The New York Law Blog: 2016
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Tuesday, December 20, 2016

Merry Christmas and a Happy Holidays to all our Clients and Friends


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*Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team and Chair of International Practice Group at IPG Legal.  He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.  Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  He has, also, received the highest rating by AVVO and other legal rating services.


Friday, November 18, 2016

New York Franchisors: Start Thinking About Filing Your NYS Tax Documents

NY Franchise Law, NY Tax Law
With the new year fast approaching, franchisors in New York should beginning focusing on updating their franchise disclosure documents, renewing their franchise registrations. However, NY franchisors should not forget that it is required to file certain tax documents.

The reporting requirement applies where the franchisor-franchisee relationship falls within the broad franchise definition under the New York franchise statute. The statute was created so that New York tax authorities can verify state tax filings submitted by New York franchisees so that the franchisor's filing matches what the franchisee disclosed.

Franchisors in New York that have at least one franchisee doing business in New York are required to register as a sales tax vendor and must file information returns with the New York State Department of Taxation and Finance. The reporting period is from March 1 to February 28 of the subsequent year. The returns are due on March 20. You must file even if the franchisee made no sales in New York during the filing period.

New York franchisors must report specific information, including the identity of, and payments made to, each of your franchisees doing business in New York and certain sales and payment related information. For example, New York franchisors must include the name of each franchisee and the gross sales in New York State for each franchise location as reported to you.

The New York State Department of Taxation provides online filing capability to New York franchisors through its website. Franchisors need only create an online filing account to access the system and follow the instructions provided on the website.

Penalties of up to $10,000 may be imposed for failure to comply with the reporting and information requirements.

If you are unsure of the requirements inposed by the NYS Department of Taxation and Finance onto franchisors in New York, we strongly suggest contacting our attorneys who can help you navigate the process.
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*Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team and Chair of International Practice Group at IPG Legal.  He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.  Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  He has, also, received the highest rating by AVVO and other legal rating services.

*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Thursday, November 17, 2016

How To Effectively Draft A Clear Statement of Work That Meets Your Needs

NY Business Law, Business in NY
When hiring a business in connection with a project, it is important that all parties create and agree to a clear and precise Statement of Work so there is no misunderstanding about the necessary benchmarks and deadlines involved.

A Statement of Work (SOW) is a formal document entered into by parties involved in a project that specifies in clear, understandable terms the work to be done in developing or producing the goods or services to be delivered or performed by a contractor. It captures and defines the specific work to be performed for a client, deliverables, and a timeline that a vendor or contractor must execute.

A SOW needs to contain the material terms of what needs to be done in as definitive and precise a manner as possible. The purpose of a SOW is to detail the work requirements for projects and programs that have products, deliverables and/or services performed. The SOW also includes detailed requirements and pricing, along with standard industry terms and conditions.

Generally, there are the following three major types of SOWs:
  • Design Based SOW – This type of SOW tells the supplier how to do the work. The statement of work defines buyer requirements that control the processes of the supplier.
  • Level of Effort SOW – This SOW type can be written for almost any type of service. The deliverable in this type of SOW are the number of hours of work performed; and
  • Performance Based SOW – In this kind of SOW, the seller is given the freedom to determine how to meet the buyer’s requirements. This generally includes 3 parts:
    • Scope of work
    • Applicable Documents 
    • The arrangement of technical tasks and sub-tasks required
Typically, every type of SOW will contain:
  • Who pays the costs;
  • The timeline for payment;
  • A description of all deliverables and when they are expected;
  • The tasks and sub-tasks required by the project;
  • Who will perform those tasks and sub-tasks;
  • The project’s governance process and management structure;
  • The resources and materials required for the project; 
  • The facilities to be used; 
  • The equipment needed; and
  • A timetable with different benchmarks covering when each deliverable, task or sub-task should be completed. 
Often, payment information is made contingent upon successful completion of certain tasks and / or benchmarks. Full payment is not be made until both sides agree that the project is complete and all deliverables meet agreed-upon specifications.

When writing a SOW, we recommend the following:

Be clear. Specificity in describing the project’s scope and requirements is key. Make sure benchmarks are clearly connected to completion of necessary tasks. This not only clarifies your expectations, but will helpful to an attorney should a breach occur that needs to be litigated.

Keep it simple.  Keeping the language of the SOW as simple as possible will promote the clarity we just discussed. Avoid using legal terms and technical jargon. Use drawings, illustrations, diagrams, charts, pictures, tables, and graphs if they clearly improve the communication in describing the requirements.Your goal should be to create a document everyone can understand.

Utilize Expertise Around You. When distilling technical matters into simple terms, check with your technical and legal experts to make sure you are expressing what you mean to the utmost. Ultimately, the task of writing a SOW should fall to those experts working as a team.

Following these steps increase the likelihood of successfully completing a Statement Of Work that best reflects your needs.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Tuesday, November 15, 2016

Types of Investors That Can And Cannot Participate in SEC Regulation D Private Offerings

NY Securities Law, NY Corporate Law
Start-up companies looking for investment capital must understand the classification of investors that can and cannot partake in private offerings.

Under the Securities and Exchange Commission's Regulation D, an organization may issue a private offering of stock to raise funds without officially registering to “go public." We discussed the nature of Regulation D offerings, which are also called "private placements" in an earlier blog post.

As will be discussed below, only certain types of investors may participate in a Regulation D offerings. To understand why the SEC encourages certain kinds of investors over others, it is important to understand the different types of investors in the market:

Accredited Investor: This is defined as an individual that has made $200,000 or more on an annual basis for the past two out of three years and is likely to make that same amount this year. Alternatively, an accredited investor can fail to meet the income threshold, but qualify if s/he has a net worth of over $1 million, excluding any primary residence. The investor can “self-certify” that they are accredited in most circumstances, but in the case of a private offering using Rule 506(c), the investor must be certified by the issuing company or a qualified third party.

Non-Accredited Investor: A non-accredited investor is simply everyone else that is not an accredited investor. In many cases, start-up companies want to accept investor dollars from friends and family that are interested in supporting the owners who are, often, non-accredited but still want to participate. Rule 506 (c) forbids such investment outright, but another Regulation D rule, Rule 506(b), allows non-accredited investment as long as the investors are "sophisticated" and the start-up raising the money has no more than 35 of them investing in the offering.

Sophisticated Investor: A sophisticated investor is a non-accredited investor that has superior knowledge of business and financial matters. For example, it could be a CFO, CPA, accountant, business owner, banker or some other financial professional. This definition leaves room for interpretation by the offering company, so it is important to define what "sophisticated" means to you and to be able to back up your own definition in case the SEC were to ask why you thought a certain investor was "sophisticated."

