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Choosing a Guardian

Posted: December 16th, 2012

For the past couple of months I’ve been talking about the different fiduciaries that are typically named in a Will or a Trust. There’s one that’s more specifically for younger people and it specifically goes in your Last Will and Testament. That’s the choosing of a guardian over your children.This is a very difficult conversation to have with clients. Can you imagine a young couple contemplating a future for their child in which those same parents don’t play a central role? Almost as much as parents pray that their children will outlive them, parents likewise hope that they will be around to help guide and shape their children’s lives long into their adulthood. As a parent of young adults, it has given me a great deal of pride to watch my children grow and mature.

While an uncomfortable conversation to have, it is necessary for parents to consider what will happen to their children in the unlikely event that they don’t see their children into adulthood. While no parent wants to think about it, there is possibly no more important a choice that parents can make than deciding who will raise their children if something were to keep them from doing so themselves. Most people would prefer to control how their assets are distributed at the time of death rather than leave the decision to the courts. How could the decision of who raises your children be of any less import?

When choosing a potential guardian for your children, one of the main considerations that should guide your decision is lifestyle. When I refer to lifestyle, I’m not talking about making sure your child is raised in the lap of luxury with your rich cousin who owns a bank. I’m talking something much more fundamental than that — choose someone that you trust to love and care for your children in the same way that you would do if you were around.

There is no question that this decision will be guided by your own preferences and experiences. Parents need to recognize that one choice isn’t necessarily better than another, but each choice carries with it long term consequences. Just think about this. Would you expect your children’s informative experiences to be the same if they are raised by your divorced, workaholic brother as compared to them being raised by your stay-at-home sister and her husband? Of course not. But your brother may love them and your sister may be abusive to them.

Every person you contemplate as a guardian will have his or her good and bad traits. It’s your job to figure out who strikes the right balance for what your child needs. The decision will (or should) be shaped by the values and philosophies you hold dear. When choosing a potential guardian, just a few things you should think about include: their religious beliefs; their moral values; their educational values; and their societal/political philosophies. All will have a very real and lasting impact on your child’s development, so be sure that the guardian’s values and philosophies are an acceptable match for how you want your child raised.

Now on paper, all this sounds easy. But most of us have limited choices. When considering potential candidates for their children’s guardian, one of the questions that clients often ask is, “Am I limited to choosing a family member?” The answer is absolutely not! Although many turn to brothers, sisters and sometimes even parents as their first choice for guardian, there is nothing to say that trusted friends wouldn’t be an equivalent or even far better selection than a family member. So long as the potential guardians have a real and trusted relationship with a child, I think they should be a valid candidate for the duty.

The simple fact of life is that not every person is a suitable guardian for every child. It’s a case by case decision. Depending on circumstances, it may not be the wisest choice to place a young child with older guardians who are themselves at risk of passing before the child reaches adulthood. It’s a personal choice though, and nothing says that one selection is more appropriate than another. When making the decision, you need to think not only about your child’s circumstances (are they older, younger, special needs, etc.), but you need to consider the circumstances of the individuals that you are considering to make sure they are good fits both long and short term. Just a few issues to consider: are they elderly; divorced; close to your family (geographically and emotionally); suffer from addictions; financially stable; have their own children. All will have an impact on your children, so be sure to think long and hard on your choice.

Now that you’ve gone through the exercise of figuring out who is the best fit for raising your children, what comes next? The obvious answer is to reduce it to writing by having an estate planning attorney draft a Last Will and Testament. While correct, that’s only half of the answer. Yes, you need to ensure that your wishes are reduced to writing to make sure they are given later effect, but even before that’s done, there’s something else you need to do. Talk to the potential guardians! Let them know what you’re thinking and why you’d like to select them. Chances are good that they will be honored to take on the duty, but there’s no guarantee unless you confirm it with them first. The last thing you want to do is name someone as a guardian who doesn’t want or isn’t prepared for the responsibility. Then make sure you follow up with an estate planning attorney and memorialize your decision.

