Legal Opinions, a Nevada Business Magazine feature for the past eight years, is a compilation of expert knowledge on a variety of topics. Written by attorneys, all of whom are highly educated on their featured topic, this special report is a one-stop resource for executives.
Articles in the 2019 edition of Legal Opinions range from marijuana to private equity and healthcare. Each provides business leaders with a glimpse into complex legal issues.
Legal Predictions for the Marijuana Industry
By: Alicia Ashcraft, Co-Founder and Managing Partner, Ashcraft & Barr LLP
This is the third year for Ashcraft & Barr to make legal predictions for the marijuana industry in the “Legal Opinions” section of Nevada Business Magazine.
As has become the custom, the firm made three predictions about Nevada’s marijuana industry, and this article re-visits those predictions to see how well our prognostication powers fared.
Prediction No. 1 for 2019: Cannabis Control Board
Last year, we predicted that the 2019 Legislature would create a new agency to regulate marijuana. This prediction came true.
Assembly Bill 533 was passed by the Nevada Legislature and signed into law by Governor Sisolak this year providing for the creation of the Cannabis Compliance Board. The board ramps up in January 2020 and begins fully regulating the industry on July 1, 2020. The board looks like many that regulate other industries in Nevada, and will add a new level of professionalism to marijuana regulation in Nevada.
Prediction Grade: A+
Prediction No. 2 for 2019: Greater Regulation of CBD
Last year, we foresaw tighter regulatory control of Nevada’s burgeoning CBD industry. “CBD” is shorthand for the chemical compound “cannabidiol.” Cannabidiol is a non-psychoactive chemical found in both marijuana and hemp. Hemp is not a “Schedule I” substance and is not illegal at the federal level. Hemp is regulated by the Department of Agriculture in Nevada. On the other hand, marijuana is a “Schedule I” substance and remains illegal at the federal level because it contains a psychoactive substance called “THC,” or tetrahydrocannabidiol.
In 2018, CBD regulation was in a gray area. Recently the U.S. Congress passed the Farm Bill that significantly clarified regulation at the Federal level. In Nevada, there also has been some better regulations, but CBD remains in a bit of a gray area. Thus, this prediction became halfway true.
Prediction Grade: B
Prediction No. 3 for 2019: Banking Reform
We forecasted federal and state banking reform to ameliorate the cash-based, cannabis economy. There has been no banking reform. While there has been much talk of the need for reform, neither Congress nor the Nevada Legislature has made any strides.
Prediction Grade: D
Because we have not learned our lesson from last year’s forecasts, the following continues the tradition of making legal predictions for 2020.
Prediction No. 1: Federal Regulation of CBD
Proponents attribute many (unproven) health benefits to CBD oil. Given the proliferation of CBD products, we predict that the Federal Food and Drug Administration will take a greater role in regulating CBD products under the Pure Food and Drug Act.
Prediction No. 2: Greater Consolidation in the Industry
The marijuana industry has grown exponentially in the last five years. The rapid acceleration of the industry has no real comparison. Five years ago, the only legal marijuana grown in Nevada was clandestinely cultivated by chronically-ill patients for use in treating their debilitating diseases. Patient-grown cannabis gave way to local entrepreneurs, and local entrepreneurs gave way to publicly-traded Canadian start-ups.
We predict the market will continue to consolidate with a few, international cannabis behemoths dominating trade in Nevada. National brands will emerge as consumers become more sophisticated. For dispensaries in particular, there will be less Nevada control.
Prediction No. 3: Banking Reform
We failed miserably at this prediction last year, so we are a bit reluctant to make it again. But the stakes are high in the cash-based, cannabis industry. Thus, our hope for banking reform in the marijuana industry triumphs over experience.
It is not illegal for those in the cannabis trade to open and maintain bank accounts, but many banks refuse to serve marijuana commerce because the banks must comply with substantial federal and state regulations. Because the marijuana industry will continue to grow, we predict that federal and state banking laws will be reformed to permit cannabis operators to freely open bank accounts.
For five years, legal cannabis has proven to be a remarkably successful experiment. The year 2020 promises to surprise us all.
Can Judgements Be Nondischargeable in Bankruptcy?
