• Coblentz Land Use Practice and Five Partners Receive Top Recognitions by Chambers USA 2020

    Five Coblentz partners have been recognized as Leading Lawyers by Chambers & Partners in the Chambers USA 2020 Guide. Real Estate partners Pamela Duffy and Harry O’Brien are listed as leading lawyers in the Real Estate: Zoning/Land Use – California category, Real Estate partner Alan Gennis is listed as leading lawyers in the Real Estate – Northern California category, Litigation partner Timothy Crudo is listed in the Litigation: White-Collar Crime & Government Investigations – California category, and Employment partner Fred Alvarez is listed in the Labor & Employment – California category.

    Independent and objective, Chambers USA is carefully researched and widely considered to be the most reputable law firm directory in the world. Ranking criteria include technical legal ability, client service, commercial vision and business understanding, diligence, depth of the team, value for money, and other qualities most valued by legal clients.

    Real Estate & Land Use

    The Real Estate and Land Use practice at Coblentz Patch Duffy & Bass has again been awarded the highest ranking by Chambers & Partners USA 2020 Guide – Band 1 in the Real Estate: Zoning/Land Use category for California. Chambers notes that the Firm is a “prominent real estate practice offering particular strength in obtaining land use, zoning and environmental approvals for development projects” with an especially strong presence in the Bay Area. Clients described the team as “the premier zoning firm in town,” while another states, “they’re really excellent in land use.” Three Real Estate and Land Use partners received individual rankings.

    Pamela Duffy is again ranked as a Leading Lawyer in the top tier, Band 1, in the Real Estate: Zoning/Land Use – California category. Pam has a highly-esteemed practice and is skilled at handling entitlements and land use issues and other transactions. Clients say she is “outstanding” and a “great lawyer who is well known and respected.” She has been recognized by Chambers since 2003.

    Harry O’Brien is also again ranked as a Leading Lawyer in Band 3 in the Real Estate: Zoning/Land Use – California category. Harry is well respected for his handling of a wide spectrum of real estate matters, ranging from land use to transactional issues. He has significant experience advising clients on acquisitions, entitlements, and CEQA compliance. He has been recognized by Chambers since 2003.

    Alan Gennis is ranked as a Leading Lawyer in Band 3, in the Real Estate – California category, and is recognized for his significant experience handling real estate transactions, such as acquisitions and joint ventures. He also advises on entitlements and due diligence, and his recent work has included providing counsel on mixed-use and office development projects. Alan has been recognized by Chambers since 2018.


    Litigation partner Timothy Crudo is again ranked as a Leading Lawyer, Band 4, in the Litigation: White Collar Crime & Government Investigations category for California. Clients consider him “patient and thorough” and appreciate his “excellent communication skills.” Tim has been recognized by Chambers since 2016.


    Employment partner Fred Alvarez is recognized as one of seven Senior Statespeople in California in the Labor & Employment category. Chambers notes that Fred is “a much-admired employment law expert,” and he is described by one client as “one of the most respected labor and employment attorneys in California.” Another source notes he “has a wonderful manner when engaging with clients and he has a good understanding not just of the law, but on how it can impact his clients.”

    Categories: News
  • U.S. Supreme Court Rejects Willfulness Requirement for Trademark Infringement Profits

    Brand owners now have greater incentive for pursuing infringers of their trademarks under a recent Supreme Court decision. Last week, the high court resolved a dispute between the circuits, ruling that trademark owners may recover the profits earned from the sale of infringing goods even if the infringer did not act willfully.

    Writing for a unanimous Court in Romag Fasteners, Inc. v. Fossil, Inc., Justice Gorsuch conducted a statutory analysis. The Lanham Act expressly requires willful infringement to obtain certain forms of damages, but not to obtain an infringer’s profits. Congress could have imposed that requirement, but chose not to do so – so neither should the courts. This decision thus clears the way for an award of infringer’s profits even in cases of “innocent infringement.”

    High Risk, High Reward

    Following Romag Fasteners, accused infringers will likely see an uptick in lawsuits seeking disgorgement of profits. The expanded availability of infringer’s profits bolsters the financial case for pursuing trademark infringers. Previously, plaintiffs seeking damages in some circuits had to prove that they lost sales to an infringer – a tricky task in a crowded marketplace. Most successful infringers have earned something for their efforts, though, all of which is now at risk. Even if profits are not awarded in every case, the chance that they will be is a significant benefit to plaintiffs. Brand owners should search and clear trademarks carefully.

    The decision is also likely to increase deterrence for so-called “short-term” infringers. Some infringers are not deterred by the risk that their future sales will be banned – they simply roll the dice, make money while they can, and move on to greener pastures when challenged. Romag Fasteners modifies the calculus for them. Real money is now at stake.

    The Supreme Court’s latest intellectual property decision continues the trend towards dismantling limitations to damages rooted in precedent but not statute. Careful monitoring of trademark use in the market – for both trademark owners and potential infringers – is now more important than ever.

    For further information on the topic or for general IP assistance, contact Coblentz Intellectual Property attorneys Karen Frank at kfrank@coblentzlaw.com, Thomas Harvey at tharvey@coblentzlaw.com, or Christopher Wiener at cwiener@coblentzlaw.com.

