIL policy, collectives have purportedly attempted to walk the murky line between permissible NIL activity and violating the NCAA’s longstanding policy forbidding boosters from recruiting and/or providing benefits to prospective student-athletes. Already, numerous deals have been reported that implicate a number of wealthy boosters that support heavyweight Division I programs.

One booster, through two of his affiliated companies, reportedly spent $550,000 this year on deals with Miami football players.1 Another report claims that a charity started in Texas—Horns with Heart—provided at least $50,000 to every scholarship offensive lineman on the roster.2 As the competition for talent grows, the scrutiny on these blockbuster deals is intensifying.

Under the previous interim rules, the NCAA allowed athletes to pursue NIL opportunities while explicitly disallowing boosters from providing direct inducements to recruits and transfer candidates. Recently, coaches of powerhouse programs have publicly expressed their concern that the interim NIL rules have allowed boosters to offer direct inducements to athletes under the pretense of NIL collectives.3

The new NCAA guidance defines a booster as “any third-party entity that promotes an athletics program, assists with recruiting or assists with providing benefits to recruits, enrolled student-athletes or their family members.”4 This definition could now include NIL collectives created by boosters to funnel name, image and likeness deals to prospective student-athletes or enrolled student-athletes who are eligible to transfer. However, it may be difficult for the NCAA to enforce its new policy given the rapid proliferation of NIL collectives and the sometimes contradictory policies intended to govern quid pro quo NIL deals between athletes and businesses.

Carefully interpreting current NCAA guidance will be central to navigating the new legal landscape. Businesses and students alike should seek legal advice in negotiating and drafting agreements that protect the interests of both parties while carefully considering the frequently conflicting state laws and NCAA policies that govern the student’s right to publicity.

ENDNOTES

1. Jeyarajah, Shehan, NCAA Board of Directors Issues NIL Guidance to Schools Aimed at Removing Boosters from Recruiting Process, CBS Sports (May 9, 2022, 6:00 PM).

2. Dodd, Denis, Boosters, Collectives in NCAA’s Crosshairs, But Will New NIL Policy Be Able To Navigate Choppy Waters?, CBS Sports (May 10, 2022, 12:00 PM).

3. Wilson, Dave, Texas A&M Football Coach Jimbo Fisher Rips Alabama Coach Nick Saban’s NIL Accusations: ‘Some People Think They’re God,’ ESPN (May 19, 2022).

4. DI Board of Directors Issues Name, Image and Likeness Guidance to Schools, NCAA (May 9, 2022, 5:21 PM).

Article By Jonathon K. Hance, Joshua H. Gold-Quirós, and Drew Taggart of Bracewell LLP

For more entertainment, art, and sports news, click here to visit the National Law Review.

© 2022 Bracewell LLP

Hackers Go Phishing in Beeple’s Deep Pool of Twitter Followers

“Stay safe out there, anything too good to be true is a … scam.” Beeple, a popular digital artist, tweeted to his followers, addressing the phishing scam that took place on May 23, 2022, targeting his Twitter account. The attack reportedly resulted in a loss of more than US$400,000 in cryptocurrency and NFTs, stolen from the artist’s followers on the social media website.

After hacking into Beeple’s Twitter account, perpetrators tweeted links from the artist’s page, promoting a fake raffle for unique art pieces. The links would reportedly take the user to a website that would drain the user’s cryptocurrency wallet of their digital assets.

Phishing scams for digital assets, including NFTs or non-fungible tokens, have steadily increased, with funds as large as $6 million being stolen. Various jurisdictions have adopted privacy and security laws that require companies to adopt reasonable security measures and follow required cyber incident response protocols. A significant part of these measures and protocols is training for employees in how to detect phishing scams and other hacking attempts by bad actors. This incident is a reminder to consumers to exercise vigilance, watch for red flags and not click on links without verifying the source.

The remaining summaries of news headlines are separated by region for your browsing convenience. 

UNITED STATES

Relaxed Deaccessioning COVID-19 Exemptions Expire

The global COVID-19 pandemic brought many changes, including dire financial consequences of the shutdowns for museums. In April 2020, the Association of Art Museum Directors (AAMD) made a decision to ease the rules that dictate how museums may use proceeds from art sales. Until April 2022, museums were permitted to use the funds for “direct care of collections” rather than to procure new artworks for their collections.

