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Archive for the ‘Coronavirus – Commercial Contracts and Risk Management’ Category

Finding Shelter from the Storm: SBA Issues New Guidance on Safe Harbors for PPP Borrowers

Posted on: May 20th, 2020

By: Anastasia Osbrink

The safe harbor period for businesses that received the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) loans expired on May 18, 2020 after a 4-day automatic extension. That safe harbor provided that businesses that repaid loans by that date would automatically be deemed to have satisfied the “good faith” requirement of the PPP wherein borrowers certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This safe harbor arose after reports of large businesses, such as Shake Shack and the NBA, receiving loans under the program. Under normal circumstances, a business must provide documentation of making unsuccessful attempts to obtain loans from other sources prior to receiving an SBA loan. However, the PPP required self-certifications of good faith and eligibility without requesting separate documentation. The purpose of this was to quickly get an injection of cash into the economy – particularly to small businesses – so that companies could retain and rehire employees. When it came out that large companies were also receiving these loans, a public outcry ensued and the SBA provided additional guidance allowing for this safe harbor period so that large businesses would be encouraged to repay loans without facing any further investigation, audits, or consequences based on the “good faith” certification. Many of these larger businesses may still satisfy the “good faith” requirement, but making quick repayments creates good optics for these companies and eliminates further audits based on this certification.

Now, in a further effort to conserve resources and protect small business’ payroll capacities, the SBA has announced an additional safe harbor. This second safe harbor provides for an automatic assumption of good faith for any borrower that, along with its affiliates, received under $2 million in PPP loans, regardless of whether that loan was repaid by May 18, 2020. This means that audits for good faith will only be conducted for companies that received over $2 million and did not repay that loan by May 18th. The SBA cited three reasons for this additional safe harbor: 1)  borrowers that received under $2 million are more likely to satisfy the “good faith” requirement because they are less likely to have had access to other loan sources; 2) it will help promote economic stability by helping small businesses retain and rehire employees that otherwise may not have the ability to do so; and 3) it will enable the SBA to conserve resources by only investigating and auditing those companies that received bigger loans, which could yield larger returns if successful. It should be noted, though, that neither of these safe harbors apply to other requirements, such as the eligibility certification, or outright false statements or fraud. However, except where there is evidence of actual fraud, it appears that companies that fall into one of the safe harbors are unlikely to be audited.

It also seems that the SBA is less focused on punishment and more focused on recouping loans that did not satisfy the good faith requirement. That is because the SBA additionally stated that if it does determine a company failed to satisfy the good faith requirement after being audited, the company will not face any further action or fines if it repays the loan in full. This though, again, does not apply to determinations of actual fraud.

As the focus shifts to larger companies and the safe harbor for these larger loans expires, the Securities and Exchange Commission (“SEC”) is ramping up its investigations of public companies that received PPP loans. The SEC is seeking information from several of these public companies in order to ascertain whether they satisfied the PPP requirements. As part of this sweeping probe, the SEC is sending out letters to these public companies entitled “In the Matter of Certain Paycheck Protection Program Loan Recipients,” in which it requests additional information and documentation. This again demonstrates the focus of audits and investigations on large companies that received significant loans rather than on small businesses.

If you have questions or would like more information, please contact Anastasia Osbrink at [email protected].

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis.  Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Potential New Reporting Requirements for Long-Term Care Facilities in the Commonwealth in Response to COVID-19

Posted on: May 14th, 2020

By: Janet Barringer, William Gildea and Kevin Kenneally

In the wake of alarming reports from other states that nursing homes were forced to accept known COVID-19 positive residents, a policy which may have caused the spike in healthy nursing home residents becoming infected, Massachusetts has proposed sweeping legislation to protect senior citizens and to require daily reporting from Long-Term Care residences to ensure patient and resident safety. The Commonwealth of Massachusetts State Legislature has proposed legislation that will impact reporting requirements for long-term care facilities, including assisted-living facilities and state correctional facilities in response to the COVID-19 pandemic.

If enacted, Massachusetts Senate Bill S.2695 would significantly impact day-to-day operations at long-term care facilities.  Facilities will have to consider how to change their respective operations to meet reporting requirements.  