  • San Francisco Commercial Eviction Moratorium Applies to Security Deposits

    As previously reported on the Unfamiliar Terrain blog, San Francisco Mayor London Breed declared a moratorium on evictions of small and medium-sized businesses (those having worldwide receipts of $25 million or less) impacted by COVID-19 for non-payment of rent. By supplemental declaration on April 1, Mayor Breed ordered that the moratorium also applies to non-replenishment of security deposits. The April 1 supplemental declaration is the eighth of ten supplemental declarations (as of April 21, 2020) to the Mayor’s Proclamation of Local Emergency.

    Although this supplement to the Mayor’s Proclamation discourages landlords from deducting delinquent rent from existing security deposits during the moratorium, landlords are not prohibited from doing so. Landlords may not, however, require small and medium-sized business tenants to increase their security deposits during the moratorium or evict such tenants based on failure to replenish security deposits, if such failure is caused by the financial impacts of COVID-19. Instead, landlords and tenants must follow the same notice and cure process for replenishment of security deposits as required for non-payment of rent pursuant to the original order for a commercial eviction moratorium. Landlords are barred from evicting such tenants due to failure to replenish security deposits until 6 months after the moratorium expires (currently scheduled to expire on May 17).

    The Coblentz Real Estate team and authors of our real estate and land use blog, Unfamiliar Terrain, will continue to monitor these developments. Visit our COVID-19 Business Resource Center for additional information, or contact Real Estate attorneys Barbara Milanovich at bmilanovich@coblentzlaw.com or Caitlin Connell at cconnell@coblentzlaw.com.

  • California Judicial Council Postpones Residential and Commercial Evictions

    We last reported on the Unfamiliar Terrain blog that California Governor Gavin Newsom banned the enforcement of residential evictions against qualified California tenants who fail to pay rent. Less than two weeks later, on April 6, the California Judicial Council substantially expanded statewide tenant protections and eliminated the qualifications for protection. With the Council’s action, residential and commercial tenant eviction lawsuits cannot be initiated during the state of emergency and for 90 days after, regardless of the cause and regardless of the financial condition of the tenant. Eviction actions already in process will be postponed by at least 60 days. The only exceptions are evictions that are necessary for the public health or safety.

    Governor Newsom’s March 27 Executive Order N-38-20 granted authority to the Council and its Chairperson to issue emergency orders or statewide rules to maintain the safe and orderly operation of the courts in response to the COVID-19 pandemic. The Council’s sweeping action relies on the March 27 Executive Order, amending the California Rules of Court to address overwhelmed caseloads and calendars during the COVID-19 pandemic. The Council’s amended rules relating to eviction lawsuits and foreclosure actions are summarized below.

    Residential and Commercial Eviction Lawsuits Postponed

    For the period of the state of emergency and for 90 days thereafter:

    1. State courts are prohibited from issuing an unlawful detainer summons, which is the document required to initiate an eviction lawsuit, unless the court finds the action necessary to protect the health and safety of the public. This rule temporarily prevents any new eviction actions, other than for the public health and safety exception.
    2. State courts may not enter a default or default judgment against a defendant for failure to appear, unless the court finds action necessary to protect public health and safety and the defendant has not appeared in the action within the time provided by law.
    3. If a defendant has appeared in an eviction action, trial dates must be set at least 60 days after a request for trial is made (instead of the statutory 20 days), unless the court finds that an earlier trial date is necessary to protect the health and safety of the public.
    4. Any eviction trial date already set as of April 6, 2020 must be continued at least 60 days from the initial trial date.

    As it is very unlikely that the state of emergency will be lifted before April 30, no new eviction lawsuits may be initiated statewide through, at a minimum, July (other than for the public health and safety exception). The rules do not provide guidance on what might qualify under the public health and safety exception.

    The Council’s rules result in broader limitations on eviction actions than earlier State orders and most local ordinances. Where a local ordinance provides greater or additional protections to tenants, those protections will continue to be available.

    Judicial Foreclosure Actions Stayed

    The Council’s emergency rules also provide that all actions for judicial foreclosure are stayed during the state of emergency and for 90 days after, unless the court finds that action is required to further the public health and safety. The statute of limitations for filing foreclosure actions is tolled for the same period of time.

    The Coblentz Real Estate team and authors of our real estate and land use blog, Unfamiliar Terrain, will continue to monitor these developments. Visit our COVID-19 Business Resource Center for additional information, or contact Real Estate attorneys Tay Via at tvia@coblentzlaw.com or Caitlin Connell at cconnell@coblentzlaw.com.

  • Bay Area Further Restricts Construction in Response to COVID-19

    UPDATED ON APRIL 22, 2020

    On March 19, 2020, Governor Newsom issued a “Safer at Home” Order, which generally permits construction, including housing, to continue statewide. On March 31, 2020, six Bay Area counties – Alameda, Contra Costa, Marin, San Francisco, San Mateo, and Santa Clara – as well as the City of Berkeley, coordinated on and each issued updated local shelter-in-place orders extending and further restricting non-essential activities through May 3, 2020. Among other things, the local orders notably limit the types of construction permitted beyond the State’s Order and require those permissible construction activities to create and implement a “Social Distancing Protocol.”

