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2021 Wills, Trusts & Estates Alert

This Alert is to advise you about recent proposals that, if enacted, are likely to have a significant impact on your estate plan.

Current Law and Proposed Changes

Under current law, the Federal estate, gift and generation-skipping transfer (GST) tax exemptions in 2021 are $11.7 million per individual.  These exemptions, which are indexed annually for inflation, were doubled in 2018 under the Tax Cuts and Jobs Act from $5 million per individual to $10 million per individual, but are scheduled to revert back to $5 million per individual (indexed for inflation) at the end of 2025, absent the adoption of new legislation.  The tax rate for transfers in excess of the estate, gift and GST tax exemptions is 40%.

Two bills recently introduced in the Senate and currently under consideration are commonly referred to as the “For the 99.5% Act,” introduced on March 25, 2021 by Senator Bernie Sanders (VT), and the “Sensible Taxation and Equity Promotion Act of 2021,” or “STEP” Act, introduced on March 29, 2021 by Senator Chris Van Hollen (MD).  A bill similar to the Van Hollen proposal was introduced in the House of Representatives on May 29, 2021 by Congressman Bill Pascrell (NJ).  In addition, on May 28, 2021, the Biden Administration released its fiscal year 2022 budget proposal, which includes elements similar to the Senate and House legislative proposals.

If enacted, the changes to the federal tax law would have a disruptive impact on existing plans and future estate planning.  These changes would affect not only the estate tax rate and the amount that an individual is able to pass free of estate tax at death, but would also curtail and restrict the effectiveness of many commonly used estate planning techniques.

 

Proposed Changes under the Sanders and Van Hollen Bills

Sanders Bill – Estate and Gift Tax Exemptions and Tax Rates 

The Sanders bill would significantly reduce current estate and gift tax exemption amounts and increase tax rates.  The bill would reduce the estate tax exemption from $11.7 million to $3.5 million (not indexed for inflation), reduce the gift tax exemption from $11.7 million to $1 million and would increase the estate and gift tax rate from the current 40% to a new progressive tax rate structure ranging from 45% (for values over $3.5 million) up to 65% (for values over $1 billion).

The following table1 demonstrates the impact the Sanders bill would have on estate taxes:

Estimated
Taxable Estate
2021 Estate Tax Estate Tax under For the 99.5% Act Proposed Tax Increase
$5 million $0 $675,000 $675,000
$7.5 million $0 $1,800,000 $1,800,000
$25 million $5,320,000 $11,745,800 $6,425,800
$60 million $19,320,000 $29,745,800 $10,425,800
$100 million $35,320,000 $51,745,800 $16,425,800
$2 billion $795,320,000 $1,196,745,800 $401,425,800

1 Robert Keebler, Joy Matak, Jonathan Blattmachr and Martin Shenkman, Sanders Tax Proposal: Analysis and Suggestions for Immediate Action (4/5/2021).

 

Sanders Bill – Lifetime Gifts and Grantor Trusts

Under the Sanders bill, the exemption for lifetime gifts would be reduced to $1 million (not indexed for inflation), a massive decrease from the current exemption amount.  The decreased gift tax exemption would limit the effectiveness of lifetime gifting strategies, which have long been an efficient way to use the exemption.  The reduction in the lifetime gift exemption would be effective for gifts made after December 31, 2021, providing a short window of opportunity for planning before the reduction would come into effect.

Beyond the decreased exemptions, the Sanders bill includes other significant changes that would disrupt foundational estate planning methods, including plans involving annual gifting to trusts such as irrevocable life insurance trusts.

  • The current annual $15,000 per donee gift tax exclusion would be limited to $30,000 per donor with respect to certain gifts in trust.
  • Grantor trusts (which include irrevocable life insurance trusts) are targeted.  Grantor trusts are treated as owned by the grantor for income tax purposes but if properly structured, are excluded from the grantor’s taxable estate at death.  Under the Sanders bill, grantor trusts that are created or to which contributions are made after the date of enactment would be included as part of the grantor’s taxable estate at death, and/or subject the grantor to gift tax if distributions are made during the grantor’s lifetime or if grantor trust status is toggled off.  As a result of these potential changes, it may be prudent to fund existing life insurance trusts with cash or high basis income producing assets using the grantor’s gift tax exemption so that the life
    insurance trust will have funds with which to pay premiums for several years.

 

The Sanders bill includes a number of other changes that would reduce the effectiveness of several long-established planning techniques.  Some of these changes include:

  • Eliminating valuation discounts for “nonbusiness assets” (assets which are not used in the active conduct of a business) held by an entity.
  • Eliminating minority/lack of control discounts where a family controls a business or owns the majority of the ownership interests (by value).
  • Limiting the effectiveness of Grantor Retained Annuity Trusts (GRATs) by requiring a minimum term of 10 years and prohibiting the use of zeroed-out GRATs by requiring a remainder interest valued at the greater of 25% of the amount contributed to the GRAT or $500,000.
  • Limiting the utilization of dynasty trusts and strengthening the GST tax by permitting allocation of GST exemption to trusts created after date of enactment only if the trust terminates within 50 years.  For existing trusts to which GST exemption was allocated before enactment, such exemption would terminate after 50 years from date of enactment.

 

Van Hollen Bill – Recognition of Gain on Death and Gift

Under current law, property that is included in an individual’s estate for federal estate tax purposes receives a “step-up” in basis at death for income tax purposes.  Consequently, the beneficiaries inheriting the property are not required to pay income tax on any capital gain on the inherited property, and a beneficiary’s basis in such property, for income tax purposes, is adjusted to the fair market value at the time of death (other than retirement plans).  This essentially eliminates capital gain at the time of death, so that the beneficiary must pay tax only on gains accruing after the date of death.

The Van Hollen bill would eliminate the step-up in basis at death and would instead cause the estate to recognize the gain on property passing at death, as if the property had been sold, causing the gains to be subject to income tax at that time, subject to a $1 million exclusion.  The bill would also cause gain recognition on property transferred by lifetime gift, subject to a $100,000 lifetime exclusion, and would also require certain trusts to pay capital gains tax on trust property every 21 years.  The effective date of the Van Hollen bill would be retroactive to January 1, 2021.