By: Sam Schwartz, Shareholder, Brownstein Hyatt Farber Schreck
Many litigators know that making a debt nondischargeable in bankruptcy is a near impossibility. Generally, attempting to make a debt nondischargeable in bankruptcy is not enforceable under matters of public policy. Recently, however, a San Diego District Court judge described how a stipulated judgment could be used to create nondischargeability in the event of a subsequent bankruptcy case.
In the San Diego case, an individual personally guaranteed the debt of a third party for approximately $300,000. The primary borrower failed to pay, and the guarantor then refused to honor the guarantee. The creditor sued the guarantor in state court for breach of contract, fraud, negligence and conversion. Later, the creditor and the guarantor resolved the litigation through a stipulated judgment for roughly $200,000. The stipulated judgment included regular payments, and an agreement the debt would be nondischargeable in bankruptcy. The guarantor later defaulted on the payments, and filed for protection under Chapter 7 of the Bankruptcy Code.
In order to have the stipulated judgment declared nondischargeable, the creditor filed a lawsuit to have the Bankruptcy Court find the debt nondischargeable under Section 523(a)(2)(A) of the Bankruptcy Code. Section 523(a)(2)(A) allows for unpaid debt to be declared nondischargeable for money obtained by “false pretenses, false representation or actual fraud.”
In an effort to avoid trial, the creditor filed a motion for summary judgment, arguing the debt was nondischargeable due to issue preclusion arising from the stipulated judgment. Whether a debt was obtained by false pretenses is typically a question of fact; therefore, the bankruptcy court denied the summary judgment motion and held a bench trial. At trial, the creditor again argued issue preclusion, but the Bankruptcy Court again denied the creditor’s argument. The trial court also found that the creditor failed to demonstrate the guarantor obtained any money under false pretenses, a false representation or fraud, and ruled in favor of the guarantor. The creditor then appealed to the San Diego District Court.
On appeal, the creditor again lost. The District Court first applied California law in rejecting the issue preclusion arguments. In California, issue preclusion has five requirements, including that the issue must have been actually litigated in the former proceeding. The District Court found the stipulated judgment was a compromise; however, the parties did agree the debt would be nondischargeable. In analyzing the agreement in the stipulated judgment, the District Court found the stipulated judgment was not automatically enforceable under its own terms because “such prepetition waivers are unenforceable” in the Ninth Circuit. Nonetheless, the District Court did find that the judgment would be nondischargeable if it met the requirements for issue preclusion.
Specifically, the District Court found that issue prelusion did not apply because the record was insufficient, “to reveal the controlling facts and pinpoint the exact issues litigated in the prior action.” The stipulated judgment was also devoid of facts demonstrating or supporting the alleged fraud. Absent an express finding of fraud in the underlying judgment, the District Court did not find facts to support a finding that fraud was actually litigated in the former proceeding.
In reaching its conclusions, the District Court found that the stipulated judgment, “did not show that the issue of fraud was necessarily decided because the Stipulated Judgment lacks any substantive reference to the fraud claim or facts supporting the claim.” (Cheikes v. Wlodarczyk)
The creditor also argued on appeal that the guarantor made a false representation about his ability to pay the guarantee. The District Court did find that a failure to disclose financial wherewithal can lead to nondischargeability under Section 523 of the Bankruptcy Code; however, in the Cheikes case, the guarantee did not require any disclosures. Therefore, without a contractual obligation to disclose his financial wherewithal, the guarantor did not violate any duties.
In summary, the Cheikes case stands for the proposition that stipulated judgments can be written to be nondischargeable; however, they need to be explicit in their findings. Specifically, a stipulated judgment (or a court-ordered judgment) needs to find that a borrower or guarantor made false statements, used false pretenses, or committed fraud to be nondischargeable. In this way, upon the filing of a bankruptcy case by the borrower or guarantor, the Bankruptcy Court will have sufficient facts to find issue preclusion, as the matter was actually litigated in the former proceeding. While ruling against the creditor, the San Diego District Court did state stipulated judgments can be nondischargeable; they just need to be written properly.
