The American Rescue Plan Act of 2021, the latest COVID-19 relief package signed into law on March 11, 2021, includes several provisions that target funding for broadband connectivity and infrastructure projects. Specifically, the law provides $7.1 billion to support connectivity and the purchase of eligible devices for schools and libraries, and establishes additional sources of funding for broadband through support to state and local governments, as well as payment assistance to individuals facing financial hardships associated with the coronavirus pandemic.

The American Rescue Plan Act, signed into law on March 11, 2021 and summarized here, includes a brief but important section that will permit the recipients of Paycheck Protection Program (PPP) loans issued after December 27, 2020 to remain eligible for grants under the “Grants for Shuttered Venue Operators” (Grants) program, which the Small Business Administration (SBA) has yet to launch.

The world is witnessing yet another dramatic weather event, this time in the southern states, especially Texas. The severe winter conditions in Texas have caused unprecedented hardship for Texans and devasting damage for nearly every industry sector. The extended and episodic power outages, cell phone and internet service disruption, water crisis, frozen roads, disruption of transportation and supply chains, shuttered industrial facilities and damage to public and private infrastructure will have a lasting impact on the region. While the current focus rightfully is on restoring critical systems and services to ensure the safety and well-being of Texans, as the crisis subsides there will be wide ranging legal and commercial considerations that require immediate and informed decision making.

On January 22, 2021, members of the New York State Assembly introduced legislation that would require the recording of UCC financing statements in connection with the origination of mezzanine debt and certain types of equity investments in real estate assets when there exists mortgage debt with respect to same, underlying real property asset(s). It also would allow municipalities to collect recording taxes in connection with the creation of such indebtedness or investments. This bill is the most recent iteration of a previous proposed bill that was introduced last year in the New York State Senate.

On February 1, 2021, DC Mayor Bowser signed emergency legislation passed by the DC Council, requiring DC employers to “adopt and implement social distancing and worker protection policies to prevent transmission of COVID-19 in the workplace” and that adhere to all applicable Mayor’s Orders related to the COVID-19 public health emergency. Titled the “Protecting Businesses and Workers from COVID-19 Congressional Review Emergency Amendment Act of 2021,” the Act was published in the DC Register on February 12, 2021 but took effect as of the Mayor’s signature and will remain in effect for up to 90 days. A companion bill (B24-0058), the “Workplace Safety During the COVID-19 Pandemic Emergency Amendment Act of 2021,” was passed by the Council and was transmitted to the Mayor on February 11, 2021; it has similar provisions and would replace—and have the effect of extending—the Congressional Review Emergency Amendment Act’s provisions.

The United States declared a national emergency in response to COVID-19 on March 13, 2020, and states quickly followed with stay-at-home orders that impacted businesses and institutions nationwide. More than 10 months have passed since the COVID-19 pandemic emerged in the United States and the prevalence of the virus has had significant impacts, not only with respect to the number of people infected and lives lost, but also to the widespread physical damages and economic losses suffered by businesses.

Two recent developments make clear that government contractors will have their hands full complying with U.S. domestic preference rules in the coming years. On January 19, 2021, the Federal Acquisition Regulatory Council (FAR Council) issued a final rule implementing former President Trump’s Executive Order 13881 (Maximizing Use of American-Made Goods, Products, and Materials). The final rule makes significant changes to the domestic content requirements set forth in the Buy American regulations. Less than one week after the final rule became effective, President Biden signed Executive Order 14005 (Ensuring the Future Is Made in All of America by All of America's Workers) (the Order). The Order directs the FAR Council to further amend the domestic content requirements in the Buy American regulations. As we discuss below, the interplay and overlap between the Order and the final rule are almost certain to cause confusion until the Biden Administration or the FAR Council provide clarifying guidance. Suffice it to say, domestic preference compliance will become more complex in 2021. 

Summary of the EO

On January 12, 2021, former President Trump issued an EO on Promoting Small Modular Reactors for National Defense and Space Exploration. The EO directs the Department of Energy (DOE), Department of Defense (DOD), and NASA to take actions to coordinate their nuclear-related activities, move forward with certain ongoing nuclear projects and promote advanced reactor and small modular reactor (SMR) technologies. The purpose of the EO is to take steps to revitalize the U.S. nuclear sector, reinvigorate the U.S. space exploration program, develop diverse energy options for national defense needs and advance U.S. technological supremacy and leadership.

The Consolidated Appropriations Act, 2021 (the Act), signed into law in December 2020, extends and expands the employee retention tax credit originally enacted in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The United States Court of Appeals for the D.C. Circuit has affirmed the dismissal of a personal injury lawsuit brought against the Malaysian-based airline AirAsia by a passenger and her husband. Erwin-Simpson v. AirAsia, No. 19-7034 (D.C. Cir. Jan. 19, 2021). This recent decision sets a new standard for establishing personal jurisdiction in the Circuit.

