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Judicial Dissolution: An Uphill Battle

Posted: August 5th, 2021

Published In: The Suffolk Lawyer

Tags: commercial litigation, corporate, startups

When drafting limited liability company operating agreements, some variation of the words “The LLC is formed to conduct any lawful business activity” is used to describe the purpose of the entity. The wisdom of this approach was called into question in a recent judicial dissolution proceeding that came before the New York County Commercial Division (Masley, J.). Across the East River, on the very same date, the Commercial Division in Queens also issued a decision in a judicial dissolution proceeding (Livote, J.), involving shareholder oppression in a corporation. These recent decisions serve as a reminder to corporate shareholders and LLC members – and their attorneys – that dissolving a business entity is far more difficult than creating it.

Broad Purpose Clause: Lazar v. Attena LLC[1]

Petitioners Lazar and Sheinbaum commenced a special proceeding pursuant to LLC Law § 702 to dissolve three LLCs: Attena LLC, Hemera LLC, and Nessa LLC, all of which had been formed during the early 2010s. They also sought the appointment of a receiver to wind up the LLCs’ affairs as well as to restrain respondents Mor and Zichron from filing tax returns on the LLCs’ behalf without prior express written consent of the petitioners or the receiver.

In their petition, Lazar and Sheinbaum contended that the sole purpose of the LLCs was to acquire, own, and operate five multi-family properties in Manhattan. All the associated properties were sold by December 2015, rendering the intended purpose of the LLCs moot. Asserting that the LLCs had therefore “run their course,” the petitioners sought judicial dissolution.

LLC Law § 702 provides that “‘[o]n application by or for a member, the supreme court in the judicial district in which the office of the limited liability company is located may decree dissolution of a limited liability company whenever it is [n]ot reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.’ Thus, the court must determine whether it is ‘reasonably practicable to carry on the business’” of the LLC (citing Matter of 1545 Ocean Ave., LLC, 72 A.D.3d 121 (2d Dep’t 2010). To succeed, the petitioner must establish that “‘(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible.’” Id. at 131.

Upon the Court’s examination, contrary to the petitioners’ assertions, the operating agreements of the LLCs all defined each entity’s purpose as “any lawful business purpose” – not to acquire, own, and operate the properties. The Court noted that the petitioners offered no evidence to support the claim that this general purpose of the LLCs to engage in “any lawful activity” was no longer occurring. The court found that the respective operating agreements did not limit the business purpose of the LLCs and that the petitioners provided no evidence that the LLCs were in “financial turmoil, insolvent, or otherwise cannot meet their debts and obligations” (a second potential basis for dissolution). The Court therefore dismissed the petition, pointing out that “Oppressive conduct is not sufficient.”

Lazar is a sharp reminder that when petitioning for judicial dissolution under LLC Law § 702, a broad purpose clause in an operating agreement will be a potential hurdle that must be overcome. When forming a new company, the last thing business partners want to think about it is dissolving it based on a future disagreement. But the LLC members and attorney should discuss this clause upon the LLC formation, and not treat it as an afterthought.

Shareholder Oppression: Hammad v. Jamal Kamal Corp.[2]

Petitioner Nedal Hammad was the 25% owner (as well as the president) of respondent corporations Maysa Realty Corp. and Jamal Realty Corp. (“Jamal Kamal”), both real estate holding companies. Nedal’s brothers (Jamal, Kamal, Omar, and Samir) owned the remaining 75% of the corporations.

In February 2017, the brothers made fourteen demands to Nedal regarding company operations. One demand was to stop making payments to Highcrest, another company owned by the brothers, because they thought Nedal was using Highcrest to drain money from the companies to enrich himself. Nedal continued to make payments to Highcrest, making payments for $29,850 from Maysa and $29,975 from Jamal Kamal in March 2017. Later that year, Nedal made distributions of $150,000 from Maysa and $160,000 from Jamal Kamal to himself and the brothers, including Jamal, without their approval. The brothers did not cash the distribution checks. Thereafter, the brothers elected Jamal president. Jamal, as president, retroactively changed the 2017 distributions made to Nedal. Following his removal as president, Nedal filed a petition for judicial dissolution of the companies under BCL § 1104-a.

Additionally, in late 2018, Maysa and Jamal Kamal made distributions of $509,400 and $499,900, respectively. Nedal’s share of these distributions were applied to his outstanding loans that were created by the re-classifications. These distributions were calculated to reduce the balance of Nedal’s loans to zero. Nedal was not notified of the distributions.

Pursuant to Business Corporation Law (BCL) 1104-a, a holder of 20% or more of the shares of a business corporation (which Nedal held) may seek dissolution if “the directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders.” Dissolution also is warranted if “the property or assets of the corporation are being looted, wasted or diverted.”

In determining whether to proceed with involuntary dissolution, the court must take into account (1) “Whether liquidation of the corporation is the only feasible means whereby the petitioners may reasonably expect to obtain a fair return on their investment; and (2) Whether liquidation of the corporation is reasonably necessary for the protection of the rights and interests of any substantial number of shareholders or of the petitioners.”

Here, the Court held that judicial dissolution was not warranted. The removal of Nedal as president did not constitute oppressive conduct. However, no acceptable justification was offered for the reclassification of the payments to Highcrest; although the brothers alleged that Nedal was self-dealing through Highcrest, they did not prove the allegations.

The Court also noted that Nedal’s reasonable expectations as a shareholder were to receive a dividend in proportion to his ownership. The oppressive conduct against Nedal was to remedy what the brothers viewed as his unauthorized and oppressive conduct. After the 2018 distributions were made to “equalize” the distributions among all the shareholders, the Court did not find that any “future oppressive conduct” was intended by the brothers, and Nedal will share in future distributions. Therefore, dissolution would not be an appropriate remedy. Instead, the appropriate remedy was to pay to Nedal the amounts paid to Highcrest that the brothers improperly reclassified as loans.

Hammad is a reminder that courts have a great deal of discretion when determining petitions for judicial dissolution in shareholder oppression suits. Specifically, when majority shareholders are able to continue company operations, judicial dissolution may not be the appropriate remedy; monetary damages for past wrongdoings may be more appropriate. Like Lazar, Hammad reminds us that breaking up can be hard to do.