The proposed legislation will demand close monitoring of COVID-19 cases of residents and employees in Long-Term care facilities and increase reporting requirements.  Massachusetts Senate Bill S.2695 proposes the Department of Public Health collect daily data sets from local Boards of Health, including but not limited to:

  • the total number of people tested for COVID-19 within the previous 24 hours;
  • the total number of people who have tested positive for COVID-19 within the previous 24 hours;
  • the total number of people who have died due to a probable or confirmed case of COVID-19 or from complications related to COVID-19, as reported in the previous 24 hours through the department’s receipt of vital records;
  • the aggregate number of people who have died due to a probable or confirmed case of COVID-19 or from complications related to COVID-19 since the governor’s March 10, 2020 declaration of a case of COVID-19, including, but not limited to:
    • gender;
    • race;
    • ethnicity;
    • primary city or town of residence;
    • age;
    • disability.

The proposed legislation calls for the Department of Public Health to publish daily reports of the data collected.  The daily reports would be compiled by geographic location, including by county and municipality, and assisted living residences licensed by the executive office of elder affairs and long-term care facilities licensed by the department of public health, including the number of COVID-19 positive cases andmortalities among residents, as well as the aggregate number of COVID-19 positive cases and mortalities among staff at each residence or facility. 

Assisted-living facilities licensed by the Executive Office of Elder Affairs and long-term care facilities licensed by the Department of Public Health will be required to notify residents and their representatives within twelve (12) hours if there is a confirmed case of or death due to COVID-19 in a resident or staff member and/or if three (3) or more residents/staff have a new onset of respiratory symptoms within the previous seventy-two (72) hours.  The proposed legislation also calls for a task force to study and make policy recommendations that address health disparities for underserved or underrepresented populations during the COVID-19 pandemic.  The proposed legislation would no longer be in effect after the governor certifies there has been no positive COVID-19 test in the Commonwealth.

If you have any questions or would like more information, please contact Kevin Kenneally at [email protected], Janet Barringer at [email protected] or William Gildea at [email protected].

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include tort claims in a post COVID-19 world, real estate issues amid the pandemic and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Massachusetts: Relief Funds For Nursing Home & Other Long-term Care Facilities Fighting COVID-19

Posted on: April 27th, 2020

By: Janet Barringer and William Gildea

Massachusetts Governor Charlie Baker announced on April 27, 2020 the Commonwealth will allocate $130 Million to nursing homes and other long-term care facilities in Massachusetts to assist in the ongoing battle against COVID-19. The COVID-19 Nursing Facility and Accountability Support document states “[n]ursing facilities account for more than half of COVID-19 related deaths in the state.” The rapid rate of infection and mortality is driven by the “health status of residents, lack of infection control sophistication and for crisis management, substantial staffing issues (up to 20-40% of call out rates), and difficulty cohorting residents to decrease transmission.”

Nursing homes and other long-term care facilities should take note of this new assistance offered by the Commonwealth to help the battle against COVID-19. The Press Release provides the following:

  • Funding will support staffing costs, infection control and personal protective equipment (PPE);
  • Funding is dependent on required COVID-19 testing of all staff and residents, regular infection control audits, appropriate allocation of funding and the public release of facility performance and funding use;
    • Facilities must test all staff and residents, and report results to the Commonwealth. Facilities are also encouraged to identify and pursue testing avenues with area hospitals, EMS or other providers. The state’s mobile testing program is available for those facilities unable to set up testing.
    • All nursing facilities will be regularly audited in-person for infection control and accountability, and each will receive a baseline audit during the first two weeks of May. These clinical audits will be conducted using a 28-point Infection Control Checklist, based on DPH, CDC and industry guidance. This checklist includes infection control, PPE supply and usage, staffing, clinical care, and communication requirements.
    • Frequency of audits is dependent upon a variety of factors including: Audit Rating, historically documented infection control issues, staffing levels based on industry standard hours per patient day of care and call-out rates, level of COVID-19 infection, and quality rating by the Nursing Facility Taskforce.
  • Facilities will be scored into three ratings: in adherence (green), in adherence but warrants inspection (yellow) and not in adherence (red).
  • The Commonwealth will offer support for temporary staffing assistance for all nursing homes in need, including clinical response teams of 120 nurses and Certified Nursing Assistants deployed in teams of 10 during emergency situations, crisis management support and deployment of the Massachusetts National Guard;
  • All performance measures and funding use will be publicly reported using a mandatory reporting template, and the Commonwealth will provide consolidated information in the testing completion status by facility, COVID-19 case counts and mortality of staff and residents, and audit results. These reports will be due shortly after June 30th, and the Commonwealth will then compile and deliver a public report.
  • Funding is directly linked to an audit rating over time and, if qualified, will be dispersed biweekly over four “pay periods.”