Government investigations pose many risk management challenges. They are unpredictable, political and often public. If handled incorrectly, they can last for many years, spiral into multiple Congressional, criminal, and/or regulatory investigations at the state and federal levels, and generate serious reputational harm. Potential targets can take proactive steps to mitigate their risks.

According to Register of Copyrights in its 2013 Report on Copyright Small Claims, “small claims issues are anything but small. On the contrary, they present a range of complex considerations, from constitutional constraints to procedural concerns to questions of what claims should be eligible for alternative treatment.” Before the recently enacted CASE Act, there had not been a small-claims court with jurisdiction to hear copyright claims.

On December 27, 2020, the Economic Aid Act was signed into law. The Economic Aid Act reinitiated the PPP, appropriating $284 billion for both First and Second Draw PPP Loans. The Act amended borrower eligibility criteria, added permissible uses of the loan proceeds and established new eligibility requirements for borrowers seeking Second Draw PPP Loans. We discussed these new provisions and SBA’s first implementing regulations here.

On December 16, 2020, in a decision likely to have far-reaching implications for COVID-19 contract disputes, Judge Denise Cote of the Southern District of New York found that COVID-19 qualifies as a “natural disaster” excusing a contractual counterparty’s nonperformance under a force majeure provision. The plaintiff in JN Contemporary Art LLC v. Phillips Auctioneers, LLC, No. 1:20-cv-04370-DLC (S.D.N.Y. 2020) had entered into an agreement with an auction house (the defendant), pursuant to which the auction house agreed to hold an in-person event in May 2020 to sell the plaintiff’s artwork and guaranteed that the plaintiff would receive at least $5 million in sales proceeds. In March 2020, following governmental shutdown orders, the auction house postponed the event until June. Come June, the auction house terminated the agreement, in part on the basis that the economic conditions brought on by the pandemic would prevent it from realizing any profit on the sale, after paying the guaranteed amount to the plaintiff. The plaintiff filed suit for breach of contract shortly thereafter; the auction house moved to dismiss, arguing termination was permitted under the agreement’s force majeure provision, which provided:

On December 31, 2020, the Internal Revenue Service issued Notice 2021-05 (Notice), which provides relief for renewable energy projects constructed offshore or on federal land with respect to the “beginning of construction” requirements for projects eligible for the production tax credit available pursuant to IRC Section 45 (PTC) or the investment tax credit available pursuant to IRC Section 48 (ITC). This relief should provide additional certainty for offshore wind projects and projects on federal land, given the significant construction delays often associated with such projects.

The good news that COVID-19 vaccinations have begun to be deployed has led to new decision points for employers: once their employees become eligible for the vaccine, should employers mandate that their workers receive the vaccine? Similar questions arise with opening premises and events to customers, conference attendees and other visitors. While requiring proof of vaccination may at first blush seem like a responsible measure, legal and practical considerations militate against an across-the-board vaccination mandate for most organizations.

The Consolidated Appropriations Act, 2021 (CAA)—the latest COVID-19-related stimulus legislation signed into law on December 27, 2020—makes available almost $81.9 billion for the Education Stabilization Fund (ESF), of which $22.7 billion is set aside as relief funding to be distributed by the U.S. Department of Education (ED) to IHEs through the Higher Education Emergency Relief Fund (HEERF). Section 311(a). These funds are in addition to the relief funding allocated under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as described here and here, and will remain available through September 30, 2022, for IHEs to prevent, prepare for, and respond to the COVID-19 on the postsecondary level.

This is the eighth in a series of alerts on insolvency topics affecting real estate. In this alert, we discuss the portion of the recent Chuck E. Cheese decision denying the debtor’s/tenant’s request to defer paying rent after the 60-day “rent holiday” period prescribed in section 365(d)(3) of the Bankruptcy Code.

The Continuing Appropriations Act, 2021 and Other Extensions Act, a $2.3 trillion COVID-19 relief and omnibus government funding package, contains several noteworthy communications-related measures, including $7 billion in funding for broadband initiatives and expanded television and radio station eligibility for the Paycheck Protection Program administered by the Small Business Administration (SBA).

Congress recently enacted the Corporate Transparency Act (Act), which will require unprecedented disclosure to governmental agencies of direct and indirect ownership and control of entities commonly used in private transactions, including real estate development and investment. Many aspects of the new law are unclear, having been left to subsequent regulations. Disclosure requirements will apply to new and existing entities. While confidentiality is generally mandated, there are exceptions. Fines and penalties, civil and criminal, are prescribed for a failure to comply.