Real Estate: Selected Updates from the Nevada Legislature and Nevada Courts
By: R. Duane Frizell, Attorney, Frizell Law Firm
Notices of HOA Redemptions
Technical compliance may not be required in notices of homeowner association (HOA) redemptions. In 2014, the Supreme Court held that HOAs had a “superpriority” lien that, when foreclosed, extinguished a first deed of trust and vested title in the foreclosure sale purchaser “without equity or right of redemption.” In 2015, the Nevada Legislature quickly created such a right. It gave the original owner and other lienholders 60 days to redeem the property by paying certain amounts and serving a notice of redemption together with a certified copy of their deed or deed of trust. This year, the court determined that “technical compliance” with the notice procedures was not required when the purchaser had actual knowledge of the original owner’s intent. (Here, the entity conducting the sale sent the purchaser an email.) The lack of a certified copy of the deed did not defeat the right to redeem either.
Notices of HOA Defaults
Notice must go to the address in the deed of trust, but then again, alternative notice may be permissible. The Supreme Court held that, in an HOA foreclosure sale, the HOA violated statutory requirements when it sent a notice of default to a lender at an address other than the one designated in the deed of trust. Even so, the court also concluded that such a requirement would not necessarily be mandatory if the lender received timely notice by “alternative means” and suffered no “prejudice” as a result.
Notices of Commercial Lease Defaults
A primary tenant’s actual notice may be sufficient, and a subtenant may not need notice at all. The Court of Appeals held that although a commercial landlord did not “strictly comply” with a lease’s notice requirements, it could still terminate the lease because the primary tenant had “actual notice” of the default. It further held that even though the landlord violated the lease’s terms by failing to give the subtenant notice, the lease could still be terminated because the subtenant was not a third-party beneficiary of the lease.
Equity increased, but protection decreased. The Legislature increased the homestead exemption from $550,000 to $605,000. It also changed the general rule that, apart from holders of liens recorded prior to a homestead declaration, judgment creditors may not execute upon proceeds of a homestead’s sale. Now, this exemption only applies when the seller reinvests the proceeds into a like-kind property that will be declared the new homestead; the seller identifies the new homestead within 45 days after the sale; and the seller takes possession of the new homestead within 180 days.
Tax Sales for Abandoned Properties
Owners get less time. The Legislature created an expedited procedure for the sale of abandoned property with delinquent property taxes. Now, the county treasurer need only give 45- days’ advance notice of the sale, instead of the regular 90 days. The owner of the property will also only have a one-year redemption period, instead of the regular two years.
Perpetual Charitable Trusts and Property Arrangements
There is an unlimited time allowed for these. The Legislature has provided that, unlike most private agreements, charitable trusts and other property arrangements may now exist in perpetuity.
Creating Workplace Safety in an Active Shooter Era
By: Alex Velto, Associate Attorney, Hutchison & Steffen Attorneys
We live in an active shooter era. Society increasingly sees mass shootings as commonplace. The workplace is far from immune from this broader trend. Since 2006, there have been 11 workplace mass killings—defined as four or more people killed— resulting in the loss of 90 lives altogether. Active shooters in the workplace that do not result in mass killings are also on the rise.
The U.S. Bureau of Labor and Statistics found that workplace shootings increased more than 10 percent in recent years. And the trajectory only goes one way, with almost half of the “active shooter” incidents in the early 2000’s having occurred in the workplace, a far greater percentage than any other category.
The threat of workplace shootings is an unfortunate emerging issue employers face. It should not be overblown; workplace killings are rare compared to other forms of workplace violence. But the low likelihood that your company will fall victim to a rogue and disgruntled employee does not mean that your company should avoid pre-emptively dealing with the problem. Preparation and a plan are essential for the workplace to stay safe and for you, as the employer, to lower the risk that your company will become the next victim to an active shooter.
Be on the lookout for warning signs. There is a litany of indicators that a person may pose a risk to workplace violence. These include verbal statements of intent to harm co-workers, evidence that an employee intended to sabotage a fellow co-worker, an employee who shows an apparent obsession with a supervisor or coworker, and a number of other potential red flags to look for. Too often, an employer’s first reaction to a sign an employee may commit workplace violence is to justify the behavior within whatever workplace culture the employer has developed. In an active shooter era, the employer must do more. It is important to consider policies and procedures to address these concerns as soon as they arise. Employers should consider developing or updating their workplace violence prevention strategies, policies and practices.
