Archive for the ‘Industry Insights’ Category

Changes to NC Guardianship Law

RECENT CHANGES TO NORTH CAROLINA GUARDIANSHIP LAW STRENGTHEN THE RIGHTS OF RESPONDENTS AND WARDS, WHILE POTENTIALLY INCREASING THE BURDEN ON PETITIONERS, GUARDIANS, GUARDIANS AND LITEM, AND OTHERS

In 2021, The New York Times released the headline-seizing documentary film Framing Britney Spears. The film explored the so-called “#FreeBritney Movement”—a term used to describe a loosely organized effort by Spears’ dedicated and vocal fanbase to end a California conservatorship that empowered Spears’s father, as conservator, to exercise significant control over her personal and financial affairs. A similar grassroots movement arose among the fans of former Nickelodeon star Amanda Bynes and culminated in termination of a nearly decade-long California conservatorship that likewise constrained keys aspects of her individual decision-making.

California is, however, hardly alone among jurisdictions that prescribe procedures and mechanisms for wresting control from individuals deemed incapable of managing aspects of their lives. In North Carolina, such arrangements are called guardianships, rather than conservatorships. Effective January 1, 2024, several key legislative changes altered aspects of the statutory regime governing North Carolina guardianships. Many of these changes appear to be motivated by a desire to ensure that respondents in guardianship proceedings (i.e., those who may ultimately be adjudicated as incompetent) are better apprised of their rights and subject to fewer limitations on their individual liberty.

For example, the guardianship statutes now make clear that a person will not be adjudicated as an incompetent and subjected to a guardianship “if, by means of a less restrictive alternative, he or she is able to sufficiently (i) manage his or her affairs and (ii) communicate important decisions concerning his or her person, family, and property.” This idea was implicit in the law of guardianship prior to the recently enacted legislative changes but is now made explicit. The statute also includes an express definition of the term “less restrictive alternative”:

An arrangement enabling a respondent to manage his or her affairs or to make or communicate important decisions concerning his or her person, property, and family that restricts fewer rights of the respondent than would the adjudication of incompetency and appointment of a guardian. The term includes supported decision making, appropriate and available technological assistance, appointment of a representative payee, and appointment of an agent by the respondent, including appointment under a power of attorney for health care or power of attorney for finances.

In other words, and as but one example of a potential “less restrictive alternative,” if a person executed a durable power of attorney prior to experiencing any issues impacting his or her competency, the existence of that durable power of attorney might be viewed as obviating the need for an adjudication of incompetency and the appointment of a guardian of the estate or general guardian for the principal under the power of attorney, even if the person might otherwise meet the criteria to qualify as an incompetent adult.

The new law also requires the petition in any guardianship proceeding to affirmatively include a “statement identifying what less restrictive alternatives have been considered prior to seeking adjudication and why those less restrictive alternatives are insufficient to meet the needs of the respondent.”

Another significant update concerns the respondent’s right to receive a mandatory, conspicuous notice that advises the respondent, without limitation, of the following:

– The right to counsel of choice;

– The right to be represented by a court-appointed guardian ad litem;

– The right to receive notice of any hearings and copies of documents filed in the proceeding;

– The right to gather and present evidence;

– The right to a hearing before being adjudicated as incompetent;

– The right to have a jury determine the issue of competency;

– The right to ask for a non-public hearing;

– The right to communicate his or her wishes regarding the exercise of any of his or her rights and the selection of any potential guardians; and

– The right to appeal.

A respondent is also now entitled to be notified about the rights he or she will have in the event that a court ultimately adjudicates the respondent as an incompetent ward, including, without limitation, the following:

– The right to a qualified and responsible guardian;

– The right to request that the administration of the guardianship be transferred to a different county of venue;

– The right to request that he or she be restored to competency;

– The right to request a review or modification of the guardianship; and

– The right to vote.

A guardian ad litem appointed to represent the respondent’s best interests must explain these rights to the respondent if the respondent requests such explanation during the guardian ad litem’s personal visit with the respondent. In any proceedings following an adjudication of incompetency in which a guardian ad litem is appointed for the incompetent ward, the guardian ad litem is likewise under a continuing, mandatory, affirmative duty to explain these rights. Finally, the written notice advising the respondent of these rights mut be served on the ward alongside the petition and notice of hearing.

In keeping with the general tenor of many of these updates, the law also now expressly states that, in the case of adults, “guardianship should always be a last resort and should only be imposed after less restrictive alternatives have been considered and found to be insufficient to meet the adult’s needs.”

If you need legal assistance in instituting a North Carolina guardianship proceeding as a petitioner or defending against a proceeding or seeking modification of an existing guardianship as a respondent, ward, or other interested person, attorneys at Blanco Tackabery may be able to help you navigate the complexities of this unique legal area. Similarly, if you have been appointed as the guardian for an incompetent ward and need advice concerning administration of a guardianship and compliance with your fiduciary obligations, please reach out to us today.