This relaxed policy and some of the museums that followed it met with backlash on more than one occasion; others, however, advocate for its continuation, citing considerations of diversity and inclusion. Some further argue that a policy born out of financial desperation should be continued to provide museums with the means to overcome any future financial issues that may arise.

Given that “direct care” is vague and open to interpretation, opponents of the relaxed rules counter giving museums such latitude to decide on the use of the proceeds, as it can lead to abuses and bad decisions. While AAMD has returned to its pre-pandemic regulations, and museums have followed suit, it appears that the public debate around deaccessioning is far from over.

Inigo Philbrick Sentenced to a Prison Term

Former contemporary art dealer Inigo Philbrick was sentenced by a federal court in New York to serve seven years in prison for a “Ponzi-like” art fraud, said to be one of the most significant in the history of the art market, with more than an estimated US$86 million in damages. Philbrick stood accused of a number of bad acts, including forging signatures, selling shares in artworks he did not own and inventing fictitious clients.

New York Abolishes Auction House Regulations

As the U.S. government is studying whether the art market requires further regulations to increase transparency and to combat money laundering, New York City repealed its local law that required auctioneers to be licensed and required disclosures to bidders, including whether an auction house had a financial stake in the item being auctioned. While the abolition of the regulation was ostensibly to improve the business climate after the pandemic, some commentators note that the regulations were outdated and not serving their purpose in any event. As an illustration, a newcomer to an auction will likely struggle to understand the garbled pre-action announcements or their significance. Whether the old regulations are to be replaced with new, clearer rules remains to be seen.

EUROPE

Greece and UK to Discuss Rehoming of Displaced Parthenon Marbles

The Parthenon marbles, also known as the Elgin marbles, have been on display in London’s British Museum for more than 200 years. These objects comprise 15 metopes, 17 pedimental figures and an approximately 250-foot section of a frieze depicting the birthday festivities of the Greek goddess Athena. What museum goers might not know is that these ancient sculptures were taken from the Acropolis in Greece in 1801 by Lord Elgin.

Previously, the British government, seeking to retain the sculptures, relied on the argument that the objects were legally acquired during the Ottoman Empire rule of Greece. However, for the first time, the UK has initiated formal talks with Greece to discuss repatriation of the Parthenon sculptures. These discussions are expected to influence future intergovernmental repatriation negotiations.

ASIA

Singapore High Court Asserts Jurisdiction over NFTs after Ruling Them a Digital Asset

The highest court in Singapore has granted an injunction to a non-fungible token (NFT) investor, Janesh Rajkumar, who sought to stop the sale of an NFT that once belonged to him and was used as collateral for a loan. The subject NFT from the Bored Ape Yacht Club Series is a rarity, as it depicts the only avatar that wears a beanie. Rajkumar now is seeking to repay the loan and have the NFT restored to his cryptocurrency wallet. The loan agreement specified that Rajkumar would not relinquish ownership of the NFT, and should he be unable to repay the loan in a timely manner, an extension would be granted. Instead of granting Rajkumar an extension, the lender, who goes by an alias “chefpierre,” moved to sell the NFT. The significance of the Singapore court’s decision is two-fold: the court has (1) recognized jurisdiction over assets cited in the decentralized blockchain, and (2) allowed for the freezing order to be issued via social media platforms.

THE MIDDLE EAST

Illegal Trading Leads to Raiding of Antique Dealer by the Israeli Authorities

A recent raid on an unauthorized antiquities dealer in the city of Modi’in by the Israel Antiquities Authority recovered hundreds of artifacts of significant historical value, including jewelry, a bronze statue and approximately 1,800 coins. One the coins is a nearly 2,000-year-old silver shekel of great historical significance. The coin is engraved with the name Shimon, leader of the 132–136 C.E. Bar Kokhba revolt.

Investigations are ongoing to determine where the antiquities were obtained. The Antiquities Robbery Prevention Unit intends to charge the dealer and their suppliers upon obtaining this information.

Article By Jana S. Farmer and Meenka Maharaj of Wilson Elser Moskowitz Edelman & Dicker LLP

For more entertainment, art, and sports news, click here to visit the National Law Review.

© 2022 Wilson Elser

L.A. Jury Delivers Mother of All Verdicts – $464 Million to Two Employees!

As we have previously reported, jury verdicts in employment cases have continued to skyrocket in recent months, and there is no sign they are leveling off. Late last week, a Los Angeles Superior Court jury awarded a total of over $464 million ($440 million of which was in punitive damages) in a two-plaintiff retaliation case. This verdict is more than double any previous amount ever awarded and clearly qualifies as the largest verdict of its kind since the Fall of the Roman Empire.