 

Biden Administration Budget Proposals

On May 28, 2021, the Biden Administration released its fiscal year 2022 budget proposal that includes elements similar to those outlined in the bills described above.

  • The proposal calls for taxation of gains on appreciated assets by gift or at death, subject to a $1 million exclusion per individual ($2 million for married couples), indexed for inflation.
  • Assets transferred to a U.S. citizen spouse would retain a carryover basis, and capital gain would not be recognized until the disposition of the asset by the surviving spouse or his or her death.
  • Payment of tax on the appreciation of certain family-owned businesses would not be due until the
    interest in the business is sold or the business ceases to be family owned.
  • The proposal sets forth other transfer events that would trigger a capital gains tax.
  • These events include transfers of appreciated assets to or from a trust, partnership or other non-corporate entity (other than a grantor trust that is deemed to be wholly-owned and revocable by the donor).
  • Gains on unrealized appreciation would be recognized by a trust, partnership or other non-corporate
    entity if that property has not been the subject of a recognition event within the prior 90 years, with the first possible recognition event to take place on December 31, 2030.
  • The proposal does not address whether the Biden Administration will seek to lower the Federal estate, gift and GST tax exemptions as candidate Biden stated during the Presidential campaign.
  • The proposals would be effective for gains on property transferred by gift, and on property owned by
    decedents dying, after December 31, 2021.

 

Planning Considerations

It is not known at this time if, when and how many of these proposals may be enacted.  Although certain changes would apply immediately upon enactment or retroactively to January 1, 2021, the proposed reduction in the gift and estate tax exemptions in the Sanders bill would not take effect until January 1, 2022.  Accordingly, this could provide an opportunity for individuals, before the end of this year, to take advantage of available gifting strategies, including the use of Dynasty Trusts, Spousal Lifetime Access Trusts (SLATs), GRATs, and Intentionally Defective Grantor Trusts (IDGTs).  However, it is crucial that the grantor be mindful of making gifts using property with significant built-in gain due to the possibility of recognition of capital gain on transferred property.

Please contact one of our attorneys to discuss your planning options before your window of opportunity closes.

Patricia Galteri

pgalteri@msek.com

(516) 592-5790

Nathaniel L. Corwin

ncorwin@msek.com

(516) 592-5740

Jayson J.R. Choi

jchoi@msek.com

(516) 592-5799

Elisa Santoro

esantoro@msek.com

(516) 592-5724

 

Attorney Advertising. This Client Alert is published by Meyer, Suozzi, English & Klein, P.C. for the benefit of clients, friends and fellow professionals on matters of interest. The information contained herein is not to be construed as legal advice or opinion. We provide such advice or opinion only after being engaged to do so with respect to particular facts and circumstances.

Disclaimer: Unless the above communication expressly provides that the statements contained therein are intended to constitute written tax advice within the meaning of IRS Circular 230 §10.37, the sender intends by this message to communicate general information for discussion purposes only, and you should not, therefore, interpret the statements to be written tax advice or to be sufficient to avoid tax-related penalties.

 

Paul Millus Writes, “NY Enacts Hero’s Act: It’s a Brave New World for Employers”

Starting June 4, 2021, ALL employers in New York will be required to adhere to the newly-passed Hero’s Act.  This means essentially anyone who comes to the workplace for reasons related to the employer’s business, with the possible exception of visitors, will be protected under the Hero’s Act—including the part time worker, who works 10 hours a week, and the FedEx delivery employee or water delivery person.

Employers will have to, at a minimum, comply with a “Model Plan” being developed by the Commissioner of Labor, which is not out yet.  As such, the effective date of Section 1, including deadlines to implement a compliant standard, is expected to be extended by forthcoming amendments.  When this plan does come out, it will cover the precise protocols all employers must follow in connection with ANY and ALL viral, bacterial, or fungal disease that is spread through the air in the form of aerosol particles or droplets, which is designated by the New York State Department of Health as a highly-contagious disease.  Rest assured, the flu will fall into that category.  While we do not know the exact content of the Model Plan, we do know it will cover 11 topics:  (1) employee health screenings, (2) face coverings, (3) personal protective equipment provided at the employer’s expense, (4) accessible hand hygiene stations and breaks for hand washing, (5) cleaning shared equipment and other frequently touched surfaces, (6) social distancing, (7) quarantine orders, (8) engineering controls such as air flow and ventilation, (9) designated supervisor(s) to enforce safety standards, (10) compliance with notice requirements to employees and government officials, and (11) verbal review of safety standards, employer policies, and employee rights.

Employers with Employee Handbooks—which should be just about everyone—must include the Safety Plan in their handbook as well.  All in all, it sounds pretty expensive when all is said and done.

So what if the employer falls short?  The fines are $50 per day for failure to adopt a Safety Plan.  The fine for failure to abide by the Safety Plan ranges from $1,000 to $10,000, and if the employer has had another violation of the Hero’s Act in the previous six years, however, the New York State Department of Labor can issue larger fines.  But, that is not where the serious risk is for employers.  The Hero’s Act provides for a private right of action for employees who take issue with the employer’s compliance. Employees can sue if the employer has violated the Safety Plan, and there is a “substantial probability of death or serious physical harm” that could result from the violation.  In addition to injunctive relief, employees can recover court costs, liquidated damages of no more than $20,000 and, of course, attorneys’ fees which can often exceed the damages awarded in employment suits by leaps and bounds.  Employers should be ready to have to hire consultants who will put in the protocols required to comply with the law because keeping track of the myriad of requirements to ensure compliance will be daunting. Small employers are going to be overwhelmed—especially when those employing 10 or more employees have to comply with Section 2 of the Hero’s Act which goes into effect November 1, 2021 and requires the formation of a “Safety Committee” composed of at least two-thirds, non-supervisory employees.  The Safety Committee is co-chaired by a representative of the employer and non-supervisory employees and does six things:  (1) raise health and safety concerns to the employer to which the employer must respond, (2) review the employer’s health and safety policy, (3) review the adoption of any policy in response to any health and safety law, (4) participate in any site visit by government health and safety officials, (5) review any report filed by the employer related to health and safety, and (6) attend quarterly meetings during work hours.  And, by the way, the non-supervisory employees themselves select the non-supervisory employees on the Safety Committee, and the employer cannot interfere with the Safety Committee members’ performance of their duties.   Of course, they will have to be trained, and the Hero’s Act is on top of this as employers must allow employees to attend training on the function of the Safety Committee without loss of pay. The hits keep coming.

