Financial Services

• Bankruptcy Court Ruling Highlights Important Circuit Split on Assuming Franchise Agreements

  12.10/Alert

  In a recent decision, the U.S. Bankruptcy Court for the Eastern District of California, applying Ninth Circuit precedent, ruled that a debtor/franchisee cannot assume its franchise agreements in a chapter 11 bankruptcy case without the franchisor's consent, even where the debtor merely intends to continue to perform under the agreement rather than assign it to a third party. This ruling in In re Pinnacle Foods of California LLC, No. 24-11015-B-11, 2024 WL 4481070, (Bankr. E.D. Cal. Oct. 10, 2024) highlights a persistent and contentious issue in bankruptcy law: the intersection of intellectual property rights and the Bankruptcy Code's provisions for assuming executory contracts.

• Treasury Department and IRS Issue Final Regulations on the Advanced Manufacturing Production Credit Under Section 45X of the Internal Revenue Code

  11.27/Alert

  As amended by the Inflation Reduction Act of 2022, section 45X of the Internal Revenue Code (IRC) grants an advanced manufacturing production credit (AMPC) to manufacturers who produce certain clean energy components in the United States. The APMC is available for eligible components produced and sold after December 31, 2022. Eligible components include solar and wind components, inverters, some battery components and applicable critical minerals. In addition to being produced in the United States, the components must be sold to an unrelated party in the course of the taxpayer’s trade or business. The credit amounts available under IRC section 45X vary based on the type of eligible component that is produced and sold by the taxpayer.

• No Comity Tonight

  10.02/Alert

  Upon recognition of a foreign insolvency proceeding under chapter 15 of the U.S. Bankruptcy Code, the foreign debtor may request additional assistance from the U.S. Bankruptcy Court under section 1507 or additional relief under section 1521. Such additional relief often includes requests to recognize and enforce in the United States specific orders entered by the foreign court. While such requests are freely granted, there are limits to the relief a foreign debtor may receive. For example, in In re Nexgenesis Holdings Ltda., No. 22-14043-BKC-LMI, 2024 WL 3616732 (Bankr. S.D. Fla. July 31, 2024) (In re Nexgenesis), the bankruptcy court denied the foreign representatives’ request for recognition of an asset freeze order because, among other reasons, it would be manifestly contrary to U.S. public policy to recognize the order, even though the Brazilian insolvency proceeding had been recognized as a foreign main proceeding under Chapter 15.

• FinCEN Finalizes Rule to Compel Reporting of Individuals and Beneficial Ownership of Entities Involved in Specified Transfers of Residential Real Estate

  09.09/Alert

  On August 28, 2024, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule (RRE Rule) creating a reporting regime for transfers of residential real estate. This RRE Rule, proposed in preliminary form on February 16, 2024, supplements FinCEN’s current General Targeting Order (GTO) program for reporting of such transactions but is quite different in approach and scope. Unlike the GTO, it applies on a nationwide basis and without a floor amount of consideration.

• IRS Issues Proposed Regulations Regarding Updates to the Qualified Domestic Trust Regulations

  09.06/Alert

  The United States taxes a U.S. resident on their assets above a certain amount at death and non-residents on their U.S. assets. So, if someone dies owning assets worth more than their remaining lifetime exemption, a U.S. estate tax is typically due. Payment of this tax can often be delayed with the use of a Qualified Terminable Interest Property (QTIP) trust for the benefit of a surviving (U.S.) spouse. Additionally, spouses can transfer property to the other free of any transfer taxes, as transfers of property between spouses qualify for the unlimited marital deduction. Although transfers of property to a noncitizen spouse would not qualify for the marital deduction under Internal Revenue Code (IRC) Section 2056(d)(1), IRC Section 2056(d)(2)(A) provides an exception to the general rule. If the qualified domestic trust (QDOT) requirements under IRC Section 2056A are met, property that passes from a U.S. person to a noncitizen spouse in a QDOT qualifies for the marital deduction. An executor of the estate must elect QDOT treatment.