The prevention strategy should seek to identify disgruntled employees and create a clear process for alerting management of any potential problems. The policies should help maintain a healthy culture of support to prevent employees from reaching a depth that could push towards violence, encourage help for employees at risk, and ensure employees know what to do if there is an active shooter on the premises. These practices should help ensure that these strategies and policies are abided by the employees and management of a company.
Employers need to be conscious of their duties to prepare for an active shooter. Under the Occupational Safety and Health Act (OSHA), employers have a general duty to protect employees from workplace hazards. This means that if there is a threat of workplace violence, or any indication of workplace shooting, an employer has a general duty to help minimize that risk. An employer’s failure to abide by this general duty could expose it to immense liability and threaten the entire future of the company.
Regardless of one’s view on the political solution, companies should have set in place a number of practical solutions in order to keep their workplace safe. Employers need to be vigilant and proactive. Company employees will appreciate the efforts. It may be the most important thing to maintaining a safe workplace. Proper planning and training can help a company stay safe in this active shooter era.
Major Legislative Changes to Nevada’s Energy Laws
By: Josh M. Reid, Partner, Lewis Roca Rothgerber Christie
The 2019 Legislative Session concluded with the passage of a series of new laws affecting Nevada’s electricity providers and their customers. The proponents of these new laws promise that they will move Nevada toward a clean energy and low carbon future, and will result in a stronger and more diversified economy. Below is a summary of three important energy bills signed into law by Governor Sisolak in 2019.
SB 358: Increase in Nevada’s Renewable Portfolio Standard
A Renewable Portfolio Standard (“RPS”) requires electricity providers to have a certain percentage of their energy supply come from renewable energy sources such as biomass, geothermal, wind, hydropower and solar. Electricity providers meet the RPS by gaining Portfolio Energy Credits (“PEC’s”) for their production or purchase of renewable energy, and excess PEC’s can be sold to other entities required to meet the RPS. Prior to the passage of SB 358, all Nevada electricity providers were required to have at least 20 percent of their energy supply come from renewable energy sources through 2019, with an increases to 22 percent in 2020 and 25 percentt in 2025.
SB 358 now requires Nevada to double its RPS to 50 percent by 2030. The proponents of SB 358 argued that its passage will reduce air pollution, provide stable growth in renewable energy resources in Nevada, decreasing renewable energy costs for utilities and ratepayers. SB 358 will now require large customers that have gone through the process to leave NV Energy to meet the same RPS requirements.
During the November 2018 general election, Question 6, a ballot measure that would enshrine a 50 percent RPS in the Nevada Constitution, passed with 59 percent of the vote. Question 6 must be approved twice by the voters, so it will appear again on the 2020 ballot. If Question 6 is approved by the voters again in 2020, any weakening of Nevada’s RPS standard would have to be approved by the voters.
SB 547: Changes to the Exit Process
Since 2001, Nevada law has allowed the PUCN to approve large electricity consumers to leave (or “exit”) the public utility that services their location and purchase their electricity from other electricity providers. This process requires the PUCN to determine an exit fee, which is meant to compensate the ratepayers that remain within the utility’s system. SB 547 provides the PUCN with additional criteria to consider before they approve an exit application and it will allow the PUCN to establish limits on the amount of electricity exiting businesses may purchase from sources other than NV Energy. In addition to making changes to the PUCN exit process, SB 547 also requires electricity producers that sell to businesses that have exited the system to first receive approval from the PUCN. The proponents of SB 547 argued that the existing exit process was not meant to allow all large energy consumers to exit, and that the current process does not adequately protect Nevada ratepayers who are unable take advantage of the exit process.
SB 300: Alternative Ratemaking for Electric Utilities
In Nevada, electric rates that are paid by customers are set every three years by the PUCN. Traditionally, electric rates are based on the electric utility’s costs to provide service, which includes its operational costs, taxes, depreciation of its facilities and an authorized rate of return for the utility’s shareholders. SB 300 authorizes the PUCN to adopt “alternative ratemaking,” which allows the PUCN to be more flexible and responsive to changes in the electric market when setting rates. Alternative ratemaking can allow for criteria such as a utility’s service performance, profit sharing with customers and automatic adjustments in order to keep the utility’s profit margins at an approved level. Proponents of SB 300 argued to legislators that alternative ratemaking will allow electric utilities to promote consumer centered initiatives as part of its rate plans that are difficult to capture in the traditional ratemaking approach.
