Blog No. 166

May 23, 2023

Reading Time: 8 Minutes

By Mack W. Borgen

2024 Listee – Who’s Who in America; University of California at Berkeley (Honors, Economics); Harvard Law School; National Award-Winning Author.

– Call Me Anytime –

General Business Planning

or Corporate, Business or Real Property Law Matters

805-450-2602

—

Quick Facts

California – One of the Largest Economies in the World

California is now the fourth (or, according to the Cato Institute, the fifth) largest economy in the world. The countries with the largest economies are as follows:

Ranking         Nation                                     Size of Economy in US Dollars

1.                Unites States                                       23.3 Trillion

2.                People’s Republic of China              17.7 Trillion

3.              Japan                                                      4.9 Trillion

4.             Germany                                                 4.3 Trillion

(5.             California                                                3.7 Trillion)

5.              India                                                        3.2 Trillion

6.              United Kingdom                                   3.1 Trillion

7.              France                                                     3.0 Trillion

8.              Italy                                                         2.1  Trillion

9.             Canada                                                     2.0  Trillion

10.             South Korea                                            1.8 Trillion

11.             Russia                                                      1.78 Trillion (About 1/3 the Size of California!!)

More and More Bank Branch Closures

Physical bank branches are continuing to close at an alarming rate. In the four (4) years between 2017 and 2021, 7,425 bank branches were closed in the US. – about 9% of all locations. As almost might be expected, Wells Fargo led the pack with nearly 1,000 bank branch closures.

The specific reasons vary from branch to branch, but overall, the closures (a) reflect cost cutting deemed necessary by the banks due to decades of low interest rates which have squeezed banks’ profits, and (b) the increased promotion and use of digital banking.

Huge Rise in SEC Whistleblower Tips

Since the beginning of the COVID pandemic and the beginning of the” great resignation,” there has been a substantial rise both in the number of whistleblower complaints filed with e SEC and the number of whistleblower awards given out. For example, in FY 2021-2022, the SEC received 12,300 whistleblower tips – the highest number since the inception of the program. In addition, the award amounts and the number of award recipients were the second highest ever.

Various forms of whistleblower programs are expanding throughout the world including in the EU, India, Japan, and Australia.

Social-Cultural News

Rising Number of Americans Switching Religions

Nearly 25% of Americans say that they now follow a different religion or tradition than they did previously. Other data reports that more Americans are turning away from Christianity or, more precisely, are seeing themselves as unaffiliated with any particular religion.

The most commonly cited reasons are as follows:

1 – 56% – Stopped believing in the religion’s teachings;

2 – 30% – Negative religious teachings about or treatment of LGBTQ+ people;

3 – 29% – Family was never religious growing up;

4 – 27% – Scandals involving leaders of form er religion;

5 – 18% – Traumatic personal event; and

6 – 17% – Church or congregation became too political.

Interesting Legal Developments

California Proposes Statutory Ban on Hidden Fees

As all consumers know, more and more companies use artificially low headline prices to attract customers – and then add on one or a series of hidden or “junk” fees in order to reach the final price. Such additional fees, charges, or costs are normally disclosed only in smaller print or revealed later in the buying process.

In an attempt to finally put an end to this de facto deceptive pricing California is now considering a new law (Senate Bill 478) which would enhance pricing transparency and would prohibit the use of hidden fees and charges.

Creation of New “Business Court” in Texas

In order to keep up with other specialized business-centered legal systems such as those in Delaware and New York, Texas recently passed legislation to create a new specialized court for the resolution of high-stakes business disputes.

The new Texas business court will be created effective in January 2025 to adjudicate derivative actions and business disputes involving $10.0MM or more. Unlike other entry-level courts in Texas, the business court judges will be required to issue written opinions which may, collectively, help give parties more certainty with respect to both documentation drafting and in the litigation process.

New York City Adopts Groundbreaking Climate Change Regulation

Recognizing that an estimated 70% of the greenhouse gas emissions in NYC come from buildings, NYC enacted a first-of-its-kind regulation. The new law will affect nearly all commercial and residential buildings which are more than 25,000 square feet in size — about 40,000 NYC buildings. Under the new law and starting in 2024, strict emissions caps will be imposed, and property owners will be required to either retrofit their buildings or face a financial penalty.