New York State Wage Theft Prevention Act Deadlines Approaching

Posted: December 10th, 2012

As we reported several times over the last two years, New York enacted the Wage Theft Prevention Act (“WTPA”) requiring employers to furnish notices to employees addressing pay, overtime, and other pay-related information. As is the case every year, the annual notice must be distributed to employees between January 1, 2013 and February 1, 2013. If you employ individuals in New York State, or have affiliates and branches in New York that employ individuals, then you must comply with the current notification requirement of the WTPA. All employers should make sure this is handled promptly to avoid potential penalties and fines.

Employers must provide a copy of the notice to the employee, have each employee sign and date the notice, and maintain all notices and acknowledgements for six years. While the law does not dictate the form of notice, the New York State Department of Labor (NYSDOL) has provided sample forms, which we have included in the links below.

Employers who fail to provide the required notices may be liable for damages of up to $50 per week, per employee.

Landlord/Tenant Issues: Recent Appellate Cases

Posted: December 10th, 2012

By Patrick McCormick

Two appellate courts recently rendered decisions discussing landlord/tenant issues. The decisions, while breaking no new ground, do point out what can happen when parties fail to properly memorialize their landlord/tenant relationship and when a landlord fails to act to correct defective conditions in commercial premises.

The first case is Joylaine Realty Co., LLC v. Samuel1 in which the Appellate Division affirmed the dismissal of landlord’s complaint holding that repeated flooding of the commercial premises combined with the landlord’s failure to take any action to correct the condition suspended tenant’s obligation to pay rent. The Appellate Division decision is short on facts and analysis but does clearly hold “the repeated flooding of the subject premises substantially and materially deprived the defendant of the beneficial use and enjoyment of the premises, and the plaintiff failed to take any steps to correct the condition.” Without engaging in substantive analysis of the facts or applicable law, the Appellate Division simply relied upon well settled law that “[A] commercial tenant may be relieved of its obligation to pay the full amount of rent due where it has been actually or constructively evicted from either the whole or part of the leasehold”2 and “A constructive eviction occurs where ‘the landlord’s wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises.”3 Thus, finding that a constructive eviction occurred, the Court confirmed that the tenant’s obligation to pay rent was suspended.

The next appellate decision comes from the Fourth Department in Peak Development, LLC v. Construction Exchange4 and involved a claim related to common area maintenance. In Peak, the landlord sued to collect from tenant additional rent consisting of common area maintenance charges for snow removal, janitorial services and lavatory maintenance. The Fourth Department reversed summary judgment granted in favor of tenant. The tenant’s lease extension expired in October 1997 and a new lease was not executed. Thus, tenant remained in possession of the demised premises as a holdover month-to-month tenant. The express terms of the lease provided for CAM charges and that such charges were to be “pro-rated on a monthly basis according to the amount of space occupied by [defendants] to the total building space.” Plaintiff purchased the property in 2003. The month-to-month tenancy continued until April 1, 2006 when a “letter lease” became effective. The specific terms contained in the “letter lease” were not discussed by the Court. Defendant/tenant in moving for summary judgment relied on the lease, the lease extension and an affidavit from defendant’s executive vice president that CAM charges under the lease and lease extension were not paid between September 1987 and October 1997 and argued that plaintiff waived the right to collect such charges because plaintiff’s predecessor did not collect the CAM under the lease and lease extension. The Court found that the “issue of whether waiver has occurred is generally one of fact [citation omitted] and, here, defendants failed to establish as a matter of law that plaintiff’s predecessor waived his entitlement to CAM charges.”

As part of its decision, the Appellate Division cited to the well settled law that “a successor-in-interest to real property takes the premises subject to the conditions as to the tenancy, including any waiver of rights, that [its] predecessor in title has established if the successor-in-interest has notice of the existence of the leasehold and of the waiver”[Citations omitted]. The Court also found that the plaintiff in this case “had notice of the leasehold with defendants and, in any event, possession of the premises constitutes constructive notice to purchaser of the rights of the possessor” [citation omitted].

