Legislative updates

H.R. 7010, effective June 5, 2020, enacts the Paycheck Protection Flexibility Act of 2020, amending the Small Business Act and CARES Act to modify provisions related to the forgiveness of loans under the paycheck protection program.
H.R. 748, signed into law by President Trump on March 27, 2020, enacts the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The bill is 880 pages and contains provisions aimed at providing relief for individuals and businesses negatively affected by the COVID-19 outbreak. Below are some of the highlights of the CARES Act:
  • Small Business Payroll Relief – The CARES Act allocates $349 billion for loans to small businesses to help them maintain their payroll. In general, businesses with fewer than 500 employees are eligible. Nonprofits are eligible as well. The maximum loan is $10 million. The funds can be used for certain expenses including payroll, mortgage and interest payments, rent, and utilities.
  • Economic Stabilization Loans – $500 billion is allocated for loans and guarantees for eligible businesses, states and municipalities. The loans are subject to a number of conditions including a business agreeing to cap the salaries of certain highly paid employees and officers, while mid-size businesses (those with 500 – 10,000 employees) must agree to, among other things, not buy back stock or pay dividends during the term of the loan plus one year thereafter and not layoff more than 10% of their workforce, outsource or offshore jobs during the term of the loan plus two years thereafter.
  • Unemployment Benefits – Eligibility for unemployment benefits is extended to workers affected by COVID-19 who would not otherwise be eligible. The duration of regular benefits is extended and benefit payments increased.
  • Employment Taxes – An Employee Retention Credit against employment taxes is created for eligible employers. In addition, employers can delay the payment of their share of the 2020 employment taxes.
  • Health Care Support – $140 billion is appropriated to support the US health care system.
  • Taxpayer Rebates – A rebate of $1,200 plus $500 per child is provided for individual taxpayers with incomes of up to $75,000 for single filers, $150,000 for joint filers, and $112,500 for head of household filers.
  • CARES Act Oversight – A Congressional oversight committee will be created as well as a new office of Special Inspector General for Pandemic Recovery.

H.R. 6201, signed on March 18, 2020, enacts the Families First Coronavirus Response Act (FFCRA). The FFCRA temporarily requires certain employers to provide employees with paid sick leave for certain COVID-19 related reasons and expands the Family and Medical Leave Act (FMLA) to provide expanded paid leave to care for children for specified COVID-19 related reasons. The FFCRA generally applies to private employers with fewer than 500 employees. The FFCRA states that the paid sick leave and expanded FMLA provisions will go into effect not later than 15 days after enactment and are to expire December 31, 2020. The FFCRA can be viewed here. (See Division C, Secs. 3102-3106 and Division E, Secs. 5102-5111). In addition the Department of Labor has posted a fact sheet and a questions and answers document.

Case summaries

Securities Law
Liu v. Securities and Exchange Commission, No. 18-1501. The U.S. Supreme Court held that in a suit brought by the SEC, a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims, is equitable relief permissible under 15 U.S.C. Sec. 78u(d)(5)
Stockholder Suit
Freedman v. MajicJack VocalTec Ltd., No. 18-15303, decided June 25, 2020. The U.S. Court of Appeals, 11th Circuit held that as a federal rule of decision, the federal courts should look to the law of the place of incorporation to answer whether a stockholder’s claim is derivative or direct.
Federal District Court Dismisses Challenge to California Law Requiring Women on Boards of Directors
Meland v. Padilla, No. 2:19-cv-02288, decided April 20, 2020. The U.S. District Court, Eastern District of California dismissed a complaint filed by a shareholder of a publicly traded corporation subject to Senate Bill 826, the California bill requiring publicly held corporations headquartered in California to have at least one woman on their board of directors, claiming that S.B. 826 impaired his right to vote for directors in violation of his equal protection rights. The court held that the plaintiff lacked standing, noting that both the requirement to have a woman on the board of directors and the penalty for lack of compliance are imposed on the corporation and not the shareholders. In addition, his right to vote was not legitimately impaired. He could still vote for any director he wanted, including a male nominee. Thus, the plaintiff had not suffered an injury in fact, as required to have to standing. Read our article for more information about S.B. 826.
Corporate Income Tax
Rodriguez v. FDIC, No. 18-1269, decided February 25, 2020. The U.S. Supreme Court held that the Bob Richards rule is not a legitimate exercise of federal common law rulemaking. The Bob Richards rule dealt with how an affiliated group of corporations filing a consolidated federal return distributed a tax refund among the members of the group. The Court stated that the rule was not necessary to protect uniquely federal interests and that state law is well equipped to hear disputes involving corporate property rights.
ERISA’s Statute of Limitations
Intel Corporation Investment Policy Committee v. Sulyma, No. 18-1116, decided February 26, 2020. The U.S. Supreme Court held that for the purposes of the section of ERISA that requires plaintiffs with actual knowledge of an alleged fiduciary breach to file suit within three years of gaining that knowledge rather than within the six year period that would otherwise apply, a plaintiff does not have actual knowledge of the information contained in disclosures that he receives but does not read or cannot recall reading. The plaintiff must in fact have become aware of that information.

Other notices

August 13, 2020 — The U.S. Small Business Administration is sending a cyber warning alert to loan applicants seeking federal aid in response to the COVID-19 pandemic. The warning states that “Email phishing campaigns where malicious actors are impersonating the SBA and its Office of Disaster Assistance to collect personally identifiable information (PII) for fraudulent purposes have surfaced.” It further states “It should be noted that any email communication from the SBA will come from email accounts ending in sba.gov, and nothing more. Loan applicants are being advised to look out for email scams and phishing attacks using the SBA logo.”