The reason why start-up businesses need to understand these definitions is because, under Regulation D, there are several rules under which your private offering can be issued. The SEC encourages or, in some cases, requires companies to work with accredited investors when raising capital through a private offering.  However, the rules also give room for a certain number of non-accredited investors to participate so long as disclosure requirements are met. As discussed earlier, in Rule 506, any non-accredited investor must be a sophisticated investor.

Private offerings are  an excellent source of capital, but make sure you are following the guidelines carefully so that you can stay within compliance. Hiring an experienced attorney will manage your investment rounds expertly.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Monday, November 14, 2016

The Three Types of Franchises Available To Entrepreneurs

NY Franchise Law, Business in NY
If you are serious about investing in a franchised business, then you should educate yourself on the types of franchises that exist in the market.

There are many ways to differentiate between different types of franchises, such as size and geographic location, but there are also different types of franchises that entrepreneurs should know:
  • Business Format Franchises: In business format franchises, a company expands by supplying independent business owners with an established business, including its name, products, rules and trademarks. The franchisor generally assists the independent owners in launching and running their businesses. In return, the business owners pay fees and royalties to the franchisor. In most cases, the franchisee also buys its business supplies from the franchiser or from approved vendors. Fast food restaurants are good examples of this type of franchise. 
  • Product Franchises: Also called a "trade name franchise," product franchises involve the sale and / or manufacture of products and the business model covers the overall management of the sale of these products. A franchisor supplies a product family to a franchisee who may also take on the identity, branding and intellectual property of the franchisor. To obtain these rights, store owners must pay fees or buy a minimum amount of products regularly. Exclusive brand-name stores are usually product franchisees.
  • Manufacturing Franchises: A manufacturing franchise is any business that uses components, parts or raw materials to make a finished good. These finished goods can be sold directly to consumers or to other manufacturing businesses that use them for making a different product. This type of franchise is common among food and beverage companies where the franchisor supplies the ingredients and the manufacturers mixes and packages the final product and / or distributes it for sale. For example, soft drink bottlers often obtain franchise rights from soft drink companies to produce, bottle, and distribute the final product. 
There also exists various franchise types depending on the level of franchise opportunities provided, but, all in all, these three basic types comprise the vast majority of the type of franchise opportunities available.

Obviously, most entry-level budding entrepreneurs gravitate towards business format franchises, as both product and manufacturing franchises require significant established infrastructure in place to manage the franchise. No matter what type of franchise type you may be considering, it is best for whatever business you are building to contact a lawyer in the formative stage of your business plan. 
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Friday, November 11, 2016

Purchase A Franchise Or Start Your Own Business: Six Factors For Your Consideration

NY Franchise Law, Business in NY
Choosing between purchasing a franchise and starting your own business is one with promise and peril on both sides that must be considered.

Weighing the pros and cons of purchasing a franchise against starting a non-franchised business begins with some self-reflection. If you are an independent person that likes to experiment or wants to blaze your own trail, a franchise with rigorous systems and proscribed rules is probably not for you. If you want to run a business, but do not know where to begin, a franchise with its own infrastructure established may be the right move for you. Of course, your initial budget is another factor to weigh.

Beyond the above introspection, the pros and cons of franchise business versus non-franchised business in terms of both investment and goals for starting a business must be considered:
  1. Branding: The reason consumers are guaranteed a consistent product when walking into a fast food franchise regardless of location is because franchises demand uniformity and are often structured to be replicated. These traits allow business owners to have a built-in customer base that is familiar with the products and brands through the franchise's past years of marketing. On the other hand, non-franchised businesses must create its brand awareness and identity from the ground up. 

  2. Control: Prospective non-franchised small business owners tend to want control over every detail of their burgeoning business. That means developing branding, products, operating systems and intellectual property - and doing so on a trial-and-error basis. When starting a franchise, the prospective franchisee signs an agreement with rules laid out by the franchisor that must be followed. That is because franchisees are awarded a license to use the franchisor's brand name, system, equipment and intellectual property that is a "business-in-a-box" perfected over many years. 

  3. Competitive Edge: For non-franchised small business owners, all that trial-and-error development costs time and money. For franchisees, your franchisor has refined the business model and operations, which passes savings down to you. Franchises have established hundreds of units in the marketplace, which allow franchisees to open the business faster than non-franchised business owners. Also, vendors may feel more comfortable doing business with McDonald's than they would with Joe's Burgers because vendors are more likely to do so as well. This also translates to faster ROI (return on investment) for franchisees, who benefit from the ready-made customer base. 

  4. Start-Up Costs: All new businesses require startup capital for space, equipment and personnel. While starting your own non-franchise business can cost less than buying a franchise, many franchisors have established relationships with lenders that look more favorably upon the brand than an independent business owner with an unproven track record.

  5. Support: When you start your own business, you must learn all these things on your own, with "rookie mistakes" part of the learning curve. Franchisors provide new franchisees with extensive training in every aspect of their new business, from flipping burgers to which point-of-sale system to buy. And many offer advanced training to help you stay on top of your business as it grows. That is not to say that non-franchised business owners is left alone. Small business owners can join their local Chamber of Commerce or other local business organizations and associations.  

  6. Exit Plan: Starting a non-franchised business has high risk, but also high reward. Selling a successful non-franchised business can be very lucrative, but the pool of potential buyers may be more limited than an known quantity like a franchise business. However, as discussed in our blog about succession rights in a franchise business, franchisors may have a structured system that must be followed in order to groom a potential buyer. However, franchisees should also be able to sell the business back to the franchisor. 
Whether you are buying a franchise or starting your own business, going into business for yourself is a major life decision that you should consult a business attorney that can guide you through these and other considerations. 
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Thursday, November 10, 2016

New York Franchisees Should Keep Franchisors In The Loop On Succession Planning

NY Franchise Law
New York franchisees interested in succession planning must be made aware of the effect a lifetime transfer of a business has on estate planning.

Transfers without consideration during one’s lifetime are considered gifts under federal and state tax law. From an estate tax perspective, gifts reduce the estate tax threshold of the person making the gift and after death, that person’s estate would have to pay taxes on the amount of the estate that exceeds the estate tax threshold. However, with advanced preparation, a franchisee interested in succession planning can implement a plan to minimize tax burdens.

Franchisees are responsible for finding a buyer when they want to sell their franchises. Succession planning may involve a franchisee identifying a successor such as a family member or key employee. In these circumstances, and depending upon the terms and conditions of the particular franchise agreement, the franchisor may be granted limited time and opportunity to evaluate and approve the buyer or successor.

After approving the transaction, it is advisable for both franchisor and franchisee to work jointly to educate and train the successor in operating a successful franchise. The franchisee should make sure the successor understands the customer base and market area.