    Most construction, commercial and residential, is restricted under the new local orders. While previous county orders permitted residential construction to continue, the new local orders further limit construction, particularly residential construction, and generally permit only the following types of construction to continue:

    1. Projects immediately necessary to the maintenance, operation, or repair of Essential Infrastructure;
    2. Projects associated with Healthcare Operations, including creating or expanding Healthcare Operations, provided that such construction is directly related to the COVID-19 response;
    3. Affordable housing that is or will be income-restricted, including multi-unit or mixed-use developments containing at least 10% income-restricted units;
    4. Public works projects if specifically designated as an Essential Governmental Function by the City Administrator in consultation with the Health Officer;
    5. Shelters and temporary housing, but not including hotels or motels;
    6. Projects immediately necessary to provide critical noncommercial services to individuals experiencing homelessness, elderly persons, persons who are economically disadvantaged, and persons with special needs;
    7. Construction necessary to ensure that existing construction sites that must be shut down under this Order are left in a safe and secure manner, but only to the extent necessary to do so; and
    8. Construction or repair necessary to ensure that residences and buildings containing Essential Businesses are safe, sanitary, or habitable to the extent such construction or repair cannot reasonably be delayed.

    While the seven local orders place virtually identical restrictions on construction, other Bay Area counties – Napa, Solano, and Sonoma – impose varying limitations. Sonoma County’s March 31 order is substantially similar to the other local orders, but includes an exemption for construction and debris removal on fire damaged or destroyed properties. Solano County’s March 30 order is generally consistent with the State’s Order. Most recently, Napa County issued a modified order on April 22, 2020 that permits construction (including housing construction) to proceed, so long as contractors follow specific “Construction Site Requirements.”

    Different circumstances and considerations could impact how each jurisdiction interprets and regulates its respective order. As an example, San Francisco issued new requirements on April 2, 2020 for contractors to create and implement a Site Specific Health and Safety Plan consistent with designated Best Practices COVID-19 Construction Field Safety Guidelines (in addition to the Social Distancing Protocol), and released further guidance on April 3, 2020 regarding the interpretation of its order. Similarly, Santa Clara County’s FAQ’s state that all construction sites must comply with its COVID-19 Construction Field Safety Guidelines.

    Governor Newsom stated at his press conference on April 2, 2020 that he does not intend to apply the more stringent restrictions in the Bay Area’s local orders across the rest of the state at this time. He confirmed that the Bay Area and other counties have the legal right to impose additional restrictions beyond the State’s Order.

    Local health officers are carefully monitoring the evolving situations in their respective districts and could change local restrictions as necessary. The State may also issue additional guidance. The current statewide Order and orders for Bay Area jurisdictions are linked in the chart to the left. The Coblentz Real Estate Team and authors of Unfamiliar Terrain will continue to monitor these developments. Visit our COVID-19 Business Resource Center for additional information.


  • How Does the CCPA Impact Franchise Businesses and Relationships?

    In the current environment, it is tempting to let data privacy issues take a back seat to more urgent issues of health and safety.  But businesses cannot afford to forget about data privacy compliance, especially in light of the upcoming July 1, 2020 enforcement date of the California Consumer Privacy Act (“CCPA”), which Attorney General Xavier Becerra has said will not be delayed due to COVID-19 issues.  Businesses must continue to consider and address privacy compliance issues now and over the next few critical months.

    In this article, we discuss how the CCPA impacts franchisee-franchisor relationships, franchise obligations under the CCPA, and potential consequences of non-compliance.

    CCPA Penalties: Good News, Bad News, And Brand Reputation

    The good news for franchisees and franchisors (and all businesses) is that only the Attorney General may bring a lawsuit against a business for most CCPA violations.  The exception to this, of course, is that the CCPA provides a private right of action for consumers affected by a data breach.  However, for most CCPA violations, there is no private cause of action and a consumer cannot commence a lawsuit against your company.

    The bad news is that even under Attorney General actions, penalties of non-compliance with CCPA are steep.  Intentional violations carry a $7500 price tag per violation and unintentional violations are subject to penalties of $2500 per violation. And those violations are calculated on a per consumer basis.  When considered in perspective that California’s population exceeds 39 million, even unintentional violations can quickly add up to hundreds of millions of dollars in penalties. Both franchisees and franchisors (under the theory of vicarious liability) may be directly liable for these penalties.

    In addition to monetary penalties, as more Americans become cognizant of and value their privacy, any lack of transparency or privacy violations can lead to bad PR, tarnishing the brand image and goodwill associated with the brand.  The franchise system depends on a strong brand. Once the brand reputation takes a hit, it is hard to overcome the negative connotations without spending significant resources. Both the franchisor, who has developed the strength of the brand, and the franchisee who is operating under the name of the brand, have much to lose as customers will not distinguish between franchisor-franchisees when punishing a brand.