There’s more.  The Hero’s Act will contain anti-retaliation provisions, expressly prohibiting retaliation against employees for the following: (i) “Exercising their rights” under the act; (ii) “Reporting violations of this [act] or the applicable airborne infectious disease exposure prevention plan to any state, local, or federal government entity, public officer, or elected official;” (iii) “Reporting an airborne infectious disease exposure concern or seeking assistance or intervention with respect to … concerns, to their employer … or government entity;” and (iv) “Refusing to work where such employee reasonably believes, in good faith, that such work … [poses] an unreasonable risk of exposure to an airborne infectious disease due to the existence of working conditions that are inconsistent with laws, rules, policies, orders of any governmental entity, including but not limited to, the minimum standards provided by the model airborne infectious disease exposure prevention standard, provided that the employee … notified the employer of the inconsistent working conditions and the employer failed to cure the conditions or the employer had or should have had reason to know about the inconsistent working conditions and maintained the inconsistent working conditions.”

A finding of retaliation will come with what normally is associated with this claim, back pay, reinstatement, liquidated damages, and, yes, those attorney’s fees again.   Maybe you will find some solace in the provision which provides that frivolous claims may result in “sanctions against the attorney or party who brought such action,” but I would not bet on it.

Well—here we are in a post-COVID world.  It will take some time to figure out what this all means in terms of the employer’s administrative time and its costs that will be incurred as it implements these protocols.  It will take an even longer time to determine how the courts will treat such cases and what the employer’s exposure will truly be, but, rest assured, times, they are a changin’.

Kevin Schlosser Authors, “No Need To Wait To Tap Private Judges Under CPLR”

There is no reason for practitioners and their clients to wait for the legislature to act. The mechanism of hiring a private judge is already fully available.

I read with interest the article “A Proposal for Private Judging in New York,” by David B. Saxe and James M. Catterson, March 12, 2021.

Although it was not cited in the article, a piece that I published in the New York Law Journal over four months ago alerted practitioners in New York that the CPLR already allows for the engagement of what I referred to as “private judges.”  See K. Schlosser, “The Use of Private Judges: New World, New Wave?” NYLJ, Nov. 6, 2020. As I indicated, there are several advantages and benefits that currently exist under the applicable provisions of the CPLR, including allowing for flexibility and certainty afforded by private judges, the availability of expertise catered to the case at issue, avoiding the cost and bureaucracy of ADR forums, obtaining an enforceable judgment and preserving full appeal rights that arbitration does not afford.

While these CPLR provisions could be enhanced, there is no reason for practitioners and their clients to wait for the legislature to act. The mechanism of hiring a private judge is already fully available.

Kevin Schlosser is a partner at Meyer, Suozzi, English & Klein, P.C. and chair of the firm’s litigation and alternative dispute resolution department, which has a full roster of private judges from many disciplines of law. He also served as chair of the Commercial Litigation Committee of the Bar Association of Nassau County.

Click here to view New York Law Journal article on Law.com.

Edward LoBello & Jordan Weiss Author Thomson Reuters “Practical Law Eastern District of New York Bankruptcy Court Toolkit”

On February 25, 2021, Edward J. LoBello and Jordan D. Weiss authored Practical Law Eastern District of New York Bankruptcy Court Toolkit published by Thomson Reuters.  The online publication compiles key resources for attorneys in the practice of bankruptcy law in the Eastern District of New York, including applicable statutes, rules, court procedures, and practice notes.

Click here and sign in to view toolkit.

Kevin Schlosser Authors, “The Use of Private Judges: New World, New Wave?” for NYLJ

Our system of justice has certainly faced various challenges over the years, but no one can deny that the COVID-19 crisis has forced us to confront unprecedented obstacles―2020 has been a year no one will forget. In March, the entire state court system virtually shut down, except for cases deemed “essential.” While our administrative judges and the office of court administration have worked tirelessly to restore some semblance of normalcy, the challenges are formidable.

On top of trying to balance life and death issues with providing timely and effective justice, our court administrators and the judiciary are facing debilitating budget cuts. As our chief administrative judge has recently acknowledged, “the economic fallout of the coronavirus pandemic has led to enormous pressures on the State budget, including the Judiciary budget,” noting a $300 million hit to the court system. NYLJ Sept. 30, 2020, “As NY State Courts Report Budget Cut, Lawyers Fear Delays, Employee Unions Worry Over Jobs.”

The New York State Bar Association president has ominously predicted: “This budget cut is a matter of grave concern to the New York State Bar Association because it will inevitably create hardship for litigants and delay the administration of justice.” https://nysba.org/new-york-state-bar-association-president-scott-karson-calls-cuts-to-judiciary-budget-a-grave-concern/

Yet unanticipated silver linings have awakened in the crisis. The convenience and cost-savings of remote, virtual appearances, depositions and proceedings are beginning to overcome the initial resistance and reluctance. Both the Bar and the courts are adapting to a new, more flexible approach to dispensing and achieving justice.

Particular problems with jury trials have led many to consider and in fact advocate more use of bench trials. Additionally, more than ever before, “alternative dispute resolution” is seeing a supercharged interest.

Amidst all this, there should be renewed interest in the often overlooked yet extremely useful provisions of the CPLR authorizing parties to hire a “referee,” or as I call it, a “private judge,” to help resolve their differences, including significantly, to determine commercial and business disputes. The utility of a private judge to determine legal disputes has actually been available under the New York justice system for over a century. See Woodruff v. Dickie, 31 How. Pr. Rep. 164 (Sup. Ct. N.Y. Co., 1866). It has largely been hibernating.

Authority and Powers of Private Judges

The authority for such an appointment of a private judge is contained in CPLR 4001: “A court may appoint a referee to determine an issue, perform an act, or inquire and report in any case where this power was heretofore exercised and as may be hereafter authorized by law.” CPLR Article 43 provides the power and authority of a private judge to “determine an issue.”

