Regulatory Playbook | Pillsbury Law
Regulatory Playbook
Inside analysis direct from Washington, DC
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Regulatory Playbook

Inside analysis direct from Washington, DC

Welcome to Pillsbury’s Regulatory Playbook, where you’ll find news and insights on the regulatory trends that are driving markets and shaping businesses. Here, Pillsbury’s market-leading regulatory group illuminates critical developments at the intersection of law and policy. If you need to know what’s happening, why it’s happening and how to respond, consult the Playbook.

Trending Issues

Distressed Real Estate During COVID-19: The Role of Intercreditor Agreements between Mortgage Lenders and Mezzanine Lenders
With the passage of time since the first COVID-related lockdowns, many real estate lenders are no longer willing to forbear from collections and modify repayment terms and instead are pivoting to considering, or in fact exercising, their remedies. At this juncture, some borrowers are also asking to “turn in the keys”—particularly in the hardest hit sectors of hospitality and retail. For mortgage lenders, this may mean accelerating the debt and proceeding to a real estate foreclosure of the mortgaged property. For mezzanine lenders, this may mean conducting a UCC foreclosure of the pledged equity. Besides confirming subordination of the mezzanine loan to the mortgage loan, intercreditor agreements (ICAs) address many of the fact patterns described above, along with granting cure rights and purchase rights to the mezzanine lender. These provisions can present both challenges and opportunities.

Court Dismisses COVID-19 Flight Cancellation and Refund Class Action Lawsuit Brought Against Norwegian Air
With airlines facing over 30 class actions across the country seeking refunds for COVID-19 related flight cancellations, Pillsbury client Norwegian Air is the first to obtain a dismissal with prejudice.

Ohio Passes a Liability Protection Statute, Joining a Growing Number of States
Ohio becomes the next state looking to find a balance between opening businesses and protecting business from liability relating to the ongoing pandemic. On September 14, 2020, Ohio Governor Mike DeWine signed House Bill 606 (“An Act to Grant Immunity to Essential Workers who Transmit COVID-19”), an act establishing two forms of qualified immunity from civil liability for claims relating to the coronavirus crisis and/or similar emergencies. Both houses of the Ohio General Assembly passed the act on September 2, 2020, over the objections of Democrats in the legislature. The Ohio House originally passed a version of the bill in late May, and the Senate passed a revised version of the bill in early June, but the bill languished for two months in the legislature before the House picked up the bill again to resolve differences between the two bills that had passed.

Home Rule in a Global Pandemic
While Washington, D.C. license plates have included the phrase “taxation without representation” since 2000—updated in 2016 to “end taxation without representation”—battling COVID-19 has renewed the call for D.C. statehood.

IRS Issues Guidance Related to Executive Order Permitting the Deferral of Employee Social Security Tax during COVID-19 Pandemic
On August 28, the IRS issued guidance, Notice 2020-65, implementing President Trump’s Executive Order related to the deferral of the employee portion of Social Security taxes. In summary, based on the guidance it appears that employers are not required to permit the deferral, and because of the potential pitfalls and drawbacks described below, employers should consider not deferring any employee’s Social Security taxes absent a compelling reason.

OSHA Overwhelmed by Pandemic-Related Whistleblower Complaints
In an April 8, 2020 news release, OSHA reminded employers “it is illegal to retaliate against workers because they report unsafe and unhealthful working conditions during the coronavirus pandemic.” Examples of retaliation include “terminations, demotions, denials of overtime or promotion, or reductions in pay or hours.”

Focus on Forgiveness: The Latest Paycheck Protection Program Regulatory Developments
The Paycheck Protection Program (PPP) closed for new loans on August 8, 2020, though a renewal is currently being negotiated in Congress.1 Regardless of the future of new loans, as PPP borrowers continue through the lifecycle of the program by preparing to apply for loan forgiveness, the Small Business Administration (SBA) has continued to issue important new regulations and guidance that will impact their forgiveness analysis. We summarize below some of these important new developments.

Tour de Force: The Impact of a Force Majeure Clause (or Lack Thereof) on Other Excuse Doctrines
The Absence of a Force Majeure Clause
In common law jurisdictions, force majeure is a creature of contract, meaning that the doctrine cannot be invoked absent an express provision authorizing the parties to do so. Other excuse doctrines, however, exist at the common law—namely impossibility and frustration of purpose. The former doctrine is triggered by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made. The latter doctrine is available when a party’s principal purpose is substantially frustrated without its fault by such a contingency, even if performance remains possible.

