by Mike Oliver | Apr 2, 2020 | Business Law, Corporate
Congress passed and the President signed H.R. 748 on March 27, 2020 in light of the recent Coronavirus / COVID outbreak. It contains the single largest government spending program ever enacted or implemented. Many clients are debating whether to make use of a portion of the act – specifically Div A, Title I, KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT. That Section allows the Small Business Administration to guarantee and in some cases pay off certain loans that would otherwise not be available to small businesses. The entire CARES Act can be viewed here https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.xml This post is an overview of that loan program and the ability to have some or all of the loan forgiven.
Before providing the overview, any client considering using this loan program should consider how likely the loan will be approved to be forgiven – and how much might not be forgiven. Even if a loan is not forgiven, there are valid reasons to consider using this loan program because the loan terms are generally very favorable as compared to regular SBA loans. Some businesses however, for example, businesses that have few or no employees, such as real estate holding companies – will not really benefit from this. However, their tenants might benefit from this because a covered cost includes rent. If their tenants are able to re-employ their workers in a fairly short time frame, the loan amount for those expenses might largely be forgiven.
Overview
- Eligibility: In general, any business, including non-profits, sole proprietorships, contractors etc are eligible – but they generally must have less than 500 employees and have been in business as of 2/15/2020.[1]
- Amount: The maximum loan is 2.5 X the total payroll costs of the eligible business for the 1 year period prior to the date the loan is made, not to exceed $10,000,000. Businesses that have been in business for less time can still obtain a loan.
- Period: The loan must be made between February 15, 2020 and June 30, 2020.
- Interest rate: Interest cannot exceed 4%.
- Precondition: The eligible business must make certification that it has been impacted by COVID, however, the certification is very broad.
- Use of funds: Funds from the loan may only be used for eligible expenses which are: payroll costs; group health care benefits; employee related insurance premiums employee salaries, commissions, or similar compensations, payments of interest on any mortgage obligation, rent, utilities; and interest on any other debt obligations that were incurred before the covered period started. Note that these types of expenses can extend past the “covered period” for loan forgiveness.
- Fees: All application fees are waived. All requirements for personal guarantees are also waived.
- Repayment deferral: Lenders MUST defer all payments (interest and principal) for at least 6 months, but not more than 1 year.
- Forgiveness: The eligible business may request that the loan be forgiven for covered costs incurred during the “covered period” which is the 8 week period commencing on the date of the loan origination.
- Covered costs are rent on leases entered into before February 15, 2020, payroll costs[2] (during the covered period), payments of interest on any covered mortgage obligation, and payments on covered utility payments.
- The maximum forgiveness cannot exceed the covered loan amount.[3]
- The amount to be forgiven is reduced on a formula of the average number of “full-time equivalent employees”[4] per month employed by the eligible recipient during the covered period, as compared to the same number in either the period of January 1, 2020 and ending on February 29, 2020 or the period February 15, 2019 and ending on June 30, 2019 (at the election of the borrower), but . . .
- If the eligible business had reduced hours of full time equivalent employees in the period 2/15/2020 and ending on 4/27/2020, such reductions shall not be used in the above calculation as long as such reductions are reinstated not later than June 30, 2020.
More detailed provisions supporting the above summary
H.R. 748, Div A, Title I, KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT
Sec. 1102(a)(1)(A)(iii) – the term ‘covered period’ means the period beginning on February 15, 2020 and ending on June 30, 2020;
(viii) – “payroll costs” – generally, all costs, including retirement, PTO, tips, health insurance, but: capped at 100K over a year, does not include costs for employees whose principal residence is located outside of US, does not include employee tax withholdings, does not include payments under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127).
Sec. 1102(a)(1)(D) – must have
less than 500 employees (complex formulas and requirements as to how to count
them, and for multi-location businesses)
Sec. 1102(a)(1)(E) – maximum loan is generally 2.5 X the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made, capped at $10,000,000. Formula is different if business was started after 2/15/19.