• Technology Transfer Agreements: Latest Developments in California

  08.26/Alert

  In 1993, the California Legislature amended Revenue and Taxation Code (RTC) sections 6011 and 6012 to exclude from California sales and use tax amounts charged for intangible personal property transferred with a technology transfer agreement (TTA) if the TTA separately stated a reasonable price for the tangible personal property (TPP). Nine years later, the State Board of Equalization (SBE) adopted Regulation 1507, Technology Transfer Agreements, to implement and interpret the TTA statutes and to incorporate the California Supreme Court’s holding in Preston v. State Board of Equalization, 25 Cal.4th 197 (2001). Subsequent litigation over the next 13 years in Nortel Networks, Inc. v. State Board of Equalization, 191 Cal.App.4th 1259 (2011) and Lucent Technologies, Inc. v. State Board of Equalization, 241 Cal.App.4th 19 (2015), invalidated portions of Regulation 1507, as well as Regulation 1502 (Computers, Programs and Data Processing). In the nine years since the Lucent decision, the SBE and its successor, the California Department of Tax and Fee Administration (CDTFA), have been engaged in a seemingly endless regulation project. There finally appears to be some meaningful movement. But first, a little background.

• U.S. Supreme Court Ruling Gives Insurers with Financial Responsibility “Party in Interest” Standing in Chapter 11 Cases Filed by Insured Entities

  07.19/Alert

  On June 6, 2024, in Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., the U.S. Supreme Court ruled unanimously that an insurer with financial responsibility for claims asserted in a bankruptcy has standing under the U.S. Bankruptcy Code to object to plan confirmation. The Supreme Court reversed a decision by the Fourth Circuit Court of Appeals denying an insurer standing based on the “insurance neutrality” doctrine but did not adopt the insurer’s position that the underlying insurance contract’s “duty to cooperate” triggered the insurer’s right to be heard in connection with the chapter 11 proceeding. Justice Sotomayor delivered the Supreme Court’s unanimous decision. Justice Alito did not take part in the decision.

• Having Property in the United States: A Prerequisite to Chapter 15 Relief?

  06.25/Alert

  Chapter 15 of the Bankruptcy Code codifies the United Nations Commission On International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency, which was designed to facilitate cross-border cooperation and coordination between courts dealing with parallel proceedings. A chapter 15 case is an ancillary case filed in the United States to serve as a companion to a foreign insolvency proceeding and is initiated by requesting a U.S. bankruptcy court to recognize that foreign proceeding.

• Is the “Revered Tradition of Amateurism” Over for College Sports?

  06.18/Alert

  In 1984, Supreme Court Justice John Paul Stevens wrote that “[t]he [National Collegiate Athletic Association (NCAA)] plays a critical role in the maintenance of a revered tradition of amateurism in college sports.” To uphold this “revered tradition,” the NCAA needed “ample latitude” to set and enforce its rules without outside interference. For the next three-and-a-half decades, this principle could be relied upon by the NCAA in defense of its rulemaking authority and in response to pressure to rescind compensation restrictions on student-athletes.

• California’s Ban on Drip Pricing Begins July 1, 2024

  05.28/Alert

  Last October, California Gov. Gavin Newsom signed SB 478 into law. Effective July 1, 2024, the bill expands California’s already far-reaching consumer protection statute—the Consumer Legal Remedies Act (California Civil Code § 1750 et seq.) (CLRA)—to ban “drip pricing,” or “advertising a price that is less than the actual price that a consumer will have to pay for a good or service.” The term “drip pricing” refers to the practice of including additional undisclosed fees to a final bill, whereas the term “junk fees” refers to surcharges in a final bill that are unexpected or frivolous.

• Treasury Department and IRS Issue Final Regulations Regarding the Transferability of Tax Credits Under Section 6418 of the Internal Revenue Code

  05.03/Alert

  Under Section 6418 of the Internal Revenue Code (IRC), eligible taxpayers can elect to sell all or a portion of any “eligible credit” to an unrelated party (a “transfer election”) solely for cash consideration. An eligible credit is a renewable energy tax credit falling within one of the 11 categories set forth in IRC Section 6418(f)(1), including clean vehicle credits, certain manufacturing credits, all energy generation and carbon capture credits and some clean fuel credits. In general, amounts paid in connection with the transfer of eligible credits are not included in gross income by the transferor under IRC Section 6418(b)(2) and are not deductible by the transferee under IRC Section 6418(b)(3).

