Page 12 – Reicker Pfau

California’s Commercial Tenant Protection Act: What SB 1103 Means for Commercial Landlords

Tue, 08 Sep 2026 17:31:38 GMT

For decades, commercial leasing in California has been governed by the assumption that commercial tenants generally possess sufficient sophistication to negotiate and protect their own interests. Senate Bill 1103, known as the Commercial Tenant Protection Act (“CTPA”), alters that framework for certain smaller commercial tenants. Effective January 1, 2025, the law extends several protections traditionally associated with residential tenancies to qualifying commercial tenants. The statute imposes new requirements relating to rent increase notices, lease translations, common area maintenance (“CAM”) charges, and termination notices. Landlords leasing space to small businesses, restaurants, and nonprofit organizations should understand when these requirements apply and consider whether updates to existing leasing practices are warranted.

Who Is a “Qualified Commercial Tenant”?

The CTPA applies only to a “qualified commercial tenant” (“QCT”), not to all commercial tenants.
A tenant qualifies if it is:

1. A microenterprise, generally defined as a business with five or fewer employees and limited access to capital;

2. A restaurant with fewer than 10 employees; or

3. A nonprofit organization with fewer than 20 employees.

Publicly traded companies and their subsidiaries are excluded from the statute’s protections. However, franchisees may still qualify if they independently satisfy the applicable employee and eligibility requirements. Importantly, a landlord’s obligations under SB 1103 are triggered only after the tenant provides written notice affirming its status as a qualified commercial tenant. That notice must have been provided within the preceding 12 months. Until the landlord receives the required attestation, the statute’s protections generally do not apply. The law applies to commercial leases executed, renewed, or amended on or after January 1, 2025.

CAM Charges: New Transparency and Substantiation Requirements

One of the most significant operational changes under the CTPA involves CAM charges and other operating expense pass-throughs. Before charging a QCT for CAM expenses or similar costs, landlords must ensure that:

1. The costs are allocated proportionately among tenants through square footage or another reasonable and documented methodology;

2. Supporting documentation regarding the allocation method is provided before lease execution and, upon written request, within 30 days; and

3. The charges either were incurred during the prior 18 months or are reasonably expected to be incurred during the next 12 months, with documentation supporting the amounts charged.

These requirements may create practical challenges for landlords, particularly in shopping centers or mixed-use properties where CAM allocations involve anchor tenants, negotiated exclusions, or other unique arrangements. The substantiation requirement may also limit the flexibility landlords have historically exercised in estimating or “grossing up” operating expenses. As a result, some landlords are reevaluating the use of gross or modified gross lease structures, including forms commonly used in AIR leases, to minimize the administrative burden associated with CAM compliance.

Longer Notice for Rent Increases and Terminations

SB 1103 also expands notice requirements for certain qualified commercial tenants. For month-to-month tenancies and other periodic tenancies, Civil Code section 827(a) requires:

1. At least 30 days’ written notice for a rent increase of 10 percent or less; and

2. At least 90 days’ written notice for a rent increase exceeding 10 percent.

The statute also incorporates Civil Code section 1946.1(a) for qualified commercial tenants. If a tenant has occupied the premises for more than 12 months, a landlord generally must provide at least 60 days’ written notice before terminating the tenancy. Landlords who routinely rely on standard commercial notice provisions should review their forms and procedures to confirm they remain compliant when dealing with QCTs.

Enforcement: Why Compliance Matters

Compliance with the CTPA is important because many of its protections cannot be waived by agreement. A landlord that violates the statute may face liability for damages and attorneys’ fees. In cases involving willful or oppressive conduct, punitive damages may also be available. In addition, a tenant may raise a statutory violation as a defense in an unlawful detainer action, potentially complicating or delaying efforts to recover possession of the property. Given these risks, landlords should review both their lease documentation and day-to-day leasing procedures.

What Landlords Should Do Now

Landlords should consider taking the following steps before entering into new leases or renewals with smaller commercial tenants:

1. Review existing tenant rosters to identify tenants who may qualify for CTPA protections.

2. Evaluate current lease forms and update provisions relating to CAM charges, notices, and lease translations where necessary.

3. Establish procedures for receiving and tracking tenant qualification notices.

4. Consider whether gross or modified gross lease structures may be appropriate for certain tenants in order to reduce CAM-related compliance issues while maintaining the intended economic terms of the lease.

The Commercial Tenant Protection Act represents a notable shift in California commercial leasing law. Although the statute applies only to a limited category of tenants, its requirements can affect lease administration, expense recoveries, and enforcement rights. Landlords should take a proactive approach to identifying qualified commercial tenants and updating leasing practices to address the law’s requirements.

At Reicker Pfau, we assist commercial landlords with lease reviews, compliance strategies, property operations, and dispute resolution matters. If you have questions regarding SB 1103 or its application to your properties, please contact our office.

Reicker Pfau Represents COR in $30 Million Investment from FTV Capital

Fri, 31 Jul 2026 17:30:08 GMT

Reicker, Pfau, Pyle & McRoy, LLP proudly represented COR, an AI-powered project profitability platform for agencies and professional services firms, in connection with a $30 million investment from FTV Capital, a sector-focused growth equity firm.

COR combines project management, automated time tracking, resource planning, and real-time profitability analytics in a single platform. The company serves thousands of teams across more than 38 countries. The investment will support the continued development of COR’s AI capabilities, expansion into adjacent industries, and international growth.

As part of the investment, FTV Capital Partner Alex Malvone and Principal Tommy Tighe joined COR’s board of directors.

The Reicker Pfau team was led by Partner Nicholas Behrman, with Associates Jake Glicker and Samara Harris.

A full announcement regarding the investment can be found here .

2026 Employment Law Updates

Wed, 22 Jul 2026 17:26:49 GMT

Complying with applicable employment laws is a never-ending battle for California employers. While certain changes and updates can easily become part of a compliant employer’s annual routine, such as increasing employees’ wages to align with effective minimum wage updates, refreshing the applicable posters required to be displayed in the workplace, and reviewing employee salaries to determine which exempt employees need raises to continue to qualify as exempt, new laws mean new required updates to an employer’s policies and procedures.

For any employer that has not yet reviewed their employment practices through the 2026 lens, here is a short guide for some essential updates to implement immediately.

Minimum Wage

Effective as of January 1, 2026, the statewide minimum wage has increased to $16.90 per hour. Additionally, the minimum annual salary for “exempt” employees has increased to $70,304. Please note that these minimums are set at the statewide level, but an employer may be subject to higher minimums depending on the applicable local jurisdiction and employer’s industry. For example, effective January 1, 2026, the minimum wage in West Hollywood is $20.25 per hour.

Pay Scale Information

In addition to the updated minimums regarding what employees must be paid, employers are also now restricted in what they must communicate to potential employees regarding the expected salary or hourly wage range for the applicable job posting. As part of SB 642 , signed into law by Governor Newsom on October 8, 2025 and effective January 1, 2026, employers with 15 or more employees are required to provide clearer details in any job posting regarding the pay scale for the applicable position. The applicable “pay scale” cannot be a general range for what an employee in that position may make in the future. Instead, SB 642 redefines “pay scale” to mean “a good faith estimate of the salary or hourly range that the employer reasonably expects to pay for the position upon hire.”

Updates to Mandatory Cal/WARN Notice Requirements

Certain California employers are also subject to additional information and notice requirements. Pursuant to SB 617 , employers subject to the California Worker Adjustment and Retaining Notification (“ Cal/WARN “) Act who are required to provide written notices before ordering a mass layoff, relocation or termination at a covered establishment must now include in such notices whether or not the employer plans to coordinate services for the affected employees, such as a rapid response orientation, and through which entity such services will be coordinated, if at all. The notices must also include a functioning email address and telephone number for the local workforce development board and particular language pointing employees to local workforce development boards and America’s Job Center of California. Such employers will also need to include in the applicable notices a description of CalFresh (the statewide food assistance program) and CalFresh contact information in the form of the phone number for the CalFresh benefits helpline and a link to the CalFresh website.

Workplace Know Your Rights Act

California employers, as of February 1, 2026, are also subject to the Workplace Know Your Rights Act, established by SB 294 . Among other things, the Workplace Know Your Rights Act requires such employers to provide a stand-alone written notice to each of its current employees on February 1, 2026, and annually thereafter, containing a description of workers’ rights in areas such as (i) the right to workers’ compensation benefits, (ii) the right to notice of inspection by immigration agencies, (iii) protection under unfair immigration-related practices, (iv) labor organizing rights, (v) constitutional rights when interacting with law enforcement at the workplace, (vi) a description of certain new legal developments as determined by the California Labor Commissioner, and (vii) a list of the enforcement agencies that must enforce the underlying rights set forth in the notice. Template notices have been posted by the California Labor Commissioner and can be used by employers to comply with the notice requirements of the Workplace Know Your Rights Act.

To ensure compliance with current California employment laws, employers should closely review their company policies and procedures regularly and check in with their employment counsel for relevant updates and reminders about best practices.

AI Is A Tool Not An Attorney: How Clients’ Use of AI Can Cause Them to Pay More In Legal Fees

Wed, 15 Jul 2026 17:18:36 GMT

Artificial Intelligence is on the precipice of ubiquity. It is a tool with seemingly infinite uses including helping us write “Thank You” letters, find cooking recipes, and even creating fun pictures based on a text prompt. For all intents and purposes, AI has been extremely helpful, even fun. Accordingly, it is only natural for people to turn to AI to help with their legal questions with the added benefits of being an inexpensive and instant. But “inexpensive” and “instant” do not equate to “good” or even “correct.” In fact, using AI for legal questions, drafting contracts, or performing case research may ultimately cost clients significantly more money in fees or adverse monetary judgments in the long run.

AI Is Built On An Unsecured Foundation

Pulling back the curtain of the AI prompt screen, is a program built upon algorithms to imitate human behavior based on inaccurate, or at best, outdated legal information. At worst, AI will completely make up legal authorities called “hallucinations.” ¹

AI systems rely on data inputs, aka prompts, and if these inputs are flawed, the outputs will undoubtedly be as well. Many AI tools have been found to perpetuate biases present in their training data, potentially leading to misleading results. ² Accordingly, if clients rely on AI-generated analysis without attorney oversight, then there is a strong possibility your client could rely on incorrect legal citations or misinterpretations of case law, ultimately, jeopardizing their position.

Further, these biases are not just present in AI itself. When clients use AI for legal questions, they phrase prompts in a way that reflect their desired outcome rather than neutrally. Their own inherit bias creates a detrimental problem because AI tools tend to tell its users what they want to hear. The models are designed to be helpful, and they often provide confident sounding but legally inaccurate or misleading responses tailored to the assumptions in the prompt.

Moreover, the law is not static. Laws change and they can be interpreted differently among various jurisdictions, and in some cases, even courts within the same jurisdiction. This presents a significant issue because AI that is trained on older data, or worse, provide responses inapplicable to a client’s specific jurisdiction. Thus, AI will miss recent court rulings, new statutes or state-specific rules.

Another issue with AI is, and this may come as a surprise, that it is not human. AI has no wisdom or experience. The practice of law requires the application of a unique set of facts to the law. Most AI tools are not trained to weigh client-specific factors with risks and strategic considerations — all necessary aspects of the art of practicing law. To put more eloquently, I’ll rely on Oliver Wendell Holmes’ famous quote, “The life of the law has not been logic; it has been experience.” So, despite analyzing terabytes of data to train its models, AI has no experience, and ultimately, its use may cause the client more harm than help.

The Costs Clients Incur From Using AI As Their Attorney

It is not uncommon for clients to bring their “research” to their attorneys expecting confirmation, slight refinement, or further explanation. Instead, the attorney must analyze every argument and fact-check every cited case to ensure it is not a hallucination. Frequently, attorneys will have to take even more time to explain to the client why the AI arguments or claims are not tenable. In other words, attorneys will need to spend more time than if they had been simply consulted from the start.

Another common example involves a client using AI to draft a contract. Although the contract may appear like a well-written contract with verbose “legalese,” these often miss critical legal terms or include outdated, unenforceable provisions. Such faulty contracts can hurt clients infinitely more than had they just used an attorney to draft contracts tailored for them instead of a full redraft of AI slop.

Importantly a client’s use of AI does not just hit them in the wallet, its use may need to be disclosed in discovery. Courts have found AI use for legal matters is not legally protected. The information a client used in a prompt and the AI produced in response is all discoverable. ³ In U.S. v. Heppner a trial court found client AI prompts and generated documents were not privileged because by inputting confidential information into a consumer AI platform operated by a third party, the client voluntarily disclosed that information outside the attorney-client relationship. Moreover, Heppner noted the AI platform’s terms of service and privacy policy that permit data collection, retention, and found that these policies negated any reasonable expectation of confidentiality.

Thus, it is critical that attorneys stress the detrimental effects their AI use may have on their case.

What To Do

This article is not intended to cast aspersions on the use of AI in the legal field. It is an incredibly powerful tool getting more and more valuable every passing year. AI can review documents, summarize depositions, and generate outlines of cases in the snap of a finger. However, it still lacks the practical and legal knowledge of an attorney to tailor specific facts in a specific jurisdiction to determine the best course of action for a client.

At the outset of representation clients must understand that AI is unreliable when it comes to (1) legal research, (2) jurisdictional distinction, and (3) practical, common sense judgment. Moreover, if a client is to use AI for their legal issues, they must make sure that the AI platform they use (1) does not retain data or use it for data training; (2) uses confidentiality protections for input data; and (3) use AI under the attorney’s direction and supervision as part of the attorney’s legal strategy. Understanding each of these points will help save your client money, time, and energy.

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¹ Stanford University Human-Centered Artificial Intelligence: Dan Ho, et al.: “AI on Trial: Legal Models Hallucinate in 1 out of 6 (or More) Benchmarking Queries” (evaluating claims by LexisNexis (creator of Lexis+ AI) and Thomson Reuters (creator of Westlaw AI-Assisted Research and Ask Practical Law AI) that their use of retrieval-augmented generation (RAG) helps significantly “‘avoid’ hallucinations and guarantee ‘hallucination-free’ legal citations.” The study found that , while RAG systems “do reduce errors compared to general-purpose AI models like GPT-4 [–] a substantial improvement [–] these bespoke legal AI tools still hallucinate an alarming amount of the time: the Lexis+ AI and Ask Practical Law AI systems produced incorrect information more than 17% of the time, while Westlaw’s AI-Assisted Research hallucinated more than 34% of the time.”)

² LLM models used in healthcare “may recapitulate harmful, race-based . . . content when responding to eight different scenarios that check for race-based medicine or widespread misconceptions around race. . . . This study shows that based on our findings, these LLMs could potentially cause harm by perpetuating debunked, racist ideas.” (Politico, “Why Your Chatbot’s So Racist,” Dec. 12, 2023 (report on study showing racial bias in AI models used in healthcare).)

³ United States of America v. Bradley Heppner (S.D.N.Y. 2026) 25 Cr. 503. There, a former CEO accused of swindling investors out of $300 million. After the CEO received a grand jury subpoena, he used an AI platform by typing details he got from his lawyers into the AI’s command prompt. The AI tool generated numerous documents in response to the CEO’s prompts, including an outline of a defense strategy based on the charges his lawyers anticipated. The government argued such documents were discoverable. The CEO argued they were not because the documents were protected by the attorney-client privilege that applies to third parties such as a consulting witness; attorney-client privilege; and work-product doctrine.

Reicker Pfau Supports Innovation as Sponsor of AngelCon

Tue, 19 May 2026 16:23:00 GMT

Reicker Pfau, Pyle & McRoy, LLP (RPPM) was proud to serve as a sponsor of AngelCon 2026, an event that brings together Central California tech-based startups who receive training and mentorship through Cal Poly’s Small Business Development Center and outside angel investors who advise each of the participating start-ups throughout the entire process. The annual event is propelled by a dedicated group of angel investors interested in investing in early-stage startups in exchange for an equity investment. These investors have strong involvement in the evaluation, due diligence, and selection process of AngelCon applicants leading up to the live event that includes 6 finalists.

Partner Nicholas Behrman and Associate Samara Harris attended the event on behalf of RPPM, where they connected with several innovative tech companies and showed their support for the region’s growing entrepreneurial community.

Reicker-Pfau Trial Victory Protects Property Owner’s Rights and Neighborhood Safety

Mon, 11 May 2026 15:39:00 GMT

For one Montecito property owner, a long-planned improvement to a fire access road was about more than mere convenience—it was about safety, access, complying with the Montecito Fire Department’s width requirements, and the future development of his neighborhood, which rests in a “very high fire hazard area.” His rights as a dominant easement owner should have allowed him to conform the access road to the Montecito Fire Department’s standards and to straighten a dangerous curve in the road. However, the objections of a single neighbor escalated the dispute to a civil lawsuit over easement rights.

After battling two years of litigation, our litigation team – partner Kevin Nimmons and associate Alec Simpson – proceeded to a bench trial in Santa Barbara last week. The court set aside seven days for trial. Our team needed only three.

The other side was represented by attorneys at Greenberg Glusker, a Los Angeles-based high-priced firm. By day three, Kevin Nimmons had secured a decisive victory. The court entered a complete defense verdict on the opposing party’s complaint and ruled in favor of our client on his cross-complaint. The decision allows our client to move ahead with improvements to a fire access road connecting multiple Montecito properties – ensuring and enhancing safety access and supporting future development for his neighborhood. In addition to prevailing on the merits, our client was awarded over $150,000 in attorneys’ fees and costs.

The outcome reflects Kevin Nimmons’ and Alec Simpson’s persistence and strategic focus throughout litigation and at trial. Through careful preparation, disciplined presentation of the evidence, and utilizing years of expertise in the field, Kevin Nimmons and his team narrowed the dispute to the issues that mattered most and delivered a clear, efficient case to the court.