[1] 2020 WL 5439528 (NY County Sup. Ct., Sept. 9, 2020)

[2]2020 WL 5755548 (Queens County Sup. Ct., Sept. 9, 2020)

High Bar for Tenants: Court Sides with Landlord in Harassment Case

Posted: July 29th, 2021

By: Patrick McCormick, Esq. email

Tags: landlord-tenant

Sitting in a rare en banc hearing in Francis v. Kings Park Manor, Inc. 992 F.3d 67 (2d Cir. 2021), the United States Court of Appeals for the Federal Circuit vacated the panel determination holding and affirmed the District Court’s dismissal of the plaintiff’s claims of intentional discrimination under the Fair Housing Act of 1968; Housing Discrimination claims under 45 USCA §§1981 and 1982; Housing Discrimination under NYSHRL; and negligent Infliction of emotional distress. The Court held that a claim by a tenant “alleging that his landlord failed to respond to reports of race-based harassment by a fellow tenant fails to state a claim for intentional discrimination.” The Court reasoned that “landlords typically do not, and therefore cannot be presumed to exercise the degree of control over tenants.”

Background

As alleged in the Complaint, Donahue Francis, a Black man, rented and lived in an apartment at Kings Park Manor, an apartment complex owned and operated by defendant Kings Park Manor, Inc. (“KPM”). Throughout 2012, Francis’s neighbor verbally attacked and attempted to intimidate him by making racist insults and at least one death threat. In March 2012, Francis reported his neighbor to the Suffolk County police, who informed KPM of the reported events. Francis renewed his lease “without comment” on May 1, 2012; thereafter, Francis wrote three letters to KPM, in which he recounted his neighbor’s behavior, the police involvement, and his neighbor’s arrest for aggravated harassment in August 2012. However, he did not allege in the complaint that he ever requested any action by KPM. His neighbor pleaded guilty to a charge of harassment in April 2013.

The Complaint

Francis’s Complaint asserted claims of racial discrimination against KPM under the Fair Housing Act (“FHA”), Section 1 of the Civil Rights Act of 1866, as amended and codified at 42 U.S.C. §§1981 and 1982, and the New York State Human Rights Law (“NYSHRL”), as well as a common law claim of negligent infliction of emotional distress. The Complaint also included a breach of contract claim against KPM. KPM moved to dismiss all claims pursuant to Federal Rule of Civil Procedure 12(b)(6). The District Court for the Eastern District of New York denied the motion as to Francis’s breach of contract claim, but otherwise granted it by dismissing Francis’s other claims against KPM.

A divided panel in the Second Circuit issued an opinion affirming the dismissal of Francis’s claims for negligent infliction of emotional distress but reversed the dismissal of his discrimination claims. Rehearing en banc was later ordered.

The Court’s Analysis

The Second Circuit, in a 7-5 en banc ruling, vacated the panel decision and affirmed the judgment of the District Court, holding that “(1) a landlord cannot be presumed to have the degree of control over tenants necessary to impose liability under the FHA for tenant-on-tenant harassment, (2) Francis fail[ed] to state a claim that the KPM defendant intentionally discriminated against him on the basis of race in violation of the FHA, Civil Rights Act, or the NYSHRL; and, (3) Francis fail[ed] to state a claim of negligent infliction of emotional distress against KPM under New York law.”

Because the plaintiff’s claims were not premised on direct evidence of landlord discrimination, the Court analyzed the claims under the McDonnell Douglas burden-shifting framework.[1] The Court found the complaint “lacks even ‘minimal support for the proposition’ that the KPM defendants were motivated by discrimination intent” and that “only untethered speculation supports an inference of racial animus of the part of the KPM defendants.” The Court recognized that Francis claimed these allegations establish that defendants intentionally discriminated against him under the “deliberate indifference” theory of liability. The Court held that, even if this theory applied, “Francis has failed to state a claim because his complaint provides no factual basis to infer that the KPM defendants had “substantial control over [the harassing and the context in which the known harassment occur[red].” Nor can such control be reasonably presumed to exist in the typical arms-length relationship between landlord and tenant, unlike the custodial environments of schools and persons.”

The Court further explained that the typical powers of a landlord over a tenant – such as the power to evict – does not establish the “substantial control” necessary to state a “deliberate indifference” claim under the FHA.

Significantly, the Second Circuit went to lengths to distinguish the Seventh Circuit’s determination in Wetzel v. Glen St. Andrew Living Community, LLC 901 F.3d 856 (7^th Cir. 2018), which “recognized a deliberate indifference theory of liability for a claim of discrimination under the FHH.” The Second Circuit distinguished Wetzel because there the allegations “gave rise to the plausible inference that the defendant landlord had unusual supervisory control over both the premises and the harassing tenants.” In addition, the Second Circuit found it significant that the landlord in Wetzel “was alleged to have affirmatively acted against the plaintiff.”

The Court also concluded that even if KPM had “substantial control,” Francis would have still failed to state an FHA claim for discrimination under a “deliberate indifference” theory because KPM’s inaction was not “clearly unreasonable” in light of the circumstances described in the Complaint.

Conclusion

While the Court’s decision emphasizes the particular facts in this case, it seems that the Court’s analysis and application of the law to those facts, coupled with its analysis of the Second Circuit’s determination in Wetzel, result in a very high bar for tenants to overcome. The decision also gives significant protections to landlords faced with intentional discrimination claims based on allegations that the landlord failed to respond to allegations of fellow tenant’s race-based harassment.

[1] McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). Plaintiffs have specific, “reduced” pleading burdens in cases subject to the McDonnell Douglas analysis. For a plaintiff’s claim to survive a motion to dismiss under the McDonnell Douglas analysis, he must plausibly allege that he “(1) is a member of a protected class, . . . (2) suffered an adverse . . . action, and (3) has at least minimal support for the proposition that the [housing provider] was motivated by discriminatory intent.” While plaintiff did allege, “in a conclusory fashion” that the KPM defendants intervened against other tenants regarding non-race related violations of their leases or of the law, the Court held that “there is no factual basis to plausibly involve infer that the KPM defendants’ conduct with regard to Francis was motivated by racial animus.”