    Thus, the cost-benefit analysis weighs in favor of taking the CCPA seriously and evaluating if compliance is required at the franchisor and franchisee level.

    Evaluating Whether CCPA Compliance is Required

    Many franchisees and franchisors may not think they are subject to the CCPA.  Franchisors that have no presence and do no direct business in California may believe that they are exempt from complying with the CCPA.  Alternatively, franchisees may believe that their franchisor’s compliance with privacy obligations is sufficient to render them compliant.  While this may seem to make sense where personal information is generally collected through a corporate website or point of sale system operated by the franchisor, the information is processed by the franchisor and generally used by the franchisor, franchisees are not automatically absolved of having to comply with the CCPA by virtue of their franchise relationships.  In fact, some franchisors in their privacy policies explicitly disclaim any liability arising from their franchisee’s collection and use of personal information.

    In sum, both franchisors and franchisees must independently evaluate their collection and use of personal information, their corporate relationships, and branding to analyze CCPA compliance.

    A franchisor or franchisee must independently comply with the CCPA if they are either: 1) a business as defined in the CCPA or 2) an “entity that controls or is controlled by a business” and “shares common branding with the business.”

    Are You A Business?

    A “business” under the CCPA is defined as any legal entity, operated for profit, that (1) collects the personal information of consumers and determines the purposes and means of processing the consumer information, (2) does business in CA, and (3) meets any of the following thresholds: a) has annual gross revenues exceeding twenty-five million ($25,000,000); b) buys, receives, sells or shares for commercial purposes the personal information of 50,000 or more consumers, households, or devices; or c) derives 50% or more of its annual revenues from selling consumers’ information.

    If a franchisor or franchisee meets any of the above thresholds on its own, it is a business under the CCPA and must independently comply with the statute.  In such a circumstance where a franchisee independently meets these requirements, it is not sufficient that a franchisor provides a privacy policy or certain privacy notices; the franchisee is required to maintain their own privacy policies and notices and comply with other CCPA requirements.

    Do You Satisfy the Business Branding and Control Test?

    If a franchisor/franchisee does not independently meet the definition of a business, the inquiry then shifts to whether it is an “entity that controls or is controlled by a business” and “shares common branding with the business.”  To make this determination, a franchisee should consider: 1) the franchisor’s status as a business, 2) the franchisor’s control over the franchisee, and 3) shared common branding.  Similarly, a franchisor should consider: 1) its franchisees’ status as a business, 2) its control over its franchisees, and 3) shared common branding with its franchisees.

    1. Franchisor/Franchisee Status As A “Business”

    Unless your franchise is part of an extremely limited business model, most franchisors will likely meet the twenty-five million revenue threshold and satisfy the above definition of a “business” under CCPA if they are doing any business in California and collecting any personal information of consumers. If the franchisor is a business, the franchisee should next inquire regarding the remaining two factors of control and branding for a franchisee.

    While many franchisors who are not directly subject to the CCPA may not need to worry about their franchisees hitting the $25 million revenue trigger for CCPA compliance, it is possible that franchisees may, through website visits or other means, collect information from over 50,000 California consumers, households, or devices per year. If a franchisee is a “business” under the CCPA due to its collection of information in this regard, the franchisor must then look to control and branding to determine its own potential compliance obligations.

    1. Control

    “Control” or “controlled” under the CCPA means, “ownership of, the power to vote, more than 50% of the outstanding shares of any class of voting security of a business; control in any manner over the election of a majority of directors, or individuals exercising similar functions; or the power to exercise a controlling influence over the management of a company.”

    Certain aspects of the definition of “control” are relatively clear to evaluate.  For example, ownership is apparent based on whether a franchisor jointly owns a franchise with a franchisee. Similarly, whether or not the franchisor has the power to vote can be determined from corporate legal documents.

    There is more uncertainty regarding the phrase “the power to exercise a controlling influence over the management.”  As written i.e. – the power to exercise – could mean that a franchisor does not have to actually exercise any controlling influence over management, it must only be vested with the power to exercise such influence. There is much ambiguity as to what “controlling influence over the management” means.

    Generally, franchisors exert considerable control over their franchisees. For example, standard franchise agreements include provisions defining the franchisee’s sale territory and location, services offered by the franchisee, required training for franchisee employees, strict quality control requirements over the products and services offered by the franchisee, design and décor, and limitations on use of franchisor branding and intellectual property.  Franchise agreements often include non-compete clauses restricting the franchisee from competing with the franchisor’s business.  Therefore, one can argue that a franchisor has broad control over the management of a franchise and CCPA compliance is warranted by any franchisee under the control of a franchisor that is a business.  The practical consequences of such an interpretation of “control” is that any franchise, regardless of its location and size, if collecting California consumer data, is required to comply with the CCPA.  So a hotel-franchisee of an international hotel chain in New York City, NY must comply with the CCPA regardless of the number of Californians visiting the franchisee hotel.