The decision, issued by the Honorable Thomas P. Anderle, reflects not only the strength of our client’s legal position but also the importance of trial counsel who can connect legal arguments to real-world property objectives. Judge Anderle described the trial as “expeditiously and well tried,” commending the attorneys as “consistently exceptional” and “well prepared.”

For property owners, developers, and businesses, litigation can delay a client’s progress and important plans for months or, in this case, years. This outcome cleared an obstacle, protected the client’s property rights, and allowed the client to proceed without incurring the expense of top-notch advocacy.

This victory underscores Kevin Nimmons’ and Alec Simpson’s practical, results-oriented approach to real estate and property disputes – one focused not only on winning in court, but on achieving outcomes that serve Reicker Pfau’s clients and the community at large.

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Reicker-Pfau Sponsors Ventech PitchFest 2026

Tue, 05 May 2026 19:34:00 GMT

Reicker-Pfau is proud to have sponsored Ventech PitchFest 2026, an annual startup pitch competition that brings together founders, investors and members of the Central Coast innovation community for an evening focused on entrepreneurship and emerging technology.

Hosted at Cabrillo Pavilion on April 22, this year’s event featured four startups – ODIN Diagnostics, Ecoplasticity, SoundDose and MindClay. Each company showcased distinct approaches to innovation across industries.

Reicke- Pfau’s Russell Terry served as one of the event hosts, helping guide the program and facilitate discussion throughout the evening. His involvement reflects the firm’s continued commitment to supporting the entrepreneurial ecosystem and fostering connections between professionals, founders, and investors.

Reicker-Pfau is pleased to support initiatives that promote innovation and contribute to the growth of the local business community.

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Meghan Woodsome Recognized as One of Top 50 Women in Business by the Pacific Coast Business Times

Fri, 24 Apr 2026 23:17:00 GMT

We are proud to celebrate our Managing Partner, Meghan Woodsome, for being named one of the Top 50 Women in Business by the Pacific Coast Business Times. Meghan’s leadership and dedication to her litigation practice and her role guiding the firm drive excellence at Reicker-Pfau. We are grateful to have Meghan leading our team and congratulate her on this well-deserved recognition.

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Reicker-Pfau Represents Wildnote in Acquisition by Fulcrum

Fri, 20 Mar 2026 19:47:00 GMT

Reicker, Pfau, Pyle & McRoy, LLP proudly represented Wildnote, an environmental software company focused on regulatory compliance, field data capture, and reporting, in its acquisition by Fulcrum, an AI-powered field process management and data collection platform. The transaction enhances Fulcrum’s capabilities in environmental services and reflects its strategy to deliver more targeted, technically driven solutions for customers operating in complex, highly regulated industries. The Reicker-Pfau team was led by Partner Nicholas Behrman and Associate Samara Harris. A full article on the acquisition can be found here .

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California’s New Venture Capital Diversity Reporting Law: Key Deadline Approaching

Mon, 16 Mar 2026 21:27:00 GMT

California’s New Venture Capital Diversity Reporting Law: Key Deadline Approaching

California’s new Fair Investment Practices by Venture Capital Companies Law (FIPVCC) took effect on March 1, 2026, introducing registration and diversity reporting requirements for certain venture capital companies with ties to California. The FIPVCC is intended to promote transparency and diversity in venture capital investments.

This article provides high-level guidance from Reicker-Pfau, LLP on the applicability of the FIPVCC, key compliance deadlines, potential penalties for non-compliance, and practical next steps for venture capital companies.

Which Companies Must Register?

The FIPVCC requires any company that qualifies as a “Covered Entity” to register with the California Department of Financial Protection & Innovation (DFPI). The FIPVCC defines “Covered Entity” broadly and may apply to companies that do not maintain a physical presence in California.

A company is considered a “Covered Entity” if it meets each of the three following criteria:

The company satisfies one of the following definitions of a “venture capital company”:
a. During the annual period beginning on a company’s date of initial capitalization, and during each annual period thereafter, 50% or more of the company’s assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments or derivative investments; or
b. The company is a “venture capital fund” under the Investment Advisers Act of 1940; or
c. The company is a “venture capital operating company” under ERISA.
The company primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies.
The company has a nexus to California under the FIPVCC by satisfying one of the following requirements:
- The company is headquartered in California; or
- The company maintains a significant presence or office in California; or
- The company invests in companies located in or with significant operations in California; or
- The company solicits or receives investments from a California resident.

Required Reporting Information

Covered Entities must provide a standardized demographic data survey to each founding team member of every business in which the Covered Entity has invested, requesting that such members voluntarily disclose certain demographic information such as gender, race, ethnicity, disability status, LGBTQ+ status, veteran status, disability status, and California residency. A founding team member is a person that either:

Has been designated as the chief executive officer or president of a company, or
Satisfies all of the following conditions:
a. the person owned initial shares or similar ownership interests of the business;
b. the person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued, and
c. the person was not a passive investor in the business.

Covered Entities must then submit a demographic report to the DFPI summarizing aggregated and anonymized demographic information received in surveys completed by founding team members of businesses that received funding from the Covered Entity during the prior calendar year.

In addition to demographic information, Covered Entities must report investment statistics, including venture capital investment amounts made in businesses with diverse founding team members.

The DFPI will publish each Covered Entity’s demographic report on the DFPI website.

Non-Compliance Penalties

If a Covered Entity fails to comply with the FIPVCC, the DFPI must provide notice of such failure and a cure period of 60 calendar days. If non-compliance continues after this period, the Covered Entity may face penalties of up to $5,000 per day, with higher penalties applicable for reckless and knowing violations.

Key Dates

The FIPVCC’s first compliance cycle occurs in 2026:

March 1, 2026 : Covered Entities must register with the DFPI through its Venture Capital Company Reporting Portal .
April 1, 2026 : Covered Entities must submit their first demographic report, covering venture capital investments made in 2025.

Next Steps

Companies that may be subject to the FIPVCC should consider taking the following steps now:

Determine whether the company qualifies as a Covered Entity.
Set up a user account with DFPI through the Portal.
Identify companies that received venture capital investments from the Covered Entity.
Implement procedures to (i) distribute and collect the required founding team member surveys and (ii) aggregate survey responses in a demographic report.
Submit the first demographic report to the DFPI through the Portal by April 1, 2026.

Please contact the authors if you have any questions regarding the applicability of the FIPVCC to your company.

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Bertie Magit joins Reicker, Pfau, Pyle and McRoy, LLP

Fri, 09 Jan 2026 23:45:00 GMT

We are delighted to announce that Bertie Magit has joined Reicker-Pfau as an Associate.

Bertie joins us from Mintz in San Diego, where she spent more than four years as a Corporate Associate in the firm’s Technology Transactions Group. She earned her J.D., magna cum laude, from Boston College Law School and completed her undergraduate studies at the University of California, Santa Barbara.

We are thrilled to welcome Bertie to the Reicker-Pfau team and look forward to the contributions she will make to our firm and our clients.

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Reicker-Pfau Represents JB Dewar, Inc. in Acquisition of McCormix Corp., Santa Barbara Fuel Dock, Inc.

Mon, 05 Jan 2026 23:24:00 GMT

Reicker, Pfau, Pyle & McRoy, LLP is pleased to have represented JB Dewar Inc., a fourth-generation, family-owned distributor of fuels and lubricants on California’s central coast, in its acquisition of McCormix Corporation and Santa Barbara Fuel Doc, Inc., a Santa Barbara based distributor of fuels and lubricants with more than 50 years of operating history.

JB Dewar, founded in 1933 and headquartered in San Luis Obispo, shares McCormix’s history of family ownership and community engagement across the Central Coast.

The stock acquisition brings together two family‑owned companies with cultural alignment, complementary service models, and a shared commitment to operational excellence and customer service, the company said.

“I am deeply grateful to everyone who helped bring this together…Russ and Jake at Reicker-Pfau for their steady legal guidance,” Ken Dewar said.

The transaction was led by Russell Terry and Jake Glicker on behalf of Reicker-Pfau.
A full article on the acquisition can be found here .

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Reicker Pfau Represents Attollo Engineering in Acquisition by Safran Defense and Space Inc.

Fri, 05 Sep 2025 18:38:00 GMT

Reicker, Pfau, Pyle & McRoy, LLP proudly represented Attollo Engineering, a California-based company specializing in compact, high performing imaging and laser lensing solutions, in its acquisition to Safran Defense and Space Inc. (DSI), a leading provider of cutting-edge solutions designed to address the evolving challenges of national defense and advances space missions.

Michael MacDougal, CEO of Attollo Engineering, said, “We are excited to join Safran DSI and contribute our imaging technologies to deliver cost-effective, mission-critical solutions for the defense and aerospace sectors. This acquisition will allow us to expand service to our current customers and gain exposure to support new customers.”

The transaction was led by by Nicholas Behrman and Samara Harris on behalf of Reicker Pfau.

A full article on the acquisition can be found here .

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Reicker Pfau represents Sonatech in its acquisition by Kongsberg Discovery

Mon, 07 Jul 2025 22:29:00 GMT

Reicker Pfau represented Sonatech, LLC, a premier undersea acoustics engineering and manufacturing company, in its pending acquisition by Kongsberg Discovery, a subsidiary of KONGSBERG (OSE ticker: KOG), an international knowledge-based group that supplies high-technology systems and solutions to customers in a wide range of markets. The acquisition will support Kongsberg’s growth ambitions and enhance access to the US markets for its product portfolio.

Reicker Pfau’s deal team was led by Russell Terry and Jake Glicker.

For more information on the transaction, Kongsberg’s press release can be found here .

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Reicker Pfau represents South Coast Engineering Group in its acquisition by GreenbergFarrow

Fri, 06 Jun 2025 21:38:00 GMT

Reicker, Pfau, Pyle & McRoy, LLP proudly represented South Coast Engineering Group (SCEG), a California-based provider of mechanical, electrical, and plumbing engineering services in its acquisition by GreenbergFarrow (GF), a leading international architecture, development services, planning, and engineering firm. The Reicker Pfau team was led by Nicholas Behrman. A full article on the acquisition can be found here .

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Top 50 Women in Business Awarded to COO Tamiann Cook

Tue, 06 May 2025 18:33:00 GMT

A full article from Santa Barbara Pacific Coast Business Times can be found here .

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Samara Harris-Shearer joins Reicker, Pfau, Pyle and McRoy

Thu, 01 May 2025 22:13:00 GMT

Samara Harris-Shearer, a corporate and real estate attorney with experience working on a variety of complex transactions, recently joined Reicker, Pfau, Pyle & McRoy.

Harris-Shearer joined the firm on March 17 as an associate in the firm’s Transactions Department. Her practice focuses primarily on mergers and acquisitions, real estate transactions and general contract and corporate matters.

A graduate of the University of Southern California, Harris-Shearer has represented a wide range of clients, including private equity funds, public companies, developers, individuals, and hotel companies in connection with complex real estate deals. These transactions have included the acquisition, disposition, financing, leasing, land banking and franchising of diverse real estate assets, such as multifamily and residential developments, student housing, mixed-use developments, retail centers, hotels and single-family homes.

Prior to joining Reicker Pfau, Harris-Shearer practiced at Holland & Knight LLP in Los Angeles as a member of the firm’s West Coast Real Estate Practice Group. She earned both her J.D., with honors, and B.A., magna cum laude, from USC, and was admitted to practice law in California in 2022.

Dedicated to educating fellow law professionals and the broader public about the latest developments in real estate law, Harris is the author of several explanatory articles. These include an overview of master leasing as an approach to Los Angele’s homelessness crisis, and a review of California’s hotel and private residence rental reservation refunds law.

In her spare time, Harris-Shearer is a member of the Belles Service Organization, which is devoted to helping victims of domestic violence and empowering women through service. Members volunteer at domestic violence shelters, animal shelters, cafes devoted to feeding the homeless, and several other locations.

A full article from Patch can be found here .

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Reicker Pfau represents Pearly in its sale to Arthur Ventures

Sat, 19 Apr 2025 03:58:00 GMT

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Reicker Pfau represents West Coast Financial in its sale to Cerity Partners

Thu, 03 Apr 2025 17:38:00 GMT

Reicker Pfau represented West Coast Financial, a financial advisory firm headquartered in Santa Barbara, in its sale to Cerity Partners, a nationally recognized full-service wealth management firm in the US. West Coast Financials’ approach to financial planning covers five core areas: investment planning, tax planning, retirement planning, estate planning, & risk management. They customize plans based on a client’s specific values, goals and financial realities.

“This partnership will enhance Cerity Partners’ financial planning and investment management capabilities across wealth transfer, retirement, tax and charitable planning, and further accelerate alternative investment offerings for clients in areas such as real estate. Following the close, West Coast Financial will operate under the Cerity Partners name”, said Cerity Partners in a recent article which can be found here .

The Reicker Pfau Team was led by Nicholas Behrman, Michael Pfau, and Jake Glicker.

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Meghan Woodsome Promoted to Managing Partner at Reicker, Pfau, Pyle and McRoy

Thu, 20 Mar 2025 21:07:00 GMT

Meghan K. Woodsome , an attorney at the premier, full-service Santa Barbara law firm Reicker, Pfau, Pyle & McRoy, LLP, has been named managing partner.

Woodsome joined Reicker Pfau’s litigation department in 2017. She has been a partner with the firm since 2021 and became a member of the firm’s Management Committee in 2023. Woodsome practices in both state and federal court. Her areas of expertise include contract, M&A, and other business disputes. Woodsome also practices in the employment arena. In addition to engaging in litigation and disputes, she advises her clients on various employment-related matters including hiring, discipline, termination, and other employment practices.

After beginning her legal career at O’Melveny & Myers LLP’s Financial Services Department in San Francisco, Woodsome accrued extensive experience in civil litigation and case management, with a substantive focus in data security and privacy. She later worked in criminal law as a staff attorney in the Santa Barbara County Office of the Public Defender. Additionally, Woodsome has worked and consulted for multiple nonprofit institutions.

Woodsome obtained both her juris doctor and bachelor’s degrees with honors from Georgetown University in Washington, D.C. As a law student, she represented indigent clients in the D.C. Superior Court and before the United States Parole Commission, trying multiple cases against the United States Attorney’s Office for the District of Columbia. She completed clerkships with the United States Securities and Exchange Commission, the National Association for Criminal Defense Lawyers, and the Office of the Public Defender for Alexandria, VA.

A full article from the Santa Barbara edhat can be found here .

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Reicker, Pfau, Pyle and McRoy Proudly Announces Nicholas Behrman as New Partner

Mon, 03 Feb 2025 21:01:00 GMT

Reicker, Pfau, Pyle & McRoy is pleased to announce that Nicholas A. Behrman, “Nick”, was promoted to partner as of January 2025. Nick has extensive experience and will continue his practice in the areas of mergers and acquisitions, emerging companies, debt and equity financings, real estate transactions, business ventures, and general contract and corporate matters.

Nick has been a valued member of the firm since 2019, playing a pivotal role in numerous high-profile transactions. With a proven track record of advising clients on complex deals, he has demonstrated exceptional leadership, strategic insight, and a deep commitment to delivering outstanding results.

Nick earned his J.D. from the UCLA School of Law in 2016 and holds a B.A. in Political Science from Villanova University. He was admitted to the California State Bar in December 2016.

A Santa Barbara native, Nick is actively involved in the Santa Barbara community. He currently serves on the Board of the United Boys & Girls Clubs of Santa Barbara and was recently honored as Boys and Girls Club Board Trustee of The Year. He is also the Board Chair and Trustee of the Laguna Blanca School Board of Trustees. Additionally, he leads RPPM’s summer clerk program and has previously served as President of the Santa Barbara Barristers.

Nick is a proud father of three under three and is married to Christina Behrman, who practices law at Mullen & Henzell and was also promoted to Partner in January 2025. The firm couldn’t be more honored to have Nick as a Partner and is excited to see the continued growth of his practice.

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Partners Barton Clemens and Meghan Woodsome Selected as Who’s Who in Professional Services on the Central Coast

Mon, 04 Nov 2024 17:13:00 GMT

Reicker Pfau is proud to announce that partners Barton Clemens and Meghan Woodsome were selected by the Pacific Business Coast Times as the Who’s Who in Professional Services, a list of the leading lawyers and CPAs in San Luis Obispo, Santa Barbara, and Ventura counties.

Bart’s practice emphasizes real estate, financial and business transactions. He represents companies through the full life cycle of real estate ownership, including the creation of ownership structures, syndications, due diligence activities, development, operation and disposition.

Meghan has a broad litigation practice representing clients ranging from multinational corporations to small businesses and individuals. Her experience includes disputes over business contracts, financial fraud, termination, wage and hour claims, easements, leases, privacy, data security, and trade secrets. Meghan also has experience with class actions and contentious business dissolutions. In addition, she counsels her clients on employment, privacy, and other risk-related matters.

A full article from the Pacific Business Coast Times can be found here .

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Reicker Pfau Secures Major Win in Cannabis Lease Fraud Case

Fri, 25 Oct 2024 05:35:00 GMT

Reicker Pfau partner Robert Forouzandeh earned a resounding victory for his clients after a 13-day bench trial before Santa Barbara Superior Court Judge Anderle.

The case involved a self-described “dream team” who had sought to lease a custom build indoor cannabis cultivation space from Reicker Pfau’s developer/landlord client. Through rampant misrepresentations, the tenant fraudulently induced the developer into leasing the space and selling a portion of the company that owned the building to the tenant. The “dream team” sought in excess of eight million dollars in damages from the developer client.