Delegation In Business and In Law
By: Jordan Smith, Partner, Pisanelli Bice
In business, delegation is desirable. Delegation allows senior leadership to focus on overall strategic objectives while empowering junior leaders to make the day-to-day decisions necessary to accomplish the company’s mission. Delegation is effective when subordinates understand the scope of their decision-making authority and the company’s ultimate goals—not only what they can do but why they are doing it.
But in lawmaking, delegation is dangerous. Delegation allows congressional leaders to avoid difficult policy decisions while emboldening unelected agencies to issue regulations that affect many aspects of economic and private life. Congress sometimes delegates its legislative authority to the Executive Branch without limiting the scope of the Executive’s regulatory authority or setting clear directives. When Congress cannot reach consensus on sticky political minutiae, legislators announce lofty sentiments through statutes and then outsource the rest to agency rulemaking—leaving bureaucrats to decide which conduct to allow, which conduct to prohibit, and which punishments to impose.
Delegation of legislative power to the Executive Branch violates the separation of powers and endangers industry and innovation. The constitutional design ensures that only the People’s elected representatives may enact laws. This system enhances accountability. If a congressman supports a harmful economic policy, voters can throw him out. Faceless functionaries, however, are accountable to no one.
Thus, allowing unelected agencies to exercise Congress’s legislative prerogative encourages the proliferation of business stifling regulations. The Founders considered an “excess of lawmaking” one of “the diseases to which our governments are most liable.” Regulatory creep can smother businesses before they can sprout and strangle the resources needed to flourish.
Not all regulations are unlawful, of course. Like any CEO, after setting the policy direction with measurable standards and guidance, Congress may authorize Executive Branch officials to “fill up the details.” Congress also may allow agencies to find facts, commission expert studies, recommend legislative language and exercise non-legislative functions.
If confronted with a regulatory morass, businesses should ask a few questions: Did Congress, instead of the Executive Branch, make the policy judgment? Does the governing statute describe factors that the agency must consider and the criteria against which to measure them? Does the statute only assign responsibility to make factual findings? Businesses should also consider whether the regulation falls within the statutory language or matches the statutory factors.
When a statute fails this type of inquiry or “intelligible principles” test, there is another branch of government to which businesses may turn. Just as the Constitution vests the legislative power in Congress, and the executive power in the President, it also vests the judicial power in the Courts. The judiciary has an obligation to resolve cases or controversies over constitutional boundaries.
For example, in A.L.A. Schechter Poultry Corp. v. United States (1935), the Supreme Court struck down a statute as an unconstitutional delegation of legislative power because Congress impermissibly bestowed limitless discretion on the President and failed to establish standards for the President to apply. The Court held that “Congress cannot delegate legislative power to the President to exercise an unfettered discretion to make whatever laws he thinks may be needed or advisable for the rehabilitation and expansion of trade or industry.”
Businesses should not shy away from enforcing the line between the Legislative and Executive Branches. Businesses often have the most at stake, and the decision to challenge an unlawful delegation of legislative authority may be the difference between success and a business that didn’t make it or a business that never was.
Letters of Intent
The Foundation/Cornerstone of a Deal
By: Krisanne S. Cunningham, Partner, Rice Reuther Sullivan & Carroll, LLP
Generally, the parties to a Mergers & Acquisitions (M&A) transaction sign a letter of intent (LOI), which memorializes the parties’ intention to enter into the transaction and summarizes material agreed-upon terms. An LOI ensures that the parties are on the same page before expending significant time and expense.
Many LOIs include an express statement that they are non-binding. Even so, a non-binding LOI is an extremely important document, especially to a seller who will find it hard to negotiate better terms unless there is a significant, positive change in circumstance. As such, LOIs are a first opportunity—but also, as a practical matter, sometimes a last opportunity—to draw a line on material business terms. And, most non-binding LOIs contain some binding terms, e.g., confidentiality and exclusivity/no-shop provisions. Therefore, it is important that the parties (and especially sellers) pay careful attention to these binding provisions as, e.g., a break-up fee may be attached to an exclusivity provision.