As soon as a new case is filed in court, the parties can immediately stipulate to the appointment of a private judge. CPLR 4317(a) provides: “The parties may stipulate that any issue shall be determined by a referee.” Only in three limited circumstances must leave of court be sought first: “[1] for references in matrimonial actions;  [2] actions against a corporation to obtain a dissolution, to appoint a receiver of its property, or to distribute its property, unless such action is brought by the attorney-general;  or [3] actions where a defendant is an infant.” Id. All the parties need to do is stipulate and name their private judge, and the clerk must then issue an order effectuating the stipulation: “Upon the filing of the stipulation with the clerk, the clerk shall forthwith enter an order referring the issue for trial to the referee named therein.” Id.

CPLR 4301 affords the private judge broad powers, equivalent to a Supreme Court Justice, with limited restrictions: “A referee to determine an issue or to perform an act shall have all the powers of a court in performing a like function;  but he shall have no power to relieve himself of his duties, to appoint a successor or to adjudge any person except a witness before him guilty of contempt.”

The private judge has the power not only to issue a decision, but also a fully effective and enforceable judgment. See CPLR 5016(c) (“Judgment upon the decision of a court or a referee to determine shall be entered by the clerk as directed therein. When relief other than for money or costs only is granted, the court or referee shall, on motion, determine the form of the judgment.”)

Benefits and Advantages of a Private Judge

There are plenty of benefits to hiring a private judge who is dedicated exclusively to the case at hand:

1. Flexibility and Certainty. While the authority to appoint a private judge to determine issues in dispute derives from the CPLR, the private judge is free to conduct the affairs and proceedings at times, places and in a manner at his or her discretion, and entirely consistent with the preferences of the parties and their counsel. The parties deal with just one person, rather than the entire administration of the court system. (There is no “clerk’s law.”) The parties are able to secure real, reliable dates certain for written submissions, hearings and/or trials, which afford for advance planning. In short, the parties have a captive audience of one―their own private judge. Particularly now, given concerns about appearing in a large, public courthouse for hearings or other appearances, meetings with private judges could be in a more controlled, private law office or other location, or of course conducted virtually.

2. Expertise. The parties can select who they jointly believe is the best person for the job. They can identify and choose someone with precisely the experience, knowledge and temperament that fits the case and the subject matter of the dispute. It is obviously enormously helpful to have someone particularly experienced in the issues presented by the case. Of course, counsel for both parties must feel comfortable with the integrity and objectivity of whom they choose.

3. Avoiding Cost and Bureaucracy of ADR Forums. While ADR companies are certainly adept at resolving disputes, they often saddle parties with unwieldy bureaucracy. To be sure, the parties will need to pay for the services of the private judge, but hiring a private judge can afford advantages over resolving a dispute in arbitration or administered through the large well-known dispute resolution organizations. The private judge can avoid the administrative bureaucracy and cost associated with the large ADR forums and venues. The private judge has the luxury of dealing directly with the parties as and when they need attention. The direct attention afforded by the private judge is ultimately likely to reduce the overall cost of resolving disputes, even with the cost of the private judge’s services. Additionally, the parties could enlist the private judge to help settle their case or formally decide particular issues, without a full blown adjudication of the entire merits.

4. An Enforceable Judgment. Unlike arbitration awards, as noted above, the private judge can reduce his or her decision to an enforceable judgment. CPLR 5016(c). There is no extra step to institute an entirely new proceeding under CPLR 7511 to confirm the private judge’s decision as there is after an arbitration award is issued. Thus, the additional time, expense and litigation attendant to confirming an award is eliminated.

5. Full Appeal Rights Preserved. Litigants are often reluctant to submit to arbitration because of the very limited opportunity to obtain a full and fair review of the arbitrator’s determination. It is well-recognized that courts will not vacate or nullify the decision of an arbitrator, except in exceptional and clear circumstances. It can be daunting to place all of that unchecked discretion in one person (or in a small panel). Unlike in arbitration, the decisions and judgment of the private judge are fully reviewable on appeal through the New York Court system based upon all the grounds available to challenge any decision of a court. See Bedford v. Hol-Tan Co., 140 App.Div. 282, 285–286, 125 N.Y.S. 173, 175–176 (1st Dept. 1910) (“A referee appointed to hear and determine has the same power and authority as a justice of the court, and his decision stands as the decision of the court. [CPLR 4319.] His [or her] decision can be reviewed and set aside only for the same reason and in the same manner as can a decision of the court.”); Hampton Bays Supply Co. v. Adler, 3 Misc.2d 224, 226, 147 N.Y.S.2d 775, 778 (N.Y. Sup. 1955). Therefore, the reluctance that attorneys and their clients may have to the relatively unchecked power of an arbitrator to determine their dispute is ameliorated by the appellate review process. While the appellate courts are also facing overwhelming burdens, having a last resort in accordance with traditional appellate protections is a useful safety latch.

***

Our system of justice is facing unparalleled pressures. As we all try to find ways to resolve disputes in the most humane, fair, cost-efficient and expeditious manner, the use of private judges offers an additional, potentially-appropriate option.

 

Kevin Schlosser has served as Chair of the Commercial Litigation Committee of the Bar Association of Nassau County, President of the Theodore Roosevelt Inn of Court, and is a partner at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department, which has a full roster of private judges from many disciplines of law.

Andrew Turro Authors, “New York’s New Sick Leave Law”

Under new legislation all New York private employers are required to provide sick leave to employees. Under New York’s Sick Leave Law (the “Law”), the amount of an employee’s sick leave and whether it is paid or
unpaid  depends on the size and/or the net income of the employer. The Law takes effect, and covered
employees will be entitled to begin accruing leave time, on September 30, 2020. However, employees may be restricted from utilizing the accrued leave until January 1, 2021.

Amount of Sick Leave

Under the Law:

  • Employers with four or less employees and a net income of less than $1 million in the prior tax year must provide employees with up to 40 hours of unpaid sick leave per calendar year.
  • Employers with between 5 and 99 employees as well as employers with 4 or less employees and a net income of over $1 million in the prior tax year are required to provide each employee with up to 40 hours of paid leave per calendar year.
  • Employers with 100 or more employees must provide employees up to 56 hours of paid leave per
    calendar year.

For purposes of computing the number of employees, a “calendar year” under the Law means the twelve-month period from January first through December thirty-first. The Law further provides that for all other
purposes, a calendar year “shall either mean the twelve-month period from January first through December thirty-first, or a regular and consecutive twelve-month period, as determined by the employer.”