 


Chad Archer brings extensive expertise in state and federal litigation and was recently named to Business North Carolina’s Legal Elite Honorees 2024 as well as the 2024 edition of The Best Lawyers: Ones to Watch® in America. In his civil litigation practice, he advises clients on a wide range of issues, including trusts and estates, appeals, contract disputes, commercial and corporate disputes, complex business litigation and employment disputes.

 

 

NIL Law in College Sports: The Basics

Posted on No Comments

When the NCAA adopted interim rules allowing college athletes to profit from name, image and likeness (“NIL”) in July 2021, it called upon Congress to implement NIL laws at a national level. Nearly three years into the NIL era, that hasn’t happened. Meanwhile, the NCAA had a busy start to 2024, imposing NIL-related sanctions against Florida State University, introducing new transparency requirements for NIL deals, and being sued by several states over its NIL policies.

To understand the current NIL landscape, let’s back up. NIL regulation currently flows from three sources: state government, the NCAA, and schools themselves. Athletes, donors, and businesses should be familiar with each level of regulation to ensure their NIL deals don’t put them–or schools they support– at risk of serious penalties.

North Carolina’s NIL Law

North Carolina’s current NIL law was established via Executive Order No. 223, signed by Governor Cooper on July 2, 2021. The important points to know are: (1) schools cannot make NIL deals directly with student-athletes; (2) NIL deals cannot be used as a direct inducement for a student-athlete to enroll or remain enrolled at a school, and (3) NIL deals cannot be conditioned on performance in competition.

These restrictions are intended to preserve the amateurism of college athletics by ensuring NIL does not create a “free agency” of the kind we see in professional sports, where teams attract players using high salaries and performance-based bonuses. You’ll find that much of the current NIL regulatory scheme was made with that same intent. That notwithstanding, the Order does allow student-athletes to hire agents, so long as they comply with the same state and federal laws that apply to agents for professional athletes.

Finally, North Carolina also gives discretion to its own colleges and universities to establish additional regulations, should they choose to. More on that later.

NCAA Rules

The next layer of regulation comes from the NCAA’s interim rules. The NCAA’s interim policy and supplemental guidance hit many of the same notes as North Carolina’s law – including that NIL opportunities may not be used to induce recruits to attend a particular school.

The NCAA also emphasizes that compensation without quid pro quo is prohibited. Accordingly, NIL agreements must contain expected deliverables, such as endorsement and marketing activities, that the student-athlete has promised in exchange for compensation. In other words, businesses cannot simply write a check with “NIL” in the memo line. It should be clear how the student-athlete’s name, image, and likeness will be used.

Like North Carolina’s law, the NCAA prohibits compensation based on athletic participation and achievement. So, NIL agreements cannot have any of the performance-based incentives that have become so common in professional sports, such as bonuses for reaching thresholds for innings pitched, rushing yards, or games played.

In January, the NCAA concluded its first major case for NIL violations, sanctioning Florida State University after an FSU assistant coach arranged a meeting between a recruit and an FSU booster, during which the booster extended a 1-year, $180,000.00 NIL offer–contingent on transferring to FSU. Following an investigation, the NCAA suspended the coach for three games. Perhaps more damaging, FSU was required to “disassociate” from the booster for three years. Disassociation means the booster cannot provide assistance (financial or otherwise) to FSU, nor can the booster receive any athletics benefit from FSU which would be unavailable to the general public.

The NCAA’s Division I Council also unanimously adopted new disclosure requirements in January. Beginning August 1, 2024, student-athletes must disclose information to their schools regarding all NIL agreements exceeding $600.00 in value. They must disclose the involved parties, terms of the agreement, and any compensation for the student athlete’s service provider (agent, financial advisor, etc.) within 30 days of signing the deal. The NCAA will also be developing standardized contracts and recommended, but not mandatory, contract terms.

While the NCAA’s NIL rules are harmonious with North Carolina’s, that’s not the case everywhere. The attorneys general of Tennessee and Virginia filed suit against the NCAA this week to abolish the NCAA’s NIL regulations on antitrust grounds. The lawsuit follows the NCAA’s investigation into the University of Tennessee’s recruitment of a five-star quarterback from California.

School-Specific Rules

The final layer of regulation comes at the school level. North Carolina’s NIL law gives colleges and universities discretion to prohibit certain deals for reasons specific to that school. For example, schools may prohibit NIL deals which conflict with an existing contract of the institution. So, because NC State has a deal with Adidas for its athletic uniforms, it could prohibit an athlete from signing an NIL deal with Nike, or another competitor.

Schools may also limit the categories of brands a student athlete may enter NIL agreements with. For example, the University of North Carolina at Chapel Hill’s policy prohibits athletes from engaging in NIL deals involving alcohol, gambling, or adult entertainment.

Schools may limit compensation during official team activities and events—probably to prevent a student-athlete from attempting, and brands expecting, promotion of their sponsor’s brand during a game or press conference.