The Court found Reicker Pfau’s evidence presentation clear and convincing, finding for our clients on multiple Cross-Complaints which resulted in three separate agreements being rescinded, including a Commercial Lease, Operating Agreement, and Settlement Agreement. This resulted in the “dream team” receiving nothing and having their ownership interest in the property rescinded.

Judge Anderle specifically commended Reicker Pfau’s trial team of Robert B. Forouzandeh and Andrew W. Hazlett as being “able, candid and credible.” He noted that counsel had been “very well prepared, worked hard and did everything the Court asked.”

Judge Anderle’s judgment was subsequently appealed by the tenants. On appeal, Robert B. Forouzandeh again represented the developer and prevailed resulting in not only the trial judgment being affirmed but the Appellate Court also ordered that the trial court should have awarded Reicker Pfau’s attorneys fees as well. On remand, the trial court awarded Reicker Pfau’s client in excess of $1,160,000 in attorney’s fees and costs.

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Jake J. Glicker and Alec Simpson Join Firm

Sun, 16 Jun 2024 23:32:00 GMT

Reicker Pfau is excited to welcome Jake J. Glicker and Alec Simpson as associates at the firm. Jake will be joining the firm’s Corporate Practice Group and its Real Estate Practice Group and Alec will be joining the firm’s Litigation Practice Group.

Jake serves as outside general counsel, providing solutions in business and real estate matters on entity design, corporate fundraising and real estate financing, leasing and corporate contracting, and risk management, data privacy, and compliance. Jake previously worked as counsel in Santa Barbara, Los Angeles, and in Ojai, where he lives. Jake’s background in economic analysis, his practical approach, and the personal connection he forms with his clients complements the firm’s existing business, nonprofit, and real estate portfolio. “I am looking forward to bringing my experience and passion for building companies to Reicker Pfau. The scale and efficiency of Reicker Pfau’s practice is exciting for me and a great fit for my clients, especially in the retail and cleantech spaces,” says Jake, who served as portfolio company counsel for the Los Angeles Cleantech Incubator. Jake earned his Juris Doctorate from the UCLA School of Law, where he received a Dean’s Scholarship, and his Bachelor of Science in economics from the University of Oregon Clark Honors College. He is admitted to practice law in California and in Oregon, his home state.

Alec brings with him nearly a decade of litigation experience having practiced in California and in Texas as an Assistant Attorney General. Alec is also licensed to practice law in Washington.

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Corporate Transparency Act – Reporting Procedure

Fri, 29 Mar 2024 22:28:00 GMT

The Corporate Transparency Act (“ CTA “) went into effect on January 1, 2024 (the “ Effective Date “). The purpose of the CTA is to assist law enforcement in combatting money laundering, fraud, and other illicit activity.

The CTA requires most entities to report information about the entity and its beneficial owners to the US Department of Treasury’s Financial Crimes Enforcement Network (“ FinCEN “), and provides for the imposition of civil and/or criminal penalties for a willful failure to comply with the reporting requirements. Entities that were formed prior to the Effective Date have until January 1, 2025 to make their initial filing. Entities that are formed after the Effective Date must make their initial filing within 90 days (for entities formed in 2024) or 30 days (for entities formed on or after January 1, 2025) after their formation.

The CTA affects most of our entity clients. This article provides guidance on how you can make your initial filing and comply with the CTA. If you have questions or would like assistance with the filing, please reach out to your attorney at Reicker Pfau.

We note that, on March 1, 2024, a federal district court in Alabama ruled that the CTA is unconstitutional. However, the ruling applies only to the parties involved in that case, which include the individual plaintiff, the National Small Business Association, and its members as of March 1, 2024. FinCEN has made clear that it expects everyone else to continue to comply with the CTA.

Again, entities subject to the CTA that were formed prior to January 1, 2024 need to make their initial filing no later than January 1, 2025.

* * * * *

☐ Step 1 : Determine whether the CTA applies to your entity

Most domestic entities are subject to the CTA, including corporations, LLCs, LPs, and any other entity created by filing a document with a secretary of state or similar office. The CTA also applies to foreign entities that are registered to do business in the US.

However, the CTA provides exemptions for certain types of entities. Exempt entities generally include:

large operating companies with more than 20 full-time employees in the US that reported more than $5 million in gross receipts or sales on their filed prior year US federal income tax return (net of returns and allowances, excluding gross receipts or sales from sources outside the US, but including the receipts or sales of other entities owned by the entity and through which the entity operates), and that have an operating presence at a physical office in the US;
public companies;
certain inactive entities that existed on or before January 1, 2020;
SEC-registered investment companies or advisers;
venture capital fund advisers;
certain pooled investment vehicles;
insurance companies and insurance producers;
certain other highly regulated financial services companies, like banks, credit unions, and registered securities brokers or dealers;
public accounting firms;
tax-exempt entities, like 501(c)(3) nonprofit organizations, political organizations, and certain trusts;
entities assisting tax-exempt entities;
governmental authorities; and
subsidiaries that are wholly owned or controlled, directly or indirectly, by certain exempt entities.

If you think that you may qualify for an exemption, we encourage you to review the underlying regulations, which include specific criteria for the exemptions. They are in 31 CFR 1010.380(c)(2), available here: https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1010/subpart-C/section-1010.380 The criteria can be complex, so please contact your attorney if you would like assistance in evaluating whether you are exempt.

☐ Step 2 : Determine what information you need to report

The CTA generally requires entities to report:

Information about the entity, including legal name, trade names, address, state of formation, and EIN.
Information about “ beneficial owners “, which includes any individual who, directly or indirectly, (a) exercises “substantial control” over the entity, or (b) owns or controls 25% or more of the entity’s ownership interests.
- Substantial control, as defined in the CTA, generally includes (i) senior officers (e.g., CEO, CFO, GC, COO, etc.), (ii) any person with authority to appoint or remove officers or a majority of the directors, (iii) any person who has substantial influence over important decisions, and (iv) any person who otherwise has any type of substantial control over the entity. A common question is whether directors need to be reported. There is no official guidance on that topic as of today, so it needs to be evaluated on a case by case basis. Generally, our view is that companies with smaller boards are more likely to be required to report directors (because each director exerts relatively more influence) and companies with larger boards may not be required to report directors, unless any of them has outsized or special powers.
- For purposes of the 25% test, ownership is broadly defined to include stock, convertibles, profits interest, and any other ownership rights or arrangements.

☐ Step 3 : Identify company applicants

The CTA requires entities formed after the Effective Date to identify up to two individuals who filed or were responsible for directing or controlling the filing of the charter forming the entity. This requirement does not apply to entities formed prior to January 1, 2024, so entities formed prior to that date can skip this step.

☐ Step 4 : Complete the CTA filing

The CTA filing can be done online here (select “File BOIR”): https://boiefiling.fincen.gov/ It is a quick and simple process.

You will need to report specific information regarding the company, including legal name, trade names, address, state of formation, and EIN.

You will also need to report specific information regarding beneficial owners, including legal name, date of birth, residential address, and a unique ID number from a passport or drivers license. You will need to upload a copy of the identification document.

To make the process easier, beneficial owners can get their own FinCEN ID numbers, in which case they will provide that information to FinCEN, and you will only need to input their FinCEN ID number. That is a simpler process for entities and avoids holding personal information, so we recommend that entities request that their beneficial owners obtain FinCEN IDs and use those to report. Using a FinCEN ID also puts the responsibility for updating the beneficial owner’s information, such as address, on the individual and not the reporting entity. Individuals can obtain a FinCEN ID here: https://fincenid.fincen.gov/landing

☐ Step 5 : Update and correct reports

If any information in a report changes or needs to be corrected, the reporting entity must file an updated report within 30 days. Entities should be mindful of this going forward to ensure that all information regarding the company and its beneficial owners stays current.

* * * * *

While the CTA has some complexity, for many companies the process will be straightforward. If you have any questions or would like assistance, please feel free to reach out to your attorney at Reicker Pfau.

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Reicker Pfau Represents Sierramotion in its sale to Allient

Mon, 25 Sep 2023 22:58:00 GMT

Reicker Pfau represented Sierramotion, a design and engineering firm for turn-key motion components and mechatronic solutions, in its sale to Allient, a publicly-traded company (NASDAQ: ALNT) offering a wide range of motion control solutions. The Reicker Pfau team was led by partner Russell Terry .

The press release can be found here .

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European Commission Approves EU-U.S. Data Privacy Framework: New Data Transfer Mechanism for EU Data Transfer to U.S.

Tue, 11 Jul 2023 20:04:00 GMT

Background

The European Union (“ EU “) and the United States (“ U.S. “) came to an agreement regarding an agreed-upon mechanism for transatlantic data exchanges: the EU-U.S. Data Privacy Framework (the “ Data Privacy Framework “). Put simply, U.S. companies may now rely on the Data Privacy Framework to demonstrate compliance with the rigorous requirements of EU privacy laws. The Data Privacy Framework is a breath of relief for entities who used to rely on the Privacy Shield Framework, which the Court of Justice of the European Union (“ CJEU “) invalidated on July 16, 2020 because it did not include sufficient privacy protections for EU data.

Overview of the EU-U.S. Data Privacy Framework: ‘Privacy Shield 2.0’

On July 10, 2023, the European Commission (the “ Commission “) adopted an adequacy decision for the Data Privacy Framework, affirming its view that the strengthened protections in U.S. laws meet EU legal requirements. In particular, the Commission determined that the Data Privacy Framework addresses all concerns raised by the CJEU, including access to EU data by U.S. intelligence services, a new redress mechanism for EU citizens, and amended privacy principles to meet the EU legal requirements. The adequacy decision became effective with its adoption on July 10, 2023.

Is the Data Privacy Framework in Final Form?

Not quite. The Commission will continuously review relevant developments in the United States and regularly consider the validity of the adequacy decision. The first review will take place on July 10, 2024 to verify whether all relevant elements of the Data Privacy Framework are effective in their application. Subsequently, and depending on the results of the initial review, the Commission will determine, in consultation with the EU Member States and data protection authorities, on the frequency of future reviews, which would take place at least every four (4) years.

Who is in Charge of Oversight and Enforcement?

The Data Privacy Framework will be administered by the Department of Commerce, which will process applications for certification and monitor whether participating entities continue to meet the requisite certification requirements. As with the Privacy Shield Framework, the U.S. Federal Trade Commission will enforce compliance with the new framework.

How Does a Company Become Certified?

U.S. entities will be able to pursue self-certification under the Data Privacy Framework by committing to comply with the EU-U.S. Data Privacy Framework Principles, without having to put in place additional transfer safeguards. According to the Department of Commerce, which is charged with administration and oversight of the Data Privacy Framework, the EU-U.S. Data Privacy Framework Principles and the process to self-certify and re-certify annually under the Data Privacy Framework will remain substantially similar as those under the defunct Privacy Shield Framework. Entities currently self-certified under the Privacy Shield Framework will have access to a simplified procedure for self-certification under the new Data Privacy Framework.

For More Information

Learn more by reviewing the Commission’s Fact Sheet and Questions & Answers regarding the Data Privacy Framework. If you have any questions about this article, please contact info@rppmh.com or the attorney in the firm with whom you are regularly in contact.

Disclaimer : This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For specific legal advice regarding the Data Privacy Framework and its implications, please consult a qualified legal professional.

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Understanding the Beneficial Ownership Reporting Requirements of the Corporate Transparency Act

Tue, 23 May 2023 18:25:00 GMT

Introduction

On January 1, 2021, Congress passed the Corporate Transparency Act (the “ CTA “) in an effort to enhance corporate transparency and combat financial crimes. The CTA requires covered entities to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“ FinCEN “) and directs FinCEN to propose rules specifying the information to be collected in such reports.

On September 29, 2022, FinCEN issued a final rule regarding the CTA’s beneficial ownership information (“ BOI “) reporting requirements (the “ BOI Rul e”). Covered entities must file a report with FinCEN identifying (i) the entities’ beneficial owners—the persons who ultimately own or control the company—and (ii) relevant identifying information about the persons who formed the entity. The CTA grants FinCEN the authority to share this information with authorized government authorities and, under specific circumstances, with financial institutions.

This article provides a focused overview on the requirements of the BOI Rule.

Who Must Comply?

The CTA applies only to certain domestic and foreign entities which fall under the definition of a “reporting company.”

“Domestic reporting companies” include any domestic corporation, limited liability company, or other entity (limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships and business trusts) that is created by the filing of a document with a secretary of state or similar office (including an American Indian tribal office).
“Foreign reporting companies” include any foreign corporation, limited liability company, or other entity (limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships and business trusts) that is formed under the laws of a foreign country and registered to do business in any state or tribal jurisdiction by filing of a document with a secretary of state or similar office (including an American Indian tribal office).

Legal entities that are not formed by the filing of a document with a secretary of state or similar office, including certain trusts, are excluded from the CTA’s reporting requirements.

Which Entities are Exempt?

Certain legal entities are excluded from the ‘reporting company’ definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. The BOI Rule lists 23 types of entities that are exempt from the definition of “reporting company,” including but not limited to: governmental authorities, banks, credit unions, money services businesses, registered broker dealers, exchanges and clearing agencies, insurance companies, accounting firms, public utilities, certain tax exempt entities, and entities assisting tax-exempt entities, among others.

Corporate exemptions include:
- Large operating companies, which include any entity that (i) employs more than 20 full-time employees in the U.S., (i) in the previous year filed U.S. federal income tax returns demonstrating more than $5,000,000 in gross receipts or sales in the aggregate (on a consolidated basis, if applicable), excluding gross receipts or sales from sources outside the U.S., and (iii) has an operating presence at a physical office within the U.S.
- Publicly traded companies that are issuers of securities and registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise required to file supplementary and periodic information under Section 15(d) of the Exchange Act

Fund related exemptions include:

- Registered investment advisors with the Securities and Exchange Commission (“ SEC “)
- Registered investment companies with the SEC
- Venture capital fund advisers that have made certain filings with the SEC
- Commodity pool operators and commodity trading advisors that are registered with the Commodity Futures Trading Commission
- Funds that are operated or advised by a bank, Federal or State credit union, SEC registered broker-dealer, SEC registered investment company or investment adviser, or venture capital fund adviser

The subsidiary exemption includes:

- Subsidiaries that are controlled or wholly owned, directly or indirectly, by certain exempt entities are also exempt from the reporting requirements of the BOI Rule

Scope of Exemptions

The subsidiary exemption does not extend to subsidiaries of money services business, pooled investment vehicles, or entities assisting a tax-exempt entity. Additionally, entities registered in a state or tribal jurisdiction that are subsidiaries of large foreign entities that do not qualify for the large operating company exemption because of insufficient U.S. presence or gross receipts will be required to report BOI under the BOI Rule, absent another applicable exemption

While SEC registered investment advisers are exempt from the reporting requirements under the BOI Rule, non-exempt entities include private fund advisers, foreign private advisers, and family offices. Moreover, although the BOI Rule exempts directly or indirectly wholly owned subsidiaries of registered investment companies, there is no such blanket exemption for subsidiaries of private funds. Similarly, while private fund clients of registered investment advisers relying on the 3(c)(1) and 3(c)(7) exemptions under the 1940 Act are exempt from the definition of “reporting company” under the BOI Rule, subsidiaries of those private fund clients may not be exempt.

Other types of entities that are likely to be subject to the BOI Rule include:

Certain alternative investment vehicles, feeder fund vehicles, other subsidiaries of private funds, and holding company entities that are otherwise ineligible for an exemption;
Certain kinds of pooled investment vehicles, such as real estate vehicles relying on the Section 3(c)(5)(c) exemption under the Investment Company Act of 1940 (the “ 1940 Act ”)
Certain commodity pools (even if advised by a registered commodity trading advisor and operated by a registered commodity pool operator)
Certain foreign pooled investment vehicles

Will an Exemption Help Me?

It depends. Despite the long list of exemptions, the BOI Rule is expected to have a significant impact on private investment funds and other entities structured to facilitate group investments. The BOI Rule authorizes the Secretary of the Treasury to exempt additional entities. Such an expansion, however, is unlikely unless FinCEN establishes that the applicable non-exempt entity’s submission of a BOI report would not serve the public interest and would not be effective in furthering the anti-money laundering objectives of the CTA.

Who is a Beneficial Owner?

A “beneficial owner” is as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

Exercises substantial control over an entity; or
Owns or controls at least 25% of the entity’s ownership interests.

Substantial Control

Under the BOI Rule, an individual exercises “ substantial control ” over a covered entity if the individual:

Serves as a senior officer of the covered entity (a “senior officer” includes any individual holding the position or exercising the authority of president, CEO, CFO, COO, general counsel, or any other officer performing a similar function);
Has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body) of the entity;
Directs, determines or has substantial influence over important matters of the entity (e.g. reorganization, dissolution or merger, selection or termination of business lines or ventures, or amendment of any corporate governance documents); or
Has any other form of substantial control over the entity (i.e. the authority to make important decisions on behalf of the entity).

Ownership Interest

The BOI Rule defines “ownership interest ” as any instrument, contract, arrangement, understanding, or mechanism used to establish ownership (such as any equity, stock, capital, or profit interest). An individual may own or control an ownership interest of an entity in various ways, directly or indirectly, such as: joint ownership, certain trust arrangements, or acting as an intermediary, custodian, or agent on behalf of another. Regardless of whether they are considered debt or equity, convertible instruments, warrants, and other rights to purchase, sell, or subscribe to an ownership interest are deemed “ownership interests” under the BOI Rule. Puts, calls, and other options to buy or sell ownership interests are also “ownership interest,” except to the extent created and held by a third party without the knowledge or involvement of the entity.

There are two approaches to determining the percentage of ownership interest. Both methods treat options and similar interests as being exercised.