Communication in Negotiation: Cialdini’s Six Principles of Persuasion

Posted: July 15th, 2021

By: Joe Campolo, Esq. email

“Communication is key in negotiation” and “negotiation is an exercise in communication” – phrases you’ve probably heard so many times that they’ve become meaningless. What if instead, we said that negotiation is about communication and persuasion. That’s what the research of Dr. Robert Cialdini, an expert in the field of influence and persuasion through evidence-based research, has revealed. According to Cialdini, negotiation is about persuasion and how one can present their ideas to others through effective communication in a way that moves them. By using Cialdini’s six principles of persuasion, you can use scientific and psychological-based claims to improve success in your own negotiations – and improve your communication skills while doing so. Here, a closer look:

Reciprocity

This principle states that people tend to give back to others what has been given to them – encouraging giving when you receive and making clear that you should be the first to “give.” Cialdini points out that what you’re giving should be personalized and unexpected.

For example, if you’re negotiating with a client around the holiday season, you could send them a holiday gift as a way to show that they can trust you. This can keep the relationship going in a meaningful way, especially if you send a personalized card. Research shows that client and customers are more likely to be touched by personal gestures such as a handwritten note or an envelope with a handwritten address rather than pre-typed label. Since you sent the gift first, the client now has the option to send one back (or not), but regardless, they will not forget the gesture you made.

Scarcity

People want what they can’t have – they crave exclusivity. In negotiations, it’s important to tell people about the benefits of your proposal. However, a more effective way of communicating is to highlight what makes your offer unique and what your counterpart stands to lose if they fail to consider it.

Say you’re negotiating the sale of a property or building. As the seller, you could consider mentioning to the potential buyer that there are others interested in buying as well so there isn’t that much time available to think about the offer. (Of course, if you use the scarcity principle to create a sense of urgency, you have to consider the ethics and be careful not to make fake claims that could risk your reputation.)

Authority

People follow the lead of those they perceive to be credible and knowledgeable – so it’s critical to communicate your expertise before you even start a negotiation.

An “expert introduction” is one way to establish credibility before a negotiation even begins. For example, if you are a client who calls an insurance company seeking to speak with an agent, the receptionist may transfer you to “Auto Agent David,” or to “Auto Agent David, who has 20+ years of experience in the auto industry and was recently recognized by an industry publication for his work.” Through this small extra detail, Auto Agent David’s authority just increased in your eyes.

Commitment & Consistency

People do not like to make large commitments. Therefore, it’s important to look for and ask for small initial commitments that can be made easily as a gateway to something bigger. For example, in a negotiation, if you are able to get your counterpart to agree to something smaller once, they are more likely to agree to something bigger later. Say you’re negotiating with a potential sponsor of your company event and want them to contribute a certain amount of time or money, you might want to start by asking for something minimal. Then, after they agree, you can ask them for more, or if you’re satisfied, the next time you host the event, you can ask the company to donate more than they did the first time.

Liking

People generally say yes to those that they like or feel more connected to. Furthermore, people like those who are similar to them, pay them compliments, and cooperate with them. When you are in a negotiation, sometimes a simple action like giving your counterpart a compliment and exchanging some personal information can create a more positive and successful interaction. Before starting a negotiation, try identifying a similarity that you and your counterpart share. This will set the stage for an agreeable outcome for both parties.

Consensus

The final principle is consensus – people look to the actions of others and try to mimic them. People like to be in the majority and feel safe there. That’s why a sign asking people to recycle might help; however, a sign adding that a certain percentage of the population recycles could be even more effective. By encouraging action (or inaction) from people by pointing out what others are doing, people will generally follow the behaviors of others to determine their own. This is often referred to as “FOMO” or “fear of missing out” where people want to feel included and be a part of a pack.

And there you have it: Cialdini’s six principles of persuasion can help sway a negotiation in your favor when properly executed (ethically, of course). You’re probably already employing some of these principles in your daily life. For instance, giving compliments might seem effortless and a part of your personality, but that means you’ve already mastered the principle of “liking.” Likewise, you might already gear up to ask people for bigger commitments by asking for little ones first – that means you’ve been putting the principle of “commitment & consistency” into effect. The next time you find yourself facing an unswayable friend or foe, try one, two, three (or all) of Cialdini’s principles out.

What Employers Need to Know about HERO Act Obligations

Posted: July 15th, 2021

By: Arthur Yermash, Esq. email

Tags: coronavirus, labor & employment

As the pandemic continues on, New Yorkers may not be surprised to learn that a new law has been passed addressing safety in the workplace in connection with COVID-19 as well as future airborne infectious disease outbreaks.

Governor Cuomo officially signed the New York Health and Essential Rights Act (HERO) into law on May 5, 2021. The legislation amends the New York Labor Law by adding two new sections governing (1) the development and adoption of a workplace prevention policy for airborne infectious diseases, and (2) the creation of workplace safety committees.

What You Need to Know about Airborne Disease Prevention Plans

The NY Hero Act requires the New York State Department of Labor (NYSDOL) to develop minimum standards for private sector employers to follow to help prevent the spread of airborne infectious diseases, such as COVID-19, in the workplace. These standards may differ among industries but will include elements familiar to employers who have already reopened: face coverings, employee health screenings, cleaning protocols, social distancing, and the like. The DOL has until June 4, 2021 to issue the standards. Employers do not have to adopt the NYSDOL’s industry-specific prevention plan models, but if they choose to create their own, the plans must meet or exceed the NYSDOL minimum requirements and be created with employee participation (for non-unionized workers). Most employers will also be required to provide notice of their prevention plan by June 4, as well as post it in a prominent location in the workplace, provide it to all employees upon reopening after a period of closure due to airborne infectious disease, provide it upon hire, and distribute it in the employee’s primary language if other than English (provided there is a model policy developed in that specific language).

Although Governor Cuomo signed the current version of the Act, he also stated that he had been in talks with legislators to amend the law to ease the burden on employers, giving them time to immediately cure violations, limiting litigation to situations in which employers act in bad faith, and to provide more time for the DOL and employers to enact the new standards. Violations of the law could result in monetary penalties.

