SEC Approves Nasdaq’s Board Diversity Proposal
In Securities Exchange Act Release No. 34-92590 (August 6, 2021) the SEC approved a rule change proposed by Nasdaq that will require each Nasdaq-listed company (other than a foreign issuer, smaller reporting company, or company with a smaller board) to have, or explain why it does not have, at least two members of its board of directors who are diverse, including (i) at least one diverse director who self-identifies as female; and (ii) at least one diverse director who self-identifies as an underrepresented minority or LGBTQ+. The SEC notes that the board diversity proposal it approved establishes a disclosure-based framework and not a mandate or quota. The SEC also approved a proposal whereby Nasdaq will offer a complimentary board recruiting service for certain eligible Nasdaq-listed companies.
Restaurant Revitalization Fund Program Opens
On May 3, 2021 the Small Business Administration began accepting applications from eligible businesses for grants under the Restaurant Revitalization Fund (RRF) program. The RRF program provides economic aid to restaurants, food carts, bars, caterers and other food and beverage establishments that experienced COVID-19 related revenue losses. The funds do not have to be repaid if used for eligible purposes. Applications may be submitted online from the SBA’s website here: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/restaurant-revitalization-fund.
Shuttered Venue Operators Grant Program Reopens
On April 26, 2021 the Small Business Administration reopened the Shuttered Venue Operators Grant (SVOG) application portal. The SVOG program provides economic aid to eligible live venue operators impacted by COVID-19 including:
- Live venue operators or promoters
- Theatrical producers
- Live performing arts organization operators
- Museum operators, zoos and aquariums that meet specific criteria
- Motion picture theater operators
- Talent representatives
Applications must be submitted online from the SBA’s website here: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/shuttered-venue-operators-grant. Further information about the SVOG grant program is available from the SBA’s website as well.
H.R. 1799, signed by President Biden on March 30, 2021, enacts the PPP Extension Act of 2021 which amends the Small Business Act and the CARES Act to extend the covered period for the Paycheck Protection Program, which was scheduled to expire March 31, 2021. New loan applications may be submitted until May 31, 2021. From June 1 until June 30 the Small Business Administration may process applications submitted prior to June 1. It may not accept any new loan applications.
For more information on the PPP see our article “Paycheck Protection Program 2021: What You Need to Know” or listen to our podcast “Understanding Round 3 of the PPP”.
H.R. 1319 – The American Rescue Plan Act of 2021 – was signed by President Biden on March 11, 2021 and includes, among many other things, the following provisions designed to aid small businesses:
- Provides an additional $7.25 billion for the Paycheck Protection Program and expands PPP eligibility for certain nonprofits and Internet news organizations
- Establishes a $28.6 billion Restaurant Revitalization Fund which will provide grants to restaurants, bars, and other food and drink establishments that have lost revenue due to the COVID-19
- Provides an additional $15 billion for the Economic Injury Disaster Loan Advance Program, which offers grants to small businesses in low-income communities
- Provides an additional $1.25 billion for the Shuttered Venue Operators Grant program, which offers grants to live entertainment venue operators
- Establishes a $175 million Community Navigator Pilot Program, designed to help small businesses in underserved communities access COVID-19 relief resources
The Federal Trade Commission announced the revised thresholds for determining when companies must file a pre-merger notification with the FTC and Department of Justice pursuant to the Hart-Scott-Rodino Act. The new thresholds are effective March 4, 2021 and can be found in the Federal Register here.
On February 22, 2021 President Biden announced that beginning on February 24, 2021 the Small Business Administration will establish a 14-day, exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. The SBA also announced additional changes intended “to open the PPP to more underserved small businesses than ever before”. For more information visit the Small Business Administration’s Website.
H.R. 6395, the National Defense Authorization Act of 2021, which was enacted on January 1, 2021 by Congress overriding a presidential veto, contains the Corporate Transparency Act, which requires certain LLCs and corporations to file a beneficial ownership report with the Department of Treasury’s Financial Crimes Enforcement Network. For more information, see our article “The Corporate Transparency Act Imposes New Beneficial Ownership Reporting Obligations On Business Entities.”
H.R. 133, the Consolidated Appropriations Act of 2021, was signed into law on December 27, 2020. This bill, which is in excess of 5500 pages, among many other things, continues the Paycheck Protection Program. The PPP provisions of Act include a clarification of the tax deductibility of expenses, allow borrowers who obtained a PPP loan under the original program and used, or will use the proceeds, to obtain a “second draw” PPP loan, expand the definition of eligible expenses, add to the list of eligible borrowers, and much more.
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.
Alien Tort Statute
Nestle USA, Inc. v. Doe, No. 19–416, decided June 17, 2021. The U.S. Supreme Court held (1) that a plaintiff does not plead facts sufficient to support domestic application of the Alien Tort Statute simply by alleging “mere corporate presence” of a defendant. Because making “operational decisions” is an activity common to most corporations, generic allegations of this sort do not draw a sufficient connection between the cause of action respondents seek—aiding and abetting forced labor overseas—and domestic conduct and (2) the ATS is a jurisdictional statute creating no new causes of action and the Court cannot create a cause of action that would let them sue petitioners. That job belongs to Congress, not the Federal Judiciary.
Securities Fraud Class Action
Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, No. 20–222, decided June 21, 2021. The U.S. Supreme Court, in an action alleging a corporation and certain of its executives violated securities laws and regulations prohibiting material misrepresentations and omissions in connection with the sale of securities, stated that the generic nature of a misrepresentation often will be important evidence of a lack of price impact, and that on remand, the Second Circuit must take into account all record evidence relevant to price impact, regardless of whether that evidence overlaps with materiality or any other merits issue. The Court also held that the defendants bear the burden of persuasion to prove a lack of price impact by a preponderance of the evidence at class certification.
