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 IssuesApplications for the FCC’s Connected Care Pilot Program Due December 7
The FCC recently issued a Public Notice (following guidance released in September) announcing that the application filing window for its Connected Care Pilot Program (Pilot Program or Program) will be open until December 7, 2020. The Pilot Program will provide up to $100 million over three years to eligible health care providers to offset certain costs of delivering connected care services, with a focus on serving low-income and veteran patients. Although the Pilot Program is distinct from the FCC’s COVID-19 Telehealth Program launched earlier this year (previously summarized here), the Program complements broader efforts to expand telehealth services in light of the COVID-19 pandemic.
SBA Proposes to Increase Size Standards for 46 Service Industries
Under the Small Business Jobs Act of 2010, the U.S. Small Business Administration (SBA) is required every five years to review the existing size standards and make necessary adjustments to reflect current industry and market conditions. This review is separate from the adjustment for inflation that the SBA is required to make to all receipts-based size standards, also every five years. Rather than review all of the more than 1,000 NAICS code standards at one time, the SBA spreads its effort over the five-year period, evaluating several industry sectors at a time.
What Will the Biden/Harris COVID-19 Plan Mean for Business?
The incoming Biden Administration promises a more nationalized approach to combatting the COVID-19 public health crisis, plus a large economic stimulus response focused on unemployment, paid leave, state and local government support and support to small- and medium-sized businesses.
“Job One” for Congress: What to Expect in the Next COVID-19 Relief Bill
Senator Mitch McConnell expresses new interest in passing a COVID-19 relief package in the lame-duck session.
The Election Is Over—Now What? Understanding the Biden Administration’s Policy Priorities
While President Trump continues to push forward legal challenges and some states will have recounts of their votes, it has become increasingly clear that Joe Biden will be the 46th President of the Unites States. Offering a stark contrast to President Trump throughout the campaign, the message from President-Elect Biden of unity and normalcy prevailed in a country fatigued by a pandemic, economic hardship and political divisiveness. Succeeding in uniting the Democratic party, the lifelong centrist adopted several key progressive positions while moderating them enough to carry moderate voters. With an electoral mandate supporting a return to “normalcy,” the incoming Biden Administration has promised compromise and reconciliation, though at the same time pushing forward with a reversal of many policies of the last four years. Significant changes are coming on issues from energy and climate policies to foreign trade and international relations to infrastructure and finance.
Can the Government Terminate a Contract for Convenience When It Does Not Actually Terminate the Contract for Convenience?
On October 16, 2020, the Court of Federal Claims granted a Motion for Summary Judgment that disposed of a breach of contract claim alleging the Army did not order certain services required under the contract. JKB Solutions and Services, LLC v. United States, COFC No. 19-1390C (Fed. Cl. Oct. 16, 2020) (“JKB II”). The Court held that the Army constructively terminated the contract for convenience and, therefore, did not breach it. The Court was not moved by the fact that the Army did not, in actuality, terminate the contract for convenience or for any other reason.
Distressed Real Estate During COVID-19: Mezzanine Loans Behind Construction Loans—Special Considerations and Intercreditor Agreement Provisions
As more fully described in our prior alert on Intercreditor Agreements (ICAs), and by way of a short introduction to mezzanine loans generally, the mezzanine lender in a single mezzanine loan structure makes a mezzanine loan to the mortgage borrower’s owner(s) (the “mezzanine borrower”) and the mezzanine loan is secured by the mezzanine borrower’s equity interest in the mortgage borrower (a single purpose entity that is not the property owner entity). Instead of a lien on the underlying real property, the mezzanine lender takes a pledge of equity interests in the mortgage borrower. This means that in the event of an enforcement action by the senior lender under a senior mortgage, a mezzanine lender’s loan is extinguished if the mortgage lender forecloses on its mortgage loan or accepts a deed in lieu. The mezzanine loan’s collateral only has value if the underlying property (or anticipated development potential) exceeds the amount of the mortgage debt. As a result, the mezzanine loan is vulnerable if there are intervening liens (such as real estate tax liens, mechanic’s liens or judgment liens) since its collateral is only an indirect interest in the property—and a foreclosing mezzanine lender indirectly becomes exposed to all such outstanding liens and liabilities without having the ability to foreclose any of them out. This puts the mezzanine lender at greater risk—and in exchange for this risk the mezzanine loan coupon is traditionally quite a bit higher than the mortgage loan coupon. Note that we have assumed in this article, for sake of simplicity, that there is a mortgage loan and a single mezzanine loan.
Tour de Force: COVID-19 Continues to Impact Leases While Cases Implicating Force Majeure Await Decisions
Real estate litigation continues, presenting new force majeure arguments.
Seven months into the pandemic, the real estate sector continues its struggle to conduct day-to-day commercial operations in light of the continued spread of COVID-19 and varying degrees of government-imposed shutdowns.
China’s Export Control Law Formally Enacted
After submission for review and discussion at the 22nd session of the Standing Committee of the 13th National People’s Congress of the People’s Republic of China (PRC), the final version of the long-awaited Export Control Law of the PRC was passed and enacted on October 17, 2020, with an effective date of December 1, 2020.
Indian Government Announces New Opportunities for Defense Contractors and Investors
The Indian government is amending its procurement policy and increasing foreign direct investment in the defense sector, both developments which we believe will be of interest to many of our government contracts clients. India is the second largest arms importer in the world and spends close to two percent of its GDP on defense. In addition, recent border skirmishes with China and Pakistan have heightened the urgency for India to shore up its defense arsenal.
Trump vs. Biden: What Could Be Next for the Energy Transition?
The Biden Plan
In the wake of a competitive primary where Democratic nominee Joe Biden struggled to garner support amongst younger voters and climate activists who preferred Sen. Bernie Sanders, he has sought to unite the party by making energy transition and climate policy a centerpiece of his election agenda. His 7,000-word energy plan is centered around a promise of $2 trillion in federal spending to set the U.S. on an “irreversible course” toward net-zero emissions by 2050 and a fossil-free energy sector by 2035, goals envisioned to be legislated into law by Congress.
Prohibited Campaign Contributions Threaten to Put Corporate Donors Behind Bars
Historic spending on the 2020 election is driving aggressive DOJ prosecution of criminal campaign finance violations.
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.
TopicsCOVID-19 (Coronavirus) Congressional and Agency Debates Cybersecurity, Privacy & Data Protection Employee Relations Energy and Climate Change Global Trade and Investment Innovation and Trends Government Contracts Internet & Social Media White House Actions
Pillsbury’s Washington Weekly Briefing – June 17