• DOL Expands Investment Advice Subject to Fiduciary Liability

  05.02/Alert

  The U.S. Department of Labor (DOL) has adopted new regulations under the Employee Retirement Income Security Act of 1974 (ERISA) that broaden the scope of investor recommendations that are subject to fiduciary duty rules. The original regulations, published in 1974, were adopted at a time when 401(k) plans and individual retirement accounts (IRAs) were far less common. The DOL has frequently raised concerns that the original regulations do not adequately protect plan participants making investment decisions on their own. The DOL’s most recent attempt to address the perceived gap in employee protections, in regulations adopted in 2016, was struck down by the courts. New regulations finalized on April 23, 2024, are narrower than the 2016 regulations, but would still extend fiduciary duty rules to investment communications that would reasonably be considered to create a relationship of trust and confidence between the employee and the advisor, including rollover recommendations and investment of plan assets in IRAs. The regulations will become effective as of September 23, 2024.

• Cancellation of Debt Income: The Qualified Real Property Business Indebtedness Exception

  04.29/Alert

  Cancellation of debt income (CODI) is gross income recognized for income tax purposes upon cancellation or discharge of debt. Borrowed funds generally become taxable as CODI when the debt is cancelled or discharged unless an exception applies. Internal Revenue Code (IRC) § 61(a)(11).

• SEC Adopts Long-Anticipated Rules for SPACs: Considerations for Market Participants and SEC Enforcement Objectives in the New Regulatory Environment

  03.27/Alert

  On January 24, 2024, the Securities and Exchange Commission (SEC) announced the adoption of final rules (the Final Rules) affecting the acquisition of private operating companies by publicly traded special purpose acquisition companies (SPACs) and related financing transactions (individually and collectively, de-SPAC transactions), largely aligning them with requirements of traditional initial public offerings (IPOs). The Final Rules, which go into effect on July 1, 2024, and the adopting release also provided new guidance from the SEC with respect to SPAC and de-SPAC transactions.

• Commercial Real Estate Partnership Cancellation of Debt Income

  03.22/Alert

  With $1 trillion in commercial real estate financing expected to mature in 2024, much of it with uncertain prospect of repayment, more real estate borrowers will be faced with the prospect of taxable cancellation of debt income (CODI). Cancelled debt generally results in CODI but, if the debt is cancelled in bankruptcy or the taxpayer is insolvent, an exception to CODI may apply. The bankruptcy and insolvency exceptions are tested at the individual partner level, not at the partnership level. CODI exceptions reduce other valuable tax attributes, such as property basis and loss or credit carryovers, which are especially complex in bankruptcy.

• FinCEN’s Proposed Rule to Regulate Investment Advisers: The Questions Industry Should Be Following

  03.14/Alert

  On February 15, 2024, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking to regulate specified investment advisers as “financial institutions” under the Bank Secrecy Act (BSA) (the “Proposed Rule”). Investment advisers have presented a target for anti-money laundering (AML) regulation for a decade, with an earlier 2015 rulemaking effort failing to advance. The 2021 U.S. Strategy on Countering Corruption again highlighted the investment adviser sector, and the Treasury Department’s 2024 Investment Adviser Risk Assessment helped inform the Proposed Rule.

• Delaware Court of Chancery Invalidates Certain Board Control Rights Commonly Found in Stockholder Agreements

  03.05/Alert

  Last month, the Delaware Court of Chancery issued a strong reminder that (1) when prevalent market practice is pitted against statutory law, it is the statute that will prevail in Delaware courts, and (2) the bedrock of Delaware law is that the board of directors manages the business and affairs of a corporation, not the stockholders.

• FTC Announces HSR Threshold and Filing Fee Increases for 2024 Transactions

  01.30/Alert

  As a result of the increase in the U.S. Gross National Product (GNP) for 2023, the Federal Trade Commission (FTC) has announced an increase in the jurisdictional filing thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). The minimum size of transaction threshold will increase by more than $8 million, a 7.3% increase, to $119.5 million. The thresholds determine whether parties involved in proposed mergers, consolidations, or other acquisitions of voting securities, assets, or unincorporated interests must notify the FTC and the Antitrust Division of the Department of Justice (DOJ) of a proposed transaction and comply with a mandatory waiting period before the transaction may be consummated. The revised thresholds will take effect 30 days after they are published in the Federal Register, with the effective date expected to be in early March 2024. Until then, the current $111.4 million threshold is still in effect.

• U.S.-Based Statutory Foundations: the Best of a Trust and a Non-Trust?

  01.23/Alert

  Under the U.S. system, based on the common law, a trust is a useful and common planning tool for estate, and sometimes income, tax planning. But a trust structure can be problematic in certain civil law jurisdictions, such as those in many European countries. A Liechtenstein Stiftung is a planning option used by many in civil law jurisdictions to create a trust-like structure (and is typically taxed as a trust in the U.S.) for planning purposes.