If an employer already provides sick leave or time off at least equal to the amount required under the Law, the employer is not required to provide additional time off, so long as the leave may be utilized for the same reasons required by the Law (which are described below).

Employees must accrue sick leave at a rate of at least one hour of sick leave for every 30 hours worked, which is the same accrual rate provided in the New York City Earned Safe and Sick Time Act. Under the Law, employers alternatively may fulfill their legal obligation by “front loading” the sick leave at the beginning of the calendar year as long as they do not reduce or revoke any leave based on the hours that an employee actually worked. Additionally, under the Law, employers are not required to pay employees for unused sick leave upon an employee’s voluntary or involuntary separation from employment.

Use of Sick Leave

Sick leave under the Law may be used for the following reasons:

  1. For a mental or physical illness, injury or health condition of an employee or such employee’s family member, regardless of whether such illness, injury or health condition has been diagnosed or requires medical care at the time such leave is requested. Under the Law, a “family member” includes an employee’s child, spouse, domestic partner, parent, sibling, grandchild or grandparent; and the child or parent of an employee’s spouse or domestic partner. The Law further provides that a “parent” includes a biological, foster, step– or adopted parent, or a legal guardian of an employee. The Law’s definition of “child” includes a biological, adopted or foster child and a legal ward.
  2. For the diagnosis, care or treatment of any mental or physical illness, injury or health condition, or need for medical diagnosis of, or preventative care for, such employee or such employee’s family member.
  3. For a variety of reasons related to absences from work when the employee or the employee’s family member has been a victim of domestic violence or another family offense, sexual offense, stalking, or human trafficking.

Other Provisions of the Law

Other provisions of the Law include the following:

  • Employees may begin to take accrued sick leave on January 1, 2021 and may do so in partial-day increments. Employers may set a reasonable minimum increment of sick time use provided it is no more than four hours.
  • Employers must allow employees to carry over unused sick leave to the next calendar year. However, employers may limit employees to 40 or 56 hours of sick leave- as determined above – in a particular calendar year.
  • Employers are not required to pay out unused sick leave at any time, including separation from employment.
  • Upon return from leave, an employee must be restored to the same position that the employee held prior to the sick leave with the same pay and other terms and conditions of employment.
  • Employers are also required to provide employees with a summary of the amount of sick leave they have accrued and used in the current calendar year and/or any previous calendar year within three business days of a request by an employee. Additionally, employer payroll records must reflect the amount of sick leave provided to an employee for each week worked. The employer also must maintain records of sick leave provided to all employees for six years.
  • Employers may not require disclosure of confidential information from an employee as a condition of taking sick leave.
    Collective bargaining agreements entered into on or after the effective date of the Law must provide sick leave benefits that are at least “comparable” to those provided for under the Law and such agreements “must specifically acknowledge” the provisions of the Law.
  • The Law expressly states that it does not preempt or diminish existing city or county sick leave laws and therefore employers covered by any such additional laws must continue to provide leave to employees that meets or exceeds the requirements of both statewide and local laws.
  • The Law provides that an employer may not retaliate or discriminate against or otherwise penalize any employee for requesting or using sick leave.

Paul Millus Writes, “Will Your Fiduciary Duty Claim be Timely When the Statute of Limitations Is No Longer Tolled?”

All attorneys should be aware that, pursuant to Governor Cuomo’s Executive Order 202.8 issued on March 20, 2020, the expiration of the applicable statute of limitations (“SOL”) on any claim has been tolled equal to the amount of the time left on the applicable SOL, without such tolling, until April 19, 2020.  We all should know as well that this tolling period has been extended several times-now until July 6, 2020.  So what better time than to get your ducks in a row on your breach of fiduciary duty claim?

To help in that regard, I refer you to a First Department decision on May 28, 2020 in the case of Habberstad, et al. v. Revere Sec. LLC, et al., 2020 NY Slip Op. 03071 which has reminded me  that a refresher may be in order regarding the SOL for a breach of fiduciary duty claim.

In this case, plaintiffs were thoroughly banished by the court for a number of reasons including, but not limited to, the fact that their breach of fiduciary claim was barred by a relevant trust agreement’s exculpatory clause which expressly relieved the defendant Trustees of liability for acts and omissions other than willful misconduct. (Duh- but to be fair, plaintiffs had an argument to escape this conundrum, it just did not carry the day!).  Nevertheless, the court brings to the fore the various issues regarding the applicable SOL in a breach of fiduciary duty claim.

Starting with the basics, the applicable statute of limitations for a breach of fiduciary duty depends on the substantive remedies sought.  Such that where the relief sought is equitable in nature (i.e., an accounting) the six-year limitations period of CPLR 213(1) applies.  However, if the claim is for monetary relief (which is often the case), a three-year statute of limitations alleging injury to property applies.  See Kaufman v. Cohen, 307 A.D.2d 113 (1st Dep’t 2003).

There are certain exceptions, however.  A cause of action for breach of fiduciary duty based upon allegations of fraud is subject to a six-year period or more if the doctrine of equitable estoppel or the fraud discovery accrual rule applies, but I digress.  Nevertheless, as is often the case, there are exceptions to the exception. One such exception to the rule I just cited is when the fraud allegation is merely “incidental” to the claim asserted, such that the allegation of fraud is not essential to the cause of action pleaded except as an answer to an anticipated defense of statute of limitations.  As per Kaufman, the courts “look for the reality, and the essence of the action and not its mere name.”  Id. at 119. The Courts, of course, want to prevent the revival of otherwise stale claims.