Having a franchisor work with its existing franchisees on succession planning, rather than merely reacting to a pending transaction help avoid complications. If, for example, a franchisor has its own succession program, this may be an indication that the franchisor is willing to working with franchisees to their mutual benefit. Any franchise succession plan considers how best to accomplish a transfer in accordance with the franchisor’s requirements. Typically, franchise agreements limit a franchisee’s ability to transfer the franchise and in many instances give the franchisor an option to acquire the franchise. That option, if exercised, would defeat the franchisee’s goals of passing on the franchise to the next generation.

A smart succession plan involves getting the franchisor on board early in the process so that the franchisor can become comfortable with the future operators of the franchise. Proper planning includes grooming successors for management and facilitate relationships between them and the franchisor, creditors, vendors and employees. That planning should start sooner rather than later.

A business operator interested in planning for the next generation would be wise to consult with a knowledgeable attorney early on in the process so that all interested parties undertake a smooth transition.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Wednesday, November 9, 2016

Maximum Rates Of Interest Allowed On Private Loans In New York

NY Business Law, Business in NY
New York business owners on the lookout for financing should know how much interest they can be charged on private loans made by persons or entities other than banking institutions or credit card companies.

Charging interest rates that exceed the state maximum allowed by law is called usury (also commonly referred to as "loansharking"), which is illegal. When it comes to determining at what rate a particular interest charge becomes actionable on a civil basis (where a borrower can object to the terms of the loan), and at what rate the charge may actually expose the lender to criminal liability, New York law can be a little complicated. Usury laws in New York, regulate the maximum interest rate a person or entity may be charged on a money loan. The applicable laws are the General Obligations Law and the Banking Law, which set civil law limits, and the NY Penal Law, which sets criminal law limits.

Under these laws, if a private loan exceeds the maximum "civil" usury rate, then the entire loan is considered void, and the lender may be denied the right to recover interest as well as principal. Additionally, the borrower may maintain an action for the return of interest payments previously made. If the loan exceeds the maximum "criminal" usury rate under New York law, then the lender may be prosecuted for committing a felony.

New York laws create a tiered system based upon the nature of the borrower and the size of the private loan:

  • For private loans made to individuals that do not exceed $250,000, the maximum annual "civil" interest rate is 16%.  The maximum "criminal" interest rate is 25%. 
  • For private loans made to individuals that are between $250,000 and $2.5 million, there is no maximum "civil" rate. There is a 25% maximum "criminal" rate. 
  • For private loans that exceed $2.5 million, there is no maximum "civil" or "criminal" interest rate. 
  • For private loans made to corporations that do not exceed $2.5 million, there is no maximum "civil" interest rate, but there is a 25% maximum "criminal" interest rate.  For loans that exceed $2.5 million, there is no maximum "civil" or "criminal" interest rate.  

States other than New York may have their own statutory and common-law rules and standards for usury. Therefore, we suggest that you obtain advice from a knowledgeable attorney in the event that a legal question arises concerning that the interest charges in a particular private loan transaction is usurious,
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Tuesday, November 8, 2016

Validity and Enforceability of Electronic Signatures

NY Business Law, Business in NY
Federal law governs when the use of an electronic signature is valid and enforceable.

The Electronic Signatures in Global and National Commerce Act (also called ESIGN Act) defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with intent to sign the record.”

This definition covers a lot of ground, as businesses use different means, methods and technologies that create electronic signatures, including:
  • Check boxes or buttons that state you agree to certain terms and conditions;
  • PIN numbers or passwords;
  • Signing an electronic keypad; or
  • A graphical representation, image or a scan of a handwritten signature.

The ESIGN Act protects the validity and enforceability of signatures made electronically, including:
  • A signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and
  • A contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

The ESIGN Act does not apply to:
  • Wills, trusts, and codicils;
  • Termination of utility services;
  • Termination of health or life insurance;
  • Family matters, such as adoption and divorce;
  • UCC transactions, unless allowed by other statutes;
  • Notices of default, foreclosure or eviction;
  • Product recalls; and
  • Documents related to the transportation of hazardous materials.

The laws of electronic signatures also apply to email. Parties can create enforceable agreements through email if the email sets forth the material terms of the agreement and clearly shows that both parties intended to agree to those terms. In order to have a valid electronic signature in an email, the signature should show a manual input entered by a person who intended to agree.

Examples of electronic signatures in emails are:
  • The use of the symbols "/s/" in addition to a person's name; 
  • Using a unique method to enter the signer’s name, such as an uncommon cursive font or script; or
  • A graphic representation or image of the signer’s name or signature.

Under the ESIGN Act, parties are not compelled to accept electronic signatures if the parties prefer traditional methods of signatures. Thus, the ESIGN Act requires that the parties consent to enter into the transaction through electronic means.

The ESIGN Act  requires the signer show an intent to sign the record. That means whoever signs electronically should be able to confirm his identity and the “intent to sign.” Since the ESIGN Act requires intent to sign the record, any evidence that shows lack of intent helps the signer avoid liability in the event of unauthorized use of the electronic signature.

New York businesses must carefully control and monitor the use of electronic signatures. They should only be available to a limited number of persons that are authorized to bind the business to an agreement. Those persons should clearly state in any electronic communication that they do indeed have such authority. There should be a business record that confirms who has such authority created so that there is no confusion down the road should there be an unauthorized use of an electronic signature.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Monday, November 7, 2016

Using Partition Actions To Settle Disagreements Between Co-Owners of Property In New York

NY Real Estate Law, NY Property Law
When co-owners of property in New York have disputes and cannot agree on what to do with their property, the parties can obtain a partition.

Under New York Law, a partition is a remedy available to any person who is a co-owner of property. Specifically, under N.Y. Real Prop. Acts. Law § 901, the following people may lawfully apply for a partition:
  1. A person holding and in possession of real property as joint tenant or tenant in common, in which he has an estate of inheritance, or for life, or for years, may maintain an action for the partition of the property, and for a sale if it appears that a partition cannot be made without great prejudice to the owners.

  2. A person holding a future estate as defined in sections forty, forty-a or forty-b of the real property law or a reversion as joint tenant or tenant in common may maintain an action for the partition of the real property to which it attaches, according to his respective share, subject to the interest of the person holding the particular estate, but no sale of the premises in such an action shall be made except with the consent in writing, to be acknowledged or proved and certified in like manner as a deed to be recorded, of the person owning and holding such particular estate. If partition or sale cannot be made without great prejudice to the owners, the complaint shall be dismissed; dismissal shall not affect the right of any party to bring a new action after the determination of such particular estate.

  3. A person entitled as a joint tenant or a tenant in common by reason of his being an heir of a person who died holding and in possession of real property, may maintain an action for partition, whether he is in or out of possession, notwithstanding an apparent devise to another by the decedent, and possession under such a devise. The plaintiff shall establish that the apparent devise is void.