Apart from novelty of this legislation and the fact that this lease only affects NYC properties, the new law serves as a prescient reminder that all such leases – and especially long-term leases of or in larger buildings – should pro-actively address the respective landlord and tenant liabilities in the event similar legislation is enacted in the governing jurisdiction during the term of the lease. Otherwise, either the landlord or the tenant may incur substantial retrofitting costs or, alternatively, one or both of the parties may have a right to terminate the lease.

Florida Restricts Some Foreign Ownership of Real Estate

A new Florida law prohibits persons or entities from certain countries (e.g., China, Russia, Iran, North Korea, Ciba, Venezuela, or the Syria) from owning agricultural land and certain asset classes (e.g., real property near a military installation or critical infrastructure) and prohibits governmental entities from contracting with such named foreign countries or from entering into any contract granting any economic incentives to any of the named countries.

Reasons For Retaining Counsel in Context of a New Business Start-Up

Determining if and when to retain counsel is, at best, challenging. This is especially true in the context of starting a new business since the party or parties are normally overwhelmed with product design or definition, employment and staffing, marketing and advertising, space leasing, and many other aspects of any new business. Relatedly, usually there are many cost and budget pressures associated with the formation and starting of a new enterprise.

Nevertheless, there are at least six (6) “new business” categories of tasks that the business owners may advisedly want to have the attorney do—or at least review. Those categories are as follows: (1) Choosing the Entity Structure (C or S Corporation, limited liability company, general or limited partnership, sole proprietorship, etc.) and related formation documentation and filings, (2) Drafting Standard Customer Contracts (including product representations or warranties), (3) Review of Office or Store Leases and Major Vendor Contracts, (4) Protecting Intellectual Property including, for example, the product or company name, (5) Strategic Business Advice including, for example, alternative deal structures or marketing approaches, knowledge of industry standards for pricing or payment terms, and a multitude of compliance matters relating to applicability of employment laws)m, and (6) Supervising the Writing of Websites Designs, Postings. and Policies.

Force Majeure Clauses in Commercial or Retail Space Leases

Especially as the result of the COVID-19 pandemic and associated ordinances passed in its wake, both landlords and tenants have been required to closely examine what is traditionally an important, but relatively obscure part of their leases – the force majeure provisions. Force majeure provisions basically provide a permitted exemption to lease compliance (e.g. the payment of rent) in the event of any occurrence of those matters carefully enumerated within the force majeure provision.

Underscoring the importance of precise contract drafting, the California courts have consistently held that whether a party is permitted, for example, to terminate the lease or suspend or defer the payment of rents under a force majeure clause is dependent solely upon the precise terms of the clause itself. Therefore, for example, the mere existence and the substantial and obvious consequences resulting from the Covid-19 pandemic do not in and of themselves allow a tenant to terminate a lease or defer the payment of rent thereunder. However, under a well-drafted force majeure provision, the COVID-19 pandemic could qualify as a force majeure trigger if the clause defines this term to include, for example, an event “due to fire, act of God, governmental act or failure to act … or any cause outside the reasonable control of the Party.”

An Obscure Real Estate Issue – But When It Applies!!!

The Treasury Department’s Committee on Foreign Investment in the United States (“CFIUS”) restricts foreign investments in real estate within 99 miles of designated jurisdictions such as military bases. While this affects only a tiny portion of the land in the U.S., when it applies and if the purchaser (directly or indirectly) is owned by certain foreign nationals, then CFIUS can and oftentimes will assert approval jurisdiction. For example, one of its recent proposed rules adds military ranges in six new states including Air Force Plant 42 in Palmdale, CA and Luke Air Force Base in Glendale, AZ.

In an abundance of caution and if any prospective buyer is or may be owned by a foreign national, then it would now be prudent to include certain confirming representations and warranties in standard purchase and sale agreements since CFIUS has been continually expanding its land jurisdiction since the regulations took effect in February 2020.

Thoughts for the Day

“Whatever the problem, be part of the solution.”

“One person can make a difference and every person should try.” 

Copyright 2023 by Mack W. Borgen. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, except in the case of brief quotations embedded in critical articles or reviews, without prior written permission by the author.