What You Need to Know about Workplace Safety Committees

Effective November 1, 2021 for private sector employers with 10 or more employees[1] or an annual payroll over $800,000 and a workers compensation experience modification of more than 1.2, another provision of the HERO Act provides protections for employees who would like to form a workplace safety committee or report a health and safety plan violation. The law sets standards and requirements for committees like this and includes an anti-retaliation provision for employees. This will allow employees to engage in committee activities without fear of retaliation. Additionally, if an employer fails to comply with NYSDOL standards, employees may bring a claim against their employer for failing to follow NYS Labor Law.

What Do Employers Need to Do Now?

While the DOL model prevention plans are not yet available, employers should begin reviewing their policies and preparing for the upcoming compliance deadlines on June 4 and November 1. For guidance on the NY Hero Act minimum standards and adopting your own prevention plan, please contact us.

On June 11, Governor Cuomo signed legislation amending the New York State HERO Act in three areas:

Prevention Plans:

The amendments extend the deadline for the NYSDOL to publish its model plans to July 5, 2021 instead of the previous deadline of June 4. The updates to the Act also include set deadlines – employers will have 30 days after the DOL publishes the model standards to adopt their own disease prevention plans and 60 days to let employees know about any updated safety protocols.

Workplace Safety Committees:

The HERO Act provided protections for employees of certain private sector employers who wanted to form workplace safety committees. While the original HERO Act did not specify restrictions for workplace safety committees, the updates to the Act allow employers to limit such committees to one per worksite. The Amendments also limit committee meetings during working hours to two hours and committee training to four hours.

Private Causes of Action:

Governor Cuomo has also upheld his statement from our earlier article below in which he proposed to amend the Act to ease the burden on employers. The updates to the Act require employees to provide employers with 30 days’ notice before filing lawsuits and allow the employer time to correct the violation. This means that unless an employer demonstrates an “unwillingness to cure a violation in bad faith,” employees will not be able to bring suit if the employer corrects a violation in time. Lastly, the Amendments remove the Act’s ability to allow for recovery of liquidated damages in a private cause of action.

On July 6, 2021, the New York State Department of Labor, in consultation with the New York State Department of Health, published an Airborne Infectious Disease Exposure Prevention Standard and a Model Airborne Infectious Disease Exposure Prevention Plan.

Also published were industry-specific templates for agriculture, construction, delivery services, domestic workers, emergency response, food services, manufacturing and industry, personal services, private education, private transportation, and retail.

What Now?

Employers now have 30 days to adopt a written exposure plan, either following the NYSDOL’s model plan or creating their own following NYSDOL standards. The plan must be communicated to employees and posted in a visible location.

It’s important to note that while an exposure prevention plan is required to be adopted and posted, it is not required to be in effect until the New York State Commissioner of Health designates an airborne infectious disease.

[1] The Act defines employees to include individuals such as part-time workers, independent contractors, domestic workers, home health and personal care workers, and seasonal workers.

Supreme Court to Hear Second Amendment Case for First Time in a Decade

Posted: June 21st, 2021

By: Joe Campolo, Esq. email

Tags: Supreme Court

The United States Supreme Court recently agreed to review its first major Second Amendment case since deciding Heller v. District of Columbia (2008) and McDonald v. Chicago (2010) over a decade ago. In the years since, mass shootings continue to shock the American conscience by taking or forever changing the lives of people from children to senior citizens and all walks of life. Despite the Court’s role as the “interpreter” of the Constitution, since these two landmark decisions (despite several opportunities), the Supreme Court has declined to take up cases pertaining to the Second Amendment – until now. Here, a look at where the law stands and where the Court may go.

The Second Amendment

The Second Amendment to the United States Constitution provides that “a well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

The constitutions of Mexico and Guatemala also expressly include the right to bear arms. Together, these three countries make up the only three countries in the world with the right to bear arms expressed concretely in their constitutions. However, unlike Mexico and Guatemala, whose constitutions both place restrictions on gun ownership – or at least mention regulation[1] – the United States remains the only democratic nation in the world with the right to bear arms in its constitution and no stated restrictions or regulations on gun ownership in that very same constitution. Therefore, it falls to the Supreme Court to determine the restrictions and regulations that can be placed on the Second Amendment.

Gun Violence

One in three U.S. households own a firearm with about 121 firearms in circulation for every 100 residents. This makes the United States the most heavily armed nation in the world. Nearly 40 million guns were purchased legally in 2020 and in 2021, gun sales have surged upward. Nearly 20,000 Americans died from gun violence in 2020 and there were around 610 mass shootings. 2021 is halfway over and the U.S. has averaged more than one mass shooting a day this year.[2] These numbers demonstrate how important it is for states to receive guidance from the Supreme Court on this issue.

District of Columbia v. Heller

In its 2008 decision in District of Columbia v. Heller, the Supreme Court held that the Second Amendment to the U.S. Constitution protects an individual’s right to keep and bear arms, unconnected with “militia” service, for traditionally lawful purposes, such as self-defense.

The case stemmed from a challenge to the District of Columbia Code, which had a provision essentially prohibiting the registration of handguns (although the police chief could issue one-year licenses). It also required owners of lawfully registered firearms to keep them disassembled and unloaded in the home. Richard Heller was a D.C. police officer authorized to carry a handgun while on duty. He applied for a registration certificate for a handgun he wanted to keep at home, but his request was denied. Heller filed a lawsuit against the District of Columbia, arguing that the Code violated his Second Amendment right to keep a functional firearm at home without a license. The District Court had dismissed the case, but the U.S. Court of Appeals for the District of Columbia Circuit had reversed, holding that the Second Amendment protects the right to keep firearms in the home for self-defense, and that a requirement that firearms in the home be kept “nonfunctional” violated that right.

In a 5-4 decision, the Supreme Court ruled that the Code provisions regarding firearms violated the Second Amendment, and that the Amendment protects an individual’s right to keep weapons at home for self-defense unconnected to militia service. This opinion, drafted by Justice Scalia, was the first time the Court ruled on the meaning of the Second Amendment and interpreted what it means for an individual and their right to possess weapons for private use. (The Court found that the term “militia” should not be interpreted to cover only those serving in the military, saying that at the time it was drafted, the term referred to all able-bodied men who were capable of being called to military service. Reading the Amendment in a way that gives weight to the “plain meaning” at the time of its writing, the clause guarantees “an individual right to possess and carry weapons in case of confrontation.”)

