Regulatory Playbook

Trending Issues

Distressed Real Estate During COVID-19: New York State Court Order Finds UCC Foreclosures Are Not Suspended by New York E.O. 202.8.
05.22.20
A recent court order issued as part of an ongoing litigation involving a Manhattan hotel held that a mezzanine lender may proceed with a UCC foreclosure sale of the mezzanine loan collateral despite N.Y.E.O. 202.8, which prevents creditors from initiating judicial foreclosures. That clarification alone would have been enough to make the decision important during the COVID-19 pandemic but, in a few short pages, the order touches upon the appropriate remedies involving the foreclosure of an indirect ownership interest in real estate. The “secondary” implications from the order are likely to impact real estate lending even after N.Y.E.O. 202.8 has been lifted. Mezzanine lenders and borrowers should take note as they evaluate remedies under existing mezzanine loans.

New York State Courts to Restore (Electronic) Filing of New Nonessential Actions
05.22.20
In our last alert, we noted that litigants had been banned from commencing new nonessential actions (including most commercial actions) in New York State courts since March 22, 2020. On that date, New York Chief Administrative Judge Lawrence K. Marks issued an administrative order (AO-78-20), prohibiting litigants from making any court filings (paper or electronic) in any non-essential matters, whether new or pending. While the Chief Administrative Judge loosened the restrictions on electronic filings in pending nonessential matters in Administrative Order 87-20, issued on May 1, 2020, the ban on the filing of new nonessential cases remained in place.

Safety Measures for Construction Projects During the COVID-19 Pandemic
05.21.20
Over the past few months, construction projects in most states have carried on because construction was deemed essential and projects were exempted from government orders that closed businesses. In the jurisdictions that halted construction operations, state and local authorities are now easing those restrictions and allowing construction to resume. As we pivot toward this next phase of the COVID-19 pandemic, construction sites will be very different than they were a few months ago and business-as-usual is likely a thing of the past.

All Employers Must Monitor Employee COVID-19 Cases Under Updates to OSHA’s Interim Enforcement Plan and Guidance for Recording Cases
05.20.20
On May 19, 2020, the Occupational Safety and Health Administration (OSHA) of the U.S. Department of Labor issued both an Updated Interim Enforcement Plan and Revised Enforcement Guidance for Recording Cases, which will on May 26, 2020, rescind April 10 guidance issued on the respective topics.

Implications of PPP Certifications for D&O Coverage
05.18.20
The Paycheck Protection Program (PPP), a key feature of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), was enacted to provide forgivable loans to certain small business and self-employed individuals demonstrating urgent financial need in the wake of the COVID-19 pandemic. (See H.R. 748 § 1102.) Loan recipients must certify their compliance with the terms and conditions of the loan, and violations expose them to a wide array of potential civil and criminal penalties, forfeiture, and other liabilities. If you or your company have already obtained, or are considering applying for a PPP loan, it is highly advisable for you to carefully review your D&O Liability Insurance Policy, as coverages for defense or ultimate liability vary significantly.

COVID-19: New York and New Jersey Announce Phased Reopening of Businesses
05.18.20
On Friday, May 15, New York began reopening businesses after widespread closures in response to the coronavirus pandemic. New York Forward, the New York plan to reopen the state, divides the state into ten (10) regions. Each region may reopen in a four-phased process as it satisfies certain metrics. Generally, the metrics monitor the region’s new infections and analyze the region’s health care, diagnostic testing, and contact tracing capacities.¹ The executive orders remain in effect, as described in this alert, requiring all people in New York to wear masks or face coverings in public, including when taking public or private transportation. As previously advised, employers will generally be expected to provide face masks to employees.(This link provides an updated map and table of each region’s status.)

Proposed California Bill Would Ban Commercial Evictions During the State of Emergency and Grant Lease Termination Rights to Qualifying Tenants
05.18.19
On May 13, 2020, proposed California Senate Bill No. 939 was amended to not only prohibit landlords from evicting commercial tenants during the pendency of the COVID-19 state of emergency, but to extend protections to certain qualifying tenants permitting express rent reduction negotiation rights and lease termination rights. Unlike the eviction moratorium restrictions imposed in many counties and cities across the state, tenants are not required to show financial losses related to COVID-19; all commercial tenants are shielded from eviction. In addition, the bill gives a subset of commercial tenants express negotiation and termination rights.