The practical impact of this decision and the facts presented is significant. If, in fact, there was a waiver of the right to collect CAM, the tenant now must locate the seller of the premises (the sale occurred about 8 years before the lower court decision) and, even if located, hope that seller or someone on behalf of the seller if the seller was a business entity, even remembers the terms of the lease and lease extension and whether there was any thought given to the right to collect CAM charges and whether such right was affirmatively waived.

Practical Examples of Using a BATNA in Negotiations

Posted: December 9th, 2012

By: Joe Campolo, Esq. email

Tags: negotiation

Over the past few months, this blog covered the basics of negotiation theory, discussing some of the strategies and tools of a successful negotiator. Last month, we explored Roger Fisher and William Ury’s coined term BATNA. Coincidently, there was recently an article in the New York Times Business Section about the practical application of BATNA in Hollywood and Washington. The article is:

In Talks, G.O.P. May Have to Just Say Yes
By ROBERT H. FRANK
Published: December 8, 2012

To read the article, click here.

Claim for Breach of Implied Contract Not Preempted by Federal Copyright Act

Posted: November 20th, 2012

Tags: intellectual property

In an important decision for the entertainment industry, the Second Circuit held that a claim under state law for breach of implied contract, including a promise to pay, is not preempted by the Federal Copyright Act.

In 2010, a suit was brought by Forest Park Pictures against Universal Television Network, Inc. (the television production arm of NBCUniversal, a subsidiary of Comcast Corp., which controls USA Network), for breach of contract over USA Network’s show Royal Pains. Forest Park alleged that in 2005, it developed an idea for a show called “Housecall,” in which a doctor, after being expelled from the medical community for treating patients who could not pay, moves to Malibu to attend to the rich and famous. Forest Park developed storylines and character bios, and pitched the concept to an executive at USA Network. Although nothing materialized after the meeting, in 2009, USA Network began airing Royal Pains, a show that focuses on the life of a “concierge doctor” providing medical services to the wealthy residents of the Hamptons. Forest Park brought suit against Universal for breach of contract.

The U.S. District Court for the Southern District of New York held that Forest Park’s claims were preempted by the Federal Copyright Act because the allegations entailed theft of uncopyrightable idea and granted Universal’s motion to dismiss.

The Second Circuit reversed by holding that a claim for breach of an implied contract, including a promise to pay, is not preempted by the Federal Copyright Act because even though uncopyrightable material may fall within the subject matter of the Copyright Act, there are qualitative differences between a contract claim and a copyright-violation claim. Unlike contract law, the Copyright Act does not provide an express right for the copyright owner to receive payment for the use of the work. Thus, the Second Circuit concluded that an implied contract, including a promise to pay, was formed when Forest Park pitched their concept to USA Network, and USA Network’s failure to compensate Forest Park for Royal Pains gave rise to a cause of action not subject to preemption.

Generally, under a claim for breach of an implied contract, when an idea is submitted and accepted for review, as Forest Park asserted here, there is an expectation that if there material is later used, the writer will receive compensation. In fighting these implied contract claims, networks have previously argued that the state-based contract claims are pre-empted by federal copyright law. Now, with this latest Second Circuit decision, this poses a new challenge for networks in defending themselves against similar idea-theft lawsuits, and they will likely pay more attention to see how the suit plays out on remand to the Southern District of New York.

Tips for Trustees

Posted: November 20th, 2012

By: Martin Glass, Esq. email

Tags: estate planning

In the last blog post, I talked about different fiduciary roles (executor, trustee and guardian) but being a trustee typically has long-term implications. Naming someone as trustee, whether it’s for your living trust or for a testamentary trust in your Will, is quite possibly one of the most difficult decisions you’ll ever make. This trust could be revocable or irrevocable, depending on the purpose of the trust and could exist for many years. The trustee is involved in just about every aspect of the administration of a trust; and although it is considered a great honor, it can also be a great responsibility.