  4. In the event the estate of a decedent is the owner of an estate in common in real property, the executor or administrator may bring a partition action or intervene in a pending partition action on behalf of the estate if, upon application duly made, the surrogate approve
There are two ways to effectuate a partition of real estate in New York:
  1. the parties can come to an agreement for voluntary partition with the aid of their lawyers, or 
  2. they can file a partition action in NY to get a judicial ruling on the division of land. 
A partition can be effectuated in two different way. A partition in kind physically divides the property so that each party has their own portion which they hold as sole owner. A partition by sale, which is the most common form of partition in New York, is when the property at issue is sold at auction and the co-owners divide the proceeds among them.

A partition action must divide the premises according to the type of tenancy that the parties originally had when they took ownership of the property. There are two main types of joint tenancies in New York. If the parties petitioning for a partition were tenants in common, then they can divide the property according to the percentage that each party contributed to the original acquisition of the property or according to the contractual agreement governing the ownership.

In a tenancy in common, the parties each own the property with interests according to the amount that they contributed to its purchase. In a joint tenancy, two or more tenants own the property in equal shares and, depending upon the language in the deed, may have rights of survivorship. If the parties petitioning for a partition were joint tenants, then they must divide the property equally between the owners.

Regardless of the type of tenancy, any mortgagor or lender with a lien on the property in the amount of the outstanding loan must be satisfied before the parties can divide, transfer, or sell the property because New York is a lien theory state.

In a judicial proceeding for a partition, a joint tenant or tenant in common establishes his / her entitlement to a partition by demonstrating his / her ownership and right to possess the property at issue. The remaining issue to determine is whether the equities favor the defendant's refusal to partition the property. It goes without saying that a judicial proceeding for a partition is an action that must be handled by an experienced property attorney.

Although voluntary partitions require far less litigation and court time than a judicial partition, the parties still need New York partition action lawyers to represent their interests and ensure that their property rights are protected throughout the partition negotiation process with the other owners.

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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Thursday, November 3, 2016

Asset Purchasers Beware: Avoid New York's Successor Liability Pitfalls

NY M&A Law, NY Business Law
When buying or selling a business or any of a business's assets under New York law, potential successor liability of the buyer is a primary concern.

Successor liability means liability that the buyer of a business’s assets may have for the acts or liabilities of the seller of those assets performed prior to the purchase. Essentially, a buyer would be compelled to pay off debt that the seller accumulated prior to completion of the transaction. The general rule in New York is that the buyer of a business’s assets does not assume and is not liable for the seller’s liabilities unless otherwise expressly stated in the purchase and sale agreement.

However, there are exceptions:

1. Express or Implied Assumption by Buyer. This exception requires that either the asset purchase agreement explicitly states on its face that a buyer assumes some or all of the seller’s liabilities or that some action by the buyer implies an intention to assume the seller's liabilities in whole or in part. However, the opposite is also true. Express language in the agreement stating that a buyer will not be responsible for seller’s liabilities indicate no express or implied assumption of Seller’s liabilities. Thus, it is important to any buyer of business assets in New York make a clear writing about assumption of seller's liabilities.

2. De Facto Merger Doctrine. Under New York Law, the "de facto merger doctrine" creates successor liability when the asset purchase is a merger in substance, if not in form. A court will find successor liability under the de facto merger doctrine when:
  • the owners of the seller continue operations as the owners of the buyer; 
  • the seller discontinues its operations or dissolves soon after completion of the the asset sale;
  • the buyer assumes liabilities necessary for the uninterrupted continuation of the acquired business's operations; and 
  • there is substantial continuity of the seller’s management team, physical location, assets and general business operation.
3. Fraud. Courts look for some indication of fraud to determine whether a transfer of business assets was a fraudulent attempt to evade creditors. Examples that would lead a court to find a fraudulent intent include finding a close relationship among the parties to the transaction, inadequacy of consideration, the use of dummy or fictitious names, or a secret or hasty transaction not in the usual course of business.

The best protection from successor liability is a clearly drafted agreement written by experienced business attorneys who know the applicable law in the jurisdiction.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Wednesday, November 2, 2016

Common Types Of U.S. Patents Available To Innovative New York Entrepreneurs

NY IP Law, NY Business Law
The common types of U.S. patents that are available to innovative New York entrepreneurs seeking to protect their valuable intellectual property fall into three common categories based on the type of invention in question: design, utility and plant patents.

Most patents the average person comes across are utility patents, which involve the creation of a new process or equipment/machine. They are chiefly concerned with how an invention functions. A utility patent may be applied to a wide range of unique and innovative new products or processes. It prevents others from manufacturing, selling, using or distributing your invention. Utility patents last for 20 years running from the date that the patent application was filed. In addition to the initial patent filing fees, inventors must submit maintenance fees throughout the life of the patent in order to keep the patent’s protection.

Design patents are any enhancement or adornment applied to an existing item or the design for a new product. It protects its aesthetic appearance and can be issued for the appearance, design, shape or general ornamentation of an invention that are new, specific and not obvious. Design patents prevent others from using, selling or manufacturing the appearance of your product.  A design patent is good for 14 years from the date the patent was granted. There are no maintenance fees associated with a design patent, and the patent is sustained without question once it is issued. A prime example of a design patent is when Microsoft received one for the “X” on its XBox product because it was deemed a unique appearance that would have harmed Microsoft’s business if copied.

A third but less common patent than the first two is the plant patent. Plant patents are available for the discovery or invention of plants that are asexually reproduced. They must be novel, distinct and not obvious. Plant patents have a 20-year lifespan that does not include maintenance fees. This type of patent was created in order to protect the grower who found a new variety of plant through, for example, grafting. Hybrids (though not first-generation) can have plant patents, which prevent others from growing and selling the plants. An example of a plant patent would be the "fire and ice" hybrid rose that florists sell.

No matter what kind of patent you are considering filing, it is imperative to seek legal help from a qualified, experienced lawyer who can make the process substantially faster and easier.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Tuesday, November 1, 2016

Factors To Consider When Creating Non-Compete Agreements

NY Business Law, NY Employment Law
Drafting a non-compete agreement can be tricky if you do not consider legal factors that will make or break the document.

Business in New York can be highly aggressive, and relies, in part, upon a business's ability to protect valuable information disclosed to current and past employees. Many companies feel that implementing non-compete agreements and other contractual obligations will encourage employee retention overall and protect information should an employee leave. It is important for New York businesses to understand, however, that there are restrictions to when and how non-compete agreements can be enforced.

Traditionally, non-compete agreements are used in companies and industries involving sensitive proprietary information and/or trade secrets. Non-compete agreements are commonly found across many industries regardless of size or products or services offered. They can take many forms depending on the information to be protected, including confidentiality agreements (prohibiting use or revealing information) and non-solicitation agreements (prohibiting approaching customers, poaching employee or contacting vendors). However, courts can find that non-compete agreements are invalid if they overreach in protecting a company's information.