COVID-19 Relief Act

On December 27, 2020, President Trump after initially balking, signed into law as part of the Consolidated Appropriations Act of 2021, H.R. 133, which, among its 5,600 pages, $900 billion, and other COVID-19 relief, appropriates $15 billion for Grants for Shuttered Venue Operators (Grants) to be made by the Small Business Administration (SBA). We recently provided a client alert (here) on the changes made by the new law, to a key SBA program, the Paycheck Protection Program (PPP). The PPP changes include making second draw loans available for the hardest-hit businesses and clarifying that forgiven PPP loans are tax deductible. The Act also provides certain tax benefits for Grants.

Nine months after enacting the $2.2 trillion CARES Act, on December 21 lawmakers voted on and passed an additional $900 billion relief package. The compromise bill resulted from a series of intense negotiations that also produced a $1.4 trillion bill to fund the government through September 30, 2021, thereby avoiding a government shutdown. President Trump signed both bills on December 27.

The Biden Plan to Build a Modern, Sustainable Infrastructure and an Equitable Clean Energy Future,” is one of the Biden-Harris Transition Team’s top four policy priorities along with COVID-19, economic recovery and racial equity. It also represents the most ambitious clean energy vision by any U.S. president in history.

One day after China’s new Export Control Law took effect, on December 2, 2020, China’s Ministry of Commerce (MOFCOM), the State Cryptography Administration (SCA) and the General Administration of Customs (GAC) jointly issued an Announcement on the Issuance of Import Licensing List, Export Control List and Related Administrative Measures for Commercial Encryption (Encryption Announcement) to restrict commercial encryption products and related technology. The Encryption Announcement takes effect on January 1, 2021, and includes: (1) a list of commercial encryption items subject to import licensing requirement (Encryption Import List); (2) a list of commercial encryption items subject to export control (Encryption Export List); and (3) procedures for the application of import and export licensing of commercial encryption (Encryption Licensing Procedures).

The death of an employee can be devastating and confusing to an employer and its workforce. The grim statistics on deaths from the COVID-19 pandemic—well over a quarter million in the U.S. as of the date of this alert, with infection rates rising—mean that many employers have already had to address this situation or begin planning for the sad eventuality. When an employee dies—regardless of the cause—employers often want to immediately help the employee’s family financially in their time of grief, but a number of administrative, legal, and tax-related issues must be considered before an employer pays final compensation and benefits to the beneficiaries or estate of the deceased employee.

As discussed in prior articles, the doctrine of force majeure in common law jurisdictions is largely a creature of contract and is—typically—not codified. Even when codified (see, e.g., Cal. Civ. Code § 3526), judicial precedent defines the doctrine’s contours, just as it does the sister excuse doctrines of impossibility, impracticability, and frustration of purpose (and, indeed, if parties choose to allocate risk by including a force majeure provision in their contract, those sister doctrines are even more challenging to pursue).

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.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed on March 27, 2020, provided forgivable loans of up to $10 million to qualifying small businesses under the PPP. We have provided client alerts over the last several months on numerous aspects of the program, including: loan eligibility and “affiliation” concerns; the certification of loan “necessity”; changes to the program brought about by the PPP Flexibility Act; and the mechanics of loan forgiveness, here and here.

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.

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. 

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.

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.

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.

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.

Since the coronavirus pandemic started, there have been dozens of class actions brought against airlines by passengers seeking refunds and damages for flights cancelled due to COVID-19 and the related travel ban.

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.

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.

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.

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.”

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.

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.

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.

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.

The Ixchel Pharma, LLC v. Biogen, Inc. case stems from a settlement agreement between two pharmaceutical companies, Biogen, Inc. and Forward Pharma, pursuant to which Forward agreed to exercise its contractual right to terminate a drug development agreement with a third pharmaceutical company, Ixchel Pharma, LLC. Ixchel then sued Biogen in California federal court asserting: 1) tortious interference with Ixchel’s contractual relationship with Forward; and 2) that Biogen’s agreement with Forward was an unenforceable non-compete agreement under California Business and Professions Code section 16600.¹ The district court dismissed Ixchel’s complaint, Ixchel appealed, and the Ninth Circuit certified two questions, which the California Supreme Court framed as follows: “(1) Is a plaintiff required to plead an independently wrongful act in order to state a claim for tortious interference with a contract that is terminable at will? (2) What is the proper standard to determine whether section 16600 voids a contract by which a business is restrained from engaging in a lawful trade or business with another business?”

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.

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.

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.

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.

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.

Despite this broadened standard, employers should still be cautious about disciplining or discharging employees who engage in protected concerted activity regarding the terms and conditions of their employment, which can include discussions of COVID-related concerns and race relations, along with other emotionally, politically, or culturally sensitive topics. The National Labor Relations Board (NLRB) has adopted a new standard that will allow employers to more readily discipline employees who have made abusive statements, even when connected to otherwise protected, concerted activity. Under the prior standard, the NLRB had found that employers had engaged in an unfair labor practices on various occasions when they discharged employees who had used profanity against managers or shouted racial slurs while also engaging in activities that are protected by Section 7 of the National Labor Relations Act (NLRA).