The Regulation of Medical Waste During COVID-19
05.15.20
After many used medical syringes washed up on beaches in the eastern United States, Congress enacted the Medical Waste Tracking Act of 1988, which directed EPA to establish a two-year medical waste demonstration project that would principally affect several northeastern states. The Act amended the Resource Conservation and Recovery Act (RCRA) and EPA promulgated medical waste standards in 1989. (See 54 FR 12326.) The rules were located in EPA’s solid, non-hazardous waste rules at 40 CFR Part 259 (later revoked). These rules followed the standard RCRA format and regulated Generators, Transporters, and Treatment and Disposal Facilities. When the initial batch of EPA’s RCRA Hazardous Waste Rules were promulgated in 1980, EPA decided against designating infectious waste as a hazardous waste. As a result, medical waste was not made subject to the rigorous RCRA regulatory regime. According to EPA, medical waste is a subset of solid wastes generated at health care facilities—principally hospitals—that may be contaminated by blood, bodily fluids or other potentially infectious materials and can take different forms.

FCC Grants Relief to Address Medical Device Company’s COVID-19 Supply Chain Issues
05.15.20
On May 11, 2020, the FCC issued an order granting a request for waiver filed by GE Healthcare relating to its health care equipment that is subject to the FCC’s equipment authorization rules. GE requested a waiver because it was unable to obtain certain components contained within its healthcare equipment due to severe supply chain disruptions caused by the COVID-19 pandemic.

SBA Issues Critical New Guidance on PPP Borrowers’ Certification of Necessity
05.13.20
On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act, whose provisions we summarized here. PPP applicants are required to make a number of certifications in connection with their applications, for example concerning their eligibility and the purposes for which they will use the loans. Attention to these certifications is extremely important, given the severe penalties that are possible for submitting false or misleading certifications to the government. One such certification that has drawn particular scrutiny is the certification that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

COVID-19’s Impact on the Motion Picture and Television Industries and How Insurance Can Soften the Blow
05.13.20
COVID-19 has left few industries unscathed. For those facing substantial financial damages, insurance policies may offer hope, and this is just as true for those losses being suffered in the entertainment industry as government orders have placed nearly all TV and film production in stasis because of the pandemic.

COVID-19, Corruption and Money Laundering – Managing Risk and Avoiding the Coming Wave of Enforcement
05.12.20
The pandemic crisis gripping the world has dramatically expanded demand for medical, food, household and other supplies. Governments, international organizations, NGOs and private companies have unleashed a wave of spending. Sadly, corruption, fraud and money laundering thrive in such environments.

California Allows Localities to Reopen Certain Businesses Consistent with State Guidance
05.12.20
On Thursday, May 7, California rolled out a modified stay-home order and issued guidance to move into “Stage 2” of reopening certain sectors of the economy. This new statewide order, and the county-level reactions to it, create another layer in the patchwork of compliance requirements, but provide a pathway for certain industries to open doors sooner than others.

Sellers Beware: The Blurry Line Between Profit and Price Gouging under the Defense Production Act
05.11.20
On March 23, 2020, President Trump invoked the authority under the Defense Production Act of 1950, as amended (50 U.S.C. § 4501 et seq.) (DPA) and signed Executive Order 13910. The Defense Production Act provides, in part, that “to prevent hoarding, no person shall accumulate (1) in excess of the reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation.” 50 U.S.C. § 4512. That same provision requires the President to designate the “materials the accumulation of which is unlawful and any withdrawal of such designation.” Id. By Executive Order 13910, the President delegated the task to identify such materials to the Secretary of Health and Human Services (HHS). See Executive Order 13910. As a result, on March 25, 2020, the Secretary of HHS issued a Notice of Designation of Scarce Materials or Threatened Materials Subject to COVID-19, designating no less than 15 categories of materials falling under the Executive Order (e.g., N-95 masks, ventilators, surgical or exam gloves, sanitizing and disinfecting products suitable for use in a clinical setting). But what is “in excess of the reasonable demands” or “in excess of prevailing market prices” is murky at best, with violators subject to punishment by a fine up to $10,000 and/or imprisonment for up to a year. 50 U.S.C. § 4513. In addition, those same materials are subject to seizure from law enforcement and those reselling, whether directly or indirectly, could be exposed to civil liability from various market participants.