Sec. 1102(a)(1)(F) ALLOWABLE USES OF COVERED LOANS.—
“(i) IN GENERAL.—During the
covered period, an eligible recipient may, in addition to the allowable uses of
a loan made under this subsection, use the proceeds of the covered loan for—
“(I) payroll costs;
“(II) costs related to the continuation of
group health care benefits during periods of paid sick, medical, or family
leave, and insurance premiums;
“(III) employee salaries, commissions, or
similar compensations;
“(IV) payments of interest on any mortgage
obligation (which shall not include any prepayment of or payment of principal
on a mortgage obligation);
“(V) rent (including rent under a lease
agreement);
“(VI) utilities; and
“(VII) interest on any other debt obligations
that were incurred before the covered period.
Sec. 1102(a)(1)(F)(ii)(II) A
lender must consider the age of the business, especially if it either was not
in operation as of 2/15/2020, or had no employees or contractors.
Sec. 1102(a)(1)(G) BORROWER REQUIREMENTS.—
in general the borrower has to certify that
“(I) that the uncertainty of
current economic conditions makes necessary the loan request to support the
ongoing operations of the eligible recipient;
“(II) acknowledging that funds
will be used to retain workers and maintain payroll or make mortgage payments,
lease payments, and utility payments;
“(III) that the eligible
recipient does not have an application pending for a loan under this subsection
for the same purpose and duplicative of amounts applied for or received under a
covered loan; and
“(IV) during the period beginning
on February 15, 2020 and ending on December 31, 2020, that the eligible
recipient has not received amounts under this subsection for the same purpose
and duplicative of amounts applied for or received under a covered loan.
All application fees are waived,
and there is no personal guaranty requirement.
Loans cannot exceed 4% interest
All payments on loans must be
deferred at least 6 months, and not more than 1 year.
Loan Forgiveness, Sec. 1106.
“covered period” means the 8-week
period beginning on the date of the origination of a covered loan;
“covered rent obligation” means
rent obligated under a leasing agreement in force before February 15, 2020;
“expected forgiveness amount”
means the amount of principal that a lender reasonably expects a borrower to
expend during the covered period on the sum of any—
(A) payroll costs;
(B)
payments of interest on any covered mortgage obligation (which shall not
include any prepayment of or payment of principal on a covered mortgage
obligation);
(C)
payments on any covered rent obligation; and
(D)
covered utility payments;…
Limits on forgiveness: “The amount of loan forgiveness under this
section shall not exceed the principal amount of the financing made available
under the applicable covered loan.” § 1106(d)
Amount is reduced by a formula:
(the average number of full-time equivalent employees per month employed by the eligible recipient during the covered period)
DIVIDED
BY
EITHER:
(the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019)
OR
(the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020)
In addition, “The amount of loan
forgiveness under this section shall be reduced by the amount of any reduction
in total salary or wages [of any employee making less than 100K] … during the
covered period that is in excess of 25 percent of the total salary or wages of
the employee during the most recent full quarter during which the employee was
employed before the covered period.”
Finally, “the amount of loan forgiveness under this section shall be determined without regard to a reduction in the number of full-time equivalent employees of an eligible recipient or a reduction in the salary of 1 or more employees of the eligible recipient, as applicable, during the period beginning on February 15, 2020 and ending on [April 27, 2020]” if
EITHER OR BOTH OF THE FOLLOWING
ARE TRUE:
“(I) during the period beginning on February 15, 2020 and ending on [April 27, 2020], there is a reduction, as compared to February 15, 2020, in the number of full-time equivalent employees of an eligible recipient; and (II) not later than June 30, 2020, the eligible employer has eliminated the reduction in the number of full-time equivalent employees;
(I) during the period beginning
on February 15, 2020 and ending on [April 27, 2020], there is a reduction, as
compared to February 15, 2020, in the salary or wages of 1 or more employees of
the eligible recipient; and (II) not later than June 30, 2020, the eligible employer has eliminated the
reduction in the salary or wages of such employees
[1] A business formed or started after this date might be eligible, it is a factor in the loan underwriting. Multi-location businesses with more than 500 employees might also be eligible.
[2] Note that there are no exclusions for payroll paid to
owners, so long as the owner is not making more than 100K.
[3] It is not clear if they intended this to mean “plus
interest”
[4] Note therefore that part time employees are covered
but are calculated on a “full time equivalent” basis.
by Mike Oliver | Jan 2, 2020 | Contracts, Entertainment law
When creating new media works, such as films, television shows, and other entertainment productions, in addition to the “who is the owner of the work” question – which includes issues of joint authorship – a separate question that often arises is – what is the obligation to identify someone who contributed to the work with a specific title, such as producer, associate producer, executive producer, and so on?