Most people choose someone close to them to serve as trustee, such as a child, sibling or best friend. Choosing someone who knows you and your family to serve in this role can be beneficial in many ways, but if that person doesn’t have a financial or legal background the responsibilities can be overwhelming. It is important that the person you nominate as trustee knows not only what is expected of trustees in general, but also knows what you expect of them as a trustee. Here are some tips and discussion points for you to go over with the trustees you have nominated.

Make sure you, as trustee, read and understand the entire trust document. If you don’t have a legal background, it is okay (preferable, in fact) to ask for help from an attorney.
Always remember that the beneficiaries of the trust are your first priority and responsibility. Once you become a trustee you have what is called a “fiduciary duty” to always act in their best interests, not yours.
Make sure that the trust has its own separate checking account. If the trust is a revocable, living trust this account might have been the Grantor’s during his or her lifetime. You as the successor trustee will likely be the person who takes over that account after the death of the grantor. If it was an irrevocable trust or testamentary trust, even if it was only funded with real estate, you as the trustee must now open a separate checking account with its own tax identification number. Under no circumstances should a trustee mingle his or her personal finances with trust finances.
Maintain regular contact with the beneficiaries; not just to provide them with regular accountings of trust activity or investments, but also so you yourself can remain aware of the lifestyle, needs, and feelings of all the beneficiaries. This is especially helpful if the trust contains discretionary or age provisions for the trustee to follow.
Be sure you have a support team that will benefit the trust and the beneficiaries. Get investment advice from a financial professional; have a trusted attorney help with any legal questions you might have; hire a mediator to help if there are irreconcilable differences amongst the beneficiaries. The goal here is not to spend the trust funds frivolously, but to protect and preserve trust assets as the grantors would have wished for their beneficiaries.

Using a BATNA in Negotiations

Posted: November 9th, 2012

By: Joe Campolo, Esq. email

Tags: negotiation

BATNA is a term coined by Roger Fisher and William Ury in their 1981 bestseller, Getting to Yes: Negotiating Without Giving In. It stands for “Best Alternative To a Negotiated Agreement,” and is in essence a well thought out plan “B” in the event your negotiation is unsuccessful. It truly is the measure you should use to prevent you from accepting terms that are too unfavorable and from rejecting terms that are in your best interest to accept.

Having a BATNA as part of the negotiation is imperative and increases your negotiating power. No one should come to the negotiation table without a well thought out and prepared BATNA. In addition to having a BATNA, parties should have a predetermined bottom line. The bottom line is meant to act as the final barrier where a negotiation will not proceed further. It is a means to defend oneself against the pressure and temptation that is often exerted on a negotiator to conclude an agreement that is self defeating. Although bottom lines definitely serve a purpose, they also regrettably foster inflexibility, stifle creativity and innovation, and lessen the incentive to seek tailor-made solutions that resolve differences. In stark contrast to a bottom line, a BATNA is not interested in the objectives of a negotiation, but rather to determine the course of action if an agreement is not reached within a certain time frame.

When creating a BATNA, you should:
Develop a list of possible actions that you may take if there is a failure in agreement.
Improve the more promising of the alternative ideas and tweak them a bit to get more of a realistic understanding of the agreement.
Select the best option, after carefully reviewing the consequences of each alternative option.
When you fail to explore your BATNA, you will find yourself in a very shaky situation:

Strong internal pressure to make an agreement, as they will be unaware of what would happen should the negotiation fail.
They will be overly optimistic about proposed agreements which can then result in the associated costs not being fully appreciated.
They will face the peril of becoming committed to reach an agreement, as they will be unaware of alternatives outside the negotiation. This will foster pessimism about their prospects if the negotiation fails.
They will become beholden to the whims of the law of agreement, which holds that when persons agree to something this is entirely dependent on the attractiveness of the available alternatives.
Parties should not disclose their BATNA unless the alternative is better. In other words, if your best alternative to a negotiated agreement is better than what the other party is offering, then disclosing it is to your advantage. On the other hand, if it is worse, do not disclose it.