The validity of a specific non-compete agreement is taken on a case-by-case basis.
  1. The employer must prove that the non-compete agreement is necessary and relevant for the position and industry in question. That includes articulating the potential harm to the employer should a breach occur. 
  2. The contract must draw clear, realistic boundaries for any prohibited competing territory.
  3. The contract must also draw a definite time period. 
  4. The employer must limit the impact on the affected employees and the agreement's impediments to their future employment. The agreement should not negatively impact the commercial market or compromise the employee’s livelihood.
The issue with drafting non-compete agreements is determining what is "reasonable" with regards to each consideration. While we suggest that you to read our previous posting on how to create a valid non-compete clause in New York, which provides a sense of what New York jurisprudence considered "reasonable," nothing can substitute the advice of an attorney that reviews the specific facts and circumstances of your given situation.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Monday, October 31, 2016

New York Businesses With Multiple Owners Should Create A Buy-Sell Agreement

NY Business Law, Business in NY
When there is more than one owner of a New York business, creating a buy-sell agreement can save time and money when the eventual change in ownership occurs.

New York business owners know that circumstances can change at a moment's notice. That is why ensuring that your business is prepared for whatever waits around the corner is crucial. Part of being fully prepared is having a buy-sell agreement in place.

New York businesses of all forms and sizes with more than one owner should create a solid buy-sell agreement in anticipation of future changes. A buy-sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner chooses to leave the business, is forced to leave the business or passes away.

Creating buy-sell agreements come with many advantages. First, the cost of creating a buy-sell agreement is small compared to the potential savings in time and money down the road that would be devoted to settling ownership conflicts. Second, a buy-sell agreement stops all infighting among owners before it begins, which keeps the business afloat and its goodwill and customer base intact. Third, the reciprocal nature of  buy-sell agreements affects all owners equally, which makes it easy for all owners to agree to terms. Finally, in the case of inter-generational businesses where ownership is passed within a family, a buy-sell agreement may be tailored to avoid estate taxes and family squabbles.

There are two types of buy-sell agreements. A redemption agreement states that the shares of a former owner can be purchased by the business itself. A cross-purchase agreement allows another owner to purchase the shares individually. Pricing terms can be pre-determined among the owners of your business, or owners can create a formula for valuation.

If drafted by an experienced business attorney, a buy-sell agreement can be surprisingly simple and low-cost when compared to the potential costly problems not having an agreement can cause in the future.
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*Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team and Chair of International Practice Group at IPG Legal.  He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.  Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  He has, also, received the highest rating by AVVO and other legal rating services.

*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Friday, October 28, 2016

Recommended Steps For Acquiring Small Businesses in New York

NY Business Law, Acquiring Small Businesses
When acquiring a small business, we recommend a more nuanced approach that contemplates matters beyond cost analysis and dollars and sense.

Small businesses are the engine of American enterprise and continue to play a vital role in the economy of the United States. According to a 2012 Small Business Administration report, small businesses "produced 46 percent of the private non-farm GDP in 2008 (the most recent year for which the source data are available), compared with 48 percent in 2002."

Small businesses are also unique in that they engender loyalty from employees who take greater pride in building a business and who are personally invested in the business's success than if they worked for a larger company. Customers can also be more loyal to smaller businesses for reasons beyond price.

Given the above, here are a few of the important steps involved in purchasing a small business.
  1. What's The Plan? When buying a small company, understand the goal of the purchase before initiating any process. Are you buying the business because of its name?  Are you interested in its intellectual property?  Are you buying the business as a whole? Are you only purchasing the talent? Each scenario comes with its own challenges and steps forward that should be fleshed out with the assistance of an attorney. 

  2. Respect What The Target Company Has Built. Regardless of your target, part of your plan must be to respect what the target company has built in terms of customer base and product. Buyers should honor the existing products or services as well as the customer base. You are, in most cases, acquiring a business because of the good will developed by that business through product development and customer service. If you are to disregard those customers, you may lose them.

  3. Respect Who Built The Target Company. New team members that remain from the target company will most likely look at the company they’ve created with pride. Failing to respect their achievements will most likely lead to employees feeling undervalued and looking to leave for other opportunities in the job market. Disregarding a target company's progress will be disheartening for the team that built it - a team you may want to make your team. Get to know your new employees and integrate them accordingly into your business. 

  4. Who Will Stay And Who Will Go? When acquiring a business, having a plan in place regarding which employees and consultants will be retained after a purchase is vital. Establish this plan early on with the seller so the process is as quick and painless as possible for all parties concerned.
The goal of every start-up is to, one day, become one of those big success stories that experience record growth and profits. Having the right planning and preparation is essential to ensure the greatest possible chance of reaching that goal.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Thursday, October 27, 2016

Benefits And Drawbacks Of A Reverse Merger For New York Businesses

NY M&A Law, Reverse Merger
If you are looking to take your New York private business public, consider the benefits and drawbacks of a reverse merger.

Often, executives and owners of successful New York businesses may wish to capitalize on that success by making shares of the business’s stock available to the public. Having a public company provides additional benefits to businesses, including expansion of  business dealings and attracting highly talented hires with offers of stock options.

In a reverse merger, investors of a privately-held company acquire a majority of the shares of a publicly-held "shell company," which is then merged with the privately-held company. To consummate the deal, the private company trades shares with the public shell in exchange for the shell company's stock, transforming the acquiring private company into a public company.

An advantage of undertaking a reverse merger is the comparative ease of transitioning into a public company. Typically, shell companies are used by investment banks and financial institutions as vehicles to complete these types of deals because the shell companies are simply structured and can be registered with the SEC easily and inexpensively prior to the reverse merger. Also, acquiring a shell company is a way to work around the more conventional route of initial public offerings (IPOs), which may take several months to over a year to complete.

Another advantage of a reverse merger is that, generally, it gives the newly-merged public company greater liquidity and access to valued capital markets. This simplified process is favored because it allows New York business owners and executives to create a publicly-held company without having to raise capital.

A potential disadvantage to reverse mergers is that managers are often inexperienced in the additional regulatory and compliance requirements that comes with being a publicly-traded company. This can be significant because the initial effort to comply with the additional regulations and responsibilities may result in the company under-performing while managers devote time to administration over business operations. To alleviate this risk, newly-public companies sometimes turn to experienced investors familiar with the role of officers and directors of a public company. Another solution is to hire employees and consultants, such as attorneys and financial professionals with relevant experience, to bridge the compliance gap.

When considering a reverse merger, as with any merger and major acquisition, retaining the right attorney is key to ensuring that your company’s best interests are represented.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Wednesday, October 26, 2016

What To Consider Before Starting A Home-Based Food Business in New York

NY Business Law, Business in NY, Home-Based Food Businesses
If you are looking to create a home-based food business in New York, then you should become familiar with what you can and cannot make, as well as the rules and regulations that exist.