    On the other hand, one can argue that the franchisor’s control is only exerted initially when the franchise is set up and wanes over time to quality control only.  The location, territory, products, and services offered are all one-time decisions.  The franchisee maintains control over day-to-day activities such as installing equipment, hiring and managing employees, determining wages, all of which the franchisor has no control over.  Thus, there is no ongoing “controlling influence” on the franchisee operations and no CCPA compliance is warranted.  The concern over this interpretation of “control” is that a franchisee may never have to comply with the CCPA.  This would render the language in the statute pertaining to entities that control or are controlled by a business and share common must comply with the CCPA superfluous. It would also contradict the general spirit of the CCPA that aims to provide transparency and clarity in the collection and use of personal information of California consumers.  For example consider a burger franchise in Roseville, CA that collects personal information of CA residents and shares it with the franchisor corporation.  The franchisor then uses this information to engage in targeted advertising, sells this information to third parties, and shares the data with its affiliates and partners, etc.  The CA consumer in Roseville had no notice or transparency when visiting the franchise about how his/her personal information would be used, sold, or shared by the franchisor. This is exactly the situation the CCPA seeks to remedy.

    The CCPA is unchartered territory so ultimately what constitutes “control,” what actions can be categorized as “controlling influence,” and what is “management” are questions that will be resolved by forthcoming enforcement actions.  Each franchise circumstance is different and, for now, franchisors and franchisees should evaluate their data collection and use policies and assess “controlling influence” exerted by franchisors over franchisees while making a good faith determination of whether or not to comply with CCPA.

    1. Common Branding

    Common branding means a “shared name, servicemark, or trademark.”  The essence of a franchisor-franchisee relationship is to enable the franchisee to use the franchisor’s trademark, name, processes, and know-how.  The franchisee seeks to benefit from the franchisor’s brand recognition and reputation in the market. As a result, franchisees will almost always share the name and mark of the franchisor and satisfy the common branding requirement.

    Because the CCPA applies to companies that control or are controlled by a business AND share common branding with a business if these two elements are met, and either the franchisor or the franchisee is deemed a “business,” both entities are likely subject to CCPA.


    The decision of whether or not a given franchisor or franchisee must comply with CCPA and how it can achieve this goal should be evaluated on a case-by-case basis.  Depending on the situation, resourceful legal solutions may be successful in navigating CCPA compliances in light of the complexities of franchise relationships.  For example, in unique situations, it may be possible for a franchisee to enter into a “service provider” agreement with the franchisor thereby shifting the CCPA obligations on the franchisor. Alternatively, franchisors and franchisees may be able to change their corporate relationships, operations or management functions to avoid getting pulled into CCPA liability when they would not otherwise be covered by the CCPA.

    If you are a franchisor, franchisee, parent, subsidiary or other business and are evaluating whether or not you should comply with CCPA or how to comply, contact Cybersecurity and Data Privacy attorney Scott Hall (shall@coblentzlaw.com) to determine further obligations. You can also review additional CCPA articles and resources in our CCPA Resource Center.

  • Force Majeure and COVID-19: Can Contracting Parties Avoid Performance or Continue to Require it?

    With the COVID-19 pandemic threatening people’s health and wreaking economic havoc in California and worldwide, parties to commercial contracts are asking whether force majeure and the closely related doctrines of commercial impracticability and frustration of purpose, can avoid or suspend their obligations in a contract.

    As just one example, commercial and retail tenants have sought relief from their obligation to pay rent, given that many retail establishments like restaurants have been forced to close or have seen revenues plummet. Beyond leases, the COVID-19 crisis may affect performance of obligations under other commercial contracts (like loans or services or supply contracts), because cash flow and supply chains are disrupted, employees cannot come to a workplace, or government orders have required business closures.

    Contracts Containing a Force Majeure Clause

    As a first step, read through the contract and check whether it contains a force majeure clause. If it does, review its language closely. Force majeure generally requires two conditions to excuse performance: (a) the occurrence of unforeseen, extraordinary circumstances that create a risk that neither party has agreed to bear, and (b) the extraordinary circumstances were beyond the control of the party seeking to suspend or avoid performance. Contractual force majeure provisions typically list a series of events that the parties have agreed would excuse performance, including, as examples: a pandemic, epidemic, public health emergency, government action, or, more generally acts of God or events beyond the control of either party. In addition to listing particular triggering events, force majeure clauses typically state that performance is suspended for the duration of the event, and, in some cases, for a reasonable period beyond the event. Some force majeure provisions may require that the party invoking it provide notice to the other party, including advising of the expected duration that performance will be suspended.

    Contracts Without Force Majeure Provisions

    Even where a contract does not contain a force majeure provision, California law may excuse performance of a contract when extraordinary events not within the contemplation of the contracting parties, and beyond their control, make performance impossible or commercially impracticable. See, e.g., City of Vernon v. City of Los Angeles (1955) 45 Cal.2d 710. California Civil Code Section 1511 and the California Commercial Code Section 2615(a) reiterate these common law principles: The failure to perform or a delay in performance is excused when it is rendered impossible or impracticable by the occurrence or nonoccurrence of an event not within the contemplation of the parties and beyond their control, unless one of the parties explicitly agreed in the contract to assume the risk of such event.