Distressed Real Estate During COVID-19: Court Finds UCC Foreclosure “Commercially Unreasonable” Because of Coronavirus-Related Market Turmoil
On March 20, 2020, Governor Andrew Cuomo issued an order (the “Executive Order”) pausing, among other things, any residential or commercial mortgage foreclosure actions. On August 3, 2020, a New York court addressed the question of whether that order prohibits a mezzanine lender from foreclosing on its security interest in the equity interests of a mezzanine borrower whose sole asset is the ownership interests in a company whose principal asset is real estate. In Shelbourne BRF LLC v. SR 677 BWAY LLC (Index No. 652971/2020), the New York County Supreme Court granted the borrower’s motion for a preliminary injunction precluding the mezzanine lender from proceeding with its UCC foreclosure. This is the third time since the issuance of the Executive Order that a New York Court has confronted this question, and the second time since the issuance of the Executive Order that a New York court has enjoined a mezzanine foreclosure sale from going forward. The court’s decision in Shelbourne, however, may have a wider effect than the earlier cases and may result in the pausing of all mezzanine loan foreclosures in New York until October 15, 2020.

DC Council Acts to Extend COVID-19 Relief for Tenants and Others
The District of Columbia Council passed Bill 23-869, the “Coronavirus Support Second Congressional Review Emergency Amendment Act of 2020.” This bill, once signed by the Mayor, will extend previous emergency legislation, Act 23-238, the “Coronavirus Support Congressional Review Emergency Amendment Act of 2020,” which is set to expire on September 6, 2020. This is omnibus legislation, intended to provide a wide variety of support for District residents and businesses affected by the COVID-19 public health emergency. Below, we discuss select aspects of the legislation in its Title IV, Housing and Tenant Protections.

Understanding the New $60 Billion U.S. International Development Finance Corporation (DFC)
At the start of 2020, the U.S. International Development Finance Corporation (DFC) finally became operational after more than a year of organizational and budgetary delays. Signed into law as a part of the 2018 BUILD Act, the DFC is a $60 billion investment agency that merged the Overseas Private Investment Corporation (OPIC) with other foreign investment programs and added new objectives. DFC has a broader development objective than OPIC’s mission and offers increased services to lower- and middle-income economies, with nearly 100 countries identified as priority areas.

COVID-19 Business Interruption Litigation May Be Consolidated for a Select Few
With hundreds of cases now pending nationwide involving insurance coverage claims for business interruptions stemming from the COVID-19 pandemic, a federal panel has been considering the prospect of consolidating the litigation into one multidistrict litigation (MDL) to promote their efficient resolution. On August 12, 2020, the panel issued a decision ruling out a single nationwide MDL, but leaving open the possibility of smaller, insurer-specific MDLs.

Distressed Real Estate During the COVID-19 Pandemic: Deeds in Lieu of Foreclosure Involving Commercial Real Estate
Often, deeds in lieu are considered or delivered and accepted in the context of a mortgage financing (also including financings which involve a deed of trust or other similar instruments)—when the borrower (typically, a special purpose entity) is in default or at risk of imminent default and there is little to no equity remaining in the project. Viewed through the borrower’s lens, the consequence of an uncured default is losing the property.

Distressed Real Estate During COVID-19: Options Beyond PPP Loans
As a result of the COVID-19 pandemic, businesses across the country have faced severe economic hardship. Congress has responded with initiatives such as the Paycheck Protection Program and the Main Street Lending Program (MSLP), but these programs have not been designed with the commercial real estate market in mind. Recently, Representatives Van Taylor (R-TX), Al Lawson (D-FL) and Andy Barr (R-KY) introduced the “Helping Open Properties Endeavor Act of 2020” (HOPE Act) to provide assistance to this sector. If the bill becomes law, it will work in conjunction with existing provisions of the Main Street Lending Program to lend strong support to commercial real estate owners.

California Releases New Reopening Guidance for Employers
On July 24, 2020, the California Department of Public Health (CDPH) released reopening guidance for employers in a COVID-19 Employer Playbook for a Safe Reopening, which it followed up by publishing Safe Reopening FAQs for Workers and Employers on July 28, 2020.