Schools may also require that NIL deals are commensurate with fair market value. So, if an athlete is offered a million dollars for a de minimis obligation, schools have the authority to tamp down. However, that’s something schools are clearly disincentivized to do as it could put them at a competitive disadvantage compared to schools who don’t have the same requirement.

Institutions may also limit NIL pertaining to the school’s intellectual property. For example, Wake Forest could prevent one of its players from using Wake Forest’s logos in the course of an NIL deal. Knowing each school’s policies on intellectual property use in NIL deals is vital to avoid exposure to trademark and copyright infringement.

That’s an overview of the current landscape. But that landscape could change–fast. Support for amateurism in college sports appears to be waning, with polls indicating that a majority of Americans support the notion of directly paying college athletes. Whether Congress will act to standardize NIL law remains to be seen. In the meantime, stakeholders should vet their NIL contracts, both in form and presentation, to ensure they aren’t exposing themselves – or their beloved alma maters – to serious penalties.

VAWA Forms and Termination Notices – Does New Court Decision Pose Hidden Trap for Unwary Covered Housing Providers?

Posted on

Recently, the Court of Appeals issued an unpublished decision in Rosewood Estates I, LP v. Wendy Drummond that could have important consequences for those who own and operate rental properties subject to the protections of Violence Against Women’s Act (“VAWA”). No. COAA23-118, 2023 WL 5688807 (N.C. Ct. App. Sept. 5, 2023). In that decision, the court opined that the termination notice issued by the landlord was “fatally deficient under VAWA” because the landlord did not enclose the VAWA Notice of Occupancy Rights and HUD Certification Form with the termination notice. Id. at *4. Accordingly, the landlord in Rosewood could not evict the tenant because the termination notice was insufficient. Id.

Notably, the Rosewood holding appears to be at odds with the purpose of the VAWA housing statute and the regulation implementing it. The VAWA housing statute’s primary purpose is to prevent a covered housing provider from denying admission and assistance to, terminating the tenancy of, and/or evicting a tenant or applicant on the basis that the tenant or applicant has been or is a victim of domestic violence, sexual assault, or stalking. 34 U.S.C. § 12491(b)(1). Put simply, VAWA and the housing statute are designed to protect the victims of domestic violence.

To be sure, the VAWA statute directs each public housing agency or owner and manager of a covered housing program to provide a copy of the VAWA Notice of Occupancy Rights (HUD 5380) and VAWA Certification Form (HUD 5382; together with the HUD 5380, the “VAWA Forms”) to an applicant or tenant of the covered housing program at various times, including, without limitation, at the outset of a tenant’s tenancy and with any notification of eviction or notification of termination of assistance. 34 U.S.C. § 12491(d)(2). The regulation implementing and interpreting the VAWA statute repeats that requirement and adds the following: “Nothing in this section limits any available authority of a covered housing provider to evict or terminate assistance to a tenant for any violation not premised on an act of domestic violence, dating violence, sexual assault, or stalking that is in question against the tenant or an affiliated individual of the tenant.” 24 C.F.R. § 5.2005(d).

The Court in Rosewood did not account for the purpose of the VAWA housing statute or the implementing regulation’s language when rendering its decision. Again, the purpose of VAWA is to provide victims of domestic violence with protections, and the VAWA housing statute imposes those protections in the housing sphere. If an eviction is not based on the status of the tenant as present or past victim of domestic violence, dating violence, sexual assault, or stalking, then the VAWA statute provides no protection, which is a point the implementing statute makes abundantly clear. By contrast, the VAWA housing statute and implementing regulation do not say a tenant will have a defense to any eviction for any reason—for example, a simple failure to pay rent—if the covered housing provider fails to provide the VAWA Forms at the specified times.

Nevertheless, the Court in Rosewood purports to extend the umbrella of VAWA’s protections to any tenant whom a covered housing provider is evicting for any reason when that tenant does not receive a termination notice with the VAWA Forms enclosed, irrespective of whether the tenant is a victim of domestic violence or already had notice of his or her rights under VAWA. For those reasons, the Court in Rosewood appears to conflict with VAWA’s animating purpose. Regardless, in Rosewood’s wake, the question is this: what does Rosewood mean for covered housing providers in North Carolina?

First, it must be emphasized that the Rosewood opinion is an unpublished opinion and that, to date, there is no published opinion in North Carolina on this point. In North Carolina, the Court of Appeals issues published and unpublished opinions. Published opinions are binding decisions of the Court that constitute precedent for the lower courts. That means a trial court would be obliged to follow a published Court of Appeals opinion. On the other hand, unpublished opinions are not binding and do not constitute controlling legal authority. Rule 30 of the North Carolina Rules of Appellate Procedure thus states that the use of unpublished opinions in legal argument is disfavored.

Second, the holding regarding the VAWA housing statute in Rosewood is not essential to the ruling issued by the Court. The Court first ruled that the notice in the Rosewood case was defective because it omitted the grounds for termination as required by the parties’ lease agreement. The Court then added that the notice was also defective because it did not include the VAWA forms. The latter statement was not necessary for the court to find that the notice was defective, and thus the Court’s statement regarding VAWA is arguably dicta, i.e., non-binding authority.