    Although force majeure and commercial impracticability are potentially viable defenses to performance of a contract, they are generally reserved for extraordinary situations. The current pandemic and government shelter-in-place measures may indeed be truly extraordinary, at least at the moment, for certain businesses and certain contracts entered into before the possibility of a COVID-19 event was reasonably anticipated. As time passes and the pandemic, government action, and government aid develop, however, the situation should change and become less exceptional.

    Assuming that the current pandemic and government action would trigger a force majeure defense for contracts entered into, for example, before February 2020, the party seeking to avoid performance must still prove causation and is required to reasonably mitigate damages. Did the party invoking force majeure have other business problems before the pandemic that are causing or substantially contributing to the inability to perform? Has the party undertaken reasonable, diligent measures to mitigate the effect of the COVID-19 pandemic, such as redirecting its business efforts and minimizing costs? Moreover, why should the counter-party to the contract be forced to bear the risk of the pandemic?

    The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed into law on March 27, 2020 and other state enactments that may follow should also offer some contracting parties with sufficient relief and mitigation such that continued, or renewed, performance with pre-existing contracts may be required. The CARES Act provides hundreds of billions of dollars of funding available for Small Business Association loans, which will provide “forgiveness” (no repayment required) for amounts the businesses spend on interest payments for mortgages, payroll, utilities, and rent for an eight-week period after a loan originates. Government aid may enable businesses to mitigate their damages sufficiently that continued performance with contracts is required.

    The full text of the CARES Act is available here and a thorough summary of both business and employment benefits under the act can be found here.

    Issues for Consideration

    • Review the contract for a force majeure provision and the particular contract language. Where the contract contains a specific provision, its language and the manner in which it allocates risks between the parties should take precedence over California’s common law and statutory law.
    • If you are seeking to suspend or avoid performance, give the other party written notice, regardless of whether the contract requires it. If you are the counter-party seeking to require performance and you receive notice, ask reasonable questions – why in particular does COVID-19 justify suspending performance for this business, for how long, and what accommodations in lieu of suspending performance altogether could you (or the other party) propose?
    • The party attempting to suspend or avoid performance needs to seek to mitigate damages. Likewise, the party seeking to enforce the contract should be flexible, where possible, both as a good business practice to further the relationship and to show that you were flexible or even proposed mitigation measures. Ask what you can do to facilitate performance, such as agreeing to delay or defer a payment for a certain period of time, or, possibly to waive or diminish interest payments or a late fee for a particular period. If litigation later ensues, a party’s flexibility should help to show that the party seeking to avoid performance could have found a way to perform with reasonable proposed accommodations or mitigation measures.

    Aggressive litigants may also seek to take tactical advantage of the COVID-19 pandemic to avoid contracts they do not like. If you are faced with a baseless or overreaching claim that the COVID-19 pandemic has made contractual performance impossible, you may need to push back forcefully. And before you seek to take tactical advantage of the pandemic, keep in mind that courts are unlikely to look with sympathy on parties who try to exploit a worldwide health and financial crisis. Force majeure provisions should only be invoked where appropriate.

    Any decision about whether to invoke force majeure or how to respond to a counter-party’s invocation of it is fact-specific. We expect to provide future updates on issues in specific contexts. For example, how will lenders and debtors address loan defaults if the pandemic triggers a long-term recession? How will commercial and residential landlords deal with sky-rocketing numbers of tenants who may suddenly be unable to pay rent?

    For further information on how the COVID-19 pandemic might impact your contracts and your business, contact Howard Slavitt at hslavitt@coblentzlaw.com.

  • CARES Act: What Companies and Taxpayers Need to Know

    On March 27, 2020, Congress approved and the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, H.R. 748). In addition to the Families First Coronavirus Response Act (FFCRA) upon which we previously reported on, the CARES Act provides for approximately $2 trillion in assistance to individuals and businesses, among other things. For individuals, relief set out in the bill includes direct payments of $1,200 to millions of Americans and strengthened unemployment benefits. For businesses, the bill allocates hundreds of billions of dollars in loans and grants for struggling businesses, particularly small businesses, and expands the availability of pre-existing loan programs to more businesses. The bill includes:

    Expanded Unemployment Compensation for Workers. The CARES Act sets out a multipronged approach to assist state-based unemployment programs. The CARES Act includes (i) a $600 supplement to state-paid unemployment compensation for those who already qualify, (ii) a pandemic unemployment assistance program which matches the normal state unemployment rate plus $600 for unemployed workers who would not normally be eligible, and (iii) an extension of unemployment compensation by 13 weeks beyond the states’ existing eligibility periods. The Act further provides federal funding to states to cover the cost of the first week of unemployment benefits if states elect to waive typical one-week waiting periods (which California has done).