COVID-19, Corruption and Money Laundering – Managing Risk and Avoiding the Coming Wave of Enforcement
05.11.20
The pandemic crisis gripping the world has dramatically expanded demand for medical, food, household and other supplies. Governments, international organizations, NGOs and private companies have unleashed a wave of spending. Sadly, corruption, fraud and money laundering thrive in such environments.

Congress, Department of Justice Turn Their Attention to Oversight of COVID-19 Stimulus Funds
05.08.20
On May 5, the Department of Justice (DOJ) announced its first fraud and abuse indictments related to CARES Act lending. DOJ charged two men in Rhode Island with fraudulently seeking more than $500,000 in forgivable loans from the Small Business Administration (SBA) under the Paycheck Protection Program (PPP). The men allegedly sought funds for businesses that were not in operation prior to the COVID-19 pandemic in order to pay the salaries of employees that did not exist, while providing false documentation to support the application. DOJ charged the men with bank fraud, conspiracy to commit bank fraud, conspiracy to make false statements to influence the SBA, and aggravated identity theft. This is expected to be the first of many enforcement actions DOJ will launch against COVID-19 fraudsters.

Mitigation of Investment Adviser Business Interruption and Regulatory Noncompliance Risks Related to COVID-19—Update
05.07.20
Investment advisers
Relief from the Form ID notarization process for certain filers. The SEC has adopted a temporary final rule to provide relief from the Form ID notarization process for certain filers where circumstances related to COVID-19 render it impracticable or impossible to obtain a notarization in a timely fashion. From March 26, 2020 through July 1, 2020, temporary paragraph (c) to Rule 10 of Regulation S-T under the Securities Act of 1933 will allow filers to gain access to the EDGAR system on a temporary basis without initially providing the required notarization to the manually signed document, provided that the filer indicates on the face of the signed document that it could not obtain the required notarization due to circumstances relating to COVID-19. Filers seeking access to EDGAR in reliance on the temporary final rule may be asked to provide documents, on a supplemental basis, to support their application and assist the staff in validating the request. Once the codes are issued, the filer may commence filing.

SBA Extends PPP Safe Harbor to May 14
05.06.20
On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act, whose provisions we summarized here. PPP applicants are required to make a number of certifications in connection with their applications, for example concerning their eligibility and the purposes for which they will use the loans. Attention to these certifications is extremely important, given the severe penalties that are possible for submitting false or misleading certifications to the government. One such certification that has drawn particular scrutiny is the certification that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Many applicants have noted that this certification is vague and have sought guidance on it.

Florida’s “Step-by-Step” Plan to Reopening Businesses
05.04.20
Beginning on Monday May 4, 2020, at 12:01 a.m., Florida will begin reopening business in the Phase 1 of the recovery plan laid out by Gov. DeSantis. Businesses seeking to reopen will be subject to social distancing guidelines and CDC and OSHA requirements. Gov. DeSantis entered Executive Order 20-112 outlining the requirements for businesses looking to reopen. While this is a statewide order, Miami-Dade, Broward and Palm Beach counties will follow stricter protocols in coordination with their mayors and are excluded from this Executive Order. The remaining provisions of the Safer At Home executive order remains in place.

Texas Governor Releases Plan to Reopen the State
05.01.20
On April 27, 2020, Governor Greg Abbott released Texas’s long-term plan to open the state for business, while still containing the spread of COVID-19. The plan consists of two key components: Executive Order GA-18 (Order), which designates the businesses currently permitted to reopen, and the Governor’s Report to Open Texas (Report), which outlines Texas’s increased testing efforts, contact tracing program, and other safety measures, and provides checklists for individuals and all employers, as well as retailers, restaurants and movie theaters.

Personal Guaranties May Not Deter Property Owner Bankruptcies
05.01.20
This is the fourth in a series of alerts on insolvency topics affecting real estate. In this alert, we evaluate whether the existence of personal guaranties are likely to deter property owner bankruptcies—a question raised during Pillsbury’s recent “Real Assets Roundup – Real Estate” webinar.

In the wake of COVID-19, default rates for commercial real estate loans, including those supported by personal guaranties, will likely accelerate. Inevitably, borrowers will consider seeking bankruptcy protection to implement a restructuring of debt or a sale of real property collateral, and lenders should not assume that personal guaranties will prevent borrower bankruptcies. Given the current economic climate, lenders should instead assess the likelihood of their borrowers filing for bankruptcy and consider whether they are better off supporting a controlled bankruptcy process to accelerate favorable collateral disposition, as opposed to litigating on both the bankruptcy and guaranty fronts.