• Treasury Department and IRS Issue Proposed Regulations on the Advanced Manufacturing Production Credit under Section 45X of the Internal Revenue Code

  12.21/Alert

  As amended by the Inflation Reduction Act of 2022, section 45X of the Internal Revenue Code (IRC) grants an advanced manufacturing production credit (AMPC) to manufacturers who produce certain clean energy components in the United States. On December 14, 2023, the Internal Revenue Service (IRS) published proposed regulations [REG-107423-23] in the Federal Register providing further guidance on the AMPC. The proposed regulations supplement Notices 2022-27, 2023-18 and 2023-44 that were published on October 14, 2023, March 6, 2023, and June 20, 2023, respectively.

• The "Insurance Neutrality" Doctrine is Heading to SCOTUS

  12.18/Alert

  In October 2023, the U.S. Supreme Court agreed to hear an appeal of the Fourth Circuit's decision in Truck Ins. Exch. v. Kaiser Gypsum Co. (In re Kaiser Gypsum Co.), 60 F.4th 73 (4th Cir. 2023). An alert on the Fourth Circuit's decision can be found here.

• Treasury Department and IRS Issue Proposed Regulations and Revenue Procedure on the Clean Vehicle Tax Credits under Section 30D of the Internal Revenue Code

  12.11/Alert

  As amended by the Inflation Reduction Act of 2022, IRC 30D provides for a tax credit of up to $7,500 for a new clean vehicle, consisting of $3,750 if certain critical mineral requirements are met and $3,750 if certain battery components requirements are met. Under the relevant rules, vehicles placed in service beginning in 2024 are not eligible if the battery includes battery components manufactured or assembled by a foreign entity of concern (FEOC), while vehicles placed in service beginning in 2025 are not eligible if the battery contains certain critical minerals extracted, processed or recycled by an FEOC.

• Treasury Department and IRS Issue Proposed Regulations on the Energy Investment Tax Credit under Section 48 of the Internal Revenue Code

  11.30/Alert

  On November 17, 2023, the Internal Revenue Service (IRS) published proposed regulations [REG-132569-17] in the Federal Register providing further guidance on the Energy Investment Tax Credit (ITC) under section 48 of the Internal Revenue Code (IRC) of 1986, as amended. The proposed regulations expand on existing Treasury regulations under IRC section 48 to incorporate the changes made by the Inflation Reduction Act of 2022. As relevant here, the Inflation Reduction Act of 2022 extended the existing ITC for most projects that begin construction before January 1, 2024, and modified it by expanding the types of energy properties that are eligible for the credit, allowing for increased credit amounts for energy projects that satisfy the prevailing wage and apprenticeship requirements and providing opportunities for several bonus credits.

• Not So Fast: Satisfaction of Default-Rate Interest Required before Loan Reinstatement

  11.06/Alert

  For distressed borrowers seeking to reorganize, the Bankruptcy Code provides multiple options, including reinstatement of prepetition defaulted and accelerated debt. Given recent staggering increases in interest rates, reinstatement can be an attractive option because it allows a debtor to de-accelerate a defaulted loan and reinstate the loan’s original terms, including the original interest rate, over a creditor’s objection by making the creditor’s claim “unimpaired.” Although reinstatement can be beneficial, courts are split on whether a debtor must pay a secured lender default-rate interest and fees as a condition to reinstating a loan under a chapter 11 plan.

• Estate and Tax Planning 2023 Update: Act While You Can

  10.18/Alert

  The 2023 taxation climate presents challenges—as well as opportunities—for wealthy individuals and families. This September, the Internal Revenue Service (IRS) announced its concentrated focus on high-income taxpayer compliance, while in June the IRS and Department of the Treasury released guidance that allows individuals, estates and trusts to benefit from certain new transfer opportunities of renewable energy credits. With the scheduled sunset of the all-time-high unified estate and gift tax exclusion amounts, as well as the IRS taking harsh positions against high-income earners, now is the time to consider opportunities for estate and tax planning. Very often, these opportunities to save tax will include making gifts to children, including in trust for them, and using the generation-skipping transfer (GST) exemption to make the potential transfer tax savings on that gift last through many generations.