However, the Court also stated that the Second Amendment right to bear arms is not unlimited; guns and gun ownership can be regulated. The Court wrote: “Although we do not undertake an exhaustive historical analysis today of the full scope of the Second Amendment, nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms.”

McDonald v. Chicago

McDonald v. Chicago (2010) can be viewed as “Heller 2.0,” essentially clarifying that the Second Amendment also applies to the states (whereas Heller had reasoned that the D.C. law in question had been enacted under the authority of the federal government).

The case revolved around Otis McDonald, a retired maintenance engineer who legally owned several hunting rifles but wanted to own a handgun to feel safer in his neighborhood. However, Chicago’s law banning new handgun registrations and requiring registration of all firearms prevented this. McDonald, among others, filed a lawsuit that challenged the provisions of the 1982 Chicago law. The suit was filed in 2008 on the same morning that the Heller decision was announced.

At first, the federal District Court rejected McDonald’s claims that the ban of new handgun registrations was unconstitutional because the Supreme Court did not explicitly mention the Second Amendment and States’ rights in past cases like Heller. The Court of Appeals for the Seventh Circuit affirmed the dismissal.

However, in another 5-4 ruling, the Supreme Court decided that an individual has the right to keep and bear arms in the home for reasons such as self-defense, using Heller as precedent to apply the Second Amendment to the States. In the majority opinion, penned by Justice Alito, the Court held that the Second Amendment protects an individuals’ “deeply rooted” right to bear arms as it applies to state and local gun control laws.

Cases Since Then

Since the Heller and McDonald decisions, the Supreme Court has not ruled on any cases regarding the Second Amendment, although they came close a few times. More recently, in January 2019, the Court granted certiorari in New York State Rifle and Pistol Association vs. New York City, which concerned a law that barred the transportation of legally owned firearms from the city to anywhere outside of it. The District Court had found that the rule “merely regulates rather than restricts” the right to possess a firearm – and therefore did not violate the plaintiffs’ Second Amendment rights – and the Second Circuit had affirmed.

After the Supreme Court granted review of the case, New York City amended the law, and the Court concluded in April 2020 that the appeal had become moot. In his concurring opinion, however, Justice Kavanaugh addressed Heller and McDonald, hinting at the Court’s interest in future cases regarding gun laws: “The Court should address that issue [regarding federal and state courts applying Heller and McDonald correctly] soon, perhaps in one of the several Second Amendment cases with petitions for certiorari now pending before the Court.”

Despite Justice Kavanaugh’s foreshadowing, the Supreme Court’s reluctance to explore the meaning of the Second Amendment became increasingly evident two months later, when the Court turned down 10 Second Amendment cases.

New York State Rifle & Pistol Association Inc. v. Corlett

Now, a year later, the Supreme Court has finally agreed to take up the issue again in New York State Rifle & Pistol Association Inc. v. Corlett. While Heller and McDonald affirmed the Second Amendment right to possess firearms in the home, the Supreme Court has never weighed in on ownership outside the home. In Corlett, it can.

The plaintiffs in Corlett include a New York State guns rights group and two New York men who applied for a license to carry a handgun in public and were denied. The case challenges a New York State law that requires gun owners to obtain a license if they want to carry a gun outside their home. The District Court for the Northern District of New York dismissed the case in 2018, and the Second Circuit affirmed the dismissal in August 2020. The Supreme Court is expected to hear the case in its next term this fall. The Court’s decision in Corlett has the power to clarify the established precedent allowing regulation of gun ownership and how to define reasonable restrictions.

Regulation

While the precedent makes clear that gun ownership can be reasonably regulated (recognizing “longstanding prohibitions” on felons and mentally ill people carrying guns, for example), until the Supreme Court weighs in, defining “reasonable” regulations and which “longstanding prohibitions” apply is anyone’s guess. For instance, the majority in Heller states that the laws forbidding the possession of firearms in “sensitive” places like schools and government buildings should not be “cast doubt on.” This confirms that the rights secured by the Second Amendment are not unlimited. However, it is up to the Supreme Court to address and set expectations for these kinds of regulations.

Stare decisis is a legal doctrine that requires courts to follow legal precedent and promote stability in society when ruling on cases with similar issues. The law must be predictable; similar facts cannot be approached in random ways. For the Supreme Court justices to wake up one day and change precedent would undermine the entire system.

However, while the Supreme Court has the ultimate responsibility to protect individual liberties, its role is to do so while protecting the health and safety of its citizens at the same time. Weighing the constitutional right to bear arms and the societal impact on the large number of people killed by guns demonstrates that the right to bear arms cannot exist without regulation if reasonable regulation will mitigate the number of deaths. And while past cases related to the Second Amendment are few, the Court can also rely on custom, tradition, and plain common sense to guide their upcoming decision in Corlett.

For instance, we regulate cars and driving: not just anyone can legally drive a car – and that’s because cars have been recognized as dangerous without regulation. There is a process (which slightly varies by state). In general, at 16, you can take a test to apply for a learner’s permit. Then there’s driver’s ed and a road test to attain a junior license and then a senior license. Up until a certain age, there are restrictions on what time you can drive and where. Drivers can lose driving privileges for things like drunk driving and other unsafe driving practices. Moreover, cars must be registered and insured. Cars themselves are subject to regulations and safety measures, such as seatbelts and airbags. Car manufacturers must issue recalls if a car has a defect or an issue that needs to be fixed – which is why, for example, cars no longer have gas tanks in the rear like the ill-fated Ford Pinto.[3]

Clearly, guns are not the only cause of death in the United States, as the automobile example demonstrates. However, despite automobile deaths surpassing gun deaths in the U.S. overall, in 21 states, gun deaths do outnumber car accident deaths. According to data from the CDC, the trends show a steady decline in motor vehicle deaths since 1950, while gun violence deaths have steadily increased. While nine out of ten households in America have access to a motor vehicle, a little less than a third of American households have a gun – and yet firearms deaths have almost caught up to motor vehicle deaths.