Before you even think about launching your home-based food business, check with your city or town to see if you will be able to comply with local zoning laws that govern where you can run a business from your home. In many cases, there are limitations onthe percentage of your square footage within your home that you may dedicate for a home business. There may even be a complete restriction on running certain businesses in your neighborhood. Obviously, this can only be addressed on a case-by-case basis, so consult with an attorney before taking any further steps.

Also, before you can operate a home-based food business in New York, you must follow the rules of safe food handling and processing. For instance, New York City requires commercial food preparers to have a Food Handler License. Home processors can apply for a “home processing exemption” to the food handling license.

Also known as a “20-C exemption," home processors must first have this exemption approved before starting to operate a home-based food business. The application can be found on the website of the New York Department of Agriculture and Markets. Also note that, if your home is on a private water system, such as use of well water, home processors must arrange for a potability test of their water source, the results of which must be included with your application. Also be aware that your kitchen will also be subject to inspection by the NYS Department of Agriculture.

Once your application is processed and approved, the exemption allows home processors to make the following food products only in your home kitchen:
  • baked goods that don’t require refrigeration, including breads, rolls, cookies, double crust fruit pies, brownies, and cakes 
  • traditional fruit preserves, such as jams, jellies, and marmalades 
  • candy, except for chocolate candy 
  • repackaged commercially dried spices and herbs 
  • snack items, such as popcorn, caramel corn, and peanut brittle 
You can find more information about the foods you can and cannot prepare in a home kitchen by visiting this section of the New York Department of Agriculture and Markets's website.

Home processors should also know that your home-based food business will be subject to a number of restrictions on where and how you sell your products. Home-based food businesses are:
  1. limited to selling only within the state of New York;
  2. restricted to local venues such as farmers markets, farm stands, or by direct delivery for selling products; and
  3. prohibited from selling directly from your home or through the Internet.
Home processors must also follow rules and regulations requiring them to keep food packaged cleanly and properly. 

Clearly, starting a home-based food business may seem like an appetizing option at first, but like most prized recipes, it is important that you measure the risks, expenses and rewards before getting started.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Tuesday, October 25, 2016

Five Situations Where A New York Landlord Should Hire An Attorney

NY Landlord-Tenant Law
If you are a New York landlord that owns or manages one or a few rental properties, then you are unlikely to have a lawyer on retainer. To save costs and avoid frustration, landlords should recognize that when these five situations arise, it is time to hire an attorney:
  1. Evicting a Tenant: In New York, an eviction lawsuit is a summary proceeding that takes much less time than other civil matters. But, in exchange for the expedited treatment of cases, landlords must follow detailed court rules to the letter. These rules range from serving proper and timely notice on the tenant to filing the right papers in court with the appropriate legal arguments. Additionally, landlords should know at the outset that judges, who recognize that the subject matter of the litigation is the tenant's home, set a very high burden of proof for landlords to meet. Thus, your case must be properly organized and argued by a skilled attorney. Novice landlords in New York should especially consider hiring a lawyer if (a) you are undertaking your first eviction, (b) the tenant has already obtained legal representation, (c) the tenant is filing for bankruptcy, or (d) you must comply with state and/or municipal rent control or housing program rules.

  2. Sued for Injury or Illness: As a civil litigator represented injured third-parties, I always made a point of suing both the landlord and the tenant regardless of what a lease stated because the landlord, as property owner, always has a non-delegable duty to maintain its property. Thus, if a tenant, guest or third party sues and alleges that s/he got hurt or sick because of your carelessness, then you will almost certainly want to hire a lawyer to defend you. Typically, if you have liability insurance and pay your premiums, your insurer will provide you with a lawyer to defend you against personal injury claims. But remember: you have the right to hire and consult with the counsel of your choice.  

  3. Any Other Time You Are Going To Court: A former or current tenant - or even a contractor you hired - may take you to housing court or small claims court for any number of reasons. Claims range from disputes over security deposits, to allegations of incomplete or negligent repairs within the leased premises to claims for personal property damage. On the other hand, you may find yourself in court as a plaintiff - perhaps a contractor tool your money and did not complete its work. Regardless of the reason you find yourself in court, consider consulting a lawyer. Deciding whether to hire a lawyer should depends on (a) the complexity of the situation, (b) how much is at stake, (c) your budget, (d) your confidence in handling the matter yourself, and (e) your own experience.

  4. Audited By The IRS Or The State: When you learn that the IRS or the NY State Department of Taxation will be auditing your tax return, it's time to hire a lawyer - especially if there is a substantial amount of money at stake. Hiring an attorney can also stop a problem before it starts. For example, hiring a lawyer before auditors find a mistake can help you avoid a potentially damaging and embarrassing situation. Tax issues are usually beyond the grasp of the average New York landlord, so it is smart business to hire the appropriate professional to work for you. 

  5. Managing Your Business & Properties: Depending on your choice of business structure, you may need to file certain documents within New York on a regular basis. An attorney can walk you through creating the proper business structure that will serve your needs, apprise you of the legal and tax ramifications of each form, and lead you to the best business form. Also, an attorney should be consulted when considering taking on partners or re-structuring your business form. Additionally, there are certain matters of business operations that may call for an attorney. For example, buying or selling property as a business comes with legal risks and complex obstacles.  If you, as a landlord, are not familiar with the intricacies of an inspection report, or do not know what it means to obtain a "clear title" - then you need a lawyer that can walk you through the process and avoid common pitfalls. 
When you own property, you are constantly making legal agreements with tenants and third parties. It is best to hire an attorney whenever you are not comfortable with moving forward with any business decision or are unsure of the legal consequences of your actions.  
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Monday, October 24, 2016

No, You Cannot Take a "Ballot Selfie" in New York

NY Election Law, NY Legal News, Ballot Selfie
Graphic by: money.cnn.com
With the Presidential election looming in a few weeks, here is a reminder that taking a "ballot selfie" to show your social media circles how you voted in New York is actually illegal.

Recent published reports that that federal courts recently struck down bans on ballot selfies in New Hampshire and Indiana led us to research what exactly the law is in New York. Election Law 17-130 states, in part:
Any person who ... makes or keeps any memorandum of anything occurring within the booth, or directly or indirectly, reveals to another the name of any candidate voted for by such voter; or shows his ballot after it is prepared for voting, to any person so as to reveal the contents ... is guilty of a misdemeanor. 
While the law does not specifically mention photographs, New York is one of 18 states that prohibits "ballot selfies" which is a photo of a completed ballot.

The intent of the law is to maintain the secrecy of the voting booth. Advocates assert that laws like this prevent "vote-buying" and coercion.

However, critics disagree, and argue that laws like this were written before the advent of social media, where it has become commonplace for just about everyone to over-share their lives. Critics also argue that sharing a personal experience in voting is a useful advocacy tool in promoting voter participation and issue awareness - especially among younger voters who grew up with the internet.