Also of significant note, a Nevada court could recognize an entire LOI as binding. There is long-standing Nevada precedent that an intent to execute a future agreement does not prevent a Court from finding an earlier binding agreement, especially if the terms of the earlier agreement allow the Court to “ascertain what is required of the respective parties” to “compel compliance.”
Given the above, a comprehensive and thoughtful LOI is ideal.
First, the LOI should cover the transaction structure. For example, whether the transaction is an asset purchase, a stock/equity purchase or a merger. Notably, the type of structure may have significant federal and state tax consequences to both sides. And, the structure will govern whether all, none or a portion of the seller’s liabilities transfer to the buyer. The seller will generally prefer a stock sale since the buyer takes on all of the liabilities of the business and the proceeds are generally taxed at capital gains rates (assuming the stock has been held for more than a year). Conversely, the buyer will generally prefer an asset sale since the seller keeps all or most of the liabilities of the business and the buyer gets a “stepped-up basis” in the purchased assets, often resulting in larger depreciation/amortization tax deductions after closing. Given this, the buyer should be willing to pay more (and, in some cases, much more) for a business if the transaction is structured as an asset sale.
The LOI should also discuss the manner of payment and whether the purchase price is payable over time. If the purchase price is paid partly with equity of the buyer (called “rollover equity”), it may be taxfree/deferred to seller if structured correctly. Ideally, the LOI should cover whether this is intended.
Additionally, the LOI should specify indemnification obligations if there is a breach after closing. Preferably, the LOI will include the length of survival of these obligations and provide for limits on liability (e.g., caps on liability and, also, minimum thresholds before liability is triggered). As a note, the limits on liability and survival tend to be more crucial to the seller than the buyer. The buyer may require that a portion of the purchase price be “held back” for a period of time to secure these obligations. If so, a seller will want to minimize both the amount and period of the holdback and ensure the holdback is held in a separate escrow account.
Representations and Warranties (R&W) insurance, which insures a breach of the representations and warranties made by the seller in the definitive agreement (effectively, benefiting both parties), should be covered in the LOI if contemplated. If so, the LOI should discuss the amount of coverage contemplated (which is often less than the purchase price) and how the parties will split the cost. With R&W insurance, a seller often negotiates a reduced holdback and holdback period. Under current market practice, sellers often try to limit their liability to half of the policy deductible with no further liability to the buyer.
In conclusion, LOIs are an extremely significant, and often underestimated, device to set the tone of an M&A transaction. Accordingly, LOIs should be carefully drafted and reviewed.
They Might Survive
Trademark Licenses in Bankruptcy
By: Nathan G. Kanute, Partner, Snell & Wilmer
Trademarks can be valuable intellectual property. The ability to use another company’s trademark—a license—can come at a premium if the license is exclusive or the trademark is well known. Knowing what happens to a trademark license when the trademark owner files bankruptcy, therefore, can be vital to a company’s bottom line. The U.S. Supreme Court recently provided guidance for trademark licensors and licensees in the case Mission Product Holdings, Inc. v. Tempnology, LLC.
Tempnology, a clothing manufacturer that owned trademarks used to market and sell athletic apparel, entered into contracts with Mission Product Holdings. Mission Product obtained a nonexclusive license to use one of Tempnology’s trademarks. Prior to the expiration of the license, Tempnology filed a Chapter 11 bankruptcy petition and sought to reject the license under Section 365 of the Bankruptcy Code, which permits assumption or rejection of certain contracts in bankruptcy. The rejection of the trademark license was approved and Tempnology sought a determination that Mission Product was no longer allowed to use the licensed trademark. The Bankruptcy Court agreed reasoning that the lack of a special protection for trademark licensees in the Code, which does include special protections for licensees of other intellectual property, meant there were no such protections.
The Bankruptcy Appellate Panel rejected the Bankruptcy Court’s conclusion. The First Circuit Court of Appeals, however, reinstated the Bankruptcy Court’s ruling. The First Circuit was persuaded by the lack of special trademark protection in the Code and concerned that the trademark owner, though not contractually bound after a rejection of the license, could risk losing the right to its marks if it did not undertake monitoring and quality control efforts. The First Circuit reasoned that these continuing obligations ran afoul of the intent behind allowing rejection of a burdensome contract. The decision of the First Circuit set up a direct conflict with the Seventh Circuit Court of Appeals, which had ruled in Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC that rejection does not necessarily terminate a trademark licensee’s rights. The Supreme Court agreed with the Seventh Circuit and focused on the legal effect of a Section 365 rejection.