It is prudent to attempt to identify your opponent’s BATNA as well. A negotiator who knows more about the alternatives available to the other party will be more able to prepare for a negotiation. If a negotiator learns that the other party is overestimating its BATNA before the start of a negotiation, then he or she will be able to effectively use this information to lower the negotiation expectations of the other party.

For more information, click here.

Landlord/Tenant Issues: Recent New York Cases

Posted: October 24th, 2012

By Patrick McCormick

There have been numerous recent decisions by appellate and trial courts involving landlord/tenant disputes covering a wide variety of issues. A few of those decisions are discussed in this article.

In a decision dated October 5, 2012, the Appellate Term, First Department in C&A 483 Broadway, LLC v. KLMNI, Inc.,1 discussed Yellowstone injunctions. In a short decision that did not discuss many facts, the Appellate Term reversed the lower court’s order granting summary judgment to the tenant dismissing the petition, and held a “May 2008 Yellowstone injunction issued by Supreme Court, which restrained landlord from terminating the governing commercial lease agreement based on tenant’s conduct in ‘affixing a flag or banner’ to a flagpole attached to the building’s facade, did not bar landlord from terminating the tenancy and maintaining this August 2010 holdover proceeding based on the conditional limitation provision in the lease triggered by the tenant’s late payment of rent.” This brief decision reminds us that a Yellowstone injunction serves to toll a cure period related to a specific alleged default claimed by a landlord. Where a landlord serves successive default notices each alleging a new default, tenant will need to seek and obtain a new Yellowstone injunction to toll the cure period related to each claimed default.

In 455 Second Avenue LLC v. NY School of Dog Grooming, Inc.,2 the commercial tenant, relying on Multiple Dwelling Law §302, moved to dismiss the nonpayment petition claiming no rent was due because a proper Certificate of Occupancy had not been obtained for the premises. The tenant, operating a dog grooming business, and landlord entered into a commercial lease with a termination date of August 31, 2018. In 2008, the tenant sought to renew its dog grooming educational license which could not be renewed without a proper C of O for the premises. The existing C of O was for a multiple dwelling, with a basement (the premises at issue) used as a restaurant. The tenant stopped paying rent, the landlord commenced the nonpayment proceeding and tenant moved to dismiss alleging that MDL §302(1) relieved tenant of the obligation to pay rent because a proper C of O did not exist for the premises. The New York City Civil Court denied the motion, citing to well settled appellate precedent, holding that MDL §302, by its terms, which the Court held were required to be strictly construed, did not apply to commercial premises/tenancies. In reaching its determination, the Court referenced a recent Court of Appeals decision in Chazon, LLC v. Maugenest, 19 N.Y.3d 410 (2012).

In Chazon, the plaintiff/landlord owned a loft building in Brooklyn. The defendant/tenant occupied an apartment in the building but had not paid rent for 9 years. Landlord commenced an ejectment action based on the nonpayment of rent. Supreme Court granted summary judgment in favor of landlord awarding landlord possession of the apartment. The Appellate Division affirmed and permission to appeal was granted by the Court of Appeals. The Court of Appeals reversed based on MDL §302 and MDL art. 7-C (the Loft Law). Briefly, the Loft Law permitted residential occupancy of lofts (apartments in buildings formerly used for commercial purposes) but set deadlines for owners of the buildings to alter the building to conform to certain safety and fire protection standards. The Loft Law allowed for extensions of the deadlines in certain circumstances. Until the standards are met and a proper certificate of occupancy is obtained, tenants are protected by the MDL from eviction. In rejecting opinions from various appellate courts, the Court of Appeals strictly construed what it termed “the law’s command” that “No rent shall be recovered by the owner of such premises . . . and no action or special proceeding shall be maintained therefore, or for possession of said premises for nonpayment of such rent.” The Court, in reversing the Appellate Division, recognized that “the statutes leave these parties in their present stalemate until compliance has been achieved.”