• The Corporate Transparency Act: What You Need to Do Now

  10.06/Alert

  As has been widely reported, the Corporate Transparency Act (CTA) will become effective January 1, 2024, creating new obligations for millions of public and even the smallest private companies to report beneficial ownership information (BOI reports) with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Companies that are not exempt from CTA reporting (Reporting Companies), that are created or registered on or after the effective date, will have 30 days after they are formed, under current rules, to comply with the CTA reporting obligations. Non-exempt companies created before the effective date will have until December 31, 2024. For more information on the exemptions from the CTA, please refer to the Pillsbury Client Alert published on June 12, 2023.

• The Looming Government Shutdown—What Contractors Can Do to Prepare

  09.15/Alert

  The federal government’s new fiscal year begins on October 1, 2023. Given the current political climate, Congress may not agree on a new budget by the September 30 deadline. This creates a significant risk that the government will soon shut down for days or even weeks. If this happens, all executive branch operations will cease except for those deemed “essential,” a result which will significantly impact government contractors.

• New Digital Asset Regulations Provide Glimmers of Much-Needed Clarity

  09.13/Alert

  On August 25, 2023, the Internal Revenue Service (IRS) published proposed regulations [REG-122793-19] in the Federal Register, clarifying requirements under the Infrastructure Investment and Jobs Act (IIJA). The IIJA was enacted almost two years ago in November 2021, and established digital asset transaction reporting requirements addressing who is specifically responsible for furnishing information to the IRS and cryptocurrency customers for digital asset transactions. The act included definitions for digital assets and “digital asset brokers,” the latter of which was concerningly broad in scope. Clarifying follow-up regulations have been arguably slow in coming.

• Treasury Department and IRS Issue Proposed Regulations on the Prevailing Wage and Apprenticeship Requirements under the Inflation Reduction Act of 2022

  09.11/Alert

  On August 30, 2023, the Internal Revenue Service (IRS) published proposed regulations [REG-100908-23] in the Federal Register providing further guidance on compliance with the prevailing wage and apprenticeship requirements under the Inflation Reduction Act of 2022 (IRA), which taxpayers must comply with in order to receive the increased credit amounts (i.e., base credit amount multiplied by five) for new and continuing energy credit provisions. The proposed regulations expand upon prior guidance, IRS Notice 2022-61, which was issued on November 30, 2022, in order to start the 60-day clock on the start-of-construction exception from compliance with the prevailing wage and apprenticeship requirements. For Pillsbury’s analysis on IRS Notice 2022-61, use this link.

• New Opportunities to Transfer Renewable Energy Tax Credits under the IRA: What is Possible for Individuals and Pass-Through Entities

  09.07/Alert

  On June 14, 2023, the Department of the Treasury and the Internal Revenue Service (IRS) released guidance on Internal Revenue Code (IRC) Section 6418, added as part of the Inflation Reduction Act of 2022 (P.L. 117-169)(IRA), granting taxpayers a new way to monetize certain tax credits. The guidance included proposed regulations relating to the transferability of tax credits under IRC Section 6418 (Transferability Guidance), temporary regulations regarding information and registration requirements (Pre-Filing Registration Guidance) and a series of frequently asked questions. (For a more general summary of this guidance, refer to our prior alert.) Notably, despite the hopes of tax practitioners and industry groups to the contrary, the new proposed regulations apply the passive activity rules of IRC Section 469 to transferees of tax credits under IRC Section 6418, which impacts the ability of individuals (and estates, trusts and certain corporations) to benefit from the credits. Additionally, the proposed regulations provide that transferees will bear the risk of certain events that result in a recapture of previously claimed tax credits.

• Provisions Relating to Digital Assets under the Financial Services and Markets Act 2023 Come into Force

  08.29/Alert

  Effective August 29, 2023, the Financial Services and Markets Act 2023 (Commencement No. 1) Regulations (SI 2023/779) (FSMA 2023) explicitly brings digital assets within the regulatory perimeter, creates a new designated activities regime (DAR), introduces regulations for stablecoins used as a means of payment (Payment Stablecoins), and creates a framework to establish financial market infrastructure sandboxes.

• Bankruptcy and Restructuring Considerations for Distressed De-SPACed Companies

  07.20/Alert

  Although special purpose acquisition companies (SPACs) have been around for decades, they took off during the COVID-19 trading boom. During 2020 and 2021, more than 850 SPACs raised roughly $245 billion to fund business combinations. But, as a more pessimistic view of future prospects emerged, a number of companies were left with far less cash than originally contemplated as investors exercised their redemption rights at the closing of a business combination (a “de-SPAC”) consistent with a SPAC’s structure.