Ownership interests for corporations, entities taxed as corporations, and other share-issuing entities are determined using the “vote or value” method. Under this method, the ownership interest is the greater of (i) one’s voting power as percentage of total outstanding voting power and (ii) one’s ownership interest value as percentage of total outstanding ownership value.
When dealing with non-corporate entities that do not issue shares, the ownership interest is determined by comparing an individual’s ownership stake to the overall outstanding ownership interest in the company.

Other instances under which an individual is required to report BOI are as follows:

Beneficial Ownership via an Exempt Entity : The BOI Rule clarified that if an individual is a beneficial owner of a covered entity based on ownership interests in one or more exempt entities, such individual’s BOI must be reported.
Beneficial Ownership via Indirect Control : One may be deemed a beneficial owner through direct or indirect possession or control of an ownership interest by way of a “joint ownership with one or more other persons of an undivided interest in such ownership interest.”
Beneficial Ownership via Trusts or Similar Arrangements : With respect to trusts and similar arrangements, the following persons can be considered beneficial owners:
- The trustee of the trust or any other person with the power to dispose of the trust’s assets.
- A beneficiary who is exclusively entitled to receive income and principal from the trust, or has the ability to demand a distribution of or withdraw substantially all of the trust’s assets.
- The grantor or settlor who retains the right to revoke the trust or withdraw its assets.

Who is Not a Beneficial Owner?

The definition of “beneficial owner” does not include:

Minor children (so long as a parent or legal guardian’s information is reported)
Individuals acting as nominees, intermediaries, custodians, or agents;
Employees acting solely as employees and not as senior officers;
Individuals whose only interest in an entity is a future interest through a right of inheritance; nor
Creditors of an entity ( unless the creditor otherwise meets the definition of beneficial owner by exercising substantial control or by owning or controlling 25% or more of the entity’s ownership interests).

What BOI Must Covered Entities Provide to FinCEN?

The BOI Rule requires a covered entity to identify itself and report four pieces of information about each of its beneficial owners:

Name;
Birthdate;
Address; and
A unique identifying number and the issuing jurisdiction from an acceptable identification document (e.g. passport), and an image of the document from which the unique identifying number was obtained.

If a beneficial owner has obtained a FinCEN identifier and provided the FinCEN identifier to a covered entity, such entity may include the FinCEN identifier in its report in lieu of the information required for that individual.

Less information may be required for certain entities, such as foreign pooled investment vehicles, or if an exempt entity has or will have a direct or indirect ownership interest in a covered entity.

Do I Need to Report Anything Else?

Basic Entity Information

Each covered entity is also required to report:

Entity name (and any alternative trade or dba name)
Business street address
Jurisdiction of formation and, for foreign entities, the state or tribal jurisdiction of registration
A unique identification number (e.g. TIN or EIN)

Company Applicant Information

The BOI Rule requires covered entities created or registered on or after January 1, 2024 to provide the identifying information of “company applicants.”

There can be up to two individuals who qualify as “company applicants”:

The individual who directly files the document that creates a domestic reporting company or first registered a foreign entity to do business in the U.S.; or
The individual who is primarily responsible for directing or controlling the filing of the relevant document by another, if more than one individual is involved in the filing .

If applicable, the covered entity must report the following four pieces of information about each of its company applicants in its report to FinCEN, in addition to the basic entity information and BOI:

Name;
Birthdate;
Address; and
A unique identifying number and the issuing jurisdiction from an acceptable identification document (e.g. passport), and an image of the document from which the unique identifying number was obtained.

Who Has Access to the BOI Report?

On December 15, 2022, FinCEN proposed the Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for the BOI Rule (the “ Proposed Access Rule ”). The Proposed Access Rule proposes regulations regarding who may request BOI that will be reported to FinCEN starting on January 1, 2024, who may receive it, how recipients may use the information, how they must secure it, and the penalties for failing to follow applicable requirements. The Proposed Access Rule also discusses aspects of the secure, non-public information technology (IT) system that FinCEN is building to store BOI and manage disclosures to maintain data protection and oversight. It also proposes rules specifying when and how covered entities may report FinCEN identifiers tied to entities.

In a nutshell: The CTA mandates that the BOI report be made available solely to authorized government authorities, subject to effective safeguards and controls (as provided in the Proposed Access Rule). The U.S. Department of the Treasury will maintain the information in a secure, nonpublic database. Separately, however, the information in the BOI report may also be disclosed to certain financial institutions to facilitate the confirmation of beneficial ownership information provided by their customers.

When Does Enforcement Begin?

The BOI Rule becomes effective on January 1, 2024.

The exact deadlines for filing reports will depend on when an entity was created or registered.

Covered entities created or registered before that date until January 1, 2025 (i.e. one year after the effective date of January 1, 2024) to file their initial reports.
Covered entities created or registered after January 1, 2024, must file their initial reports within 30 days of receiving notice of their creation or registration.

How do I Update or Correct a Report?

There are additional deadlines for submitting updated reports with new information or reports correcting errors.

New Information . Covered entities have 30 days to report “changes” to previously filed information and must correct any inaccuracies within 30 days of becoming aware of them.
- “Changes” mean a change in the party or parties holding beneficial ownership, a previously exempt minor reaching the age of maturity, and a change to reported information, (for example a change in address).
Errors . Covered entities have a 90-day safe harbor from the date of filing to correct an inaccurate report.

FinCEN does not require covered entities to file a report after termination or dissolution. It also does not require covered entities to report changes to the BOI of their company applicant(s).

What are the Penalties for Non-Compliance?

Civil Liability. Under the CTA, any person who provides false information, or fails to report complete or updated information, is subject to a civil penalty of not more than $500 for each day that the violation continues, and may face fines not more than $10,000, imprisonment for not more than two years, or both.
Criminal Liability. One may also be found liable under the federal criminal code, which prohibits knowingly and willfully providing false information or concealing a material fact to any of the three branches of the federal government.

How to Submit the BOI Report to FinCEN

If you are required to report your entity’s BOI to FinCEN , you will do so electronically through a secure filing system available via FinCEN’s website. As of the date of this article, the FinCEN system is currently being developed and will be available before the BOI report must be filed.

Considerations for Covered Entities

The management of companies should assess whether they fall under the category of a reporting company and initiate the compilation of necessary information regarding all beneficial owners and company applicants. Additionally, they should consider incorporating the following provisions into their company’s operative documents:

A representation by each shareholder, member, or partner, as applicable, stating their commitment to (i) comply with the CTA or (ii) qualify for an exemption from the CTA;
An indemnification by each shareholder, member, or partner, as applicable, in favor of the company and other shareholders, members, or partners, as applicable, for any failure to comply with the CTA or the provision of false information;
A covenant by each shareholder, member, or partner, as applicable, obligating them to maintain ongoing compliance with the CTA’s requirements and disclose relevant information, or alternatively, provide evidence of their exemption from such requirements; and
A consent by each disclosing party for the covered entity to disclose identifying information to FinCEN , to the extent mandated by law.

Investment funds should consider adding similar representations, covenants, and requests for consent by and from their investors within subscription and management agreements. Lenders should also consider adding similar representations and covenants by their borrowers to loan documents (i.e. to consent to the disclosure of the borrower’s future BOI reports by FinCEN to the lender).

Conclusion

The CTA’s beneficial ownership reporting requirement may represent a significant challenge for entities who are unsure of their reporting responsibilities. Compliance with these reporting obligations is crucial for covered entities to ensure compliance with the CTA and maintain trust and integrity in their operations.

For More Information

If you have any questions about BOI reporting obligations, please contact info@rppmh.com or the attorney in the firm with whom you are regularly in contact.

Disclaimer : This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For specific legal advice regarding the CTA and its implications, please consult a qualified legal professional.

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Reicker Pfau represents VitalMetrics in its sale to Watershed

Tue, 11 Apr 2023 19:00:00 GMT

Reicker Pfau represented VitalMetrics, the world’s most comprehensive multi-regional greenhouse gas emissions database, in its sale to Watershed Technologies, a software platform that helps companies measure, reduce, and report on their carbon footprint. VitalMetrics had been measuring organizations’ climate impact using CEDA since 2005. VitalMetrics founder Dr. Sangwon Suh spent twenty years building the foundations of global carbon data as an author of the Greenhouse Gas Protocol and the U.N. IPCC Assessment Report, and lead developer of CEDA. In conneciton with the transaction, Dr. Suh joined Watershed as Head Scientist.

The Reicker Pfau team was led by Nicholas Behrman . A full article from Watershed can be found here .

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Maximum Insurance Coverage for Trust Owners under the FDIC

Thu, 16 Mar 2023 22:44:00 GMT

On Friday, March 10, 2023, the Silicon Valley Bank (“SVB”) of Santa Clara, California was shut down by California regulators, who next appointed the Federal Deposit Insurance Corporation (the “FDIC”) as receiver to guarantee customer deposits. SVB’s collapse continues to reverberate across the financial markets, leaving investors, customers, and funders wary of what’s to come.

This article focuses on how the FDIC may determine insurance coverage for trust accounts amidst the murky waters of the ripple of SVB’s failure.

Please note that this article is not intended as a legal interpretation of the FDIC’s laws and regulations. The information in this article is based on FDIC laws and regulations in effect at publication. These rules can be amended and, therefore, some of the information in this article may become outdated. For additional or more specific information about FDIC insurance coverage, consult the Federal Deposit Insurance Act (12 U.S.C.1811 et seq.) and the FDIC’s regulations relating to insurance coverage described in 12 C.F.R. Part 330.

FDIC Coverage Overview

The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank. For example, if a person has a certificate of deposit at Bank X and has a certificate of deposit at Bank Y, the amounts would each be insured separately up to $250,000. Funds deposited in separate branches of the same insured bank are not separately insured.

Maximum Insurance Coverage for Trust Accounts

Revocable Trust Accounts

In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary, if all of the following requirements are met:

The account title at the bank must indicate that the account is held pursuant to a trust relationship, which can be satisfied by using the terms payable on death, in trust for, as trustee for, living trust, family trust, or any similar language, including simply having the word “trust” in the account title. The account title includes information contained in the bank’s electronic deposit account records.
The beneficiaries must be named in either the deposit account records of the bank (for informal revocable trusts) or identified in the formal revocable trust document. For a formal trust agreement, it is acceptable for the trust to use language such as “my issue” or other commonly used legal terms to describe the designated beneficiaries, provided the specific names and number of eligible beneficiaries can be determined.
To qualify as an eligible beneficiary, the beneficiary must be a living person, a charity or a non-profit organization. If a charity or non-profit organization is named as beneficiary, it must qualify as such under Internal Revenue Service regulations.

An account must meet all of the above requirements to be insured under the revocable trust ownership category. Typically, if any of the above requirements are not met, the entire amount in the account, or the portion of the account that does not qualify, is added to the owner’s other single accounts, if any, at the same bank and insured up to $250,000. If the trust has multiple co-owners, each owner’s share of the non-qualifying amount would be treated as his or her single ownership account.

Insurance coverage for revocable trust accounts is calculated differently depending on the number of beneficiaries named by the owner, the beneficiaries’ interests and the amount of the deposit. Specifically, the calculation method varies depending on whether a revocable trust owner has five or fewer unique beneficiaries or six or more unique beneficiaries.

If a trust has more than one owner, each owner’s insurance coverage is calculated separately.

Five or Fewer Unique Beneficiaries in a Revocable Trust Account.

When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary.

This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary. Therefore, a revocable trust with five unique beneficiaries is insured up to $1,250,000, as follows:

Six or More Unique Beneficiaries in a Revocable Trust Account.

When a revocable trust owner names six or more beneficiaries and the beneficiaries do not have equal beneficial interests (i.e., they receive different amounts), the owner’s revocable trust deposits are insured for the greater of either: (1) the sum of each beneficiary’s actual interest in the revocable trust deposits up to $250,000 for each unique beneficiary, or (2) a minimum coverage amount of $1,250,000.

An owner who identifies a beneficiary as having a life estate interest in a formal revocable trust is entitled to insurance coverage up to $250,000 for that beneficiary. A life estate beneficiary is a beneficiary who has the right to receive income from the trust or to use trust deposits during the beneficiary’s lifetime, where other beneficiaries receive the remaining trust deposits after the life estate beneficiary dies.

EXAMPLE: A husband is the sole owner of a living trust that gives his wife a life estate interest in the trust deposits, with the remainder going to their two children upon his wife’s death. Maximum insurance coverage for this account is calculated as follows: $250,000 times three different beneficiaries equals $750,000.

Irrevocable Trust Accounts

Since irrevocable trusts usually contain conditions that affect the interests of the beneficiaries or provide a trustee or a beneficiary with the authority to invade the principal, insurance coverage for an irrevocable trust account usually is limited to $250,000.

The interests of a beneficiary in all deposit accounts under an irrevocable trust established by the same settlor and held at the same insured bank are added together and insured up to $250,000, only if all of the following requirements are met:

The trust must be valid under state law;
The insured bank’s deposit account records must disclose the existence of the trust relationship;
The beneficiaries and their interests in the trust must be identifiable from the bank’s deposit account records or from the trustee’s records; and
The amount of each beneficiary’s interest must not be contingent as defined by FDIC regulations.

If the owner retains an interest in the trust, then the amount of the owner’s retained interest would be added to the owner’s other single accounts, if any, at the same insured bank and the total insured up to $250,000.

EXAMPLE: If the grantor of an irrevocable trust is still living, and the trust provides that trust assets can either be used by the grantor or by a trustee on behalf of the grantor, the grantor would be deemed to have a retained interest. Thus, this irrevocable trust account would not be insured under the irrevocable trust ownership category, but as a single ownership deposit of the grantor. The balance of the account would be added together with any other single ownership accounts the grantor has at the same bank, and the total would be insured up to $250,000.

Notably, a revocable trust account that becomes an irrevocable trust account due to the death of the trust owner may continue to be insured under the rules for revocable trusts. Therefore, in such cases, the rules in the revocable trust section, above, may be used to determine coverage.

Maximum Insurance Coverage for Persons Who Qualify for Multiple Ownership Categories

The FDIC provides separate insurance coverage for funds depositors may have in different categories of legal ownership. The FDIC refers to these different categories as “ownership categories.”

Types of Ownership Categories

Single Accounts
Certain Retirement Accounts
Joint Accounts
Revocable Trust Accounts
Irrevocable Trust Accounts
Employee Benefit Plan Accounts
Corporation/Partnership/Unincorporated Association Accounts
Government Accounts

Accordingly, a bank customer who has multiple accounts may qualify for more than $250,000 in insurance coverage if the customer’s funds are deposited in different ownership categories and the requirements for each ownership category are met.

Contact Us

Determining which ownership categories you belong to, as well as the extent to which such category qualifies for insurance coverage under the FDIC, can be complex. For assistance on such a determination, please contact us at info@rppmh.com.

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Beyond Compliance: Creating a Lawful and Inclusive Privacy Program

Tue, 11 Oct 2022 04:37:00 GMT

By: Diane Byun

Effective January 1, 2023, the California Privacy Rights Act (“CPRA”) expands and amends the California Consumer Privacy Act (“CCPA”), making it the first comprehensive U.S. data privacy law to afford protections upon human resources data. Such data includes personally identifiable information (“personal information”) of applicants, employees, independent contractors, dependents, and other employment-related information of California residents (collectively, “Employees”).

Among other things, the CPRA restricts the processing of sensitive categories of personal information for limited purposes, otherwise they must notify Employees of the additional purposes and provide Employees the opportunity to opt-out of such processing. At the same time, understanding the role of sensitive data points is a critical aspect of initiatives relating to diversity, equity, inclusion, and accessibility (“DEIA”). How does an employer reconcile this apparent clash?

Who Must Comply

Employers should first determine whether they are covered by the landmark California privacy law. At present, the CCPA applies to for-profit entities that do business in California and meet any of the following thresholds:

Have a gross annual revenue of over $25 million;
Buy, receive, or sell the personal information of 50,000 or more California residents, households, or devices; or
Derive 50% or more of their annual revenue from selling California residents’ personal information.

As of January 1, 2023, the “original” version of the CCPA dissipates. Employers will be covered by the surviving CPRA to the extent they are a for-profit entity that does business in California, collects personal information from California residents, and satisfies at least one of the following thresholds:

As of January 1 of the calendar year, has annual gross revenues in excess of $25 million in the preceding calendar year;
Alone or in combination, annually buys or sells, or shares the personal information of 100,000 or more consumers or households; or
Derives 50% or more of its annual revenues from selling or sharing consumers’ personal information.

Employers that do not meet these criteria could still be subject to the CPRA if they:

Own or control a business defined by the CRPA; or
Share common branding with a business and with whom the business shares (or receives) Consumers’ personal information.

Notably, to qualify under the CPRA’s common branding category, the information from the covered business must be for cross-context behavioral advertising purposes.

Overview of Notice Requirements

Prior to January 1, 2023, covered employers must ensure execution of proper notice at collection. Although human resource date is exempt under the CCPA, covered employers must issue privacy notices to their Employees with an initial disclosure, at or before the point of collection. This initial disclosure must identify the categories of personal information collected and the purposes for which the categories of personal information shall be used, likely triggering notice requirements for the collection of diversity-related personal information. If the employer sells the human resource data, then the notice at collection must include a Do Not Sell link. The disclosure must also contain a link to the employer’s CCPA-compliant privacy policy.

Once effective, the CPRA signals the end of the temporary carve-out for human resources data, affording Employees with the same rights that have applied to general consumers since 2020. In relation to notice requirements, the CPRA mandates that a covered employer that controls the collection of an Employee’s personal information must also disclose the following at or before the point of collection:

the purpose for which categories of both sensitive personal information and personal information are collected or used;
whether this personal information is sold or shared; and
the employer’s retention policy.