So what does that mean to be “incidental” to the fraud claim?  In Marketxt Holdings Corp. v. Engel & Reiman, P.C., 693 F.Supp.2d 387 (S.D.N.Y. 2010), plaintiffs claimed that the defendants knowingly assisted in devising and implementing a fraudulent scheme to deprive plaintiffs of certain stock and to convert the proceeds of that stock to their own benefit. Plaintiff identifies two distinct transactions in which, it was alleged, the defendants aided and abetted fraud, breach of fiduciary duty, and conversion and that they participated in a conspiracy to effectuate a fraudulent conveyance.  Defendants argued that the plaintiff’s allegations of fraud were merely incidental to its conversion claims and that the shorter statute of limitations for conversion applied, thereby barring all of the plaintiff’s claims for accessorial liability.  On a motion to dismiss, the court held that the fraud claims were indeed incidental to the claim of conversion, reasoning that the gravamen of plaintiff’s amended complaint was that the defendants helped steal assets properly belonging to plaintiffs, yet all of the alleged fraudulent conduct was in furtherance of this scheme to divert corporate assets and that this conduct did not cause cognizable damage to plaintiff independent of that conversion.   From my review of the case law, this is a complicated issue which will require a well thought-out and drafted complaint

In Habberstad, the court also found the claims of fraud incidental to the fiduciary duty claims, stating that the plaintiff’s accusations against one of the defendants was not that he actively participated in the alleged fraud but that he “endorsed it rather than opposed it.”

If this was not enough, I have one further note to remember.  As noted by the court, in a breach of fiduciary duty action seeking equitable relief, under the Open Repudiation Toll Doctrine, if the defendants openly repudiate all of the fiduciary duties that are alleged to have been breached, the six-year period runs from the date of that “open repudiation.”  Finally, the Open Repudiation Toll Doctrine does not apply to claims asserted for monetary damages.

Paul Millus Authors, “What You Say On Your Tax Return Can And Will Be Used Against You In A Court of Law in a BCL Dissolution Proceeding”

You may be saying, after reading the title of this piece, that how can that not be true.  Indeed, it appears axiomatic.  Not so fast.  Yes, one would think that their signature on a government document warrants the truth of the contents therein, and, thus, the signatory would be bound by that confirmed fact if it were somehow relevant in a court proceeding.  However, it might not be as clear as one would think, or at least was not so clear in the First Department until May 21, 2020.

In its decision in the case of PH-105 Realty Corp. v. Elayaan, 2020 WL 2562558 (1st Dep’t 2020), the First Department ordered the unanimous reversal on the law of the lower court’s order granting defendants a motion for summary judgment and dismissing declaratory and unjust enrichment claims alleged by plaintiff in connection with its assertion that the plaintiff had a 75% ownership interest in 181 Edgewater LLC (“Edgewater”).

I will return to that decision in a moment, but the confusion lied in the First Department’s decision in the matter of Bhangi v. Baluch, 99 A.D.3d 587 (1st Dep’t 2012).  In Bhangi the trial court denied a petition for dissolution of a company where the petitioner alleged that she had a 50% ownership interest in Flag Time as required by Business Corporation Law § 1104.  The basis for her contention was that Flag Time’s federal tax return for the year 2000 indicated that she was a 50% owner of the corporation.  However, the lower court held and the First Department agreed that “without more, to satisfy petitioner’s burden, since corporate and personal tax returns, even when filed with government agencies are ‘not in and of [themselves] determinative’” citing Matter of Heisler v. Gingras, 90 N.Y.2d 682, 688 (1997).  To be sure, in the Bhangi case there was evidence which contravened petitioner’s contention, but the tax return was the tax return and, indeed, it was not enough.

Yet, in PH-105 Realty Corp., the First Department made it clear that to the extent its decision in Bhangi had been “interpreted as making the doctrine generally inapplicable with respect to factual statements of ownership and tax returns, we clarify that the doctrine [known as the ‘Tax Estoppel Doctrine’] applies where, as here, the party seeking to contradict the factual statements as to ownership in the tax returns signed the tax returns, and has failed to assert any basis for not crediting the statements.”

In so holding, the court ruled that the defendants were estopped to deny the 75% ownership interest in Edgewater that was asserted, it did not follow that plaintiff was entitled to summary judgment on its claim for a declaration that the individual remained a 75% owner of Edgewater or in the alternative unjust enrichment claim alleging an unlawful deprivation of that ownership right.  The court simply determined that, for the period 2010 through 2014, the signature by the defendant on the federal tax return was enough to counter an argument that, for that period, the plaintiff was not a 75% owner of the LLC.

The takeaway seems rather straightforward, which is something we all would have thought was rather straightforward from the outset.  If the party seeking to contradict factual statements as to ownership in tax returns sign the tax returns and could not discredit (which you generally would not), his assertion in those returns, it is, indeed, axiomatic that, for that particular period, he could not deny that which he confirmed on the returns—period.

Kevin Schlosser Authors, “Renewed Allure In Hiring “Private Judges” Under the CPLR”

In the wake of the Covid-19 crisis, there should be renewed interest in the often over­looked yet extremely useful provisions of the CPLR authorizing parties to hire a “referee,” or as I will call it here, a private judge, to de­termine commercial and business disputes. Believe it or not, the utility of a private judge to determine legal disputes has been around under the New York justice system for over a century. See Woodruff v. Dickie, 31 How. Pr. Rep. 164 (Sup. Ct. N.Y. Co., 1866).

The administrative judges and the office of court administration have certainly made pru­dent and understandable decisions in juggling issues of public health and safety in adminis­tering the massive New York state system of justice during this pandemic. Yet, counsel and their clients sure had a wake-up call when the entire e-filing system of the New York Courts was shut down except for cases deemed “essential.”

Authority and powers of pri­vate judges

Enter the availability of “pri­vate judges” as authorized by the CPLR. The authority for such an appointment is contained in CPLR 4001: “A court may appoint a referee to determine an is­sue, perform an act, or in­quire and report in any case where this power was hereto­fore exercised and as may be hereafter authorized by law.” The section governing the power and authority of the private judges who “determine an issue” is CPLR Article 43.

The parties to a case (once it is filed) can immediately stipulate to the ap­pointment of the private judge. CPLR 4317(a) provides: “The parties may stipulate that any is­sue shall be determined by a ref­eree.” Only in three limited cir­cumstances must leave of court by sought first: “Leave of court and designation by it of the referee is required for references in matrimonial actions; actions against a corporation to ob­tain a dissolution, to appoint a receiver of its property, or to distribute its property, un­less such action is brought by the attorney-general; or ac­tions where a defendant is an infant.” Id. Once the parties so stipulate and name their private judge, the clerk must issue an order effectuating the stipulation: “Upon the filing of the stipulation with the clerk, the clerk shall forthwith enter an order referring the issue for trial to the referee named there­in.” Id.

