Summary of the E.O.

On June 3, 2021, President Biden signed E.O. 14032 that alters the framework for restrictions on the purchase or sale of publicly traded securities of Chinese companies designated for military affiliations, but ultimately re-affirms the previous restrictions under E.O. 13959. These restrictions will continue to be applied to 31 entities previously sanctioned as well as 28 newly added companies. On the same day, the Department of Defense (DOD) independently released its annual list of Chinese military companies pursuant to recently enacted legislation.

The medical spa (medspa) industry in the United States is booming. In 2010, there were about 1,600 medspas operating in the United States generating about $1.1 billion in revenue (about $700,000 per medspa on average). By 2018, these numbers increased to over 5,000 medspas generating about $7 billion-$8 billion in revenue (about $1.4 million per medspa on average). The number is expected to grow to over 10,000 medspas by 2023 with about $18 billion-$20.7 billion in revenue. Since 2010, year over year revenue growth has consistently been in the double digits, with 2011 registering nearly 40 percent growth and 2017 registering nearly 50 percent growth. The 2018 profit margin for medspas was 29 percent.

As previously alerted, the California Occupational Safety and Health Administration (Cal/OSHA) recently proposed revisions to its COVID-19 Prevention Emergency Temporary Standards (ETS), which were to be considered by the Occupational Safety and Health Standards Board (Board) on May 20, 2021. However, on the eve of the meeting, Cal/OSHA issued a memorandum to the Board, requesting the Board not vote on the proposed revisions and allow Cal/OSHA to present a new proposal at a future meeting. On May 28, 2021, Cal/OSHA published an updated version of the proposed revisions, which will be the subject of public comment, Board discussion, and a Board vote on June 3, 2021.

As previously noted in Pillsbury’s earlier article, one factor that has contributed to the rise in SPACtivity has been the availability to SPACs of certain features unavailable to companies going public through traditional IPOs, most notably the Private Securities Litigation Reform Act (PSLRA) safe harbor for forward-looking statements. On May 21, 2021, the U.S. House Committee on Financial Services released draft legislation to amend the Securities Act of 1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act) to exclude all SPACs from the safe harbor. Section 27A of the Securities Act and Section 21E of the Exchange Act currently exclude from the safe harbor forward-looking statements made “… in connection with an offering of securities by a blank check company…” Rule 419 under the Securities Act defines a “blank check company” as “…a development stage company that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person… ” and is “ … issuing penny stock ...” As the vast majority of SPACs do not issue penny stock or are structured to avoid treatment as a “blank check company” as defined in Rule 419, de-SPAC transactions have generally been viewed as eligible for the PSLRA safe harbor. The draft legislation proposes to delete the term “blank check company,” replacing it with the phrase “… a development stage company that … has indicated that its business plan is to acquire or merge with an unidentified company, entity, or person…” without reference to whether or not the company issues penny stock. As a SPAC is formed for the purpose of acquiring or merging with an unidentified entity, the proposed amendments would likely make the PSLRA safe harbor unavailable for forward-looking statements, such as projections, included in documents soliciting stockholder approval of de-SPAC transactions.

The Department of Defense (DoD) recently issued a proposed rule to implement Section 818 of the FY18 NDAA. Under Section 818, Congress required the DoD to issue new regulations in the Defense Acquisition Regulation Supplement (DFARS) on the procedures for enhanced debriefing rules within six months. 

In an important step furthering recent commitments to modernize its environmental review process, the NRC has requested input on its plan to update and expand the field of categorical exclusions in its regulations implementing the National Environmental Policy Act of 1969.

On May 12, 2021, the Cyberspace Administration of China (CAC) published the Several Regulations on the Management of Automobile Data Security (Draft for Comment) (Draft Regulations). The Draft Regulations are open for public comment until June 11, 2021.  According to the CAC’s statement, due to growing concerns over personal data security and privacy protection in the People’s Republic of China (PRC), the Draft Regulations aim to strengthen protection of personal information and important data in automobile-related activities, as well as safeguard national security and the public interest. Below is our summary of the highlights of the Draft Regulations.

On May 11, 2021, the Senate voted to repeal a Trump Administration regulation that defines which party is the “true lender” in partnerships between banks and non-banks, including financial technology and other non-bank lending companies. The Senate resolution now heads to the House of Representatives, which is expected to pass the resolution. President Biden has signaled his support for the repeal and will likely enact the repeal following a vote in the House. The repeal of this rule could create regulatory uncertainty for fintechs and other non-bank lenders that were relying on the rule.

President Biden’s new Executive Order to improve cybersecurity involves a particular focus on federal government and contractor systems.

As COVID-19 cases appear to be on the decline and more people are opting to become vaccinated, public health departments and workplace safety agencies are concurrently updating recommendations and guidance to reflect changes in the course of the pandemic. Although such recommendations and guidance are often in flux, below is a summary of where federal and California workplace safety agencies currently stand on the issue of fully vaccinated employees.