That said, it is strongly recommended that covered housing providers who are not enclosing the VAWA Forms with their termination notices start doing so immediately and continue for the time being, unless and until a contrary precedential decision is issued on the topic. While the Court in Rosewood seemingly gave only cursory consideration to this issue, the Rosewood opinion could be invoked to exert persuasive authority over trial court judges in North Carolina. Until greater clarity is achieved through issuance of a published decision, it is simply safest for covered housing providers to include the VAWA Forms with all termination notices. Covered housing providers may also wish to include an enclosure line in their termination letters about the VAWA Forms (e.g., “Enclosure: HUD 5380 and HUD 5382”). Further, covered housing providers should retain complete copies or scans of the termination notices with the VAWA Forms to be able to prove compliance later.

As a final note, you may be wondering if you are a covered housing provider under VAWA. VAWA applies to most, if not all, affordable rental properties and programs, including public housing, properties operated pursuant to the IRS’s Low Income Housing Tax Credit program, properties operated by a public housing authority, properties operated in connection with a voucher program, Section 202 properties, Section 811 housing, Housing Trust Fund properties, and HOME fund properties.

Covered landlords (and landlords who are unsure whether they qualify as such!) should consult with experienced counsel to ensure that they don’t run afoul of the law.  The experienced attorneys at Blanco Tackabery stand ready to provide such counsel.


Henry Hilston employs his experience in state and federal litigation as an asset in his representation of affordable and conventional multifamily property owners and managers. In that practice, he advises property management companies on a wide range of issues, including evictions and other landlord-tenant disputes, VAWA, the Fair Housing Act, and compliance issues under federal and state affordable housing programs, such as the Low-Income Housing Tax Credit (LIHTC) program and HUD and USDA-Rural Development rental subsidy programs. He also assists those clients with the preparation, review, and revision of management documents, including tenant selection plans, management agreements, and leases.

 

 

New Analysis Reveals Total Economic Impact of NC Clean Energy from 2007-2020 to be $40.3 Billion

Posted on

As one of North Carolina’s leading law firms in the Renewable Energy space, we couldn’t be more excited to announce the results of RTI International’s recent report concerning North Carolina clean energy project development.

According to the NC Sustainable Energy Association (NCSEA),

“RTI International conducted the report to identify associated economic impacts of clean energy development (renewable energy and energy efficiency) in North Carolina and identified that, from 2007-2020, the total economic impact from clean energy and energy efficiency project development in the state was $40.3 billion, with 17 percent of the cumulative clean energy investment over the last 14 years occurring in 2019 and 2020.”

In 2020 alone, there was an impressive $1.6 Billion dollar investment in renewable energy, up from just $26.2 Million in 2007. In addition, “several of North Carolina’s most economically-challenged counties, including Duplin, Robeson, and Halifax Counties, received the greatest amount of clean energy investment from 2007-2020,” the NCSEA website states.

Click here to view the full report and other important information.

Blanco Tackabery’s Renewable Energy Practice Group is a leader in NC and throughout the Southeast. Our experienced team has assisted in the development and financing of over a gigawatt of solar farms nationwide, including North Carolina, South Carolina, Georgia, Oregon, Minnesota, Maryland, Rhode Island and Illinois. We advise clients on every stage of renewable energy project development, from project concept through placement in service, and beyond. 

The Debt-Ceiling for Subchapter V is about to Shrink

Posted on

On March 27, 2021, the temporary increase of the Subchapter V debt ceiling to $7.5 million will expire and revert back to the original $2,725,625.00 cap. Subchapter V became effective on February 19, 2020, right as the COVID-19 pandemic was overtaking the United States. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) became law and, among other things, raised the debt ceiling for Subchapter V. With the expanded debt ceiling set to expire, many businesses are about to lose their eligibility at a time when the future is uncertain due to the pandemic.

Subchapter V was designed to provide a streamlined and user-friendly Chapter 11 reorganization process for small businesses that may lack the sophistication and means of those that typically file for Chapter 11. Numerous features help accomplish that goal, including the following: (1) a 90-day deadline for filing a plan; (2) no requirement for a separate disclosure statement and the solicitation of plan acceptances; (3) no requirement that the debtor obtain the acceptance of one impaired class; and (4) a trustee is always appointed to help develop a plan and administer the plan. These features and others make Subchapter V cheaper, faster, and easier to get through for a small business than a traditional Chapter 11. 

While Subchapter V provides a number of advantages, filings have been slower than expected even with the expanded debt ceiling. According to data released by Epiq, only 20% of the Chapter 11 cases filed between February 19, 2020 and October 1, 2020 were Subchapter V filings (https://www.epiqglobal.com/en-us/about/news/restructuring-bankruptcy/slow-start-to-chapter-11-subchapter-v-bankruptcy). While filings have been lower than expected, data shows a good chunk of the filed cases have been Subchapter V cases. For instance, data from the District of Delaware indicates that 20% of Subchapter V cases filed between February 19 and October 1, 2020 have debtors with debt between 2.7 and 7.5 million. (https://news.bloomberglaw.com/bankruptcy-law/expiring-debt-cap-to-limit-small-business-bankruptcy-fast-lane). 