CPLR 4301 affords the private judge broad powers, equivalent to an elected Supreme Court Justice: “A referee to determine an issue or to perform an act shall have all the powers of a court in performing a like func­tion; but he shall have no power to relieve himself of his duties, to appoint a successor or to adjudge any person except a witness be­fore him guilty of contempt.”

The private judge has the power not only to issue a decision, but also a fully effective and enforceable judgment. See CPLR 5016(c) (“Judgment upon the decision of a court or a referee to determine shall be entered by the clerk as directed therein. When relief other than for money or costs only is granted, the court or referee shall, on motion, determine the form of the judgment.”)

Benefits and advantages of a private judge

There are plenty of benefits to hiring a pri­vate judge who is dedicated exclusively to the case at hand.

Flexibility and certainty

While the authority to appoint a private judge to determine issues in dispute derives from the CPLR, the private judge is free to conduct the affairs and proceedings at times, places and in a manner at his or her discre­tion. The parties chart their own course by stipulating to the private judge and coordinat­ing their respective schedules and procedural preferences with just one person, rather than the entire administration of the court system. Further, dates of all proceedings can be coor­dinated based upon the respective schedules of the parties and only one other person – the private judge. Imagine dates certain for hear­ings, trials and/or written submissions, which afford for advance planning.

Expertise

The parties jointly select the best person for the job. They can identify and choose some­one with precisely the experience, knowledge and temperament that fits the case needs.

Avoid cost and bureaucracy of ADR forums

Hiring a private judge can afford advantag­es over resolving a dispute in arbitration or adminis­tered through the large well-known dispute resolution or­ganizations. For one, hiring a private judge can avoid the administrative bureaucracy and cost associated with the large ADR forums and venues. In short, the private judge is at the “beck and call” of the parties themselves.

An Enforceable Judgment

Unlike arbitration awards, as noted above, the decision of a private judge can immedi­ately be reduced to an enforceable judgment. CPLR 5016(c). There is no extra step to insti­tute an entirely new proceeding under CPLR 7511 to confirm the private judge’s decision like there is after an arbitration award is is­sued. Thus, the additional time, expense and litigation is eliminated.

Full appeal rights preserved

Unlike in arbitration, the decision and judgment of the private judge are fully re­viewable on appeal through the New York Court system based upon all the grounds available to challenge any decision of a court. See Bed­ford v. Hol-Tan Co., 140 App.Div. 282, 285–286, 125 N.Y.S. 173, 175–176 (1st Dep’t 1910)(“A referee appointed to hear and determine has the same power and au­thority as a justice of the court, and his de­cision stands as the decision of the court. [CPLR 4319.] His decision can be reviewed and set aside only for the same reason and in the same manner as can a decision of the court.”); Hampton Bays Supply Co. v. Adler, 3 Misc.2d 224, 226, 147 N.Y.S.2d 775, 778 (N.Y. Sup. 1955). Therefore, the reluctance that attorneys and their clients may have to the relatively unchecked power of an arbitra­tor to definitively determine their dispute is ameliorated by the appellate review process.

In New York, we are very fortunate to have experienced, dedicated Commercial Divi­sion judges who work hard to provide a so­phisticated forum for resolving commercial disputes. Nevertheless, as we all try to find ways to resolve commercial disputes in the most cost-efficient and expeditious manner, thought should be given to the use of private judges as well. It may not be appropriate for all circumstances but it certainly presents an additional option.

Kevin Schlosser is a partner at Meyer, Suozzi, English & Klein, P.C., where he is chair of the Litigation and Alternative Dispute Resolution Department, which has a full roster of available private judges from virtually all disciplines of law.

Matthew Marcucci Authors, “Case Law May Guide NY Employers On COVID-19 Bias Risks”

Matthew MarcucciBy: Matthew Marcucci

The COVID-19 outbreak has affected all aspects of American life, and perhaps none so much as the employer-employee relationship. Important new federal and state laws now provide employees with virus-related paid leave and other protections.[1]

For example, the federal Families First Coronavirus Response Act mandates paid leave for certain categories of affected employees. And New York state has gone even further by passing COVID-19-related paid leave legislation that forbids employers from firing employees subject to orders of quarantine or isolation.

In short, COVID-19 has thrown the employer-employee relationship into flux. The new status quo includes enhanced obligations for employers under the New York State and New York City Human Rights Laws, or HRLs. These laws prohibit discrimination on the basis of traits such as race, creed, national origin and disability.

Now, the HRLs extend to discrimination involving COVID-19. Accordingly, New York employers must carefully navigate the post-pandemic world. As employers implement measures to mitigate the virus’s effects, they must ensure that such measures do not rise to the level of unlawful COVID-19-based discrimination.

New York City has responded most strongly to the outbreak. The city’s Commission on Human Rights announced that “[h]arassment and discrimination on the basis of race, national origin, age, and disability (including having COVID-19 or another serious illness) is illegal under the New York City Human Rights Law.”[2] This language strongly implies that the virus itself qualifies as a disability that triggers liability under the city’s HRL.

While New York state has not gone quite as far as the city, its Division of Human Rights, or DHR, has declared that discrimination involving COVID-19 can violate the state’s HRL. The DHR recently issued a fact sheet outlining some of the upshots of this development:[3]

  • Employees can file a complaint with the DHR if they believe they have been discriminated against because of a perceived connection between their race, national origin or disability and COVID-19.
  • Employers cannot fire their employees, send them home or tell them not to come to work because they think they may have been exposed to COVID-19 based solely on their race, national origin or disability.
  • Employers cannot terminate their employees or prevent them from working based on speculation that their race, national origin or disability indicates possible exposure to COVID-19.
  • Employers cannot discriminate against employees who choose to wear face masks as protection against possible exposure to COVID-19.
  • Employers who terminate or send home their employees for a discriminatory reason may be responsible for the employees’ missed wages.

At the federal level, things are less certain. The Americans with Disabilities Act also prohibits disability-based discrimination. But the agency that enforces the ADA, the U.S. Equal Employment Opportunity Commission, has not determined whether COVID-19 qualifies as a disability under the ADA.[4]

As the legal landscape continues to adjust to COVID-19, it is clear that the outbreak is changing basic aspects of some the most important laws for employers. And while courts have not yet had the opportunity to adjudicate claims of COVID-19-based discrimination under the HRLs, prior court opinions involving analogous claims provide critical guidance on how employers can limit their liability exposure going forward.