In Disunno v. WRH Properties, LLC3 the Appellate Division addressed a well settled principle involving the covenant of quiet enjoyment in commercial leases. Because the issue is raised from time to time, a review of this recent decision is helpful. The tenant commenced an action seeking damages from the landlord for an alleged breach of the commercial lease at issue. The landlord moved under CPLR 3211(a)(7) to dismiss the third cause of action which alleged landlord breached an implied warranty of fitness for a commercial purpose. The lower court denied the motion. In reversing that portion of the lower court’s determination, the Appellate Division reaffirmed that “[i]n the absence of fraud or of a covenant, a lessor does not represent that the premises are tenantable and may be used for the purpose for which they are apparently intended [citations omitted]. The implied warranty of habitability applies only to residential lease space [citations omitted].” This case reminds counsel of the importance of careful lease drafting and the need, from the tenant’s perspective, to obtain from the landlord proper representations in the lease that the premises can in fact be used for the purpose intended by the tenant.

Red Soles of Designer Footwear Can be Trademarked in the Fashion Industry

Posted: October 23rd, 2012

Tags: intellectual property

In a decision that is captivating the fashion industry, the Second Circuit held that a single color can serve as a legally protected trademark. Specifically, the color red used on the sole of luxury shoe designer Christian Loubotin’s shoes is protectable as a trademark. Christian Louboutin S.A. v. Yves Saint Laurent Am. Holding, Inc., 11-3303-cv (2d Cir., Sept. 5, 2012).

Louboutin’s signature line of high-fashion women’s footwear utilizes a high-gloss, red-colored bottom, and costs approximately $1,000 for a pair. Louboutin explained that “[t]he shiny red color of the soles has no function other than to identify to the public that they are mine.” In 2008, Louboutin registered the red sole as a trademark with the United States Patent & Trademark Office, based upon the strength of the asserted recognition of the red-soled shoes in the fashion industry.

In 2011, Yves Saint Laurent (YSL) attempted to market a line of women’s shoes that utilized a red sole, which allegedly infringed the Louboutin red-sole trademark. Last year Louboutin sued YSL under the Lanham Act and sought a preliminary injunction. YSL counterclaimed to cancel Louboutin’s federal trademark registration. Christian Louboutin S.A. v. Yves Saint Laurent America, Inc., 778 F. Supp. 2d 445, 451 (S.D.N.Y. 2011). The district court in that case denied Louboutin’s motion for a preliminary injunction and ruled that a single color can never serve as a trademark in the fashion industry, because color is an element of fashion design. The court also declared Louboutin’s trademark registration to be invalid.

On appeal, the Second Circuit disagreed, finding that “no per se rule governs the protection of single-color marks in the fashion industry.” Specifically, the Second Circuit held that the district court’s decision was inconsistent with the seminal Supreme Court decision in Qualitex Co. v. Johnson Products, Inc., 514 U.S. 159 (1995), which holds that the Lanham Act permits registration of a trademark or trade dress that consists, purely and simply, of a color, if it distinguishes a company’s goods and identifies their source without serving any other significant function. The Second Circuit concluded that Qualitex requires an “individualized, fact-based inquiry into the nature of a trademark and cannot be read to sanction an industry-based per se rule” and that the Qualitex court did not intend that all fashion designers must be allowed to use any aesthetic element at all, but only that they must be allowed to compete fairly in the marketplace.

The Second Circuit then went on to find that Louboutin’s use of the color red on shoe soles had indeed acquired secondary meaning that causes it to be uniquely associated with Louboutin’s brand and evidence in the record demonstrated that Louboutin’s marketing efforts created a brand with worldwide recognition. However, the court limited its holding by ruling that the lacquered red outsole qualifies for trademark protection only when applied to a shoe with an upper contrasting color, and instructed the Patent & Trademark Office to limit Louboutin’s registration accordingly. Therefore, the YSL shoes that consisted of a red sole and red upper were not infringing and confusingly similar.

In sum, this case demonstrates that a single color is protectable as a trademark. Of importance, it provides instruction as to the importance of using the color consistently and prominently so that the public sees the color to symbolize and identify a brand.