In addition, data shows that the number of Subchapter V cases filed have gradually increased from May to September of 2020. (https://www.epiqglobal.com/en-us/about/news/restructuring-bankruptcy/slow-start-to-chapter-11-subchapter-v-bankruptcy).   In fact, data from Delaware indicates 40 new Subchapter V cases were filed at the end of February 2021, compared to 75 for all of January (https://news.bloomberglaw.com/bankruptcy-law/expiring-debt-cap-to-limit-small-business-bankruptcy-fast-lane). 

In total, the data shows that Subchapter V filings are increasing and that the debt ceiling has opened up the streamlined process to a larger number of debtors than would otherwise be eligible. The expiration of the debt ceiling expansion will cut off a great number of businesses from the streamlined process at a time when there may be a greater need for the relief Chapter 11 reorganization can provide. Thankfully, it looks like Congress has seen the need to extend the expansion of the debt ceiling for another year. On March 17, 2021, a bill proposing to extend the debt ceiling for another year passed the in the House (H.R. 1651). While only a few days remain until its expiration, it looks like the expanded debt ceiling is on track to remain in place for another year. 


Henry O. Hilston
Henry joined the firm in 2020. He practices in the Business Bankruptcy and Creditor’s Rights practice group as well as the Civil Litigation practice group.

Caroline Munroe to Participate in New CLE for Creative Lawyers on Collaborative Conflict Resolution

Posted on

The Collaborative Law Process is a streamlined conflict resolution option that saves time, money and stress. It avoids litigation and instead involves a series of five or six round-table meetings between the parties and their collaboratively trained lawyers. During these meetings, the parties discuss the problem and its resolution.

Caroline Munroe, an attorney from our Trusts and Estates practice area, will be presenting in an upcoming CLE event on how to use collaborative conflict resolution techniques in trust, estate and fiduciary disputes, where personal relationships between the parties are particularly important. The CLE is titled Collaborative Conflict Resolution: The New Uniform Act and How to Apply It and is conducted in coordination with the North Carolina Civil Collaborative Law Association.

The North Carolina Civil Collaborative Law Association is a non-profit organization which serves as a resource for information about the field of civil collaborative law. Among other things, they seek to educate both the public and attorneys about the process of collaborative law and the many advantages of using it to resolve certain civil disputes in the commercial arena.

If you’d like more information about the event, the agenda is available for download here.

To sign up for the CLE, click here.

Story of a Scam, Foiled

Posted on

Scam artists are increasingly sophisticated, and consumers and businesses are under siege.  Our law firm, like many businesses, is attacked by hackers multiple times a week.  This post describes a scam even simpler than breaking into a computer system, though. It involves an attempt to get me to voluntarily wire $148,000 to the scam artist.  Fortunately, my “spider sense” began to tingle early and I enjoyed watching the scam unfold.  It does, however, indicate how a seemingly innocuous request for services can lead you down the primrose path to a very expensive lesson.

It began with a form submission to our firm’s website requesting assistance in collecting severance pay.  The scammers had fairly skillfully fabricated the letterhead of a legitimate national corporation in the health care industry into a purported severance agreement dated some six weeks before the email.  The scammers even went so far as to fabricate an exchange of emails back and forth between my would-be client and his old employer demanding the severance payment he had been promised. He also provided a three year old offer letter from when he supposedly was offered the job.

Red flag number one:  The letterhead of the company only had the logo of the company and their slogan, and no address. 

Red flag number two:  The wannabe client lived out of state, but purportedly was negotiating the terms of his severance with the local Winston-Salem branch of the corporation.

These red flags had me alert, but not enough to cut off communications. After clearing conflicts within the firm (to insure that we could handle the case), I informed the client I would be glad to write a demand letter notifying the company that we would take action to enforce the severance provision if  the payment was not received by the end of the week.  The client quickly approved, signed, and returned my fee acknowledgement letter.  The client also approved the demand letter I had prepared, and I sent it out. No doubt he was smelling blood at this point!

Within a day (this being only four days from the initial contact from the client), the client informed me that his ex-employer had capitulated, and committed to making payment in full by the end of the week.  He sounded ecstatic, and told me that I could subtract my fees from the check when it arrived and send him the balance.

Red flag number three:  The solution and resolution to my work took place far too quickly, given that the client had waited six weeks from any action from the employer.

Red flag number four: The client not only quickly agreed to my fee structure, but authorized me to deduct whatever they came to, sight unseen, from the check arriving from his ex-employer.

I thereafter received confirmation from a person purporting to be the human resources officer for the corporation, apologizing and assuring me that the severance payment would be made by the end of that week.