The Supreme Court will have the power to set restrictions on the Second Amendment with the Corlett case and clearly interpret the Second Amendment. Corlett is giving the Supreme Court an opportunity to decide how to balance “reasonable regulations” and the “right to bear arms”– otherwise, the Court is leaving states and municipalities in the dark on how to regulate guns and failing in its role as the Constitution’s guardian.

Whichever way the Supreme Court rules on the Corlett case, one thing remains certain: the Court bears the responsibility to ensure that individual rights are impeded in a minimal way, but that the health and safety of society is protected to the maximum extent possible. Let’s hope they do so wisely.

[1] Guatemala’s Constitution under Article 38 states, “The right to bear arms is recognized [and is] regulated by law.” Mexico’s Constitution under Article 10 also recognizes the right to “keep arms at home” and mentions that “Federal Law will state the cases, conditions, requirements and places where inhabitants can be authorized to carry weapons.”

[2] While a mass shooting is not defined by the FBI in its own terms, a mass murderer is defined as someone who kills four or more people in one location. Therefore, a mass shooting is generally defined as a single incident in which four or more people are shot or killed.

[3] The Ford Pinto – a car made by the Ford Motor Company – was recalled after a National Highway Traffic Safety Administration investigation due to the defects found in the design of the gas tank in the rear of the car that made it susceptible to leakage and fires in rear-end collisions.

Add “No” to Your Negotiation Toolkit

Posted: June 7th, 2021

By: Joe Campolo, Esq. email

Tags: negotiation

Imagine you want to sell life insurance to a client. As part of your pitch, you might say, “Don’t you want to make sure your loved ones are left with some financial peace of mind?” The client will probably answer, “Yes, of course.” With this response, the client is probably thinking that they know they need to put life insurance on their radar, but still aren’t ready to focus on it.

Now, what if you said this instead: “Is it a good idea to leave your loved ones with zero financial security if anything were to happen to you?” Suddenly, the client is horrified and responds with, “No, of course not!” Your question prompts them to think of horrible scenarios in which they are gone, and their loved ones have zero financial security. The client’s “no” response evoked more thought and emotion than the “yes” one. You are able to capture the client’s interest in the insurance you provide.

While “no” seems like it has a negative connotation and should be avoided during negotiation, the opposite is often true. The simple word “no” holds a great deal of power, and when utilized correctly, can be used to strategically maneuver your negotiation to a spot where you hold the control. Whether you’re talking about a critical business deal, trying to avoid litigation, or even negotiating with your business partner or a client, the goal is to change your mindset so that that “no” becomes a cue to break out different negotiation tools, rather than end the negotiation. Read on to find out three useful strategies to wield the answer “no” in your negotiation.

1. Ask “No” Questions

Sometimes people don’t like to say “yes” at first because it involves too much commitment. For example, if you get an email from a colleague asking you to attend a function, accepting the invitation involves a lot of steps. First you need to check your calendar. Then you want to find out how much it costs and see if you want to commit. Is the location far or annoying to get to? What if you get really busy at work that day? Will you be dreading the event for weeks to come? It’s far easier just to say no. Now, say you get an email asking, “Are you against attending the function next week?” Suddenly, you’re not being asked to commit to anything at all. It’s easy to respond now and say, “No, I’m not against it.”

Some more “no” questions include asking, “Do you disagree with this?” rather than “Do you agree with this?” and asking, “Is this a ridiculous idea?” rather than, “Is this a good idea?” By deliberately asking questions that seek a “no” reply, you’re setting the conversation up to keep going with further communication.

Another example is if two business partners are negotiating the breakup of their business. Imagine you’re one of the partners and you receive this email: “Are you willing to consider this option?” and the partner then proceeds to discuss that option. You’re going to need some time to think about it before replying. However, if you received a question like this: “Are you opposed to considering this option?” then it would be easy to reply quickly that day to say “No, I’m not opposed to potentially discussing it.” This way, you’ve given no commitment with your reply to consider the option – but the conversation can continue.

2. Hint at an Exaggerated Worst-Case Scenario

This strategy still involves asking a question and hoping for a “no,” but it involves making your counterpart think about the worst thing that can happen. For example, when you ask permission to do something hoping for a “yes” you might say: “Can I get that project to you tomorrow instead of today please?” This might get you a stern lecture on time management and deadlines.

However, what if you asked, “Would it be absolutely detrimental to the company if I handed in the project tomorrow?” Of course, with this question, you want them to say “no.” With the “no” question, you force your counterpart to think: Would it actually be detrimental for the company if I don’t get the project until tomorrow? I mean, not really…

So now, all because you asked a “no” question that forced the other person to think about the exaggerated consequences of what you’re asking – you get to hand in your project a day later.

3. “No” as a Correction

This strategy involves saying something that you think is false to confirm the truth with a “no” to gather information. For example, if a customer wants to negotiate their rate and you want to find out if they’ve reached out to other competitors, you could say, “You must have found someone else who says they can provide this service at a better rate.” Of course, you don’t want them to say “yes” here – you’re hoping for the “no” response as a correction to your false claim. If they respond with “no,” then you can be sure you’re still in the running, but there’s some underlying concern about the product or service you are providing. (And if they say yes, well, that’s helpful information too.)

After hearing the “no” correction following a false claim, you can gather information through active listening skills to assuage their fears and gain a new client (read more about how to do this here.) By using this strategy, the “no” can help you ascertain why the customer wanted to negotiate their rate in the first place.

Think of a negotiation like a puzzle you need to solve that when put together, reveals a message. Questions that lead to “yes” answers right away can perhaps help you solve the puzzle quickly and easily; however, the message on the completed puzzle will be too zoomed in. You won’t be able to read it. “No” answers, however, lead to a completed puzzle that captures the whole message.

So, the next time you’re in a negotiation, you don’t have to dread hearing the answer “no.” In fact, you can purposefully seek the answer out using the strategies above to shake things up in a negotiation – giving you the edge you need to succeed.

Read more about using “no” in negotiation in former FBI top hostage negotiator Chris Voss’s book, Never Split the Difference: Negotiating As If Your Life Depended on It (HarperCollins 2016).