Governor Baker promised to be “aggressive” in assisting long term care facilities impacted by COVID 19. The $130 Million in relief funds and associated steps for protection are examples of the care extended by Massachusetts to those who live and work in nursing homes and other long-term care facilities.

If you have any questions or would like more information, please contact Janet Barringer at [email protected] and William Gildea at [email protected].

Supreme Court to Hear Arguments Remotely, Including TCPA Constitutional Challenge

Posted on: April 16th, 2020

By: Matthew Foree

This week, the United States Supreme Court announced that it would hear oral arguments remotely for the first time in its history.  The Court will hear oral arguments by telephone conference on certain dates in May in a limited number of cases that had previously been postponed.  The cases are to be assigned dates for argument after confirming counsel’s availability.

The Court’s press release provides that “[i]n keeping with public health guidance in response to COVID-19, the Justices and counsel will all participate remotely.”  Interestingly, the Court stated that it “anticipates providing a live audio feed of these arguments to news media” and that “[d]etails will be shared as they become available.”

Among the cases the Court is set to hear in May is Barr v. American Association of Political Consultants, Inc., which concerns a constitutional challenge to the Telephone Consumer Protection Act (“TCPA”).  The Court has just scheduled argument in the Barr case for Wednesday, May 6, 2020.The TCPA generally prohibits calls to a cellular telephone using either an “automatic telephone dialing system” (ATDS) or an “artificial or prerecorded voice,” unless the call is made with the prior express consent of the recipient.  In a 2015 amendment to the TCPA, Congress exempted from this prohibition calls “made solely to collect a debt owed to or guaranteed by the United States.” 

In 2016, the Respondents in Barr initiated a declaratory judgment action against the Federal Communications Commission (“FCC”) and the Attorney General, arguing that the TCPA’s content-based ban on protected speech violated the First Amendment.  They sought declaratory relief and an injunction restraining the Government from enforcing the ban against them.  The case made its way to the U.S. Court of Appeals for the Fourth Circuit, which found a First Amendment violation and determined that the government-debt exception was severable from the rest of the TCPA.    

As we have discussed previously, TCPA litigation often centers around whether calls were made using an ATDS.  The current litigation landscape concerning the interpretation of the definition of ATDS has caused a split in the Circuit Courts and generated significant confusion that continues to this day.  In Barr, Respondents argue that the TCPA’s automated call restriction, not just the government-debt exception, violates the First Amendment.  Accordingly, practitioners in this area are anxious for the ruling on this matter, particularly as it relates to how far the Supreme Court will go to resolve the constitutional issue, which can have a major impact on the statute and TCPA litigation moving forward.  

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

COVID-19’s Cascading Impact on Corporate Finances and Loan Obligations: Key Issues Facing Lenders and Borrowers

Posted on: April 15th, 2020

By: Jill Dunn and Travis Cashbaugh

As COVID-19 continues to disrupt financial markets and businesses across the country, now is a good time for borrowers and lenders to review the terms of any loan documents to consider the impact of recent developments on their rights and obligations. FMG’s April 16th, 2020 Webinar, COVID-19’s Cascading Impact on Corporate Finances and Loan Obligations (click here to register), will address these issues in greater detail. In anticipation of the webinar, some key issues that lenders and borrowers should consider as they navigate the COVID-19 crisis are listed below.

Events/Developments that may trigger an event of default:

  • Financial Covenants.  Financial covenants are the promises or agreements entered by a borrowing party which set out various financial marks that gauge areas such as a borrower’s liquidity and cash flow. Lenders and borrowers will need to assess the impact of COVID-19 on borrowers’ ability to comply with their financial covenants. For borrowing based calculations such as EBITDA, a drop in revenue is likely to adversely impact compliance with financial covenants leading to breach or default. For borrowers who believe a violation of financial covenants is imminent given this crisis, it might be prudent to speak with lenders about the possibility of obtaining waivers and amendments to their financial covenants.
  • Liquidity. Many businesses, because of COVID-19, are experiencing considerable cash flow and liquidity challenges. Lenders and borrowers should consider whether the loan agreement permits the incurrence of additional debt (for example, through SBA loans) to address potential cash flow issues, whether such action requires other lenders to consent, and what the related documentation process involves.
  • Material Adverse Effect (MAE). This is a covenant in most commercial loans and lines of credit in the borrower’s representations and warranties section of the loan agreement.  Through the MAE, the borrower represents there has been no circumstances having a material adverse effect on assets, business or financial condition of the borrower since the date of the parties first signing the agreement. Representations and warranties are terms considered continuous, meaning the obligations extend beyond the time the agreement is signed. Businesses accessing their lines of credit to get through the COVID-19 crisis could be in a difficult situation as they determine whether they can represent to lenders no MAE has occurred. While whether COVID-19 constitutes a MAE is fact-specific and dependent upon the language of the agreement, lenders and borrowers should review the details of any MAE and determine any necessary reporting requirements.
  • Reporting and notification. Particularly relevant to the COVID-19 crisis, lenders may require current financial statements from borrowers. With cities and states under complete or partial lockdown, some borrowers (likely growing in number by the day) will face disruption issues in the delivery of required financial disclosures/reporting to lenders that could violate the information delivery covenant. Borrowers should review their obligations to provide proper notices under the agreement and meet any deadlines by which they must deliver any such information and notices.

If a borrower is in default, it may trigger remedies by the lender.  Sometimes, such remedies can also be triggered by failure to comply with the loan covenants. Although not an exhaustive list, below are common remedies available to a lender upon a borrower’s default which may be relevant in the COVID-19 context.

Remedies available to Lender:

  • Acceleration of loan payback requirements. A borrower’s failure to issue payment when due under the terms of the agreement generally triggers an immediate event of default and gives lenders the ability to exercise acceleration rights. With the potential financial covenant and liquidity issues (discussed above) resulting from COVID-19, borrowers and their lenders should know the terms and thresholds within their agreements causing acceleration and similar loan loss provisions.
  • Receivership. A receivership occurs when a court appoints a third party to exercise independent oversight on specific assets. Given the anticipated increase in real estate and commercial disruptions related to COVID-19—likely leading to increased loan defaults—lenders will want to consider which borrowers are good candidates for a receiver; entities or people the lender will contact if a receivership becomes necessary; and the anticipated limit that, when reached, will cause the lender pursuing receivership, as opposed to other options during these highly uncertain financial times.   
  • Foreclosure.  If default occurs, particularly relevant to real estate transactions, agreements permit lenders to seek foreclosure on property or collateral identified in the agreement. Lenders may utilize foreclosure when they have concerns that if a borrower is in default, the borrower will not maintain the property, and the value of the collateral will decrease. Note however, states along with the federal government have acted through executive order and other legislation to limit home foreclosures in response to the COVID-19 crisis. Besides determining applicable state law, and considering the relationship and size of the loan, lenders should weigh the cost effectiveness of pursuing foreclosure against other options, including forbearance agreements or restructuring the loan.

Remedies available to Borrower:

  • Forbearance. Generally, in a forbearance agreement, the lender agrees to reduce or suspend payments for a period of time. In exchange the borrower must resume paying at the end of the forbearance period. Such agreements generally come in short-term and long-term forms. For short-term forbearance agreements, both the borrower and the lender believe that key issues affecting the borrower will be resolved soon. However, when cash flow problems—likely resulting from the COVID-19 crisis—are expected to last for longer periods, depending upon the relationship between the parties, a long-term forbearance arrangement might be feasible. Given the current state of affairs, lenders may be more willing to negotiate forbearance options, given the anticipated defaults and losses resulting from COVID-19. Borrowers should review their relevant loan agreements and contact their lenders to determine and agree upon any forbearance actions.
  • Modification. Modification differs from forbearance in terms of definiteness.  While a mortgage forbearance agreement provides relative short-term relief, a loan modification agreement is a permanent solution. Generally, in the modification context, a borrower seeks: principal reduction; interest rate reduction; waiver or deferment of payments; waiver of certain financial covenants; an extended-term of repayment; or conversion to a fixed-rate loan. A borrower experiencing cash flow problems regarding the COVID-19 crisis should contact its lender to see whether modification is possible.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Other topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**