As promised, that Friday (now one week from the initial contact from the client), an overnight letter arrived with the check. The letter was very explicit that the enclosed check was a “certified check” and “should be made available to you upon deposit”. Neither of those statements were technically true. Immediately after being informed of this, the client followed back up with wiring instructions for a bank I had never heard of with an unusual wiring address.

Red flag number five:  The company making the payment stressed how quickly the funds would be available from deposit of the check. 

Red flag number six:  The wiring instructions did not make sense for someone who supposedly lived in Kentucky.

The client now urged me to have the wire sent before 11:00 a.m. that very morning, and that the wire be done by swift with the highest wire fee, also to be deducted from the funds help.  He insisted he needed it for lab equipment to set up his own laboratory and asked me to forward the wire receipt.

Red flag number seven:  Isn’t this obvious?

At this point, it was very clear that something untoward was occurring.  I responded to the client that I apologized for my lack of confidence in him, but would not be distributing any funds until we received confirmation from the bank that the check had finally cleared.  I also informed him that it seemed fairly obvious to me at this point that he was attempting to scam me and if that was the case he could move along because it would not work.  I have not heard back since.

On the twelfth day after initial contact from the client, I received word that the check had been returned identified as fictitious.

The point of this post is not to say how brilliant I was to decipher this, but rather to highlight that we are all at risk in a world where scammers find it easier to trick someone out of their hard earned money than to earn it themselves.  Please be safe and cautious.  If it seems too good to be true, it probably is.


Peter Juran has practiced law for over 30 years and is a member of the North Carolina and Forsyth County bar associations. He is an experienced litigator and Certified North Carolina Mediator, providing regular guidance on decisions involving contracts, construction law, employee rights and duties, company control and management, trusts and estates, and all manner of civil litigation.

The New North Carolina Commercial Receivership Act

Posted on

With the anticipated continuing economic downturn, many creditors will be weighing options for pursuing delinquent borrowers. Creditors seeking to enforce a borrower’s obligations have a limited number of options for protecting their rights under North Carolina state law. One of the more effective but infrequently used options is having a receiver appointed. Recent amendments to North Carolina receivership statutes have increased the desirability of seeking appointment of a receiver and have provided more certainty in how the process works. The Commercial Receivership Act (“Act”) was signed into law on June 25, 2020 and is effective January 1, 2021.

Background

Some background will be helpful to understanding the significance of the new Act. A receiver is a court-appointed agent who is responsible for taking possession of, managing and controlling property, including an operating business. North Carolina statutes and common law permitted a receiver to be appointed in limited circumstances. The statutes provided for the appointment of a receiver and addressed matters such as required bonds, but provided very little guidance with regard to the specific powers of a receiver. The new Act provides significant clarity with regard to a receiver’s powers and also creates new rights which greatly enhance the desirability of seeking the appointment of a receiver.

Where It Applies

The Act applies only to corporations, limited liability companies, partnerships and individual business debtors. In order to be considered an individual business debtor, an individual’s debts must be comprised of less than 50% consumer debt. A receivership can be general or limited. A general receivership is imposed over all or substantially all of the nonexempt property of a debtor. A limited receivership is any receivership that is not a general receivership, and places a receiver in control of less than all of a debtor’s property. A receivership based on a foreclosure or enforcement of a security agreement or judgment is generally a limited receivership.

A receivership is begun by filing a civil action which may seek only the appointment of a receiver or which may be ancillary to a civil action, such as in support of a foreclosure. The Act expanded the grounds for appointment of a receiver. Under the former statutes, a creditor had to demonstrate that its collateral was in danger of being lost or materially injured or impaired. The Act provides for the appointment of a receiver if the debtor is insolvent or simply failing to pay its debts when they become due. In a foreclosure proceeding, a receiver can be appointed if the debtor agreed to such appointment in a signed record. Most deeds of trust provide for the appointment of a receiver, easily satisfying this requirement.

How It Applies

The Act provides clarification with regard to the specific powers of a receiver. A receiver can: 1) take possession, collect, control, manage, conserve and protect receivership property; 2) incur and pay expenses; 3) assert rights, claims and causes of action or defenses related to receivership property; and 4) seek instruction from the court with regard to any matter related to receivership property. In addition, a general receiver can, inter alia: 1) operate a business constituting receivership property; 2) compromise and settle claims involving receivership property; 3) enter into contracts necessary for the management, security, insuring or liquidating receivership property; and 4) file a bankruptcy case related to receivership property. A new feature of the Act is that it permits a receiver to sell receivership property free and clear of liens.

An important addition to the powers of a receiver is the granting of lien creditor status as of the time of appointment. This treats the receiver as a creditor with priority over other creditors with claims that are not secured by liens or security interests.

A significant new feature of the statute is the imposition of an automatic stay (similar to that in bankruptcy) with regard to any action to obtain possession of receivership property or to perfect a lien against such property. This prevents creditors from improving their positions without court approval once a receivership is in effect. In addition, the statute now provides that a single judge can retain jurisdiction to oversee the receivership.