Biden Administration Rescinds Trump Era Independent Contractor Rule

Posted: May 14th, 2021

Tags: labor & employment

Whether a worker is classified as an employee or independent contractor is not just legal jargon: the distinction has real implications for employees and employers alike. Under the federal Fair Labor Standards Act (FLSA), employees are entitled to a guaranteed minimum wage, overtime pay, unemployment insurance benefits, and workers compensation. Independent contractors, however, are not entitled to these same benefits, nor are they eligible to join unions or entitled to coverage under worker safety protection regulations. In addition, employers are not responsible for an independent contractor’s benefits or employment taxes. So how does an employer appropriately classify workers?

Trump Rule

In January 2021, with two weeks left before a new administration would be sworn in, the U.S. Department of Labor (DOL) issued a “final rule” changing the standard distinguishing employees or independent contractors under the FLSA. However, on May 6, 2021 the DOL withdrew the “Trump-era test,” also known as the “Independent Contractor Rule,” from going into effect as planned. Under that standard, there would have been only two core factors for determining employee status under the FLSA, both of which narrowed the facts and considerations included in the analysis (and, according to the Department, favored the employer). The DOL under President Biden has announced that the Trump rule was inconsistent with the FLSA and would have had a disruptive effect on workers and businesses alike.

Moving Forward

While the “Trump rule” is now withdrawn, the DOL has not issued a new rule in its place. This means that the previous guidance from the DOL using the economic realities test consisting of a six-factor balancing test, based on Supreme Court precedent, will still be used to determine a worker’s classification. The six factors include (1) the nature and degree of the potential employer’s control; (2) the permanency of the worker’s relationship with the potential employer; (3) the amount of the worker’s investment in facilities, equipment, or helpers; (4) the amount of skill, initiative, judgment, or foresight required for the worker’s services; (5) the worker’s opportunities for profit or loss; and (6) the extent of integration of the worker’s services into the potential employer’s business. Read additional information about these factors, as well as New York State guidance, here.

“ABC” Test

While the DOL has not issued a new rule at this time, the Biden administration has expressed support for regulatory and legislative action that would expand the type of workers that are considered employees as opposed to independent contractors. Similar to California’s independent contractor rule, the Biden administration has outlined a federal independent contractor standard called an “ABC” test that the DOL may choose to adopt.

The standard begins with the presumption that the worker is an employee and then goes on to test that presumption under three factors:

whether the worker is free from the employer’s control over performance of the work;
whether the work is outside of the hiring party’s line of business, and
whether the worker is engaged in an independent trade.

All three factors must be met to rebut the presumption and to classify the worker as an independent contractor.

While the three factors considered under Biden’s ABC test are already included in the current analysis, the ABC test is stricter in that it requires all three to be met as opposed to the longstanding “economic realities” approach and judged based on a totality of the circumstances. The ABC test was adopted by the House of Representatives in March via the “Protecting the Right to Organize Act” (PRO), but there is no binding authority of a final rule.

Regardless of whether the new standard becomes legal authority, it is clear the current administration is pushing for a more worker-friendly approach to the independent contractor definition. Whether you are a worker seeking to ensure you receive the benefits to which you are entitled, or an employer needing clarification on how to properly classify workers, please contact us for guidance.

Take Control of Your Negotiation Using Active Listening Techniques

By: Joe Campolo, Esq. email

Tags: negotiation

Have you ever had a conversation with someone, and while they’re talking you say, “I see,” “Hmm,” or even “Interesting”… but when they’re finished, you ignore everything they said and go in with your pre-planned response? That’s called passive listening. The fact is, most people aren’t listening to understand – just to respond. You may think you’re showing that you’re engaged, but you won’t fool anyone for long. That’s where active listening comes in.

In negotiations, active listening can be used as a powerful tool to gather information. This requires an active mind, a degree of empathy, and listening with a goal in mind. Active listening is not simply nodding your head while your counterpart talks or just making great eye contact. Rather, it involves asking questions and providing feedback. If you can master active listening, you’ll be able to steer a negotiation to your advantage…if you would just actively listen!

Let’s break it down into three easy steps, then we’ll put it into practice:

Paraphrasing aka Mirroring

No, this isn’t the same type of mirroring where if someone scratches their head, you lift your hand up to do the same. This type of mirroring involves paraphrasing and repeating some of the words your adversary just said. Say the words as a question to keep the person talking. This makes the person feel like you’re truly listening to them and creates a connection.

Inquiry aka Asking Questions

Asking questions that start with “what” and “why” is a great way to make the person you’re negotiating with feel in control despite the fact that you’re the one who asked a calibrated question. Calibrated questions starting with words like “how” will make your counterpart stop and think about the question you just asked. This will help you gain insight into what they’re thinking and how you can entice them with an offer they can’t refuse.

Acknowledgment aka Tactical Empathy aka Labeling

Empathy involves the ability to understand and point out (but not necessarily agree with) the feelings that the person you’re negotiating with is feeling. When you acknowledge that person’s point of view, you can help win their trust. Additionally, by using emotion labels like “You seem angry” and “It sounds like you’re upset,” you can verbally observe and point out feelings that can help you gather even more information when your counterpart confirms or denies your emotion label.

Let’s talk about a real-life example. Suppose you’re a roofer and you have a client with a commercial property in the suburbs that refers you to repair/replace a business associate’s roof in the city. After some confusion finding the access door, you inspect the city roof and let the prospective client know your recommendation to replace the entire roof, as well as the proposed price.

Later, the prospective client calls you with some concerns, saying, “The fact that you didn’t initially know how to find the way onto the roof yesterday does not give us comfort that you know how to service roofs in this area. The reviews on your website look great, and our business partners loved the service your provided for them, but we’re not sure that redoing the entire roof is the way we want to go. We appreciate your recommendation, but if you won’t consider just doing roof patches, then we are prepared to find someone who will.”

Here’s how you as the roofer might respond using passive listening:

“We do service city roofs. The complex that you own just gave us a little bit of trouble, but no worries since we were able to access the roof eventually. And in terms of the patches, we highly recommend redoing the whole roof at once since we’re up there already. Patches will not last as long as redoing the whole roof.”