Federal courts in Both New Hampshire and Indiana found that the prohibitions against "ballot selfies" criminalize political expression, and therefore violate the First Amendment in order to solve a problem no one seems to see as a problem.

So when you go to vote in New York for Donald Trump, Hillary Clinton or whoever else you want to write in, keep your smartphone in your pocket.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Friday, October 21, 2016

Cuomo Signs Law That May Cripple Airbnb in NYC

NY Legal News, NY Business Law, NY Property Law, Airbnb
After a summer of discontent, New York Governor Andrew Cuomo signed the toughest restrictions on short-term apartment rentals in the country that are sure to cripple the operations of Airbnb in the state.

As discussed in many previous blogs here, Airbnb is an online marketplace where prospective guests look for a bed to stay in from hosts listing spare rooms and properties for short term rentals. They operate very much like a hotel where guests stay in the host's property for a fee that is likely to be less than a hotel with concierge and other fringe benefits that the traveler may not need or want.

Under the new rules, which we discussed in an earlier posting here, the liability for advertising short-term rentals would shift from building owners to the renters in "Class A" multiple dwellings (buildings designed for three or more families) and those who place the advertisements on sites like Airbnb. Penalties range from $1,000 for a first offense to $7,500 for third and subsequent violations.

The stated intent behind the proposed bill is to protect New York's hotel industry and owners of multiple dwelling properties by preventing illegal and unregistered hotels from popping up in residential apartment buildings. As we noted here, it was already illegal in New York City to rent out an entire apartment for less than 30 days before the state contemplated this legislation.

Airbnb has been very vocal in its opposition to the legislation. The company repeatedly characterized New York’s existing illegal hotel law as behind the times and refused to help regulators police its bookings. We have noted in the past that Airbnb argues that the language of the law does not distinguish between Airbnb and its users, thus violating the Communications Decency Act which prohibits legislators from sanctioning websites for the content of others. This argument worked in Anaheim, CA to successfully modify similar legislation.

Airbnb also argued that the proposed bill violates First Amendment rights and the Fourteenth Amendment due process rights because penalties are triggered automatically without Airbnb knowing of any non-compliant posting.

The issue became so hot at one point that more than three dozen signatories, including PayPal co-founder Peter Thiel, Facebook co-founder Chris Hughes and venture capitalist Marc Andreessen, drafted a letter in support of Airbnb. 

The New York legislation was fought bitterly by Airbnb. The company even threatened to sue the state should Governor Cuomo sign it - a threat that published reports claim it followed through on, as the company filed claims against the City of New York and state Attorney General Eric Schneiderman in Federal court. Airbnb also requested a temporary restraining order against the implementation of the new law. The new law serves as a devastating loss for Airbnb, whose business is the subject of obstructive action across the U.S.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Wednesday, October 19, 2016

Tips, Gratuities And Mandatory Service Charges: Rules for New York Businesses and Employees

NY Employment Law, NY Business Law, Tips, Gratuities
New York businesses and its employees alike can both benefit from learning the rules for tips, gratuities and mandatory service charges.

Many New Yorkers are tipped employees. Jobs where workers earn tips range from waiters and servers, to hotel employees and those who provide other services like delivery workers. In fact, part of the incentive for New Yorkers to take these kinds of jobs is the possibility that you may be able to earn more in tips than in straight wages. However, very few tipped employees and their employers understand all the applicable wage laws regarding tips, which can get complicated.

First, let's establish what is considered a "tip" or "gratuity" in New York. In its usual everyday meaning, a tip or gratuity is a voluntary payment over and above the charge for products or services (plus tax). Employers do not need to withhold additional funds for Social Security and Medicare (FICA) tax and can claim a credit against their own tax obligations for these amounts. The basic rule of tips is that they belong to the employee, not the employer.

Tips and gratuities differ slightly from a "mandatory service charge" which some restaurants add on to bills for large tables, private parties, catered parties or special events. While some states consider this to be money owed to the employer, New York law establishes a rebuttable presumption that any charge in addition to charges for food, beverages, lodging, and so on, is a gratuity which must be distributed to employees. However, the tax treatment of those distributed as tips can be a burden on both employer and employee. Any portion of such a charge which the employer pays to employees must be treated as wages. This means the employer must withhold additional funds for FICA and may not claim any credit as it can for tips. Also, employers must include them as part of the employee’s hourly wage when determining overtime payments.

So when is a tip really a tip and not a service charge for tax purposes? For the amount to count as a tip rather than a service charge, all of the following must be true:
  • The payment must be entirely voluntary;
  • The customer must have the unrestricted right to determine the amount of the tip;
  • The amount cannot be set by any employer policy or be subject to negotiation with the employer; and
  • The customer must have the right to determine who receives the payment.
In other words, tips are payments outside of the control of the employer.  However, there are instances where employers may require employees to hand over their tips:
  • The employer takes a tip credit. New York law allows employers to count all or part of an employee’s tips towards its minimum wage obligations. The credit is the amount the employer doesn't have to pay towards the applicable minimum wage (which is the higher NY minimum wage). If an employee doesn’t make enough in tips during a given shift to earn at least the applicable minimum wage, the employer has to pay the difference. The amount of an applicable tip credit depends on the employer’s industry and the employee’s job duties, and employees must be informed of the tip credit in writing.
  • The employee is part of a valid tip pool. Under both federal law and New York state law, employees can be required by their employer to pay part of their tips into a shared pool with other employees. Only employees who perform personal service to patrons as a principal part of their job may participate in the pool. All employees in the pool must contribute a portion of their tips that then gets divided among the employee pool. However, if the employer takes a tip credit, the employer counts only the tips the employee gets to take home up to the minimum wage limit as the credit. The employer may not keep any part of the pool or tip sharing arrangement -  it all must be distributed to employees. Employees who have limited supervisory duties may participate in the pool if providing personal service to patrons is a regular or principal part of their duties. However, an employee who has meaningful authority or control over other employees may not take part in the pool.
For more information on tips and how they should be treated, we recommend consulting with the NYS Department of Taxation and Finance
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Tuesday, October 18, 2016

Some Uber Drivers May Be Entitled To Unemployment Benefits

NY Legal News, NY Business Law.
An administrative ruling out of New York state found that, under certain conditions, Uber drivers may be entitled to state unemployment benefits.

The NYS Department of Labor (DOL) ruled that two Uber drivers were eligible for weekly jobless benefits. This represents the first time that a state government determined that drivers for a ride-sharing company are employees. To date, states have found - and companies like Uber have argued - that drivers for ride-sharing companies were independent contractors who are ineligible for jobless benefits.

We here at The New York Law Blog have discussed the differences between an employee and an independent contractor in the context of continuing federal litigation involving Uber. Uber and other ride-sharing companies are part of a larger development in business termed the "gig economy," which is an environment where independent workers contract for temporary positions for short-term engagements.