The definition of “disability” under the state’s HRL is expansive. Not only do physical or medical impairments count, but so too does a “record of such impairment” or a “condition regarded by others as an impairment.”[5] Even if an employee does not actually have COVID-19, therefore, employers likely will face liability for discrimination predicated on the false assumption that the employee does.

Employers should also consider whether they can provide their disabled employees with reasonable accommodations that would enable these employees to continue performing their essential job functions.

As a general matter, employers can terminate disabled employees without fear of violating New York law if their disabilities totally prevent these employees from performing their duties — even with the benefit of a reasonable accommodation.[6] But if the employer can provide disabled employees with reasonable accommodations that enable them to perform their essential job functions, then the law prohibits disability-based discrimination.

Courts apply a rigorously fact-specific test to assess whether an employer who terminated a disabled employee did so in a discriminatory manner. The “particular disability must be such that it prevents the particular individual from performing in a reasonable manner the particular activities involved in the job or occupation before an employer is permitted to terminate the individual employee.”[7]

Just because an employee has COVID-19 or is displaying symptoms is not enough to justify termination. Rather, employers should only begin contemplating adverse actions such as termination where no reasonable accommodation would enable an employee affected by the virus to perform his specific duties. And even then, employers must proceed with caution.

In Antonsen v. Ward in 1991, for example, a New York City police officer with Crohn’s disease convinced the New York Court of Appeals that his dismissal violated the state’s HRL. Although the officer had been successfully treated for the disease, the police commissioner argued that certain scientific literature established that the disease would recur.

Accordingly, the police commissioner contended that the officer’s dismissal did not violate the law. The court completely rejected this argument, stating:
Employment may not be denied based on speculation and mere possibilities, especially when such determination is premised solely on the fact of an applicant’s inclusion in a class of persons with a particular disability rather than upon an individualized assessment of the specific individual.[8]

The Antonsen case has powerful lessons in the COVID-19 era. First, employers cannot terminate employees on the assumption that, at some indeterminate point in the future, the virus’s lingering effects will prevent affected employees from doing their jobs.

Such a decision, based on speculation and mere possibilities, almost certainly would violate the law. More broadly, the Antonsen case demonstrates the highly individualized nature of a court’s inquiry into the reasons for an employee’s termination. Now, courts may assess whether an employer who terminated an employee affected by COVID-19 based its decision on the employee’s inclusion in the class of persons with the virus rather than an individualized assessment of the employee’s specific role in the company.

As to reasonable accommodations, employers should make every effort to engage in a good faith dialogue with their disabled employees about measures that might enable them to continue working. This point may become particularly important in situations where an employee has recovered from COVID-19 but continues to suffer long-term respiratory or other impairments resulting from the virus.

In Jacobsen v. New York City Health and Hospitals Corp. in 2014, for example, an employee of the New York City Health and Hospitals Corp., or HHC, who performed site inspections of asbestos abatement projects contracted a serious lung disease.

Upon returning to work after a medical leave of absence, the employee complained that he had difficulty breathing and repeatedly requested protective respiratory equipment. But the HHC denied these requests, and instead merely provided the employee with a dust mask. Eventually, the HHC terminated the employee, who alleged that the HHC had violated the state’s and city’s HRLs.

The HHC sought summary judgment dismissing the employee’s claims. But the New York Court of Appeals found that, as a matter of law, the HHC could not prevail. Specifically, the court held that the HRLs
generally preclude summary judgment in favor of an employer where the employer has failed to demonstrate that it responded to a disabled employee’s request for a particular accommodation by engaging in a good faith interactive process regarding the feasibility of that accommodation.[9]

Had the HHC taken the simple step of responding in good faith to the employee’s request, it might have entirely avoided this adverse result. Indeed, according to the court in Jacobsen, “where the employee seeks a specific accommodation for his or her disability, the employer must give individualized consideration to that request and may not arbitrarily reject the employee’s proposal without further inquiry.”[10]

The court wrote, “as a matter of common sense,” the employee’s request for a respirator “would have reduced [his] dust exposure and logically might have allowed him to continue working at construction sites at the time he asked for that accommodation.”[11]

The court’s decision placed the employee in a commanding position. Short of agreeing to settle the case, the HHC had no choice but to proceed to a full trial on the merits of the employee’s claims. Similarly, employees who recover from COVID-19 but suffer lingering effects may propose accommodations to enable them to work, and employers would be mistaken not to take these requests seriously.

In sum, employers must balance their efforts to deal with COVID-19 against their enhanced legal obligations under New York law. This changing landscape will continue to evolve, and employers should make every effort to keep pace.

 

Matthew A. Marcucci is an associate at Meyer, Suozzi, English & Klein, P.C.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.msek.com/publication/paid-covid-19-leave-navigating-available-benefits-under-the-federal-ffcra-and-new-york-state-law/.

[2] https://www1.nyc.gov/site/cchr/media/covid19.page.

[3] https://dhr.ny.gov/sites/default/files/pdf/postings/DHR_COVID19_DiscriminationHandout_032420.pdf.

[4] https://www.eeoc.gov/transcript-march-27-2020-outreach-webinar (“[I]t is unclear at this time whether COVID-19 is or could be a disability under the ADA.”).

[5] Matter of Antonsen v. Ward , 77 N.Y.2d 506 (1991).

[6] Jacobsen v. New York City Health and Hosps. Corp. , 22 N.Y.3d 824 (2014).

[7] Matter of Antonsen, supra.

[8] Id.; see also Matter of Brentwood Union Free School Dist. v. Kirkland, 126 A.D.3d 898 (2d Dep’t 2015) (“Although the petitioner proffered some evidence at the hearing that the complainant’s [lung disease] may have prevented him from performing the duties of the job in a reasonable manner, the petitioner did not have this information at the time it made its determination and, in any event, this evidence merely conflicted with other evidence in the record indicating that the complainant’s disability did not render him incapable of performing the duties of the job in a reasonable manner.”).

[9] Jacobsen v. New York City Health and Hosps. Corp., supra .

[10] Id.

[11] Id.

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