This notice requirement may be fulfilled by way of a privacy policy detailing how human resource data is processed, including a description of the various privacy rights available to Employees under the CPRA, including:

Right to Access: The CPRA allows an Employee to make a request to know the specific pieces of personal information an employer holds about them that were generated on or after January 1, 2022.
Right to Correct: Employees may request that their employer correct any inaccurate personal information that has been collected.
Right to Delete : Employees may request that their personal information be deleted.
Right to Restrict: Employees have the right to restrict the use of their sensitive personal information to specific business purposes or limited disclosures.
Right to Opt-Out of Sale or Sharing: Employees can opt out of the sale or sharing (as defined by the CPRA) of their personal information by their employer to a third party.
Right to Know: Employees may request from their employers the personal information that has been collected about them during the preceding 12 months.

In addition to the above, employers covered by the CPRA will be required to:

Comply with the new privacy right obligations regarding human resources data;
Safeguard human resources data against unauthorized disclosures; and
Include specific CPRA provisions in contracts with third parties that process human resources data.

What is Sensitive Personal Information?

The CPRA’s definition of “sensitive personal information” includes the following types of data, all of which employers often collect:

Social Security number;
Driver’s license number;
Racial or ethnic origin;
Religious or philosophical beliefs;
Union membership;
Personal mail, email, and text messages;
Precise geolocation;
Biometric information for the purpose of unique identification; and
Personal information collected and analyzed concerning an individual’s health.

The Right to Limit the Use and Disclosure of Sensitive Personal Information

On May 27, 2022, the California Privacy Protection Agency released its draft CPRA regulations, operationalizing the new right to limit the use of sensitive personal information under the CPRA. The draft regulations add Section 7027, concerning consumer requests to limit the use and disclosure of sensitive personal information. The primary focus of Section 7027 is to provide consumers, including Employees, the ability to limit use and disclosure “to that which is necessary to perform the services or provide the goods reasonably expected.” Employers that process sensitive personal information for certain purposes must provide a notice of such processing at or before the point of collection. Covered employers using or disclosing sensitive personal information would be required to provide two or more designated methods for submitting requests to limit, and at least one of the methods must reflect the manner in which the business primarily interacts with the consumer (e.g. by restricting processing to only permissible purposes through a “Limit the Use of My Sensitive Personal Information” link).

Regardless of the implementation of Section 7027, covered entities are permitted to use or disclose sensitive personal information without being required to offer consumers a right to limit when the information is necessary to perform the services reasonably expected by an average consumer who requests those goods or services; to detect security incidents to resist malicious or illegal attacks on the business; ensure the physical safety of natural persons; for short-term, transient use; perform services on behalf of the business; or verify or maintain the quality or safety of the business. How the foregoing will specifically apply to Employees’ sensitive personal information is yet to be seen as the proposed regulations of the CPRA continue to be reviewed by the California Privacy Protection Agency.

The right to restrict sensitive personal information, however, only applies to sensitive personal information that the covered Employer uses with the purpose of “inferring characteristics” about the Employee. If the information is not collected and used by the employer for the purpose of drawing inferences about Employees, such data can be listed as personal information in the required disclosure within the other categories of personal information collected by the employer. This may seem like a benign distinction, but identifying the data delta will be crucial for employers to avoid unnecessary notice requirements. If a covered employer discloses the collection of sensitive personal information, this will likely lead to, at a minimum, an increase in inquiries from Employees regarding such processing practices. The incorporation of these categories of information within a list of general categories of personal information collected may enable covered employers to avoid an increase of human resources issues as they would only have to disclose those categories of information that are generally designated as “sensitive,” such as social security numbers.

What is an Inference?

On March 10, 2022, the Office of the Attorney General of California (“OAG”) explained that inferences could include “a characteristic deduced about a consumer (such as ‘married,’ ‘homeowner,’ ‘online shopper,’ or ‘likely voter’) that is based on other information a business has collected (such as online transactions, social network posts, or public records),” and established a two-prong test for determining when “inferences” are “personal information” that must be disclosed to consumers under the CCPA.

First, the inference must be derived from an analysis of personal information subject to the CCPA (as well as the CPRA, once effective). This prong is satisfied given the inherent nature of human resources data. Covered entities are deemed to “collect” such inferences even if they are derived internally from other information that has been collected.

Second, the inference must be used to create a profile on the consumer or “predict a salient consumer characteristic.” The OAG limited the scope of inferences that must be disclosed to those used to predict, target, or otherwise affect consumer behavior. In other words, inferences used solely for internal purposes, such as to complete the address on file for a consumer, are not covered. Should the inferences be utilized to determine a consumer’s propensities, they become part of the consumer’s profile and must be disclosed.

At present, the scope and definition of such inferences and characteristics as applied to Employees’ sensitive personal information is yet unknown as the opinion was issued in relation to the CCPA. This may change as the California Privacy Protection Agency finalizes its regulations in the coming months.

Bridging the Gap

Despite the new CPRA obligations, covered employers may be able to execute their DEIA initiatives by (1) incorporating algorithmic bias training in the training programs required by the CCPA; and (2) relying upon existing legal requirements to collect certain sensitive human resource data.

Covered employers must ensure that all individuals responsible for privacy compliance or handling responses to data inquiries are informed of all requirements of the CCPA/CPRA, as applicable. This includes training on providing clear instructions on how to exercise data privacy rights. Covered employers are also required to establish, document, and comply with a training policy if they know, or reasonably should know, that they buy, receive for commercial purposes, sell, or share for commercial purposes the personal information of 10 million or more consumers (including Employees, post-2022) in a calendar year.

In connection with the requisite data privacy training, covered employers may educate trainees about the risks of algorithmic bias to promote DEIA and decrease discrimination risks within the organizational culture. Employers can remain compliant while actively promoting DEIA by training key privacy personnel about how artificial intelligence tools have resulted in discrimination in recruitment and other employment decisions. Suggested topics include the EEOC’s recent initiatives highlighting the impact of algorithmic bias in perpetuating bias or creating discriminatory barriers to jobs; the FTC’s ban on the sale or use of racially biased algorithms under the FTC Act; and California’s Fair Employment and Housing Council’s proposed regulations to limit an employer or covered entity’s ability to use qualification standards, employment tests, algorithms, or other criteria that screen out or tend to screen out protected individuals or groups, unless job-related and consistent with business necessity.

Additionally, covered employers may collect diversity data points while remaining compliant by way of reliance on existing laws. For example, Title VII of the Civil Rights Act of 1967 requires employers with at least 100 employees to submit an EEO-1 report to the EEOC. The EEO-1 covers the racial/ethnic and gender composition of the employer’s workforce by specific job categories. On the state level, private employers with 100 or more employees in California are required by California Government Code section 12999 to maintain and report employee pay data for specified job categories by gender, race and ethnicity. Covered employers with less than 100 employees should utilize anonymous self-reporting systems to obtain the requisite data points to inform policies and practices relating to DEIA initiatives. This can be implemented by surveying employees periodically, requesting updated profile information, and allowing employees to anonymously self-identify. No matter the method of data point procurement, employers should conduct regular data mapping and proper algorithm audits. Proper implementation of mapping and audits will require stakeholder engagement, including developers, sales representatives, client managers, users, and policy makers.

The protection of personal information and prevention of discrimination should be a priority for all parties. Accordingly, employers should evaluate their privacy policies and practices to ensure both compliance and DEIA in the workplace.

Diane Byun (CIPP/US) is a data privacy and transactional associate with Reicker, Pfau, Pyle & McRoy LLP. Diane counsels companies on compliance issues relating to data privacy laws and regulations with a particular focus on the California Consumer Privacy Act (CCPA). Diane also supports companies on matters involving data mapping, legal analysis of data processing, and drafting privacy policies, and terms of service.

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Reicker Pfau Represents ThinGap in its sale to Allied Motion

Tue, 24 May 2022 22:50:00 GMT

Reicker Pfau represented ThinGap, a manufacturer of high-precision motors, in its sale to Allied Motion, a publicly-traded company (NASDAQ: AMOT) offering a wide range of motion control solutions. The Reicker Pfau team was led by partner Russell Terry .

The press release can be found here .

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ProductPlan sold to Bow River Capital

Thu, 12 May 2022 22:52:00 GMT

Reicker Pfau represented ProductPlan, a SaaS firm providing cloud-based product management systems across all industry verticals and all sizes of organizations, in its sale to Bow River Capital. The Reicker Pfau team was led by Michael Pfau and Nicholas Behrman .

Jim Semick, a Co-Founder of ProductPlan, stated that, “We have boot-strapped the company from day one, and unanimously supported the highly differentiated thesis work and major investment from Bow River’s Software Growth Equity team. We’re excited to work with their team of deep operational SaaS veterans and seek rapid value creation that will positively impact ProductPlan’s customers, partners, and staff.”

A full article from PR Newswire can be found here .

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Diane Byun Joins Firm

Tue, 19 Apr 2022 04:29:00 GMT

Reicker, Pfau, Pyle & McRoy LLP, Santa Barbara’s Business Law Firm, is pleased to announce that Diane Byun has joined the firm as an associate of the firm’s transactional practice group. Ms. Byun commenced her career by serving as law clerk to the Hon. M. James Lorenz of the U.S. District Court, Southern District of California. Subsequently, she worked as a data privacy and commercial litigation associate at an AmLaw 100 firm, where she provided counsel to domestic and international companies. Ms. Byun received her J.D. at University of San Diego, School of Law after completing her undergraduate degree at UCSB.

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Barton Clemens has Joined Reicker Pfau as a Partner

Tue, 01 Feb 2022 17:38:00 GMT

It is with great pleasure that Reicker Pfau announces that Barton Clemens has joined the firm as a partner. Bart has over 45 years of experience assisting clients in real estate, financial and business transactions. He represents companies through the full life cycle of real estate ownership, including the creation of ownership structures, syndications, due diligence activities, development, operation and disposition. He has represented numerous companies in joint ventures with pension funds, sovereign wealth funds and publicly traded insurance companies. He has extensive experience in all aspects of real estate finance, including CMBS loans, Fannie and Freddie backed loans and life insurance company loans. He represents institution and private lenders and has substantial experience in structuring work-outs of troubled loans for borrowers and lenders. Bart’s approach to real estate and financial transactions is very practical and bottom line oriented. A large number of his clients ask him to function like a principal in their business, negotiating deal points and making cost/benefit analyses.

Bart graduated from the University of California at Santa Barbara and received his Juris Doctor degree from the University of California at Los Angeles. Prior to joining Reicker Pfau, he was a Partner with Seed Mackall, LLP for 25 years.

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Reicker Pfau represents Bloom Equity Partners in its acquisition of Soutron Global

Tue, 25 Jan 2022 05:40:00 GMT

Reicker Pfau represented Bloom Equity Partners, a B2B SaaS-focused technology private equity firm, in its acquisition of Soutron Global, Inc. and Soutron Limited (UK), leaders in the library, archive, and knowledge management software vertical, serving hundreds of clients worldwide. The Reicker Pfau team was led by partner Fernando Velez, Jr. and assisted by associate Nicholas Behrman .

A full article from Global Newswire can be found here .

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Reicker Pfau represents Earth Class Mail in its sale to LegalZoom

Fri, 19 Nov 2021 19:46:00 GMT

Reicker Pfau represented Scaleworks, a software-focused technology private equity firm, in its sale to LegalZoom of its portfolio company, Earth Class Mail, a virtual mailbox solution for small businesses. The Reicker Pfau team was led by partner Fernando Velez, Jr. and assisted by associate Nicholas Behrman .

A full article from Global Newswire can be found here .

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You’ve Got Options: Incentivizing Employees and Service Providers with Equity Compensation

Fri, 22 Oct 2021 23:16:00 GMT

At a certain point, founders of an emerging startup face a predicament: the need to assemble a talented team without the cash to pay for it. This is where equity compensation, such as stock options and restricted stock, can serve as a powerful tool. Equity compensation helps the company attract and retain skilled workers, incentive longevity and performance, and align the interest of the company with its employees and service providers.

Founders often have questions about the various types of equity compensation and how they work. This article provides a brief overview of the most common types of equity compensation used by early-stage startups – stock options and restricted stock – provides pros and cons of each, and describes additional features and consequences of equity compensation, such as vesting, acceleration, and tax considerations.

Types of Equity Compensation

There are many types of equity-based awards available to companies. The most commonly-used by startups are stock options and restricted stock. Additional forms of equity compensation include restricted stock units (RSUs), stock appreciation rights (SARs), phantom stock, and performance awards, but this article focuses on the awards typical to early-stage startups.

All awards should be granted under an equity incentive plan adopted by the company’s board of directors and shareholders. If appropriately drafted and adopted, the plan will provide an exemption from securities law registration requirements; a critical feature for any private company.

Founders should be mindful that each award dilutes the ownership of the founders and other stockholders. Founders should be deliberate in making awards to ensure that they do not surrender too much of the company’s ownership. For an early-stage startup, an initial allocation of around 10% to equity compensation is typical.

Stock Options

Stock Options are the equity award of choice for startups. A stock option provides the recipient with the right to purchase stock at a predetermined price, called the “exercise price” or “strike price”, in the future. The exercise price is typically set at the fair market value of the underlying stock on the grant date, so the recipient benefits from future appreciation in the value the stock. Essentially, the recipient can buy stock tomorrow at today’s price.

Unless and until a stock option is exercised, the recipient does not own any stock – he or she merely owns the option to buy stock – and therefore has no voting, dividend, or other shareholder rights.

Stock options come in two flavors. Incentive Stock Options (ISOs), which may be granted only to employees, potentially provide the recipient with favorable tax treatment if certain criteria are met, including that the recipient holds the shares underlying the ISO award for both (a) one year from the date the recipient exercises the ISO, and (b) two years from the grant date. All other stock options are Non-Qualified Stock Options (NSOs). NSOs may be granted to employees, directors, and other service providers. NSOs are more flexible than ISOs but do not offer the favorable tax treatment for which ISOs are eligible.

Stock options are not taxable upon grant. ISOs are not taxable upon exercise; NSOs are taxable upon exercise at ordinary income rates on the spread – i.e. , the excess of the fair market value of the shares acquired on exercise over the aggregate exercise price. When the underlying shares are sold, eligible ISOs are generally taxed at long-term capital gains rates on the difference between the exercise price and the sale price; NSOs are generally taxed at capital gains rates on the difference between the fair market value at exercise and the sale price.

Pros of Stock Options

Incentivize recipients to increase the company’s value; an increase in the company’s value results in an increase in the option’s value.
Allow the recipient to determine when to exercise the option and therefore dictate when tax will be imposed.
From the company’s perspective, avoid the burden of having to confer voting and other stockholder rights on potentially a large number of small holders, since the recipients do not hold stock unless and until the options are exercised.

Cons of Stock Options

Do not have retentive value if the company’s stock price is not increasing; no increase in the company’s value results in no increase in the option’s value.
Require the recipient to come up with cash to pay the exercise price and receive the benefit.
Require a valuation of the company’s stock to set the exercise price at fair market value.

Restricted Stock

Restricted stock is stock that is subject to certain restrictions until it vests. Unlike stock options, a restricted stock award is a grant of actual stock, so the recipient becomes a shareholder, generally entitled to voting, dividend, and other shareholder rights upon grant. For startups, restricted stock is sometimes used to attract experienced senior executives who may prefer it to stock options.

The primary restriction on restricted stock is vesting. While the recipient receives the full amount of the stock upfront, unvested shares are forfeited to the company, or repurchased by the company at the price paid for the stock (if any), upon the termination of the recipient’s employment or service relationship. Some companies also retain the right to repurchase vested shares at fair market value upon termination. Restricted stock is subject to additional restrictions, such as limitations on transfer.

By default, restricted stock is taxed as it vests. On each vesting date, the recipient is taxed at ordinary income rates on the difference between the amount paid for the stock (if any) and the fair market value of the stock on that date.

However, recipients may make an 83(b) election with the IRS within 30 days of the grant, electing to be taxed on the difference between the amount paid for the stock (if any) and the fair market value of the entire grant on the grant date (rather than on each vesting date). An 83(b) election is advisable if the fair market value of the stock is low at the time of grant (and is the clear choice if the fair market value is close to $0, such as in an early-stage startup, or if the recipient paid fair market value for the stock) and can have a very significant tax benefit if the shares become more valuable in the future as vesting occurs.

When the restricted stock is sold, the recipient will generally be taxed at capital gains rates on the difference between the sale price and the fair market value of the stock at the time of vesting (if no 83(b) election is filed) or at the time of grant (if an 83(b) election is filed).

Pros of Restricted Stock

In general, will always have some economic value to the recipient since no future payments, such as an exercise price, are required.
May be used to attract senior-level executives or other key employees.
Do not require recipients to pay an exercise price to realize the value of the award.
Do not require valuation of the company’s stock for issuance.

Cons of Restricted Stock

Recipients will have tax liability on each vesting event (if no 83(b) election is filed) or upon grant (if an 83(b) election is filed) when the shares are illiquid and the future prospects of the company (and the stock) are uncertain.
From the company’s perspective, confer voting, dividend, and other shareholder rights on the recipient.
Results in additional shareholders for the company to account for.

Vesting

Nearly all equity compensation is subject to vesting. Vesting requires the recipient to remain with the company in order to “earn” the equity compensation, rather than receiving the full benefits upfront before putting in any sweat.

For most employees, vesting is typically time-based over “four years with a one-year cliff”, meaning that 25% of the award vests after one year of service (the “cliff”) and the remainder vests monthly over the following three years of service, such that the entire award is vested after four years. Vesting can also be based on the achievement of performance goals, or a combination of time-based and performance-based vesting.