    • Pandemic Unemployment Assistance – Section 2102
      Section 2102 creates the temporary Pandemic Unemployment Assistance program effective January 27, 2020, to remain in effect until December 31, 2020, which covers individuals who would not otherwise be eligible for unemployment insurance and benefits. Individuals covered by the CARES Act include the self-employed, independent contractors, gig workers, part-time employment seekers, those who lack sufficient work history, or those who have exhausted their unemployment benefits under existing schemes – provided they are able to self-certify that they are unemployed, partially unemployed, or unavailable due to the following reasons:

      • They have been diagnosed with COVID-19 or are experiencing symptoms of COVID-19 that require a medical diagnosis.
      • A member of their household has been diagnosed with COVID-19.
      • They are providing care for a family member or member of their household who has been diagnosed with COVID-19.
      • A member of their household for whom they have primary caregiving responsibility is unable to attend school or another facility that has been closed as a direct result of the COVID-19 public health emergency and because of this closure, they are unable to work.
      • They are unable to work because of a quarantine imposed as a result of the COVID-19 public health emergency.
      • They are unable to work because they have been advised to self-quarantine by a health care provider.
      • They were scheduled to start a job but are unable to do so as a result of the COVID-19 public health emergency.
      • They have become the breadwinner or major supporter for a household because the breadwinner in the household has died as a direct result of COVID-19.
      • They quit their job as a direct result of COVID-19.
      • Their place of employment is closed as a direct result of the COVID-19 public health emergency.
        (Note: individuals who are able to telework with pay or who have received paid sick leave or other paid leave benefits are ineligible to receive assistance under the Program.)Covered individuals may receive assistance under the Program for a maximum of 39 weeks, including any weeks for which the covered individual received regular unemployment benefits provided under Federal or State law. The amount of benefit provided to a covered individual under the Program is equal to the amount of unemployment benefit the covered individual would otherwise be entitled to under federal or state law plus an additional amount referred to as Federal Pandemic Unemployment Compensation in the amount of $600 per week. The Program removes any waiting periods established by state unemployment laws.
    • Emergency Increase in Unemployment Compensation Benefits – Section 2104
      Section 2104 provides for an additional $600 per week payment beyond what individuals receive under state unemployment laws, referred to as “Federal Pandemic Unemployment Compensation,” to recipients of unemployment insurance or Pandemic Unemployment Assistance for a period of up to four months.
    • Pandemic Emergency Unemployment Compensation – Section 2107
      Section 2107 provides an additional 13 weeks of unemployment compensation, through December 31, 2020, to all individuals who otherwise would be ineligible for such compensation because they have exhausted all rights to regular unemployment compensation under applicable state or federal law with respect to this benefit year, provided they (i) have no rights to regular unemployment compensation under any applicable state or federal law, (ii) are not receiving unemployment compensation under Canadian law, and (iii) are able, available and actively seeking work. The amount of unemployment compensation payable to an individual under this Section is equal to the amount of unemployment benefit the individual would otherwise be entitled to under applicable federal or state law plus the amount of Federal Pandemic Unemployment Compensation ($600).

    For a chart summarizing all employment benefits made available due to the pandemic under federal and California law, click HERE.

    Recovery Rebate for Individual Taxpayers. The CARES Act would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). Additionally, qualifying taxpayers with children will receive a flat $500 for each child. The rebate starts to phase out for single taxpayers earning $75,000 or more, for head of household taxpayers earning $112,500 or more, and joint taxpayers earning $150,000 or more. The phase out is calculated at 5% per dollar of qualified income, or $50 per $1,000 earned above the phase out threshold. For example, a single taxpayer filing as an individual (not head of household) making $85,000 annually would receive a rebate of $700 (that is, $1,200 reduced by 5% of $10,000, or $500). It phases out entirely for single taxpayers with no children who earn more than $99,000 per year, and for joint taxpayers with no children who earn more than $198,000 per year. An individual’s 2019 or 2018 tax returns will be used to calculate the rebate advanced to taxpayers, but taxpayers eligible for a larger rebate based on 2020 income will receive it in the 2020 tax season.

    Paycheck Protection Program – Section 1102. The bill provides aid to businesses with fewer than 500 employees and allocates approximately $350 billion through June 30, 2020 for small business loans up to $10 million through approved lenders that are fully government-guaranteed. The loan proceeds may be used to cover payroll costs, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments incurred from February 15, 2020 through June 30, 2020. The maximum amount of a loan equals 2.5 times the average regular monthly payroll expenses, subject to a hard cap of $10 million and other certain limitations.

    The following businesses are considered eligible for the Paycheck Protection Program:

    1. Businesses with fewer than 500 employees.
    2. Small businesses as defined by the Small Business Administration (SBA) Size Standards at 13 C.F.R. 121.201.
    3. 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, and Tribal business concern described in Section 31(b)(2)(C) of the Small Business Act with not more than 500 employees.
    4. Hotels, motels, restaurants, and franchises (NAICS Code 72) with fewer than 500 employees at each physical location.
    5. Businesses that receive financial assistance from Small Business Investment Act Companies licensed under the Small Business Investment Act of 1958.
    6. Sole proprietors and independent contractors.

