Blog No 155

October 4, 2022

By Mack W. Borgen

Author (7 Books): The White Binder – Your Personal Data and Information Book (2022); The Writings of a Lifetime (2021); Dead Serious and Lighthearted – The Memorable Words of Modern America (Three Volumes) (2018-2019); and The Relevance of Reason – The Hard Facts and Real Data about the State of Current America (2 Volumes) (2013). As advertised in The New York Review of Books. Recipient of Eight National Book Awards

See my legal articles and other blogs at  https://www.mackwborgen.com/  . Then, just click the “Blogs” tab. 

Three Thoughts for America

 The beautiful thing about learning

Is that nobody can take it away from you.

B.B. King

– 

In the end, it matters less that you can fight.

What you fight for is the real test.

John McCain

 –

And on a lighter note,

When you come to a fork in the road,

Take it.

Yogi Berra

Quick Facts

Important Tax Terms 

“Contemporaneous Records.” To substantiate deductions, the IRS requires that one keep “contemporaneous records.” This key term means that deductions cannot just be estimated and reported at the end of one’s year. Instead, substantiating records must be kept “contemporaneously,” via, for example, by keeping receipts or by keeping a log of all deductible costs and expenses. 

Marginal Tax Rate. The tax rate which would be applied to the next dollar one earns. Since our income tax rates are progressive, the next dollar one earns could be taxed for as little as zero or as high as 37%. 

Effective Tax Rate: The tax rate an individual or corporation actually pays. It is the total income taxes paid divided by a taxpayer’s total taxable income. This phrase (far more than one’s marginal tax rate) is a far more valid basis of comparison in evaluating the reasonableness of tax burden complaints by individuals, corporations, and for that matter, politicians.

 Definitions provided by the excellent Newsletter of Bryars, Tolleson Whitton LLP.

 Recent Business, Contract, and Real Estate

Cases and Developments

General Sources: Daily or Periodic Judicial and Legislative Reports from various sources including the California Lawyers Association Daily Reports, the CLA’s Monthly Business Law News, and Announcements and Press Releases from the (California) State Attorney General’s Office. 

1. Corporations – Corporate Officers Further Exculpated from Personal Liability Under New Delaware Law. Corporate Directors have considerable immunity from personal liability under existing Delaware laws. Now, by new Delaware legislation, both Directors and certain corporate officers have expanded protections for personal monetary damages even some of those resulting from a breach of fiduciary duty. While this author has serious reservations about cutting off meaningful (i.e., costly) recourse against corporate officers in such circumstances, the Delaware legislature suggested that such expanding immunity was necessary due to changes in the availability of liability insurance for such corporate officers. This is, or soon will be, another reason many businesses incorporate in Delaware regardless of their principal place of business.   

2. Contracts – Letters of Intent – Exclusivity Provisions. Early in many business transactions, parties will prepare and sign letters of intent (”LOIs”). While such LOIs nearly always state that the terms and provisions of the LOI are not binding until final transactional documentation has been prepared, agreed upon, and signed, such LOIs sometimes include an exclusivity provision. Such provisions normally provide that for a designated period of time (e.g., 2-3-4 months) or until the parties mutually agree, the other party will not negotiate with any third-parties. In a recent New York case (but which may have parallel implications in many other jurisdictions including California), the court imposed significant liability upon one of the parties who breached the exclusivity provision – even though the underlying transaction never closed. While damages can be difficult to calculate, if an LOI contains an exclusivity provision it is highly advisable that they be honored and complied with. 

3. Structural Integrity Reserve Study for Condominiums. Under a new Florida law, condominiums which are higher than two stories must conduct “structural integrity” and “deferred maintenance” inspections. Certainly, this legislation is in partial response to the horrific June 2021 collapse of the Surfside, Florida condominium in which 98 people were killed. While this legislation only applies to Florida condominiums, it would be prudent for all condominiums and cooperatives (and the HOAs in charge thereof), including those in California and especially high-rise condominiums, — as a matter of due care — to periodically have such structure integrity and deferred maintenance inspections.

4. Caution Regarding Pricing Gouging under California Law. Regrettably, more and more frequently there have been state or local declarations of emergency due largely this year to fires. During such periods of emergency, local businesses must be cautious about any changes in product pricing. Basically, California law prohibits charging more than 10% higher than the price immediately before any such declaration of emergency. With respect to the sale of new products during emergency periods, prices cannot exceed 50% of the seller’s cost. This anti-price gouging law applies to a wide range of products and services – from food, emergency supplies, building materials and gasoline to repair or reconstruction services and even hotel accommodations and rental housing. As a practical matter, such enforcement is, at best, haphazard, but pricing gouging can lead to both criminal (up to 1-year imprisonment) and civil remedies ($2,500 per violation etc.). 

5. California Establishment of Unelected Council to Set Minimum Wage/Working Conditions for 500,000 Fast Food Workers. As a result of new September 2022 legislation, the state will now appoint a 10-member Council composed of employees, employers, and “union activists” in order to set minimum wages and working conditions of fast-food workers in California. The legislation applies only to “non-unionized workplaces” and “fast food chains” are defined as those with 100 or more restaurants nationwide. 

6. SEC Continues More Aggressive Enforcement. After its much-publicized intention to do so, the Securities and Exchange Commission (the “SEC”) over the last several months has continued more aggressive enforcement actions. Examples include its seeming willingness to exercise claw-back compensation from corporate offices, its increasing insistence upon admission of wrongdoing (as opposed to the previously standards “no admission of guilt” settlements), and its stepped enforcement against corporations which fail to present ESG (Environmental, Social and Governance) criteria and information to prospective investors. ESG is basically a set of criteria which comprise a set of standards for socially responsible investors to use in order to evaluate a corporation’s activities or proposals.

7. The Cessation of the Libor Rate – “The World’s Most Important Number.” Although not commonly known outside the real estate and lending industries, the London Interbank Offered Rate (“Libor Rate”) has been used for decades to establish the interest rates payable in the context of many transactions. Effective as of June 2023, the Libor rate will be discontinued. New loans without fixed interest rates are now being negotiated without Libor terms, and existing Libor agreements (without provisions for replacement interest rate basis) either need to re-negotiated or will be subject to the replacement interest rate provisions as enacted now by many states and Congress.

8. Residential Development of Commercially-Zoned Land. In order to increase the construction of multi-family, residential housing on commercially zoned land, two recent pieces have been enacted to streamline the approval process for such land use. Such legislation, unless vetoed by Governor Newsom, will take effect as of July 1, 2023. Such legislation obviously was enacted in order to accelerate the construction of residential housing, but it will also encourage owners of commercial land to more closely evaluate the possibly enhanced value and even use of their commercially-zoned properties. It is the observation of this author that the impact of this legislation (in a manner similar to the enhanced authorization for ADUs in California) has not begun to be reflected in the marketplace – or begun to be appreciated, if that is the right word, by landowners, real estate developers, and brokers.

Call Me Anytime

General Business Planning

or Corporate, Business or Real Property Law Matters

805-450-2602

— 

My Most Recent Publications

The Writings of a Lifetime (2021)

A Semi-Autobiographical Writing

(Hardback: $19.95 / Paperback: Just $12.95)

and

The White Binder (2022)

For Your Detailed Personal Asset and Liability Management,

Estate Organization, and (Detailed) Disposition Planning

 –Order Today–

Just email me at mwborgen@live.com (Mailing Address and Number of Copies)

(Binder Format, $49.95 plus $6.95 Shipping, Pay After Delivery)

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