The plaintiffs alleged they were retaliated against for making complaints about sexual and racial harassment in the workplace, directed at them and other coworkers, leading to their being pushed out of the company.

One plaintiff brought complaints to management about the alleged sexual harassment of two female employees and claimed he was constructively discharged after being subjected to retaliatory complaints and investigations from other supervisors.  The other plaintiff made anonymous complaints to the internal ethics hotline about the racial and sexual harassment of both himself and other coworkers.

After a two-month trial, the jury awarded one plaintiff $22.4 million in compensatory damages and $400 million in punitive damages and awarded the other plaintiff $2 million in compensatory damages and $40 million in punitive damages.

This latest verdict comes on the heels of a judge reducing another huge December 2021 verdict from a Los Angeles Superior Court jury (which we wrote about here) that awarded $5.4 million in compensatory damages and $150 million in punitive damages to a fired insurance company executive who alleged discrimination and retaliation. The judge ordered a reduction in the verdict to $18.95 million in punitive damages (or, in the alternative, a new damages trial) on the grounds that the prior verdict involved an impermissible double recovery ($75 million each from two Farmers Insurance entities) and a presumably unconstitutional ratio of punitive damages to compensatory damages (a ratio exceeding 9 or 10-to-1 is presumed to be excessive and unconstitutional, and the ratio, in that case, was 28-to-1).

Only time will tell if this $464 million verdict stands. In the meantime, our advice to employers worried about these gargantuan verdicts remains the same: ARBITRATE!

Article By Anthony J Oncidi and Morgan J. Peterson of Proskauer Rose LLP

For more labor and employment news, click here to visit the National Law Review.

© 2022 Proskauer Rose LLP.

Alcohol Suppliers Hit with ADA Website Accessibility Lawsuits

The increasing popularity of online shopping is placing e-commerce businesses—specifically those in the alcohol beverage industry—in legal crosshairs. In lockstep with a recent uptick in website accessibility cases, plaintiff firms are sending pre-suit demand letters to alcohol suppliers and, in some cases, even filing a state or federal court lawsuit. These lawsuits—which are typically filed in California or New York—involve claims that a supplier’s website is not accessible to individuals who are blind in violation of Title III of the Americans with Disabilities Act (ADA) and related state laws. In these cases, plaintiffs seek attorneys’ fees, damages (only under state law) and injunctive relief that would require the website to conform with the Web Content Accessibility Guidelines (WCAG) standards, which have been broadly adopted by courts and regulators.

To prevail on a website accessibility claim, plaintiffs must first show that a defendant is a private entity that owns, leases or operates a “place of public accommodation.” Courts, however, are split on what it means for a website to be considered a place of public accommodation under Title III of the ADA. While some jurisdictions require that there be a “physical nexus” between the website and a brick-and-mortar store, other jurisdictions have permitted these cases to go forward against a website-only company that does not own or operate any physical retail location.

In addition to establishing that the supplier’s website is a place of public accommodation, the plaintiff must satisfy certain jurisdictional requirements which will depend upon whether products can be purchased directly from the website as well as whether the supplier ships to the state in which the suit was filed. Leveraging these defenses (among others) will be critical when it comes to either convincing the plaintiff to withdraw the claim, filing a motion to dismiss or achieving an early resolution on favorable terms.

Due to the rise in these website accessibility lawsuits, we encourage industry members to take a proactive approach:

  1. Train personnel on accessibility requirements and WCAG standards.
  2. Test the website against WCAG standards (through independent consultants or user testing).
  3. Retain testing documentation to demonstrate that users with disabilities can fully use the website.
  4. Assess potential areas of non-conformance with WCAG standards.
  5. Work with internal/external technical teams to implement accessibility features into the website.
  6. Develop an accessibility policy that informs users about the company’s accessibility practices.
  7. Consider including a link to the website accessibility policy on every webpage, including a reporting option that is appropriately routed to address accessibility issues.
  8. Regularly audit the website to assess its level of accessibility (particularly after website updates).
  9. Engage legal counsel to minimize litigation risk associated with website accessibility issues, including whether the ADA is applicable to the company’s website in light of the current state of the law.

Article By Jeremy White and Alva C. Mather of McDermott Will & Emery

For more biotech, food, and drug news, click here to visit the National Law Review.

© 2022 McDermott Will & Emery