• New York Legislature Passes LLC Transparency Act

  06.26/Alert

  On June 20, 2023, the New York State Assembly passed the LLC Transparency Act, a bill that would require the disclosure of the beneficial owners of a limited liability company (LLC) upon formation or qualification to do business in New York (A03484A). LLCs formed under the laws of New York prior to the effective date of the bill, and foreign LLCs qualified to do business in New York prior to the effective date of the bill would also be required to disclose their beneficial owners. The bill would also establish a searchable public database containing the names of beneficial owners of LLCs. The New York State Senate passed the companion bill (S00995B) earlier this month. If signed by Governor Hochul, the bill will take effect one year thereafter.

• The Corporate Transparency Act: Beneficial Ownership Information Reporting Checklist

  06.12/Alert

  Enacted as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021, the Corporate Transparency Act (CTA) requires certain entities—basically smaller and otherwise unregulated companies—to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This report identifies the entities’ beneficial owners, the persons who ultimately own or control the company, and provides similar identifying information about those individuals who formed the entity. The Act further authorizes FinCEN to disclose this information to certain government authorities and to financial institutions for select purposes.

• A Hat Tip to the Manufacturing, R&D and Electric Power Industries: California Bill Would Provide Income Tax Credits for Sales and Use and District Taxes Paid on Certain “Qualified Tangible Personal Property”

  05.31/Alert

  On May 22, 2023, the California Assembly unanimously passed a bill that, if enacted, would provide a significant benefit to California businesses that make capital investments in manufacturing, research and development (R&D), and electric power machinery and equipment in California. The bill, Assembly Bill 52 (AB 52), would provide income tax credits in an amount equal to the sales and use and district taxes paid on qualified tangible personal property primarily used in manufacturing, R&D, and electric power generation or production, or storage and distribution. The credit would complement the existing partial sales and use tax exemption under California Revenue and Taxation Code (RTC) section 6377.1, effectively giving taxpayers with sufficient California income tax liability a full sales and use tax exemption on such qualified tangible personal property.

• Florida’s Response to ESG Investing

  05.11/Alert

  As many financial institutions and investment managers move towards integrating environmental, social and governance (ESG) factors into their decision making, Governor DeSantis signed a new law that prohibits reliance on ESG when it comes to Florida’s funds.

• No Cutting the (Priority) Line!: Incidental Beneficiaries to Assumed Contracts and Leases Cannot Assert Cure Claims Against Debtors

  05.03/Alert

  The Second Circuit held that a creditor seeking to assert a cure claim must have a contractual right to payment under the assumed contract or lease, and accordingly, a creditor with only a tangential or incidental interest in a contract or lease cannot assert a cure claim. (See In re George Washington Bridge Bus Station Development Venture LLC, No. 21-2050-bk, 2023 WL 2847175, 2d Cir. Apr. 10, 2023.) To allow otherwise would subvert Congress’s intent in creating a priority scheme for bankruptcy cases and contradict the language of section 365 of the U.S. Bankruptcy Code, because parties with no legal rights would get paid before creditors with legal rights to payment. The Second Circuit left unanswered whether intended beneficiaries can assert cure claims, but hinted that intended beneficiaries should be entitled to the protections afforded to counterparties to assumed contracts because they have a right to performance.

• Los Angeles Initiative Seeks to Impose $450,000 Cap on Annual Compensation of Executives in Health Care Facilities

  05.02/Alert

  An initiative submitted by the Service Employees International Union United Healthcare Workers West (SEIU-UHW) seeks to limit the annual compensation of health care executives in the city of Los Angeles to $450,000 per year. Entitled the “Limit Excessive Healthcare Executive Compensation Ordinance,” the initiative argues that health care executives should not receive higher compensation than the U.S. President, whose compensation is set by federal statute in 3 U.S.C. § 102 (Compensation of the President). Employing a similar legislative strategy, the initiative proposes a cap on the compensation of health care administrative professionals with executive, managerial or administrative duties, i.e., CEOs, CFOs, executive vice presidents and similar administrators, at privately owned health care facilities located in the city of Los Angeles. Covered health care facilities would include licensed general acute care hospitals, acute psychiatric hospitals, skilled nursing facilities and even residential care facilities for the elderly. Notably, medical professionals that provide medical services, research, patient care or other non-administrative services are excluded from the compensation cap.