In the context of a stock option, a recipient may exercise only the options that are vested at the time of exercise. In the context of restricted stock, the recipient receives the full amount of the award upfront, but if his or her employment or service relationship is terminated the unvested restricted stock is forfeited to the company or repurchased by the company at the price paid for the stock (if any).

Awards may provide for acceleration – meaning that all unvested awards become immediately vested – based on a sale of the company. Acceleration may be “single-trigger”, meaning it occurs automatically upon the sale of the company, or “double-trigger”, meaning that it occurs only if there is both a sale of the company and a second event (typically a termination of employment by the company without cause or by the employee with good reason) within a specified period after the sale.

Conclusion

Equity compensation is a critical tool for early-stage startups to attract top-level talent, align the interests of the company and its employees and service providers, and allow employees and service providers to share in the growth and successes of the company. Founders should be deliberate when considering equity awards and fully understand the consequences of the awards on the company, its shareholders, and the recipients.

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Reicker Pfau Represents LungLife AI in its AIM Debut

Thu, 08 Jul 2021 16:00:00 GMT

Reicker Pfau represented LungLife AI (LLAI) in its admission to the AIM market of The London Stock Exchange. LungLife was admitted to AIM on July 8, 2021 and raised £17 million at a price at 176p, valuing the company at £45 million upon admission.

The Reicker Pfau team was led by partner Russell Terry .

A full article from Vox Markets can be found here .

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Russell Terry Named to Pacific Coast Business Times 40 Under 40

Sat, 29 Aug 2020 01:50:00 GMT

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Updated PPP Loan Forgiveness Applications and Instructions

Wed, 17 Jun 2020 19:14:00 GMT

On June 16, 2020, the SBA and Treasury Department released updated Paycheck Protection Program (“PPP”) loan forgiveness applications and instructions. The updated applications incorporate changes to the PPP that were recently implemented by the Paycheck Protection Program Flexibility Act.

There are now two forms of loan forgiveness applications – Form 3508 and Form 3508EZ. Form 3508EZ is a short-form application that can be used by certain borrowers, namely (a) self-employed individuals with no employees, (b) borrowers who did not reduce the salaries/wages of their employees by more than 25% or reduce employee headcount or hours, and (c) borrowers who did not reduce the salaries/wages of their employees by more than 25% and experienced a reduction in their business activity due to COVID-19 related health directives.

The forms can be found here:

Form 3508 (related instructions )

Form 3508EZ (related instructions )

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Paycheck Protection Program Flexibility Act Brings Borrower-Friendly Changes to PPP Loans

Sat, 06 Jun 2020 05:09:00 GMT

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (the “ Act “) into law. The Act provides borrowers under the Paycheck Protection Program (“ PPP “) with additional time and flexibility in their use of PPP loan proceeds.

The Act revises various rules and requirements regarding PPP loans that were provided in the CARES Act and subsequent interim rules and guidance. The key points are as follows:

Extended Forgiveness Period : The Act extends the covered period for loan forgiveness from eight weeks to 24 weeks after disbursement of the loan (or, if earlier, December 31, 2020). Borrowers who already received PPP loans can elect to use the original eight-week covered period.

Payroll Costs Requirement : The Act lowers the percentage of loan proceeds that must be spent on payroll costs during the covered period from 75% to 60%. As a result, borrowers can use up to 40% of loan proceeds for eligible non-payroll costs, such as rent, mortgage interest, and utilities. While previous SBA guidance provided for a proportionate reduction in loan forgiveness for borrowers who fail to meet the prior 75% payroll-cost threshold, the Act suggests that the new 60% threshold is a cliff – if a borrower spends less than 60% of its loan proceeds on payroll costs then the entire loan will become ineligible for forgiveness. We expect the SBA or Treasury Department to clarify this point in subsequent guidance.

Deadline to Restore FTE and Compensation Levels : Borrowers now have until December 31, 2020 (extended from June 30, 2020) to restore any reductions in full-time equivalent (FTE) employees and/or compensation or wage levels to avoid being subject to a reduction in their loan forgiveness percentage.

Additional FTE Re-Hire Exceptions : The Act provides that borrowers are exempt from a reduction in their loan forgiveness percentage due to their inability to restore FTE levels by December 31, 2020 if, in good faith, the borrower is able to document (a) its inability to rehire former employees or similarly-qualified persons and/or (b) its inability to return to the same level of business activity as before February 15, 2020 as a result of COVID-19 regulatory requirements implemented by the Department of Health and Human Services, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 1, 2020 and December 31, 2020.

Extension of Loan Repayment Deferral Period : The Act extends the period in which borrowers may defer loan payments from six months to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

Extension of Maturity Date : PPP loans made after the enactment of the Act will have a minimum maturity of five years and maximum maturity of 10 years (with respect to amounts that are not forgiven). Prior to the passage of the Act, all PPP loans were subject to a two-year maturity period. Existing borrowers and lenders may mutually agree to modify the maturity terms of their existing PPP loans.

Payroll Tax Deferral : The CARES Act allows employers to delay the deposit of the employer-portion of the social security tax, however prohibits PPP borrower employers from utilizing that payroll tax deferral following the forgiveness of any portion of their PPP loan. The Act eliminates that restriction and allows all PPP borrowers, including those receiving forgiveness, to take advantage of the payroll tax deferral under the CARES Act.

Final PPP Loan Date : The Act confirms that June 30, 2020 is the last date on which a PPP loan application can be approved.

UPDATE: The final PPP loan date has been extended to August 8, 2020. Approximately $129 billion remains available for PPP lending.

The changes implemented by the Act will require the SBA and Treasury Department to revisit much of their previous guidance and materials regarding PPP loans. This will be an ongoing task for the SBA and Treasury Department in the upcoming weeks and months.

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Necessity Requirement under the PPP

Fri, 08 May 2020 22:18:00 GMT

Last Updated: May 13, 2020

UPDATE : On May 13, the SBA and Treasury Department released FAQ #46, which provides that:

Any borrower that, together with its affiliates, received PPP loans with a principal amount of less than $2m will be deemed to have made the necessity certification in good faith.
With respect to borrowers that, together with their affiliates, received PPP loans of $2m or more, if the SBA determines the borrower lacked an adequate basis for the necessity certification and, in response, the borrower repays the loan, the SBA will not pursue administrative enforcement or referrals to other agencies based on the necessity certification.

The SBA and Treasury Department also extended the amnesty date from May 14 to May 18 (FAQ #47).

* * * * *

In recent weeks, the certification required under the Payroll Protection Program (“ PPP “) that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” has caused confusion and anxiety among PPP loan recipients.

In response to widely-publicized accounts of large publicly-traded businesses (Ruth’s Chris, Potbelly, and Shake Shack) and wealthy privately-owned businesses (the LA Lakers) receiving PPP loans, the SBA and Treasury Department released FAQs relating to the “necessity” requirement of PPP loans, bringing this issue to the forefront. This note provides a brief summary of the current state of the necessity requirement and tips for businesses to evaluate and address that requirement.

The SBA and Treasury Department indicated that they intend to provide additional guidance prior to May 14, 2020. We will update this note once that guidance is released.

What is the Necessity Requirement?

The PPP loan application requires applicants to certify, among other things, that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA and Treasury Department subsequently released two FAQs directly relating to that certification:

“31. Question : Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer : In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”

“37. Question : Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer : See response to FAQ #31.”

The SBA and Treasury Department have since extended the amnesty date from May 7, 2020 to May 14, 2020 and indicated that they intend to release additional guidance regarding the necessity requirement prior to May 14 (FAQ #43).

The lack of clarity in those rules, together with the heavy-handed punishment for false certification described in the PPP loan application, have given many loan recipients pause and emphasized the importance of exercising caution in making the necessity certification.

Breaking Down the Necessity Requirement

Neither the certification or the FAQs provide objective criteria for necessity, but the following points can be distilled:

Applicants must make the necessity certification in good faith.
In making the certification, applicants must evaluate both (a) their access to other sources of liquidity to support operations, and (b) if there are other sources of liquidity, whether they would be significantly detrimental to the business.
PPP loans provided to large public companies will be subject to heightened scrutiny, however the principle applies equally to businesses that are owned by private companies and presumably other privately-owned businesses. On a related note, the SBA and Treasury Department released guidance providing that private equity and hedge funds are not eligible for PPP loans, but portfolio companies of private equity funds are eligible if they meet the PPP’s requirements.
Companies must be prepared to demonstrate their basis for the necessity certification upon request.

In essence, to be eligible for a PPP loan, (a) the business must be adversely impacted by the COVID-19 pandemic and face economic uncertainty, (b) the loan must be necessary to support the business’s ongoing operations, and (c) the business must not have other sources of liquidity or, if it does, those sources of liquidity would be significantly detrimental to the business.

We note that the requirement regarding other sources of liquidity is particularly unclear. That requirement seems to conflict with the text of the CARES Act, which provides that PPP loans are not subject to the SBA’s typical requirement that borrowers be unable to obtain credit elsewhere.

At this time, it seems unlikely that merely having access to other sources of funds would make a business ineligible for a PPP loan. This will likely be a balancing test based on the facts and circumstances. However, if a business has access to other funds, it should be prepared to explain why the use of those funds is impractical or could be significantly detrimental to the business. We are hopeful that the SBA and Treasury Department will clarify this requirement in its upcoming guidance.

What to do if you Received a PPP Loan

Businesses that received a PPP loan and have become confident that they do not meet the necessity requirement should consider returning the loan by May 14 in order to receive amnesty. That will result in no harm, no foul and the business can move on.

However, most businesses will find themselves in a gray area regarding the necessity of the loan. Those businesses should await further guidance. In addition, all business with a PPP loan should carefully document their consideration of the necessity requirement and related guidance as well as their conclusion that the loan is necessary. This may take the form of a memorandum outlining, among other things:

The impact of COVID-19 on the business and the related economic uncertainty that the business is facing.
The manner in which COVID-19 is expected to adversely affect the business’s ongoing operations. For example, is the business likely to experience a reduction in work/business? Would the business potentially have to lay off employees in the absence of the loan?
Whether alternative sources of liquidity are available on reasonable terms and not significantly detrimental to the business. If so, are those sources readily available and sufficient in the absence of a PPP loan?

Treasury Secretary Mnuchin announced that any loan over $2 million will be subject to a full review by the SBA before being forgiven. But no PPP loan is immune. A thorough memorandum including those points, any other relevant considerations, and supporting documentation will help a business demonstrate that it made the necessity certification in good faith if required by the SBA.

Conclusion

Businesses that received PPP loans should carefully assess and document the necessity of their loans under the standards established in the PPP and subsequent guidance. Businesses who find themselves in the vast zone of uncertainty should maintain and reassess their loans following the release of additional guidance. Any business that concludes it does not meet the PPP’s necessity requirements should return the loan by May 14 in order to avoid potential fines and penalties.

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Loan Forgiveness under the PPP

Fri, 01 May 2020 22:01:00 GMT

Last Updated: May 15, 2020

UPDATE: On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (the “ Act “), which changes many of the terms and features described in this note. Among other things, borrowers now have 24 weeks to use the funds. Please see our summary of the Act here .

UPDATE: On May 15, 2020, the SBA released the PPP Loan Forgiveness Application (the “ Loan Forgiveness Application “), which can be found here . The Loan Forgiveness Application provides instructions and guidance regarding PPP loan forgiveness, along with formulas and a worksheet to help borrowers calculate their forgivable amounts. Borrowers should review the Loan Forgiveness Application as soon as possible to determine their potential loan forgiveness and evaluate actions that may increase loan forgiveness.

Businesses that received loans under the Payroll Protection Program (“ PPP “) should turn their attention to a significant benefit of the PPP – loan forgiveness. Most business that received PPP loans did so with the expectation of loan forgiveness. But forgiveness is far from automatic; the PPP and subsequent guidance provide specific criteria that a business has to meet in order to be eligible for and maximize its loan forgiveness.

While there are many unanswered questions regarding the calculation of loan forgiveness, the basic criteria are set forth in the CARES Act and subsequent guidance. This note provides an overview of the current state of loan forgiveness under the PPP. We expect that significant guidance from the SBA and Treasury Department is forthcoming.

Eligible Costs

Loan forgiveness under the PPP is available only to the extent that loan proceeds are used for the following costs:

Payroll costs ( e. g. , salaries, commissions, tips, vacation, leave, and separation payments, payments for medical and retirement benefits, and payments for state and local taxes), excluding the cash compensation of any employee in excess of $100,000 per year
Payment of interest on mortgage obligations incurred before February 15, 2020
Payment of rent obligations under a lease that was in effect before February 15, 2020
Payment of utilities for which service began before February 15, 2020

Use of Proceeds

Only proceeds that are used during the 8-week period following loan disbursement are eligible for forgiveness. In addition, not more than 25% of the forgivable amount may be used for non-payroll costs. Businesses should be mindful to use at least 75% or their loan amount for payroll costs in order to maximize forgiveness.

UPDATE: For administrative convenience, the Loan Forgiveness Application allows borrowers that have a bi-weekly (or more frequent) payroll period to elect to use an “alternative payroll covered period” to calculate their forgivable payroll costs. The alternative payroll covered period is the eight-week period commencing on the first day of the borrower’s next regular payroll cycle following loan disbursement (as opposed to the normal “covered period”, which commences on the date of loan disbursement). Borrowers will also be able to include amounts incurred but not paid during the eight-week covered period (or alternative payroll covered period) so long as those amounts are paid on or before the next the next regular payroll date (for payroll costs) or before the next billing date (for non-payroll costs).

Reductions for Headcount and Salary Decreases

The forgivable amount of a PPP Loan may be reduced based on a decrease in the business’s full-time equivalent employees (“ FTEs “) or 25% decreases in salary.

Reductions Based on Decrease in Headcount

Reductions based on decreases in FTEs will occur if, during the 8-week period following loan disbursement, the business’s average number of FTEs is less than its average number of FTEs during either (a) February 15, 2019 – June 30, 2019, or (b) January 1, 2020 – February 29, 2020, whichever is lower (the “ Base Period “). If that is the case, the forgivable amount of the loan will be reduced by multiplying:

the maximum forgivable amount, times
a percentage determined by dividing (a) the average number of FTEs during the 8-week period following loan disbursement, by (b) the average number of FTEs during the Base Period.

UPDATE: The Loan Forgiveness Application provides that FTEs are determined based on a 40-hour per week standard. Specifically, the application provides the following formula for the average full-time equivalency during the applicable period: “For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.”

In addition, employees who were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction in their hours (and who were not replaced with new FTEs) will not be counted in determining whether a reduction in FTEs applies to limit forgiveness.

Reductions based on 25% Salary Decreases

Loan forgiveness will also be reduced by the amount of any decrease in the salary or wages of an employee of more than 25% during the 8-week period following loan disbursement, relative to the employee’s salary during the most recent full quarter in which she was employed (this should be Q1 2020). Employees who earned annualized pay of $100,000 or more in 2019 are excluded from this computation.

Cure for Reductions Based on Decreases Made from February 15, 2020 through April 26, 2020

If a business decreased its FTEs or made 25% salary decreases during the period from February 15, 2020 through April 26, 2020, it can cure those decreases by rehiring the employees or reinstating the salaries on or before June 30, 2020. In that case, those employees will be treated as having been employed at their full salary during the entire 8-week period following loan disbursement.

It is worth nothing that, while a delayed rehire date will not cause issues with the employee retention fraction or 25% salary threshold, it may cause a business to spend less than the required 75% threshold on payroll costs, which would result in a reduction of the forgivable amount.

UPDATE: On May 3, 2020, the SBA issued guidance providing that a borrower’s loan forgiveness will not be reduced with respect to a laid-off employee if the borrower offers to rehire the employee (for the same salary/wages and same number of hours) on or before June 30, 2020, but the employee rejects of the offer. To qualify for the exception, the borrower must have made a good faith, written offer of rehire and the employee’s rejection of the offer must be documented by borrower.

Applying for Forgiveness

Businesses will have to submit applications for forgiveness to their lenders, including documentation supporting the use of the loan proceeds, FTE headcount, and pay rates. Businesses will have to certify the accuracy of the documents. The SBA may request any additional information necessary to make a forgiveness determination.

Conclusion

Businesses should carefully follow the PPP’s requirements in order to maximize loan forgiveness. If possible, businesses should use loan proceeds only for forgivable costs and ensure that 75% or more of the loan proceeds are used for payroll costs. Businesses should be aware of the reductions for decreases in FTEs and salaries and make an informed decision regarding whether any reduction will apply and whether it makes sense to remedy any decreases. Finally, businesses should carefully account for and document their use of the loan proceeds to support their applications for forgiveness.

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Summary of New Employer-Paid Leave Programs Under the Families First Coronavirus Response Act

Fri, 03 Apr 2020 05:05:00 GMT

Last Updated: April 2, 2020

The Families First Coronavirus Response Act (the “FFCR”) was signed into law on March 18, 2020 and takes effect today. [1] Among the many provisions in the FFCR — which is aimed at responding to the novel coronavirus (“COVID-19”) pandemic — are two new categories of mandated employer-paid leave:

an expansion of the Family Medical Leave Act (“FMLA”) that allows job-protection and paid leave for up to 12 weeks for employees caring for minor children whose schools or regular care providers are closed or otherwise unavailable due to COVID-19; and
up to two weeks of paid sick leave for employees who are unable to work because they are:
subject to various conditions arising out of COVID-19, or
are caring for an individual or child whose school or care provider is closed or unavailable.