Uber's critics have argued for some time that it should be accountable to employees for unemployment benefits because it controls where drivers pick up and drop off riders and its profits are tied to the work of those drivers. Uber has countered by arguing that drivers use the app on their own terms, and have ultimate control of their schedules, including where and when they drive.

Uber plans to appeal the DOL's ruling. At stake for Uber is a windfall of profits that keeps the ride-sharing company at a competitive advantage against local taxi companies. In New York, appeals are heard by DOL administrative law judges. If employment status is still at issue, appeals are also heard by the DOL's Unemployment Insurance Appeal Board. Disputes beyond this level of review go to the Appellate Division, Third Department, in Albany.

The employment status of drivers participating with ride-sharing companies - and indeed in other gig economy businesses - remain in flux. This may be intentional, as the DOL's decision stated that determining unemployment is made on a case-by-case basis and depend on the facts of a given case.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Monday, October 17, 2016

What I Learned About International Business Law By Visiting Seoul

International Business Law, IPG Legal
I took this one morning in Seoul to see if I could capture a
normal weekday morning near IPG's law office. 
I took away a few lessons in law that businesses looking to expand internationally must consider after recently visiting my law firm partner Sean Hayes in his adopted home of Seoul.

First, show some respect to your target market. Just like when you chose your domestic business target market, observing your desired international target market is right at the top of your list of things to do before expanding. But, there are extra added wrinkles.

Understand that, in some places, you will be considered "outside" the culture, and may face a cultural bias as an obstacle to penetrating your international target market. Places that have a long history and tradition that are different than western culture should be respected and understood, not discounted. So learn the culture. Visit often. Sample the cuisine. Go to festivals. And stay away from the tourist traps so you see the everyday life and routine of your desired international target market. This will inform you of not only your customer base, but also inform your marketing strategies and help you gauge your employment pool.

The best thing to do is, at the very least, to appoint a registered agent in your international target market. Retaining a registered agent in the country you plan to do business with, such as a local law firm, will be your official “contact point” for accepting legal documents, and will give you a local presence that may offset any institutional bias your business may experience. Retaining a local law firm can also help you navigate the applicable treaties and/or business regulations that would otherwise trip up your progress.

Second, consider currency exchange rates as you choose your international target market. This will allow you to maximize your potential for buying and selling inventory. This will also help you assess your risk factors is setting up shop overseas. Also, keep in mind that you may need to retain outside help, especially if collections will become an issue.

Third, just like in the U.S., consider the tax system. This is a no-brainer because, as you know already, the key to doing business anywhere is to maximize your revenue and bottom line.

Finally, always remember that foreign legal systems may not have the same legal values as the American legal system. Some may be impartial and consider protecting native customers and businesses a considerable factor to weigh. Some may be politically motivated when considering business or commercial disputes. Whatever the case may be, ask your lawyer for counsel about the integrity of the court system before opening up shop overseas.

Failing to do your international homework can be disastrous to your business. Selecting the wrong location will damage your revenue, operations, and bottom line.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Friday, October 14, 2016

Federal Court Dismisses Claim That Disney Violated H1-B Visa Law

Employment Law, Legal News, Disney
A federal judge dismissed lawsuits brought by two former Walt Disney Parks and Resorts workers claiming that it conspired with outsourcing companies to violate visa laws.

According to published reports, the lawsuit claimed that two American IT workers were laid off and forced to train foreign replacements with H1-B temporary visas after Disney and two contractors, Cognizant Technology Solutions and HCL America, allegedly colluded to make false statements when they applied for the temporary visas. However, a federal judge rejected this assertion, finding that none of the statements put at issue in the complaint were adequate to sustain the former workers’ cause of action.

As discussed in a previous blog outlining the different temporary visas that the United States makes available to non-immigrant workers, a H1-B visa allows domestic companies to employ foreign workers in specialty occupations that require technical expertise in specialized fields such as in architecture, engineering, mathematics, other sciences, and medicine. It is highly-sought by businesses, with limited visas available and many applications filed annually. 

The plaintiffs pinned their case on the argument that the companies had violated clauses of the visa law requiring employers to show that hiring H1-B workers “will not adversely affect the working conditions” of other workers in similar jobs. The law requires large outsourcing companies that employ many H1-B workers to certify that incoming workers will not displace any similarly employed U.S. worker within six months of the visa application.

The outsourcing companies successfully argued that the law did not apply to them because the plaintiffs who were displaced were not originally their employees. While the Court accepted the defendants' argument, it granted the plaintiffs an opportunity to re-plead an amended lawsuit. However, whether plaintiffs have an alternative legal theory to base their claims remains in doubt.

The effects of the decision may have a negative effect on the American workforce, particularly in the IT field, where H1-B workers are highly sought. It is now theoretically confirmed that an outsourcing company can effectively supplant American workers of a company it services without concern for H1-B visa laws protecting those native workers.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.

Tuesday, October 11, 2016

Reform Group Files Suit Claiming NY's Daily Fantasy Sports Law Is Gambling, Not Skill

NY Legal News, NY Litigation
An anti-gambling reform group filed a lawsuit last week claiming that New York's "Daily Fantasy Sports" law violates the state constitution by characterizing daily fantasy sports contests as games of skill, rather than games of chance.

The suit was filed in New York Supreme Court in Albany County by an organization called Stop Predatory Gambling on behalf of 4 New York resident plaintiffs who claim to have been negatively impacted by gambling. According to published reports, the suit "seek(s) to protect the public from predatory gambling consistent with the constitution."

Article 1, Section 9 of the state constitution, states, in part that "[n]o law shall be passed… except as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, bookmaking, or any other kind of gambling, except lotteries operated by the state… except pari-mutuel betting on horse races…  and except casino gambling at no more than seven facilities as authorized and prescribed by the legislature shall hereafter be authorized or allowed within this state." The lawsuit argues that “interactive fantasy sports” as defined in the law is "gambling that falls within the express prohibition” discussed in the state constitution.

The suit points to New York Attorney General Eric Schneiderman's legal opinion from last November that declared daily fantasy sports companies like FanDuel and DraftKings were operating in violation of New York state gambling laws. However, that opinion was issued before New York passed legislation exempting fantasy sports from state gambling law. Schneiderman's office has since stated it will defend the new DFS law.

This blog has been carefully tracking the news surrounding New York's adoption of "daily fantasy sports" laws, including the process of developing the legislation that eventually passed this summer, as well as discussed possible flaws in the new law's application. However, nothing in our analysis indicates that the new DFS law violates the state constitution.

Opposition to the lawsuit argues that New York's state constitution specifically gives the legislature the power to define what gambling is and is not - a power which it exercised by passing the DFS law this summer.
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.