    Eligible small businesses may also receive loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020, with the amount of any such forgiveness reduced if the borrower subsequently reduces its employee headcount or employee compensation beneath certain established thresholds. Any amount of loan used to pay any single employee more than $100,000 will be excluded from forgiveness. Borrower and lender fees, collateral, and personal guarantee requirements all are waived. The CARES Act authorizes the Small Business Administration to issue loans with interest rates of up to 4% with a maximum maturity date of 10 years, though the regulations issued by the Treasury Department after enactment of the law set the interest rate at 1% with a maturity date of only 2 years. There is no penalty for prepayment, and loan repayments can be deferred for 6-12 months. Eligibility for loans under the Paycheck Protection Program is based on whether the business (1) was operational on February 15, 2020, and (2) had employees for whom it paid salaries and payroll taxes, or a paid independent contractor, and not with regard to repayment ability. A borrower must make a good faith certification that current economic conditions caused the borrower to request support, the loan will be used for approved uses, and the borrower is not also seeking or received an SBA 7(a) loan for the same purpose. A list of approved lenders can be found here.

    SBA Economic Injury Disaster Loans & Advances – Section 1110. The bill expands the types of entities eligible to receive (1) up to $2 million in direct loans from the Small Business Administration (with the actual loan amount depending on the amount of the actual injury), and (2) loan guarantees for substantial economic injury caused by the COVID-19 pandemic. Eligible borrowers under this program are those that are unable to meet their obligations as they mature or to pay their ordinary and necessary operating expenses as a result of the COVID-19 pandemic. The loan proceeds may be used for (i) working capital necessary to carry on the concern until normal operations resume, (ii) expenditures necessary to alleviate the specific economic injury, (iii) providing paid sick leave to employees, (iv) maintaining payroll, (v) meeting increased costs to obtain materials, (vi) making rent or mortgage payments, and (vii) repaying obligations that cannot be met due to revenue losses. Due to potential delays in disbursing these loans, the bill also authorizes emergency grants of up to $10,000 to eligible borrowers, available immediately. Note that borrowers receiving an Economic Injury Disaster Loan relating to the COVID-19 pandemic cannot also receive a loan under the Paycheck Protection Program. The Economic Injury Disaster Loan application can be found here.

    New Eligible Entities:

    1. Generally, businesses with fewer than 500 employees.
    2. Tribal businesses with fewer than 500 employees.
    3. Cooperatives with fewer than 500 employees.
    4. Employee Stock Ownership Plans with fewer than 500 employees.
    5. Individuals operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020).

    Other Eligible Entities:

    1. Small businesses as defined by the Small Business Administration Size Standards.
    2. Private non-profits with exemptions under sections 510(c), (d) or (e) of the Internal Revenue Code.

    Section 7(a) Loan Subsidies – Section 1112. The bill allocates $17 billion to the Small Business Administration to cover principal, interest, and fees on loans guaranteed by the Small Business Administration for up to six months.

    For a chart summarizing the loan, forgiveness and subsidy programs made available under the CARES Act click HERE.

    Tax Provisions. In addition to the specific provisions detailed above, the new law includes several changes to the U.S. tax laws to provide assistance for taxpayers dealing with the financial fallout from the pandemic. These include:

    • Five-Year NOL Carryback and Suspended 80% Limitation – Section 2203
      For taxable years 2018 to 2021, the 80% income limitation on net operating losses (“NOLs”) has been suspended. The bill also allows for NOLs earned in 2018, 2019, or 2020 to be carried back five taxable years.
    • Waiver of Penalty on Early Withdrawal from Retirement Account – Section 2103
      The bill removes the 10% penalty on early withdrawals from retirement accounts for any “coronavirus-related distribution.” A coronavirus-related distribution is a distribution from a retirement plan made between March 27, 2020 and December 31, 2020 to an individual (i) who has tested positive for coronavirus, (ii) whose spouse or domestic partner has been diagnosed with coronavirus, or (iii) who experiences adverse financial consequences as a result of coronavirus. Amounts withdrawn are taxable over three years, but may be recontributed without affecting retirement account caps. Eligible retirement accounts include individual retirement accounts (“IRAs”), 401ks, and other eligible plans under Section 402(c)(8)(B) of the Internal Revenue Code.
    • Temporary Waiver of Required Minimum Distribution from Retirement Account – Section 2203
      The bill waives the required minimum distribution for 2020 from 401k plans, IRAs and other eligible retirement accounts.
    • Interest Deduction Limitation – Section 2206
      The bill increases the amount of deductible business interest expenses from 30% to 50% of EBITDA for tax years beginning in 2019 and 2020.
    • Technical Correction Regarding Deduction for Qualified Improvement Property – Section 2307
      The bill includes an amendment to the 2017 Tax Cuts and Jobs Act, which reduces the depreciable life of qualified improvement property, such as leasehold improvements, from 39 years to 15 years. This amendment is retroactive to January 1, 2018, and therefore taxpayers may file amended tax returns to receive the benefits of additional and bonus depreciation.

    The full text of the CARES Act is available online here.

    This alert was authored by Coblentz Employment attorneys and Christopher Westman, with contributions from our Tax attorneys Jeffry Bernstein and Jessica Wilson. For more information or to discuss how the CARES Act impacts your company, please contact Jeffry Bernstein at jbernstein@coblentzlaw.com, or Paul Tauber at ptauber@coblentzlaw.com.