While affected employers will shoulder the initial financial burden of these expanded benefits, employers may be able to recoup some or all of the costs through refundable tax credits created by the FFCR. Accordingly, the FFCR may benefit employers (as well as employees) by offering them financial assistance in retaining valued employees who may be unable to report to work for extended periods of time for reasons relating to COVID-19. That said, preliminary guidance from the Department of Labor indicates that employees will be ineligible for FFCR benefits if:

they are furloughed or had hours reduced for lack of business or due to statewide stay-home/shelter in place orders;
their employer has closed for lack of business or due to statewide orders; or
they are unable to report to work due to a statewide order. However, with the exception of school closures, the employee or a person in the employee’s care must be directly impacted by COVID-19 (e.g., diagnosis, exposure, etc.).

This summary is provided for informational purposes only and does not constitute legal advice. Please contact a member of Reicker Pfau’s Employment Department with specific legal questions relating to the FFCR or other employment-related matters arising from COVID-19. Tax questions should be directed to your CPA or other tax professional.

FAMILY MEDICAL LEAVE ACT EXPANSION

Which Employers Must Offer E-FMLA Leave?

Employers with fewer than 500 employees must offer emergency paid family leave (“E-FMLA”) to employees who otherwise meet the eligibility requirements discussed below.

Employers with fewer than 50 employees for whom compliance would jeopardize the viability of the business may have an opportunity to obtain an exemption from offering E-FMLA to employees. However, the Secretary of Labor (the “Secretary”) must first exercise his authority to promulgate regulations providing for such an exemption. While the Secretary has yet to do so, the Department of Labor (“DOL”) has issued several “FAQs” relating to the FFCR, those of which currently indicate that certain businesses may be able to claim an exemption from providing benefits under the E-FMLA. Current details about that exemption and how to claim it are discussed below.

Employers with 500 or more employees need not provide E-FMLA, but such employers must still comply with existing FMLA laws which allow for unpaid, job-protected leave for certain family and medical reasons that include: (1) a serious health condition that renders employees unable to perform their essential job functions, or (2) because the employee must care for an immediate family member who has a serious health condition.

In other words, the FMLA may entitle employees of companies with more than 500 employees to take unpaid leave while maintaining their job and other benefits if they or an immediate family member contracts COVID-19, but such employees will not be entitled to E-FMLA leave or any other FMLA-related job protection for the sole reason that they need to care for a well-child whose regular care provider is unavailable.

Which Employees Are Eligible for E-FMLA Leave?

Employees who have worked for FMLA-covered employers for at least 30 calendar days may take E-FMLA leave. Both part-time employees and full-time employees are eligible. Employers may elect to exclude a wide range of health care providers and emergency responders from coverage.

What Are Qualifying Reasons for E-FMLA Leave?

Employees who are unable to work — whether in person or remotely — because they need to care for a minor child whose school, daycare, or childcare provider is closed or unavailable because of COVID-19 (or other public health emergency) may qualify for E-FMLA leave. The child need not be sick. Indeed, suspected or actual illness is not itself a permissible basis for taking E-FMLA leave.

When and for How Long Can Employees Take E-FMLA Leave?

From now until December 31, 2020, employees may take up to 12 weeks of E-FMLA leave . The first 10 days in which the employee is absent are unpaid, but employees may be able to receive benefits under other applicable government programs and/or draw upon their employer-provided PTO/sick/vacation leave. The E-Sick Leave benefits discussed below may be used during this time. Employers cannot force employees to use other benefits during this 10-day period. Preliminary DOL guidance indicates E-FMLA Leave can be taken incrementally and that employers and employees have broad latitude to negotiate mutually-agreeable schedules and arrangements, even taking leave in increments of less than one day.

How Much of Their Salary Will Employees Receive While on E-FMLA Leave?

Following the 10-day period of unpaid leave, employees are entitled to the lesser of 2/3 of their regular rate of pay or $200 per day. For employees with varying schedules, payment will be based on the average number of hours that the employee was scheduled per day over the 6-month period preceding the commencement of leave. Individual employee entitlement to E-FMLA leave is capped at $10,000.

Can an Employee be Terminated While on E-FMLA Leave?

Employees cannot be terminated because they take, have taken, or may take E-FMLA leave. But employees on E-FMLA leave are not immune from termination unrelated to their leave. In other words, employers can conduct lay-offs and other reduction in force measures that include employees on E-FMLA leave.

For example, if the employer operates a bar or restaurant and can no longer stay open or staff as many employees because of government orders to close or limit its business, the employer may terminate employees to reduce staff without offering E-FMLA (indeed, recent DOL guidance indicates E-FMLA would not be available in such circumstances). But in other situations, depending on the circumstances, terminating employees on or eligible for E-FMLA leave can appear discriminatory and open an employer to liability. For that reason, employers should consult with an employment attorney before terminating employees who have taken (or if it is reasonably foreseeable that they may take) E-FMLA leave.

EMERGENCY PAID SICK LEAVE ACT

Which Employers Must Offer E-Sick Leave?

The employers subject to the Emergency Paid Sick Leave Act (“E-Sick Leave”) are the same as those required to offer E-FMLA leave. Specifically, E-Sick Leave applies to companies with fewer than 500 employees. Current DOL guidance indicates that certain employers with fewer than 50 employees may claim an exemption with regard to E-Sick Leave to care for a child whose school is closed or care provider is unavailable due to COVID-19. The specifics of that guidance are discussed below.

Which Employees Are Eligible for E-Sick Leave?

All full-time employees are eligible for 80 hours of E-Sick Leave. Part-time employees are entitled to the amount of hours they work in an average 2-week period. Employees need not have worked for their employers for any set amount of time prior to taking E-Sick Leave. Health care providers and emergency responders may not be eligible for E-Sick Leave if their employer elects to exclude them from coverage. Employers may not require employees to find a replacement to carry out their duties during their E-Sick Leave period.

What Are Qualifying Reasons for E-Sick Leave?

Employees who are unable to work – whether in person or remotely – because:

The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
The employee has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19;
The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
The employee is caring for an individual who is subject to a quarantine or isolation order or who has been advised by a healthcare provider to self-quarantine due to COVID-19 concerns;
The employee is caring for a child whose school or place of care is closed or childcare provider unavailable due to COVID-19 related reasons; or
The employee is experiencing another “substantially similar condition” as the Secretary of Health and Human Services may specify.

While many believed E-Sick Leave would be available to employees unable to work due to government shutdown orders ( e.g. , California’s stay-home order), preliminary DOL guidance suggests otherwise. Rather, the employee or an individual in the employee’s care must be subject to a specific governmental quarantine or isolation order ( e.g. , the employee has COVID-19 symptoms and has been instructed by their doctor to self-isolate). Under this guidance — which is subject to change — the only broad-reaching orders or closures that would create eligibility of E-Sick Leave are those affecting schools and childcare ( See E-Sick Leave Qualifying Reason No. 5, above).

When and for How Long Can Employees Take E-Sick Leave?

E-Sick Leave is available from now until December 31, 2020. Employees may take up to 80 hours of E-Sick Leave, all of which are paid. Such benefits are in addition to other sick leave and disability benefits to which the employee may already be entitled. Employers cannot force employees to use or exhaust other benefits before drawing on their E-Sick Leave. Unused E-Sick Leave hours do not accrue and are not paid out at termination.

How Much of Their Salary Will Employees Receive While on E-Sick Leave?

Employees are entitled to their regular rate of pay up to a cap of $511 per day ($5,110 total pay) if they themselves:

are subject to a government isolation order related to COVID-19;
have been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19; or
are experiencing COVID-19 symptoms and seeking a medical diagnosis ( e. , Nos. 1-3, enumerated above).

When the employee must be absent from work to care for another in relation to COVID-19 ( see E-Sick Leave Qualifying Reason Nos. 4-6, enumerated above), their benefits are capped at 2/3 the regular rate of pay up to $200 per day or $2,000 total pay.

Other Requirements.

Employers must conspicuously post a notice advising employees of their right to E-Sick Leave. The Department of Labor has created a model notice advising employees of their rights under this section that is available on its website and is appended hereto. In the case of employees working remotely, employers may satisfy the posting requirement by:

emailing or direct mailing the notice to each employee; or
posting the notice on an employee information internal or external website.

Employers may not discriminate or retaliate against an employee for taking E-Sick Leave or filing a complaint against the employer for failure to comply.

TAX CREDITS FOR E-FMLA AND E-SICK LEAVE

Employers are entitled to recoup up to 100% of the E-FMLA and E-Sick Leave benefits they pay out in the form of refundable tax credits. E-FMLA and E-Sick Leave benefits are exempt from Social Security tax. Medicare tax is chargeable against such benefits but refundable. Companies who pay or anticipate paying benefits under the FFCA should consult with their CPA or other tax advisors to understand the tax implications and plan accordingly. While preliminary DOL guidance indicates that employers have the option to supplement FFCR benefits up to the employee’s actual salary, they will not be eligible for a refund beyond the caps set forth in the FFCR.

SMALL BUSINESS EXEMPTION

The FFCR authorizes the Secretary to create an exemption for small businesses (fewer than 50 employees), for whom compliance would jeopardize the viability of that business as a going concern. While the Secretary has yet to promulgate regulations establishing such an exemption, early DOL guidance indicates that such an exemption will be available to qualifying employers in the case of leave requests arising out of lack of childcare options. In other words, the small business exemption may excuse qualifying businesses from providing E-FMLA leave and E-Sick Leave Qualifying Reason No. 5 (school or childcare unavailable), but not for other qualifying reasons for E-Sick Leave.

The FAQs are non-binding and subject to change, so there is some risk in taking the exemption now. But employers who must do so, should adhere to the following DOL guidance. An authorized officer of the business must determine at least one of the following:

That the provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
That the absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business; or responsibilities; or
That there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

The business should create and maintain documentary support for the above determinations. Presently, there is no mechanism for businesses to “apply” for an exemption. Rather, they make the above determination internally and maintain documentation supporting that determination.

HOW EMPLOYERS SHOULD PREPARE FOR E-FMLA AND E-SICK LEAVE

Given the large number of employees likely to take advantage of one or both of these programs, employers should work closely with their legal and tax advisors to understand the ramifications and prepare for implementation. Such preparation includes updating employee handbooks and leave policies and complying with posting requirements.

Please contact a member of Reicker Pfau’s Employment Department at (805) 966-2440 for assistance or with any specific questions. We remain fully operational and available to our clients during the COVID-19 crisis.

[1] The FFCR was originally anticipated to take effect on April 2, 2020 but the Department of Labor advanced the date one day to April 1, 2020.

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COVID-19 Resources

Fri, 03 Apr 2020 03:51:00 GMT

The post COVID-19 Resources appeared first on Reicker Pfau .

Emergency Coronavirus Legislation Expands Access to SBA Loans (PPP Loans)

Thu, 02 Apr 2020 23:45:00 GMT

Last Updated: April 2, 2020

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provides a wide range of relief to various individuals and businesses in addition to support for the health care sector and coronavirus (“COVID-19”) containment measures. Provisions that may be of particular interest to our clients are amendments to the Small Business Act (the “SBA”) that create the Paycheck Protection Program (“PPP”). Specifically, the PPP offers expanded access to loans under the SBA and creates opportunities for at least partial loan forgiveness that is tax free.

Businesses and self-employed individuals (including independent contractors and sole proprietors) facing hardship as a result of COVID-19 should quickly determine their interest in and eligibility for a PPP loan. While the CARES Act allocates $349 billion to PPP loans, available funds are expected to dissipate quickly due to unprecedented demand. Interested borrowers should apply immediately. In addition, because employers can reduce their entitlement to forgiveness of their PPP loans by reducing their workforce and/or wages, they should first consider foregoing force reductions while they explore the availability of a PPP loan. Lenders will begin accepting applications from small businesses and sole proprietors beginning April 3, 2020 (independent contractors and self-employed individuals can apply as early as April 10, 2020).

WHO IS ELIGIBLE FOR PAYCHECK PROTECTION LOANS UNDER THE CARES ACT?

The CARES Act increases SBA loan eligibility for certain small businesses and organizations for which the COVID-19 epidemic has made the loan necessary to support the recipient’s ongoing operations. PPP loans will be available not only for the “small business concerns” to which SBA loan eligibility is generally restricted, but also for any business employing no more than (1) 500 employees (full- and part-time included); or, if applicable, (2) the number of employees determined by the SBA to be standard for the industry. Eligible recipients include non-profits, sole-proprietorships, independent contractors, and the self-employed. Borrowers need not provide collateral or a personal guarantee.

Several facets of the PPP are designed to expand eligibility within the food and hospitality industries, which have thus far been among the hardest hit sectors in this pandemic. For example, businesses falling into that sector are eligible despite having more than 500 employees overall, if they have no more than 500 employees per location. Such companies are also among those entitled to a waiver of the SBA affiliation rules under which the numbers of affiliated and commonly-owned companies can be combined to exceed qualifying thresholds.

Other businesses that may receive preferential treatment in the allocation of loan funds may also include:

businesses in underserved and rural markets;
businesses owned by socially and economically disadvantaged individuals;
women-owned businesses; and
businesses that have been in operation less than two years.

HOW MUCH CAN BE BORROWED?

The maximum loan amount is generally limited to the lesser of:

2.5 times the recipient’s average total average monthly payroll expenditures during the one-year period before the loan is made; or
$10 million.

For purposes of this calculation, payroll costs in excess of $100,000 per employee are disregarded.

HOW MAY LOAN PROCEEDS BE USED?

Permissible uses of PPP loan proceeds include the following:

payroll and other employee compensation costs;
costs of maintaining health care benefits during leave;
health care insurance premiums;
rent or mortgage interest;
utilities; and
interest payments on debts incurred before February 15, 2020.

Payroll costs are subject to a per employee cap based on a maximum annual salary of $100,000.

PPP LOAN FORGIVENESS

One very attractive component of PPP loans under CARES is the possibility for at least partial forgiveness. Specifically, for the 8-week period beginning on the date of funding, PPP loan proceeds spent on the following expenses are forgivable up to the aggregate amount of money spent on the following expenses during that period:

payroll;
interest on mortgages incurred in the ordinary course of business and that has been in effect since February 15, 2020;
rent on any lease that has been in effect since February 15, 2020; and
utilities on services in effect since February 15, 2020.

The Cares Act contains a provision to discourage employers from taking reduction in force measures by reducing forgiveness entitlement based on a formula that compares 2020 staffing and salaries to the same time period in 2019. Employers can avoid this penalty for reductions that occur between February 15, 2020 and April 26, 2020 by restoring the number of employees and salaries to their pre-decline levels no later than June 30, 2020.

While forgiven debt is generally subject to tax, the Act expressly provides that any balance forgiven thereunder shall be non-taxable. The SBA Administrator will issue guidance and regulations implementing the SBA Loan forgiveness program within 30 days of enactment.

REPAYMENT TERMS

In the days following passage of the CARES Act, the SBA and the Treasury Department set the following terms that will govern all PPP loans that are not forgiven:

Interest rate of 0.5%;
First payment deferred for 6 months ; and
Maturity of 2 years

APPLICATION PROCESS

Prospective borrowers should work with a bank authorized to issue SBA loans. Applications are available now . Lenders may begin processing loan applications on April 3, 2020 for small businesses and sole proprietorships. Independent contractors and self-employed individuals can apply starting April 10, 2020. Interested borrowers should immediately connect with an SBA-approved lender and complete the application so that they can apply at the earliest possible time. Funds are expected to dissipate quickly.

This summary is provided for informational purposes only and does not constitute legal advice, nor do we guaranty the accuracy of its contents or its applicability to your particular situation. You should work with your accounting and qualified banking professionals to further determine your eligibility for relief under the CARES Act and whether such relief would be beneficial for your business. The Treasury Department has also promulgated a fact sheet for borrowers .

The CARES Act is voluminous and complex with a myriad of provisions that might impact your business. Please contact Reicker Pfau at (805) 966-2440 for assistance with any legal issues or questions arising out of the CARES Act. We remain fully operational and available to our clients during the COVID-19 crisis.

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Paycheck Protection Program (PPP) Borrower Application Form

Wed, 01 Apr 2020 05:26:00 GMT

Last Updated: April 3, 2020

The Paycheck Protection Program (PPP) Borrower Application Form can be found here:

PPP Borrower Application Form

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CARES Act – Full Text

Sat, 28 Mar 2020 05:27:00 GMT

The full text of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) can be found here:

CARES Act

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Landlord-Tenant Update: Intersection of City of Santa Barbara’s Mandatory 12-Month Lease Term Law and California’s New Just Cause Eviction Law

Wed, 18 Mar 2020 05:03:00 GMT

Article by: Kevin R. Nimmons , Attorney and Partner at Reicker Pfau

On April 16, 2019, the Santa Barbara City Council approved an ordinance requiring landlords to offer a minimum 12-month lease term in certain residential leases of “rental units.” Subsequently, California enacted Civil Code section 1946.2, which took effect on January 1, 2020, and prohibits termination of certain residential leases for statutorily defined “just cause.” The application and intersection of these two new laws is confusing for landlords, tenants, and even attorneys hired to enforce them.

1. Santa Barbara’s New Minimum 12-Month Term Requirement.

The City of Santa Barbara’s new 12-month minimum term lease ordinance is codified in Santa Barbara Municipal Code section 26.40.010, which became effective June 7, 2019. Even for a lawyer, this law is not a model of legislative clarity. Under the new law—with some exceptions for single family dwellings, condominiums, and other exceptions—landlords must annually offer (in writing to tenants) leases with a minimum term of 12-months. The tenant may either accept, or reject the 12-month lease offer in writing. The landlord has the obligation to prove the tenant’s rejection using a form rejection to communicate the rejection. If the tenant accepts the offer, then under the City’s new law, at the end of the fixed term, the landlord is not obligated to continue leasing to the tenant.