Conclusion

The clarifications provided by the Act represent welcome changes to existing North Carolina law. Many of the new features of the Act are parallel to provisions of the Bankruptcy Code. With the changes, a receivership becomes a more effective tool for creditors seeking to protect their rights without having to attempt to force a borrower into an involuntary bankruptcy.

Blanco Tackabery is prepared to assist you with navigating through the receivership process. If you have questions, contact Jim Vaughan or Ashley Rusher for assistance.

Navigating the Intricacies of the Federal Eviction Moratorium

Posted on

On September 1, 2020, the Trump Administration – specifically, the Centers for Disease Control and Prevention, or CDC – issued an eviction “moratorium” through the end of the year.  Readers of media headlines might be led to believe that all evictions must stop.  However, the 37-page Agency Order that implements the temporary halt of evictions, pursuant to public health laws, does not cover all evictions.

To maintain their rights while avoiding penalties for violation of the moratorium, landlords should know the circumstances under which eviction proceedings can and can’t be filed.  While each case is best evaluated with the assistance of a lawyer, some limitations of the moratorium include:

  1. It only halts residential evictions and does not apply to commercial leases.
  2. It appears to only halt evictions based on non-payment of rent. Tenants can still be evicted for reasons including:  engaging in criminal activity on the premises; threatening the health and safety of other residents; damaging property; violating health and safety laws; or violating “any other contractual obligation, other than the timely payment of rent or similar housing-related payment.”  (Whether a tenant can be evicted for “holding over” after the expiration of the lease term is not expressly addressed.)
  3. It only applies to “covered persons.” To be covered, a tenant must provide their landlord with a written declaration that they:
  • Have used their best efforts to obtain any available government housing assistance;
  • Expect to earn less than $99,000 (or $198,000 for a married couple) in 2020, or otherwise are below certain financial thresholds;
  • Are unable to pay full rent due to “substantial loss of household income, loss of compensable hours of work or wages, lay-offs, or extraordinary out-of-pocket medical expenses”;
  • Are using their best efforts to make partial payments;
  • Would likely become homeless (or would need to move into “close quarters” with others), if evicted.
  1. It does not stop rent from accruing, late fees from being imposed, or collection efforts other than eviction – such as suing for a “money judgment.”

The moratorium has been criticized by landlords and tenants alike.  Notably, it deprives landlords of their primary leverage to enforce rent obligations, without providing financial assistance to landlords who were relying on their rents to cover their mortgages and other financial commitments.  Meanwhile, many tenants complain that the order merely postpones evictions for a few months and will result in an onslaught of evictions on January 1, as rent arrearages “pile up.”

While the soundness of the moratorium may be subject to debate from a policy perspective, landlords should pay close attention to it, regardless.  Violations of the moratorium can be punished by criminal penalties – as high as one year in jail or a $500,000 fine.


Elliot A. Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations. He is an experienced litigator with major case experience in state and federal courts and in private arbitrations. Elliot has a broad range of experience with landlord-tenant disputes in contexts ranging from shopping centers to affordable housing complexes.

The Small Business Reorganization Act

Posted on

As noted in our earlier post, the Small Business Reorganization Act (SBRA), which became effective February 19, 2020, was enacted to address concerns that typical chapter 11 reorganization cases were too expensive and burdensome for smaller businesses. In order to address those concerns, Congress created subchapter V (read as “five”) of chapter 11, which provides a more streamlined, and less costly, process for a “small business debtor” navigating through the reorganization process. This post briefly discusses subchapter V.

The most obvious change is that a trustee is appointed in every subchapter V case. The trustee’s primary role is to facilitate the formulation of a plan of reorganization and generally to keep the reorganization on track. A committee of creditors, which is typically appointed in a chapter 11 case, will not be appointed in a subchapter V case without a Bankruptcy Court order for cause. This reduces the cost of the reorganization because a debtor is responsible for the payment of the costs of a committee, including its attorneys’ fees.

Several of the amendments provided in subchapter V cases are intended to streamline the plan confirmation process. A debtor is not required to prepare a disclosure statement and only the debtor can submit a plan of reorganization, reducing the cost and eliminating the complications involved with a contested confirmation hearing involving competing plans. A plan must be filed within 90 days after the case is filed, absent an extension of time granted by the Bankruptcy Court for circumstances that are not justly attributable to the debtor. This is a significant reduction in the 300-day plan filing deadline of a typical small business debtor chapter 11 case.

The process and requirements for confirming a plan were also simplified for small business debtors. First, a debtor does not have to obtain the acceptance of an impaired class of creditors in order to confirm a plan. Administrative expense claims can be paid over the life of the plan, rather than in cash at the effective date of the plan. Cram down (confirming a plan over the objection of creditors) remains an option for a subchapter V debtor, but the absolute priority rule has been eliminated, meaning that equity holders in a debtor can retain their interests even if unsecured creditors are not paid in full.

