Taking Care of Business – Emerging legal issues impacting the business community.

01 Jul

Evidence of Lack of Adequate Compliance Systems Sufficient to Plead Bad Faith by Board

Summer is usually the best time of year for ice cream companies, but the season is off to a rough start for Blue Bell Creameries, USA, Inc. The Delaware Supreme Court, in Marchand v. Barnhill, held on June 18 that a suit brought by a stockholder of Blue Bell, in part accusing the company’s directors of violating their duty of loyalty to stockholders in their handling of a listeria outbreak in 2015, could continue based on adequate pleading of facts demonstrating bad faith. The ruling was a reversal of a Court of Chancery decision. (more…)

25 Jun

Healthcare Executive Order Suggests Changes Are Coming

By: Stephen Bowers

On June 24, 2019, President Trump issued the “Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First” (the Order). The Order directs several executive agencies to issue regulations, primarily surrounding issues related to price transparency and controlling healthcare costs. The Order indicates that the intent is to increase consumer engagement and improve the “shoppability” of certain healthcare services. Although parts of the Order are directly aimed at healthcare providers, the text suggests that some of these changes will be more broadly relevant. (more…)

18 Jun

Rules Finalized Permitting Employees to Buy Individual Health Insurance Plans through HRAs

By: Dana Petrillo

On June 13, 2019, the U.S. Departments of Health and Human Services, Labor and the Treasury issued final rules that will expand the use of health reimbursement arrangements (HRAs), which are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. The unpublished final rule is scheduled to be published on June 20, 2019, after which it can be found at the Federal Register. (more…)

18 Jun

Delaware Chancery Court Addresses the Seller’s Preservation of Privilege Post-Closing

By: Marc Casarino and Ryan Udell

Preserving privilege with respect to pre-closing communications between a selling corporation’s counsel and its management is an important negotiation point in many transactions, so that the seller can prevent the buyer from using such communications against the seller in disputes between the buyer and the seller, but the buyer can continue to assert that privilege in disputes with third parties. The default rule under Delaware law is that the privilege passes to the buyer post-closing. More specifically, section 259 of the Delaware General Corporation Law provides, in part, that “all property, rights, privileges, powers and franchises” shall pass to the surviving corporation. However, the parties may negotiate around this provision in the transaction documents according to the Delaware Court of Chancery’s decision in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP.[1]

(more…)

17 Jun

Designing Tax Efficient Business Transactions

By: Carl Koerner

There is an old joke that a camel is a horse that has been designed by a committee. We all know that it isn’t true. In fact, camels are horses that have been bred for maximum tax efficiency. Tax efficiency is the benign term that we use for the tortured process of restructuring a business arrangement to minimize taxes—all taxes, including income, sales, estate, gross receipts, federal, state, city and foreign. When you realize how many taxes there are and how many jurisdictions impose them, the camel design looks pretty sleek. (more…)

13 Jun

IRS Ends Certain State Workarounds to SALT Deduction

By: Franca Tavella

On June 11, 2019, the IRS issued final regulations that will prohibit taxpayers from using state programs to sidestep state and local tax (SALT) deduction limitations. The SALT deduction, which has been in existence for over 100 years, has historically allowed high-income taxpayers to deduct certain state and local property, income and sales taxes on their federal tax returns without limitation. However, the Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000 per return for single filers, head of household filers, and married taxpayers filing jointly (the cap for married taxpayers filing separately is $5,000). As a result, states with relatively higher tax burdens – such as New York, Connecticut and New Jersey – developed various programs to help their residents circumvent the $10,000 SALT cap. For example, a taxpayer in New York could contribute to a charitable fund created by the State for educational or other purposes in return for a state income tax credit and the ability to separately deduct the entire charitable contribution on their federal tax return.

(more…)

03 Jun

IRS Updates Employee Plans Compliance Resolution System

By: Stephen Bowers

Recently, the IRS updated the Employee Plans Compliance Resolution System (EPCRS), a voluntary compliance program that allows employer sponsors of qualified plans, such as 401(k) and 403(b) plans, to correct administrative or operational errors for a reduced user fee or, in some circumstances, without any fee or fine paid to the IRS. The updated program significantly expands the availability and utility of EPCRS. (more…)

31 May

Cannabis and Cannabis-Derived Compounds: FDA Announces Public Hearing and TTB Issues Industry Circular

By: Ryan Udell and William L. Doerler

In late 2018, President Trump formally signed the Agricultural Improvement Act of 2018 (2018 Farm Bill) into law, and in turn declassified hemp as a Schedule 1 substance under the Controlled Substances Act (CSA). Hemp is defined, in part, as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof, with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis. Thus, cannabis plants and derivatives that contain no more than 0.3 percent THC – the ingredient attributed with marijuana’s psychoactive effects – are no longer controlled substances under Federal law. The change in the law renewed interest in developing and marketing products containing cannabis and cannabis-derived products, including products containing hemp and cannabidiol (CBD), another cannabis component. (more…)

30 May

Termination of Buyback Option Not a Fraudulent Transfer

By: Thomas Pinney and Heidi Sorvino

In In re Pazzo Pazzo, Inc., Judge John K. Sherwood of the United States Bankruptcy Court for the District of New Jersey (Newark) held that the pre-petition termination of a buyback option pursuant to the terms of a real estate lease which contained the option did not constitute a fraudulent transfer under §548 of the U.S. Bankruptcy Code. While this may sound like common sense, the decision actually required the bankruptcy court to do some analysis and reconcile what appeared to be several contrary decisions. (more…)

22 May

Delaware Chancery Court Relies Upon Judicial Dissolution Power to Break Management Deadlock

By: Lori Smith and Patrick Devine

Shareholder agreements and operating agreements contain a variety of knobs and levers, many of which a company’s founders hope never to invoke. Chief among them are the provisions for resolving disputes or deadlocks in decision-making on fundamental matters and the dissolution provisions. The former sets forth the roadmap for dealing with situations where there is disagreement among the decision-makers regarding actions fundamental to the business and operations of the company, and the latter sets forth the means and methods for disbanding the company and winding up its affairs (generally based on a vote of the stakeholders). Under ordinary circumstances, when a company’s end is near, its constituents amicably initiate the dissolution process without court intervention. However, on rare occasions, they may find themselves in an intractable deadlock as to whether dissolution is necessary or appropriate. Thus, one faction may ask a court to dissolve the company by judicial decree, while another faction may oppose that request. The Delaware Chancery Court visited upon one such occasion in the case of Acela Investments, LLC v. DiFalco. On May 17, 2019, the court issued its Acela decision, which offers a rare example of the circumstances under which the court may invoke its judicial dissolution powers.

(more…)

Recent Posts