Standing to Sue
TransUnion LLC v. Ramirez, No. 20-297, decided June 25, 2021. The U.S. Supreme Court held that to have Article III standing to sue in federal court, plaintiffs must demonstrate, among other things, that they suffered a concrete harm. In this case, a class of 8,185 individuals sued TransUnion under the Fair Credit Reporting Act. The plaintiffs claimed that TransUnion failed to use reasonable procedures to ensure the accuracy of their credit files. For 1,853 of the class members, TransUnion provided misleading credit reports to third-party businesses. The court concluded that those 1,853 class members had demonstrated concrete reputational harm and thus had Article III standing to sue. The internal credit files of the other class members were not provided to third-party businesses during the relevant time period and those class members had not demonstrated concrete harm and lacked standing. In two other claims, all class members complained about formatting defects in certain mailings sent to them by TransUnion. But the class members other than the named plaintiff had not demonstrated that the alleged formatting errors caused them any concrete harm. Therefore, except for named plaintiff, the class members did not have standing as to those two claims.
In re EHT US1, No. 21-10036, decided June 1, 2021. The U.S Bankruptcy Court for the District of Delaware held that whether a trust is a business trust under the Bankruptcy Code is governed by the law of the jurisdiction of formation and not federal common law. The court therefore looked to the law of Singapore, which governed the existence and operation of the debtor trust and found that it was a business truest and thus was an eligible debtor under the Bankruptcy Code. Although the trust was not registered under the Singapore Business Trusts Act, it carried on a business and therefore was a business trust.
FTC Enforcement of FTC Act
AMG Capital Management, LLC v. Federal Trade Commission, No. 19-508, decided April 22, 2021. The U.S. Supreme Court held that Section 13(b) of the Federal Trade Commission Act, which authorizes the FTC to obtain, in proper cases, a permanent injunction in federal court against any person, partnership, or corporation that it believes is violating, or is about to violate, any provision of law the FTC enforces, does not authorize the FTC to seek, and a court to award, equitable monetary relief such as restitution or disgorgement.
(U.S. Supreme Court) – Personal Jurisdiction Over Out-of-State Corporations
Ford Motor Co. v. Montana Eighth Judicial District Court, No. 19-368, decided March 25, 2021. The U.S. Supreme Court affirmed the rulings by Montana and Minnesota state courts that they had personal jurisdiction over the defendant - a global auto company - in products liability suits stemming from car accidents that happened in the states where the suits were brought and where the victims were residents. The defendant was a Delaware corporation with its principal place of business in Michigan. The Court rejected the defendant’s contention that jurisdiction was improper because the particular cars involved in the crashes were not first sold in the forum states, nor were they designed or manufactured there. The Court stated that a suit does not have to arise out the defendant’s contacts with the forum. Jurisdiction also exists where the suit relates to the defendant’s contacts in the forum. Here, the defendant did substantial business in the states—among other things, advertising, selling, and servicing the model of vehicles the suits claim were defective. When a company like the defendant serves a market for a product in a state and that product causes injury in the state to one of its residents, the state’s courts may entertain the resulting suit.
Forfeiture of LLC Property
United States v. Lucas, No. 19-3427, decided January 20, 2021. The U.S. Court of Appeals, 3rd Circuit, in an action in which the U.S. Government sought criminal forfeiture of a farm, held that an LLC could file a petition asserting an interest in the farm superior to that the Government because it acquired the farm before the LLC was purchased by the defendant as part of his criminal scheme. The Government did not dispute that the LLC acquired the farm over 5 years before the defendant’s crimes and that it is a legitimate, separate legal entity from the defendant. Those facts sufficed to vindicate the LLC’s claim of right to file its petition. The court also rejected the Government’s argument that the defendant’s acquisition of the LLC with illicit proceeds “reconstituted” the LLC so it was no longer a third party with an interest in the farm.
Tennessee Wellness, Inc. v. Holmes, No. 3:20-cv-335, decided November 18, 2020. The U.S. District Court, Eastern District of Tennessee, held that diversity was lacking where some defendants were Tennessee citizens and where the principal place of business of the plaintiff – a Wyoming corporation – was found to be in Tennessee. Although the corporation argued its principal place of business was in Wyoming, the Secretary of State’s records demonstrated that its corporate activities occurred primarily in Tennessee, where its principal address and mailing address were located and which was the address of its incorporators and president. Without a location in Wyoming from which the officers could direct, control, and coordinate activities, the corporation’s principal place of business cannot be located in Wyoming.
Subject Matter Jurisdiction
Healthcare Ventures of Ohio, LLC v. HVO Operations Windup LLC, No. 20-cv-04991, decided November 13, 2020. The U.S. District Court, Southern District of Ohio, held that the federal court lacked subject matter jurisdiction over the plaintiffs’ lawsuit alleging the defendants committed fraud under Ohio law by, among other things, filing documents with the Ohio Secretary of State using the plaintiff entity’s name without its authority and opening a bank account in its name without its authority. Although the parties were involved in another lawsuit involving CARES Act funds, this lawsuit did not implicate the CARES Act. The issue is whether the defendants’ actions were lawful under Ohio law.
Standing Under FATCA
Muransky v. Godiva Chocolatier, Inc., No. 16-16486, decided October 28, 2020. The U.S. Court of Appeals, 11th Circuit (en banc), held that a plaintiff lacks Article III standing to pursue a class action or settlement under the Fair and Accurate Credit Transactions Act (FACTA) by alleging a bare procedural violation of FACTA. The plaintiff must also allege a concrete injury.
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).
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.
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.”