Here’s how you as the roofer might respond using active listening:

Paraphrase: “It sounds like your business associates were satisfied with the service we provided them a few months ago. But if I understand correctly, you need me to assure you that we are experienced at working on city roofs? You’re also concerned about our recommendation to replace the whole roof versus doing patches? Have I captured your main points?”

Inquire: “You mentioned that you don’t know if you want to redo the whole roof? Help me understand how to you came this conclusion. Let’s talk about the cost efficiency of replacing the whole roof at once to last longer as opposed to doing patches that would be less efficient.”

Acknowledge: “It seems like you’re upset that we had difficulty finding our way up to the roof yesterday and you think that this reflects a lack of experience in the city. While we primarily fix suburban area roofs, we can assure you that we’re well qualified to fix city roofs and do it all the time.”

The roofer’s response using passive listening would most likely not have resulted in the roofer nailing the job. They failed to address the concerns of the clients and responded with a standard answer.

On the other hand, the response using active listening would have divulged key information. By using the three-step approach of paraphrasing, inquiring, and acknowledging, the roofer could have found out, for example, that the potential client wanted to do patches instead of the whole roof because the client was not expecting to do business in the building long-term and wanted only a temporary solution. With this information, the roofer could have tailored their recommendation differently and gained a new client.

Using mirroring, calibrated questions, tactical empathy, and labeling, you too can gather information to guide a negotiation. Using active listening to understand the goals of your counterpart could be the difference between a recipe for control of the situation and a recipe for disaster. So, the next time you find yourself listening to a person and coming up with your own rebuttals right away, try slowing down, making a few observations, and asking a few questions. You might find yourself with the understanding of your counterpart that you need to succeed in that negotiation. For more information on active listening, check out the Harvard Program on Negotiation article, “Negotiation Skills for Win-Win Negotiations” here and read up on passive vs. active listening in the Social Engineer blog here.

What Does Legalization of Marijuana in New York Mean for Employees & Employers?

Posted: April 12th, 2021

By: Vincent Costa, Esq. email

Tags: cannabis, labor & employment

With the legalization of recreational marijuana in New York State, employers and employees alike might be wondering to what extent an employer can tell employees to “Keep Off the Grass.”

Before we tackle employment-related issues raised by the legislation, here is a summary of the main provisions of the new law:

Permitted Use

In New York State, adults 21 and over will be able to possess up to three ounces of marijuana but unable to sell it until a retail system is set up
Adults 21 and over will be allowed to smoke marijuana in any public place where smoking is allowed
Restrictions will be placed on smoking cannabis in restaurants, schools, and the workplace
Eventually, adults 21 and over will be able to cultivate six plants for personal use at home
Municipalities will be able to impose regulations and create restrictions such as banning the retail sale of marijuana

Criminal Regulation

People with marijuana-related convictions that are no longer criminalized will have their records automatically expunged
Police will not be allowed to use the smell of marijuana to justify vehicle searches
Driving while under the influence of marijuana will still be illegal

Tax Structure

Medical marijuana taxes will remain unchanged
Recreational marijuana will have a 13% tax rate with 9% allocated to the state and 4% to localities

As New York State joins the 15 other states (as of this writing) that have legalized the adult use of marijuana, a major question is what the impact the new legislation will have on the workplace.

Can Employers Still Drug Test for Marijuana? How Does the Law Impact the Hiring Process?

Currently, even with the new legislation, there is no law that bans marijuana from drug testing in New York State as a whole. However, New York City has already showcased its less rigid stance on marijuana drug testing. As of May 2020, NYC banned most employers from requiring job applicants to submit to a marijuana drug test as a condition of employment with the exception of positions in law enforcement, transportation and construction. Now that marijuana is legal, it’s possible that New York State could follow NYC’s lead and ban marijuana testing as well.

While employers might still be able to drug test for marijuana, an amendment to Section 201-d of the New York Labor Law explains that employers may not refuse to hire, employ, discharge, or otherwise discriminate against someone who uses cannabis lawfully while off-duty and off-premises. Therefore, despite it being legal for employers to test for marijuana, a positive marijuana test does not necessarily equate to workplace “impairment.” Workplace “impairment” would permit an employer to take adverse action. The legislation defines being “impaired” by cannabis use when an employee “manifests specific articulable symptoms while working that decrease or lessen the employee’s performance of the duties or tasks of the employee’s job position.”

It is important to note that while New York has legalized the possession and use of recreational marijuana, under federal law, marijuana is still illegal. If that sounds confusing, that’s because it is. While the new law requires that employers follow state law when it comes to marijuana, it also provides that an employer is exempt from following the nondiscrimination provisions of the marijuana legislation if complying would result in the loss of a federal contract or federal funding.

Can Employers Control Employee Use of Marijuana Outside of Working Hours?

While the law on testing for marijuana in the workplace is still unsettled, employers will still be able to ban it from the workplace and use being high on the job as basis for termination. However, while employers can prohibit the use or possession of marijuana on-site or during work hours, they cannot control what an employee does or does not do outside of working hours. So employers cannot prohibit employees from smoking pot outside of working hours, nor can they discriminate against employees who do so.

What Kind of Workplace Policies Can Employers Set?

While some may welcome the scent of marijuana in the air at an outdoor concert, the same scent may not be as well received in the office. So employers should take advantage of the opportunity to update their employee handbooks and spell out the consequences of using marijuana during working hours – typically, in a manner that resembles the consequences of alcohol use. Similar to how an employer can set an alcohol-free policy where employees are not allowed to be intoxicated on the job, they can do the same for marijuana and prohibit being “impaired” by cannabis use. If an employer mandates a drug-free policy in their handbook, that means they might not only require that employees stay off the grass, but also keep it off of workplace premises.

Additionally, employers can set policies for marijuana usage during lunch and break times. Employers should clearly communicate with employees to ensure they are aware of their employer’s drug-related policies, as well as train and advise managers on the policy changes.

New York’s approach to navigating the legalization of marijuana will be a constantly evolving topic over the next several months and even years. If you have any questions about specific guidelines, situations, or need a policy revision for your business, please contact our Labor and Employment Department at (631) 738-9100.