If landlords fail to comply with the new law, they may be prevented from evicting a tenant even if the tenant breaches the lease, if the tenant’s month-to-month lease expires, or if the tenant fails to pay the amount for rent increases. The effect of the new law on month-to-month is unclear. Yet. nowhere does the new law mention month-to-month tenancies, even though there are thousands of month-to-month tenancies in Santa Barbara. This author believes that the new law requires all landlords to have previously offered 12-month minimum term leases to tenants with written leases no later than June 30, 2019, and for month-to-month leases not in writing , no later than September 5, 2019, and then annually thereafter. If a landlord did not comply by these deadlines, then the landlord should thereafter offer 12-month minimum term leases to tenants. See Santa Barbara Municipal Code Section 26.40.010-26.40.030 for additional information and requirements.

2. California’s New “Just Cause Eviction” Laws.

California’s Tenant Protection Act of 2019 requires that a residential real property owner must not terminate the tenancy of a tenant who has continuously and lawfully occupied a residential real property for 12 months without “just cause,” as stated in the written notice to terminate. (Civ. Code § 1946.2(a).) Condominiums, non-corporate owned single family residences, and other residential properties are exempt from the “just cause” termination law. For “at fault just cause,” such as the tenant’s non-payment of rent, material breach of the lease, waste, nuisance, and a host of other bases for at fault just cause, the landlord may terminate the tenancy without having to pay re-location payments to the tenant. However, for a “no-fault just cause” basis to terminate the tenancy, the landlord must make re-location payments to the tenant or offer a rent waiver. The law contains many other requirements and limitations not discussed here.

Under both Santa Barbara’s 12-month minimum term lease law and California’s just cause eviction statute, can a landlord in the City of Santa Barbara evict a tenant at the end of the 12-month minimum term? Strictly viewing the question under the City’s 12-month minimum lease law, the answer is yes, with the requirement of potential mediation. But, under California’s just cause eviction law, because of the language adopted by the California Legislature, the answer is unclear. The “just cause” eviction law provides that “ the owner of the residential real property shall not terminate the tenancy without just cause…” (Civ. Code § 1946.2(a).) The statute uses the term “terminate” not “evict” or “eviction” or “recover possession,” or similar terms concerning recovering possession of a unit. Rather, under the statute, an owner cannot “terminate the tenancy.” Termination of a tenancy is not the same as actually evicting a tenant or recovering possession from a tenant. This distinction has legal significance. At the end of a fixed term lease when the term expires, the tenancy automatically terminates. No more notice is required by the landlord and the landlord need not do anything to terminate the tenancy. When a fixed term lease automatically expires at the end of the term, then the owner is not terminating the tenancy; rather, it automatically terminates because the term ended (see, Civ. Code § 1933) so long as the lease has not been converted to a month to month tenancy by the landlord’s acceptance of rent, or a term in the lease converting it to month to month, or an automatic renewal of the tenancy. There are other bases for termination of a tenancy other than termination by the owner such as the tenant’s death, destruction of the leasehold, mutual consent to terminate the lease, or if the tenant acquires title superior to the landlord. Therefore, according to Santa Barbara’s new law, if a fixed term lease that includes a 12-month term expires on its own terms, then the tenancy terminates automatically, as a matter of law. In this scenario, the owner has not done anything to terminate the tenancy. Thus, because the fixed term lease automatically terminated, the owner has not actually terminated the tenancy (as Civil Code section 1946.2 contemplates), which means that the owner has not violated Civil Code section 1946.2.

Did the California Legislature intend to permit tenant evictions without just cause when fixed term leases expire? The answer is unclear. However, the language the Legislature adopted does not seem to prevent a landlord from evicting a tenant when a fixed term expires, so long as the landlord does not convert the lease to a month-to-month lease by accepting rent for a period after the expiration of the fixed term or cause a renewal of the lease. Compare California’s just cause eviction statute to San Francisco’s equivalent. San Francisco’s law, Municipal Code section 37.9, provides that “A landlord shall not endeavor to recover possession of a rental unit unless” there is just cause. The language “shall not endeavor to recover possession” is broader than California’s “shall not terminate the tenancy.” Under San Francisco’s law, a landlord cannot evict a tenant (i.e. recover possession) unless there is just cause. California adopted more limited language: “shall not terminate the tenancy.” As a result, it seems that a tenant may be evicted if the tenancy automatically terminates when the fixed term expires, even without just cause. However, it is not clear if a landlord would be successful in court defending an eviction of a fixed term tenancy, without just cause, due to the apparent intent by California’s legislature to bar such evictions. But, the language of the statute does not expressly bar such evictions.

Also, as part of California’s Tenant Protection Act of 2019, California adopted Civil Code Section 1947.12 to limit rent increases annually to five percent plus the applicable Consumer Price Index amount. There are also exemptions to this new law, similar to California’s just cause eviction law. Like California’s just cause eviction law, Civil Code section 1947.12 contains many other requirements and limitations not discussed in a separate Reicker Pfau article.

Clearly, due to a low supply of affordable housing and rising rents, Santa Barbara and California desire to do away with (i) month to month leases, and a landlord’s ability to evict a tenant on thirty or sixty days’ notice and (ii) a landlord’s ability to increase rents. As a result of Santa Barbara’s 12-month minimum term lease law and California’s just cause eviction law, landlords must now prove the tenant’s breach of the lease or just cause for eviction in court, which requires hiring an attorney and possibly preparing for trial—costs that have been typically avoided with evictions based on the traditional thirty and sixty-day notices. All other non-just cause evictions will either be prohibited or will require landlords to offer relocation assistance payments to tenants.

These are sweeping and serious changes to Santa Barbara’s and California’s landlord tenant laws. Both landlords and tenants will need to understand how these laws apply, and not only learn how to draft leases in order to comply with the laws, but also to create a lease that is favorable.

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How California’s Tenant Protection Act will Effect Rental Properties

Sat, 15 Feb 2020 00:16:00 GMT

February 14, 2020

By Cory T. Baker

On October 8, 2019, in an effort to address the state’s current housing crisis, California Governor Gavin Newsome signed into law the Tenant Protection Act of 2019, codified as Cal. Civ. Code §§ 1946.2 and 1947.12 (the “Act”). The Act, which only applies to residential tenancies, impacts the landlord-tenant relationship in three major ways:

Limits on rent increases;

Notice requirements to tenants; and

Just cause procedures for termination of certain tenancies.

Traditionally, in California, “rent control” referred to city or county ordinances that limited the rent landlords could charge. These rent control laws determined the maximum percentage by which landlords could increase rent (e.g. 5%) and specify how often landlords could raise the rent.

1. Cap on rent increases:

On January 1, 2020, the newly enacted California Tenant Protection Act went into effect. Going forward, rent increases will be capped statewide for qualifying units at the lower of either 5% plus inflation or 10% of the lowest gross rental rate charged at any time during the 12 months prior to the increase. Additionally, rent may only be raised once over any 12 month period. The Act does not override more restrictive city and county rent controls, but it may apply to units they do not cover.

Is your property subject to rent control?

Rent control laws apply to typical rental units, like an apartment within a complex. However, not all rentals in California are subject to rent control, including but not limited to:

Single family homes, condominiums, and units built after February 1, 1995 (many ordinances also exempt properties built after their effective date);
Owner-occupied buildings with no more than three or four units (depending on local regulation);
Short-term rentals (e.g. Airbnb);
Government-subsidized tenancies; and
Detached (“granny”) units that could not be sold independent of the main house.

2. Notice requirements:

The Act requires owners of residential real property subject to the Act to provide notice to the tenant of a rent increase as follows:

For a tenancy commenced or renewed on or after July 1, 2020, as an addendum to the lease agreement or as a written notice signed by the tenant; and
For a tenancy existing before July 1, 2020, by written notice to the tenant before August 1, 2020, or as an addendum to the lease agreement.

The Act specifies the precise language and font size of the notice. Owners of exempt residential property must provide tenants with written notice that the property is not subject to the Act’s rent limits and just cause requirements, stating:

“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just-cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (d) (5) and 1946.2 (e)(8) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”

This notice must be included in rental agreements that begin on or after July 1, 2020. For tenancies that started prior to July 1, 2020, the rent agreement may but does not have to include the notice provision.

3. Evictions must be with just cause.

The Act also includes language that requires just cause for evicting a tenant who has lived in the property for more than a year, and no-fault evictions will require the landlord to reimburse their tenant for at least one month’s rent. If an eviction is based on a curable violation, such as failure to pay rent, the landlord must provide the renter with notice of the violation, setting forth the time period in which to cure the violation. However, if the violation is not cured within the time period provided in the notice, a 3-day notice to quit without the opportunity to cure may be served to terminate the tenancy. If the tenant does not vacate the unit by the date of the notice to quit, the owner may move toward an Unlawful Detainer in a court of law. The National Apartment Association list the following examples of just causes necessary to support the basis for an eviction where a tenant is “at-fault”:

Failure to pay rent;
Breach of a material lease term, as defined by the law;
Maintaining, committing, or permitting the maintenance or commission of a nuisance, as defined by the law;
Committing waste, as defined by the law;
Written lease terminated on or after January 1, 2020 and after a written request from the owner, the renter has refused to execute on a written extension or renewal of the lease based on similar lease terms;
Criminal activity by the renter on the property, including any common areas, or any criminal activity or criminal threat on or off the property that is directed at any owner or agent of the owner;
Assigning or subletting in the premises in violation of the lease;
Refusing the owner access to the unit as authorized under the law;
Using the premises for unlawful purposes, as defined by the law;
An employee (e.g. resident manager), agent or licensee’s failure to vacate after their termination;
Failure to deliver possession of the unit following written notice to the owner of the renter’s intention to terminate the lease, which the owner has accepted in writing.

Other examples of just cause necessary to support the basis for an eviction where there is “no-fault” by the tenant include:

Intent by the owner or owner-relative to occupy the unit. This includes the owner’s spouse, domestic partner, children, grandchildren, parents, or grandparents only. For leases entered into on or after July 1 2020, the owner would only be permitted to occupy the unit, if the renter agrees in writing to the lease termination or the lease includes a provision providing for lease termination based on owner or owner-relative occupancy;
Withdrawal of the rental property from the rental market;
Intent to demolish or substantially remodel the unit;
Owner is complying with a local ordinance, court order, or other government entity resulting in the need to vacate the property.

What’s next?

The Act may have a significant impact on investment in new residential construction, especially for properties in cities and counties that do not currently have rent control laws. Owners and developers of residential real property must carefully review the Act’s provisions and adjust their leasing practices to assure compliance with the new requirements. Investors and lenders must also consider the Act’s impact on their underwriting criteria.

Rent control has the potential to reduce an investor’s return on investment and discourage investment in the construction of new residential rental properties. Yet, it remains unclear how the Act interfaces with Costa-Hawkins, and what effect the Act will have on efforts to solve California’s housing shortage.

Other considerations that landlords and/or residential developers should contemplate is how the Act will ultimately impact any post-termination procedures. Again, this determination is based on whether just cause supporting an eviction is based on “at-fault” or “no-fault.” For example, when the termination of a tenancy is based on a no-fault just cause, the tenant is entitled to relocation assistance or a rent waiver. The landlord can then decide in which manner it wants to compensate the tenant. If a landlord chooses to pay relocation assistance, the relocation fee must be equal to one month of the renter’s rent in effect as of the date that the notice of termination of tenancy was issued. The relocation fee must be paid to the renter within 15 calendar days of the service of notice of termination of tenancy. However, if it is determined by any government agency or court that the renter is at fault for the condition or conditions triggering an order to need to vacate as set forth in the law, the tenant would not be entitled to relocation assistance.

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Reicker Pfau is Proud to Announce that Kevin Nimmons Joined the Firm as Partner in January 2020

Thu, 06 Feb 2020 21:12:00 GMT

Reicker Pfau is delighted to welcome Kevin Nimmons as a partner. Kevin is pleased to bring his litigation, real estate and business transaction practice to the firm, where he represents landowners, business owners, commercial tenants, and others in their business interests and resolving their legal disputes. Prior to joining Reicker Pfau, Kevin was a partner at the Santa Barbara law firm of Hollister & Brace P.C. where he practiced law for eleven years. He graduated cum laude from Syracuse University College of Law. Kevin is active in the community and sits on multiple boards. He, his wife and two children reside in Carpinteria.

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Cory T. Baker Joins Firm

Thu, 06 Feb 2020 21:08:00 GMT

Reicker, Pfau, Pyle & McRoy LLP, Santa Barbara’s Business Law Firm, is pleased to announce that Cory Baker has joined the firm as an associate and will be part of the firm’s litigation practice group. Mr. Baker commenced his career in the Santa Barbara offices of Paladin Law Group, where he focused in litigation and government enforcement actions. Mr. Baker received his J.D. at Pepperdine University School of Law after completing an undergraduate degree at UCSB.

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Reicker Pfau Successfully Defends Trial Court Victory on Appeal

Thu, 06 Feb 2020 01:10:00 GMT

On January 7, 2020, the Second District Court of Appeal issued a published opinion upholding the trial court’s ruling in favor of Reicker Pfau client Benita Sachs in her capacity as successor trustee to the “Sachs Trust” created by her late father, Dr. David Sachs. In ruling on the Probate Code section 17200 Petition that Benita filed on behalf of the Sachs Trust, Santa Barbara Superior Court Judge Colleen Sterne concluded that: (1) Dr. Sachs’ other child, Avram Sachs, had received $451,027 more than his sister in life-time distributions from his father; and (2) the final Sachs Trust distribution should be adjusted to account for this disparity.

During his lifetime, Dr. Sachs made periodic payments to Benita and Avram. Dr. Sachs tracked these payments over almost three decades in a running ledger on a collection of papers that he referred to as the “Permanent Record.” When Dr. Sachs would give his children money, he often did so under the express understanding that the payment would be reflected on the Permanent Record. Dr. Sachs was open with his children and his close friends about this practice, but the documents governing the Sachs Trust, which broadly speaking provided for equal distribution between Benita and Avram, did not mention the Permanent Record.

After experiencing cognitive decline in June 2013, Dr. Sachs hired a bookkeeper to manage his finances. He authorized the bookkeeper to continue dispersing funds as needed, but was adamant that she keep a record of such dispersals to allow for corresponding deductions from his children’s respective inheritances. After Benita assumed the role of successor trustee, Avram continued to request trust dispersals from his sister and repeatedly assured her that these payments would go on his Permanent Record, just as payments had in the past. Towards the end of Dr. Sachs’ life and after his death, however, Avram disavowed the Permanent Record.

This case turned on the interpretation of Probate Code section 21135 , which governs the circumstances under which payments made during a decedent’s lifetime may be debited from the recipient’s inheritance. Relevant to this case are the following subsections that allow for deduction when: (a)(2) the transferor declares in a contemporaneous writing that the gift is in satisfaction of an at-death transfer; or (a)(3) the transferee acknowledges in writing that the gift is in satisfaction of an at-death transfer.

The appellate court found the facts in the record satisfied either standard. First, it concluded that the Permanent Record satisfied 21135(a)(2)’s requirement for a contemporaneous writing signed by the transferor. In reaching this conclusion, the court rejected Avram’s argument that the writing must contain language explicitly parroting the statute. Second, the court found that Avram’s express acknowledgments of the Permanent Record’s existence and implied acknowledgments of its purpose satisfied 21135(a)(3)’s requirement of a written acknowledgment by the transferee.

Finally, the court found that the trial court could have properly looked to extrinsic evidence to determine Dr. Sachs’ intent. That evidence, which included the testimony of Dr. Sachs’ bookkeeper, son-in-law, and two of his closest friends, corroborated the Sachs Trust’s understanding of Dr. Sachs’ intention to equalize any disparities in payments under the Permanent Record that persisted at his death.

Reicker Pfau attorneys Diana Jessup Lee , Alan Blakeboro , and Meghan Woodsome represented Benita in her capacity as trustee of the Sachs Trust at trial and on appeal.

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Reicker Pfau Secures Trial Victory for St. George & Associates

Fri, 17 Jan 2020 22:39:00 GMT

Reicker Pfau congratulates Partner Robert Forouzandeh and Associate Cory Baker and its longtime client St. George & Associates (“SGA”) and Edward St. George after they prevailed at trial in the class action case Tran v. St. George & Associates before the Santa Barbara Superior Court. The case arose from a claim brought by one of SGA’s former tenants, on behalf of himself and as a class representative on behalf of all SGA tenants from 2011-2019, alleging various statutory violations of California Civil Code Section 1950.5 with respect to the return of security deposits by SGA to its tenants.

The SGA trial team was led by Reicker Pfau Partner Robert Forouzandeh and Hager & Dowling Partner Lora Hemphill. Cory Baker of Reicker Pfau and Christine Renshaw of Hager & Dowling also assisted in the trial.

The class size was in excess of 3,400 tenancies which included over 10,000 tenants. The case was heard by the Honorable Judge Pauline Maxwell, who after the Plaintiff rested his case in chief, granted SGA’s Motion for Nonsuit and entered judgment on all counts in favor of SGA. The trial culminated a nearly five year litigation process where at all times SGA has asserted that the Plaintiff’s claims were frivolous and lacked any factual or legal basis and had been driven exclusively by Plaintiff’s lawyer Ron Bochner who for the past five years has been a serial filer of similar cases against other large student landlords in the Santa Barbara area alleging the same claims as those that were brought against SGA. Judge Maxwell’s entry of judgment by a Motion for Nonsuit demonstrated the lack of any evidentiary or legal basis to support Plaintiff’s claims and should serve as a blueprint for other large landlords in defending against similar suits brought by Mr. Bochner that are currently pending or which he may bring in the future.

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