The Code explicitly provides that a rejection of any contract is a “breach.” The Court noted that the resulting effects of a breach on contractual rights are determined by non-bankruptcy contract law. Under non-bankruptcy law, the non-breaching party to a contract can choose to terminate the agreement and stop performing after a breach or it can continue performing under the contract, retain its rights under that contract and sue for damages. The breach does not act as an automatic rescission. Therefore, Mission Product, provided it continued to perform its obligations under the license, could be permitted to continue its use of Tempnology’s trademarks. The ultimate outcome was a matter of contract law.
The Court rejected Tempnology’s arguments regarding the lack of a special trademark provision and the concerns that the trademark owner would still have obligations if the licensee continued to use the trademark. The later concern, the Court said, was a consideration that the trademark owner would have to take into account if it sought to protect its marks, but it should not alter the Code’s balance between debtors and contractual counterparties. The Court remanded the case for a determination of what Mission Product’s rights would have been under non-bankruptcy contractual law.
Companies dealing with trademark licenses should consider the ruling in Mission Product Holdings when drafting license agreements. The implications of a breach on the licensee’s ability to use the marks under state law and the terms of the contract should be discussed and potentially negotiated.
Six Common Estate Planning Mistakes and How to Avoid Them
By: Shane Jasmine Young, Founder, Young Law Group
Since estate planning involves thinking about death, many people put it off until their senior years or simply ignore it all together until it becomes too late. This kind of unwillingness to face reality can create major hardship, expense and mess for the loved ones and assets left behind.
While not having any estate plan is the biggest blunder one can make, even those who do create a plan can run into trouble if they do not understand exactly how estate plans function. Here are some of the most common mistakes people make with estate planning.
1. Not Creating a Will
While wills are not the ultimate estate planning tool, they are one of the bare minimum requirements. A will can designate who will receive property upon death, and it can also name specific guardians for minor children. Without a will, property will be distributed based on our state’s intestate laws, and a judge will choose a guardian for any children under 18.
2. Not Updating Beneficiary Designations
Oftentimes, people forget to change their beneficiary designations to match their estate planning desires. Confirm with life insurance companies and retirement-account holders to find out who would receive those assets in the event of death. Naming a minor as a beneficiary of life insurance or retirement accounts, even as the secondary beneficiary, is dangerous because if they were to inherit these assets, the assets become subject to control of the court until he or she turns 18.
3. Not Funding the Trust
Many people assume that simply listing assets in a trust is enough to ensure they will be distributed properly. This isn’t true. Most assets—businesses, real estate, bank accounts, securities, brokerage accounts—must be “funded” to the trust for them to be actually transferred without having to go through court. Funding involves changing the name on the title of the property or account to list the trust as the owner.
It is critical to make sure all assets are inventoried, titled properly and the inventory is maintained throughout life, so assets are not lost and do not get stuck in court upon incapacity or death.
4. Not Reviewing Documents
Estate plans are not a “one-and-done” deal. As time passes, life changes, the laws change and assets change. Given this, planning should be updated to reflect these changes.
5. Not Leaving an Inventory of Assets
Even if assets are properly “funded” into the trust, the estate plan will not be worth much if heirs cannot find the assets. There is over $830 million in Nevada’s Department of Unclaimed Property alone. It happens because someone dies or becomes incapacitated, but their family is not aware or the assets cannot be found. That is why it is important to create a detailed inventory of assets, indicating exactly where to find each asset, such as a cemetery plot deed, bank and credit statements, mortgages, securities documents, and safe deposit box/keys. And, remember digital assets like social media accounts and cryptocurrency, along with their passwords and security keys.
6. Not Considering Non-Financial Family Wealth
Estate planning is often focused on protecting financial wealth and assets. What is often overlooked is our valuable family wealth, like insights, stories, experiences and traditions. These are truly priceless. Beyond these common errors, there are many additional pitfalls that can impact estate planning. Beware of form documents or document preparers that do not customize planning. Receiving proper guidance through the process will help avoid mistakes and implement strategies to ensure one’s true family wealth and legacy will continue to grow long after death.