On April 28, 2021, China’s Ministry of Commerce (MOFCOM) published The Guiding Opinions on the Establishment of an Internal Compliance Program for Export Control by Exporters of Dual-use Items (Opinions) along with a 35-page Guidelines for Internal Compliance of Export Control of Dual-use Items (Guidelines). The Opinions and Guidelines replace MOFCOM’s previous Opinions published in 2007 and are the latest steps taken by MOFCOM for the implementation of China’s Export Control Law effective on December 1, 2020 (see Pillsbury alert).

On April 28, 2021, China’s Ministry of Finance (MoF) and the State Administration of Taxation (SAT) issued a short notice (Notice No. 16) on their official websites to cancel VAT rebates on the exports of certain steel products starting May 1, 2021.

Contractors often face the dilemma of whether they should appeal an adverse contracting officer final decision (COFD) issued under the Contract Disputes Act (CDA) to the cognizant Board of Contract Appeals or the Court of Federal Claims. One factor favoring the Boards is that the Court has jurisdiction over fraud counterclaims and the Boards do not. The Department of Justice (DOJ) (which represents the government at the Court) has asserted such fraud counterclaims with more regularity in recent years.  Contractors should know that when the government asserts a fraud counterclaim, the Court’s decision in Lodge Constr., Inc. v. United States, No. 13-499, 2021 WL 1418847 (Fed. Cl. Apr. 14, 2021), makes clear that the government must adhere to a hard deadline--perhaps with no exceptions.

Contractors must ensure that they do not appeal a contracting officer’s decision too early or too late lest they find that the courts and board have no jurisdiction. Yet, the government continues to issue directions that provide no certainty on the issue and, indeed, serve only to muddle the question of what constitutes an appealable final decision. Last month, the Armed Services Board of Contract Appeals (ASBCA or Board) issued a decision in the appeal of Northrop Grumman Corporation, ASBCA No. 62189, dismissing the appeal for lack of jurisdiction and highlighted what these authors will refer to as “the Goldilocks Principle” for when contractors can appeal a contracting officer’s decision that certain costs are not allowable. Frustratingly, the Government often issues unclear decisions that can leave contractors wondering whether the timing for appeal is too early, too late or just right.

This week sees a key hearing before the UK Supreme Court in the case of Lloyd v Google, an event long awaited by those familiar with data protection law proceedings in Europe.

On April 27, 2021, President Biden signed an Executive Order raising the minimum wage paid by Federal contractors and subcontractors to $15.00 per hour, beginning on January 30, 2022. The Federal minimum wage currently is $10.95 per hour for all workers on Federal construction and service contracts, based on President Obama’s 2014 Executive Order 13658, which had raised that minimum wage to $10.10 per hour and provided for adjustment for inflation. These Executive Orders do not change the current minimum wage of $7.25 under the Fair Labor Standards Act (FLSA) applicable to non-exempt employees who do not work for government contractors, and to employees of government contractors who do not work on or in connection with Federal construction and service contracts.

Environmental Justice, as an urgent priority of the Federal Government, dates back to 1994, and President Clinton’s issuance of Executive Order 12898. This order directed federal agencies to identify and address, as appropriate, the disproportionately high and adverse human health and environment effects of its many programs, policies and procedures on minority populations and low-income populations. The primary legal basis for this order was Title VI of the Civil Rights Act of 1964, in particular, Sections 601 and 602, which prohibit discrimination in programs and activities receiving federal financial aid and assistance. Over the years, the Supreme Court has reviewed the scope and importance of Title VI. In Alexander v. Sandoval, decided in 2001, the Court concluded that while private parties could sue to enforce Section 601 or its implementing regulations, as written, Section 601 only prohibits intentional discrimination. Noting that disproportionate impact is not the sole touchstone of invidious racial discrimination. Moreover, the Court also ruled in Sandoval that private parties cannot sue to enforce regulations implementing Section 602. Perhaps as an acknowledgement of these shortcomings, the Environmental Protection Agency (EPA) has established an administrative system to process environmental justice complaints at 40 CFR Part 7. Without strengthening the statutory base of environmental justice, the program may continue to be the subject of countless symposiums and seminars. However, this may change soon.

This is another in a series of alerts on insolvency topics affecting real estate. In this alert, we discuss a new case from the Southern District of New York that extends the trend of courts enforcing leases against tenants forced to close due to the impact of the COVID-19 pandemic.

The American Rescue Plan Act of 2021 (ARP)—the latest coronavirus-related stimulus legislation signed into law by President Biden on March 11, 2021—appropriates more than $122 billion for elementary and secondary education and almost $40 billion for institutions of higher education (IHEs). 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, as well as under the Consolidated Appropriations Act, 2021 (CAA), as described here. Funds appropriated under the ARP will remain available through September 30, 2023.  

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 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 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 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.

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.

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.

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.

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.

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.

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 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.

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.

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.

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).

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.

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. 

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.

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.