In FOCAL POINT FILMS, LLC, v. ARJOT SANDHU, 2019 WL 7020209 (N.D. California. 12/20/2019) this issue was resolved in favor of a film documentarian in a dispute with a person who made some contributions to a film, and who claimed the right to be listed as a “producer” of the film.
Brief facts
The plaintiff, Focal Point, had the idea for and had been working on a documentary film about Betty Reid Soskin, “a 94-year old African American woman who entered the public spotlight when she became the oldest National Park Ranger serving in the United States.” The owner of Focal Point met the defendant Ms. Sandhu at a film workshop, and she asked to work on the documentary film project. She did work “as an extra camera operator during a handful of shoots, always under Gibel’s supervision and with the understanding that Sandhu would be compensated on partially deferred basis.” Focal Point offered Ms. Sandhu “associate producer” credit on the film, however after exchanging numerous drafts of agreements, over several years, the parties could not agree in writing. Allegedly Ms. Sandhu “snuck unauthorized co-director and co-editor credits for herself into a “pitch deck” for the film” – even after her services were terminated, and her assertion of title or co-ownership over the film was preventing Focal Point from obtaining financing to finish the film. Focal Point sued for a declaratory judgment that it was the sole owner of the Film.
The issue for the court was whether Ms. Sandhu owned any part of the film, and whether she was required to be listed as a Producer.
There is no universally accepted definition of “Producer” – it is an industry term of art that refers to “the person responsible for finding and launching a project; arranging financing financing; hiring writers, a director, and key members of the creative team; and overseeing all elements of pre-production, production and post-production, right up to release.” See https://www.masterclass.com/articles/what-does-a-hollywood-producer-do-responsibilities-of-a-film-producer-and-how-to-become-a-producer#what-is-a-producer. Or, in words of the Producers Guild of America “A Producer initiates, coordinates, supervises and controls, either on his/her own authority, or subject to the authority of an employer, all aspects of the motion-picture and/or television production process, including creative, financial, technological and administrative. A Producer is involved throughout all phases of production from inception to completion, including coordination, supervision and control of all other talents and crafts, subject to the provisions of their collective bargaining agreements and personal service contracts.” https://www.producersguild.org/page/faq
The legal issue
Looking at the issue of Producer credit, the court noted that under Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003) a person who claims ownership in a copyrighted work does not have a claim for false designation of origin (or any other unfair deceptive trade practice claim, in most cases) because “the phrase “origin of goods” “refers to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept or communication embodied in those goods.”” Id. at 37. The court also cited Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1143 (9th Cir. 2008) in which the court rejected plaintiff’s claim that a karaoke company misrepresented it had proper synchronization licenses from the plaintiff – noting that “Construing the Lanham Act to cover misrepresentations about copyright licensing status as Sybersound urges would allow competitors engaged in the distribution of copyrightable materials to litigate the underlying copyright infringement”
The court, relying on the above cases, but also many others including Friedman v. Zimmer, No. 15 Civ. 502, 2015 WL 6164787 (C.D. Cal. July 10, 2015) (which held that a musician who claimed his work was included in a movie that represented only the music of Hans Zimmer was included, did not have a claim for failure to attribute him and his music in the credits) – found that Dastar and Sybersound barred Ms. Sandhu’s claims, including her claims that her reputation was being injured by failure to credit her role in the Film. The court also rejected similar state law claims.
Why a written agreement is important
If not obvious from the above case, it is important for film makers – really, any creators that will collaborate with others, to have an agreement *before* that collaboration commences. In this case the parties made significant efforts to put their agreement in writing, but the fact that they could not agree should have been a red flag to the documentarian that troubled waters were ahead. In these cases it is almost always best to terminate the relationship and find another collaborator who will sign a fair written agreement. At least this case helps to resolve one issue that comes up in those cases where a written agreement is not present – the collaborator will probably not have Lanham Act type claims for “credit” that would survive Dastar and its progeny, even under state law. That leaves just the issue of co-ownership – which in this case was not at issue on the motion.