• Court of Appeals Finds That Insurers May Not Participate in Bankruptcy Negotiations by Invoking an Insured’s Duty to Cooperate

  04.10/Alert

  In Truck Ins. Exch. v. Kaiser Gypsum Co. (In re Kaiser Gypsum Co.), 60 F.4th 73 (4th Cir. 2023), the U.S. Court of Appeals for the Fourth Circuit found that an insured’s duty to cooperate under its general liability insurance policies, which require the insured to assist and cooperate with litigation-related defense, does not give its insurer the right to negotiate the terms of a chapter 11 plan in the insured’s asbestos bankruptcy because the duty to cooperate is limited to “traditional litigation activities.” The Fourth Circuit also found that the insurer was not a “party in interest” and lacked standing to object to the plan because, by leaving the insurer’s rights and obligations under the policy intact, the plan was “insurance neutral.”

• New DOJ Clawback Policy Brings Compensation and Employment Questions Front and Center for Companies

  03.07/Alert

  On March 2, 2023, Deputy Attorney General (DAG) Lisa Monaco announced a new Criminal Division policy for Department of Justice (DOJ) prosecutors to consider the implementation of compensation clawback policies as an important factor in corporate criminal resolutions. This policy is aimed at incentivizing both public and private companies to incorporate clawback clauses into contracts and compensation policies for employees, officers and directors.

• Alternating Current Yields Alternating Decisions on Bankruptcy Priority Treatment

  02.21/Alert

  Scientists have been puzzling over the nature of electricity since as early as 565 B.C., when the Greek philosopher Thales of Miletus experimented by rubbing amber on fur to attract feathers. Thales, however, did not have to ponder the legal nature of the static electricity he observed.

• The SEC’s Fast-Approaching Cybersecurity Overhaul for Public Companies and Regulated Entities

  02.03/Alert

  In remarks last year, Gary Gensler, Chair of the Securities and Exchange Commission (SEC) made clear that the SEC “has a role to play” in regulating cybersecurity in the name of “maintaining orderly markets.” That role cannot be overstated.

• What to Expect from the New York Department of Financial Services in 2023

  02.01/Alert

  The New York Department of Financial Services (NYDFS) is responsible for the supervision of financial services companies operating in New York, including all New York state-chartered banks, insurance companies and producers, companies engaged in virtual currency activity, money services businesses, mortgage lenders and servicers, other non-depository lenders, credit reporting agencies and student loan servicers. According to its most recent annual report, NYDFS supervises approximately 3,000 financial institutions with assets exceeding $8.8 trillion.

• SEC Enforcement: 2022 Year in Review

  01.27/Alert

  The SEC’s Enforcement Division had a banner year in 2022—Chair Gary Gensler’s first full year on the job—validating predictions that Chair Gensler’s tenure would usher in a new era of aggressive enforcement. We expect the Enforcement Division to continue its aggressive approach in 2023, as the staff pursues the Chair’s priorities including ESG, digital assets, cybersecurity and insider trading.

• New York Department of Financial Services Rule Will Require Banks to Collect Demographic Data with Commercial Credit Applications

  11.11/Alert

  On October 26, 2022, the New York Department of Financial Services (NYDFS) issued a revised proposed rule that, when finalized, will require New York banks to collect detailed demographic and financial data, including whether the applicant is a minority- or women-owned business (NYDFS Rule), when accepting business credit applications. Although the NYDFS is proposing this rule to fulfill a recent legislative amendment to the New York Community Reinvestment Act (CRA), it will have a broad impact on the commercial lending operations of New York banks that will extend far beyond the scope of their CRA obligations.

• Prepare for Arrival: Aviation Finance Transitions to SOFR

  10.05/Alert

  Term SOFR emerges as the new market standard for aviation financing and leasing transactions.

• New York Bankers Must Consider Forbearance, Other Consumer Protection in Response to COVID-19

  03.23/Alert

  With the spread of the novel coronavirus (COVID-19) throughout the country, New York Governor Andrew Cuomo issued Executive Order No. 202.9 (“EO 202.9”), dated March 21, 2020, containing a broad requirement for forbearance and relief from banking fees for those experiencing financial hardship as a result of COVID-19. EO 202.9 is operative until April 20, 2020.