A plan must still be fair and equitable in order to be confirmed. However, similarly to chapter 13 case, a plan will be deemed fair and equitable if a debtor commits all of its “projected disposable income” or property of equivalent value for a minimum of three years and a maximum of five years. The debtor must demonstrate a reasonable likelihood that it will be able to make all payments required by the plan and must provide appropriate remedies to protect creditors if it fails to make the required payments. If a plan is confirmed under the cram down provisions, all property acquired by the debtor post-petition becomes property of the estate.

There are other significant changes that may be relevant in specific cases. Even with the streamlining and simplification, the reorganization process remains difficult and complex. The amendments to chapter 11 should make the reorganization process feasible for many more small business debtors. Blanco Tackabery is prepared to assist you with navigating through the bankruptcy process. If you have questions, contact Jim Vaughan or Ashley Rusher for assistance.


Jim Vaughan has more than 30 years of experience representing lenders in commercial loan workouts, bankruptcy cases and commercial litigation.  This, coupled with his accounting background and business skills developed running a solo law practice for twelve years, gives him a common sense, results-driven approach to counselling clients and serving their needs effectively and efficiently.

Congress Amends Small Business Reorganization Act to Assist More Small Businesses

Posted on

The Small Business Reorganization Act (SBRA) became effective February 19, 2020. The SBRA was enacted to address concerns that typical chapter 11 reorganization cases were too expensive and burdensome for smaller businesses. In order to address those concerns, Congress created subchapter V (read as “five”) of chapter 11, which provides a more streamlined, and less costly, process for navigating through the reorganization process.

Before the SBRA was passed, financially troubled businesses had to choose between a complex and costly chapter 11 case or a chapter 7 liquidation. Many small businesses that had the potential to survive were unable to afford to successfully navigate through the chapter 11 process. The intent of Congress in enacting the SBRA was to provide a vehicle that would permit more struggling smaller businesses to survive the reorganization process.

Initially, the SBRA made subchapter V available to a “small business debtor” that had debts of approximately $2.7 million or less. Unlike a chapter 11 case, a trustee is appointed to assist with the confirmation process. Many of the more costly reporting requirements of chapter 11 were eliminated and numerous changes were made that were intended to make it easier for small business debtors to confirm a plan of reorganization. In effect, a subchapter V case is a combination of a typical chapter 11 case and a chapter 13 case, which is limited to individuals.

At the time SBRA was enacted (August 23, 2019), Congress was unaware of the ensuing COVID-19 pandemic. Realizing the potential negative impact the pandemic could have on businesses, and small businesses in particular, in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Congress amended the SBRA barely one month after it became effective to increase the debt threshold for a “small business debtor” from $2,725,625 to $7,500,000 for a period of 12 months ending March 27, 2021. This increase will greatly expand the availability of a streamlined bankruptcy reorganization for smaller businesses.

Even with the enactment of the SBRA, bankruptcy is a complex matter. Blanco Tackabery is prepared to assist you with navigating through the bankruptcy process. If you have questions, contact Jim Vaughan or Ashley Rusher for assistance.


Jim Vaughan has more than 30 years of experience representing lenders in commercial loan workouts, bankruptcy cases and commercial litigation.  This, coupled with his accounting background and business skills developed running a solo law practice for twelve years, gives him a common sense, results-driven approach to counselling clients and serving their needs effectively and efficiently.

An Overview of the Paycheck Protection Program

Posted on

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) included the Paycheck Protection Program (PPP) to encourage small business employers to continue to retain and pay employees during the economic slowdown. The PPP has been extremely popular, with the initial funding in the amount of $349 billion being completely allocated within 2 weeks. Congress enacted a second round of funding, which became available on April 27, 2020. The second round of funding is expected to be quickly exhausted and a third round of funding is expected.

The general parameters of the PPP are as follows:

  1. An employer with 500 or fewer employees can borrow a maximum of two and one-half months of its average payroll expenses (up to a $10 million cap);
  2. The employer must use at least 75% of the funds for eligible payroll expenses;
  3. The employer must not use more than 25% of the funds for other eligible expenses, including mortgage interest (but not principal), rent, utilities and interest on pre-existing debt. All of these obligations must have been in existence as of February 25, 2020; and
  4. The funds allocated to payroll must be expended within 8 weeks of the date the funds are received.

If the funds are used within the parameters of the PPP, the entire balance of the loan can be forgiven. To the extent funds are not used within the parameters, that portion of the funds converts into a loan with terms specified in the CARES Act.

Each of the elements of a PPP loan is subject to limitations and there is some uncertainty as to how some of the provisions will be applied. Blanco Tackabery is prepared to assist you with navigating the PPP process. Contact Jim Vaughan for assistance.


Jim has more than 30 years of experience representing lenders in commercial loan workouts, bankruptcy cases and commercial litigation.  This, coupled with his accounting background and business skills developed running a solo law practice for twelve years, gives him a common sense, results-driven approach to counselling clients and serving their needs effectively and efficiently.