Electronically in Touch

Message from 2013-2014 Chair Lisa Schoenfeld

Welcome to the June edition of Electronically-in-Touch. Another few months have gone by with a lot of exciting and educational activities happening in our Section. Our Fifth Annual Trial Academy was a huge success! We were sold out with a waiting list of hopeful attendees. For those of you that could not register this year, please make sure to register early for next year's program. The ability to learn about and improve your trial skills with distinguished attorneys and Judges from throughout New York State is priceless. You do not want to miss this amazing opportunity next year! Thank you so much to Cornell Law School and the Cornell staff for continuing to host our Trial Academy. Thank you also to our NYSBA Staff - Megan O'Toole and Adriana Favreau - for their hard work in making this program as successful as it is. We also just recently volunteered with City Harvest in Washington Heights. We are proud of the fact that we were at maximum capacity with the number of volunteers permitted. You will see more about the event in this edition of Electronically-in-Touch. We hope to have another opportunity to volunteer in the near future. We just held our annual U.S. Supreme Court Admissions Program, which was the first formal program of the 2014-2015 Term. More details are included below and in the message from the Section's Current Chair, Sarah Gold, Esq. We have also selected the winners of our YLS Civics Education Poster/Essay Contest and have included their names in this edition of Electronically-in-Touch as well. Since my time as Chair has come to an end, I want to thank the Young Lawyers Section Executive Committee for all of their hard work this year. We hope that you - our members - are finding your membership in the Young Lawyers Section to be beneficial.

Message from 2014-2015 Chair Sarah Gold

In the words of L. Frank Baum, "Toto, I have a feeling we're not in Kansas anymore." In a whirlwind, I find myself as the new Chair of Young Lawyers Section. I am sure this year will fly by and this week is proof positive of that. Seems we just turned the calendar to June and we already have one event in the books. 42 colleagues and friends were sworn in at the US Supreme Court on Monday, June 10. Our new NYSBA President, Glenn Lau-Kee made the motion for the group, and even the weather played in our favor, giving us a Monday in Washington DC to remember.

I hope the summer finds you well, and hope to see you at some of our events throughout the state this term, beginning on July 7 with our event here in the Albany area at a local minor league baseball game. This event brings together both the Real Property Section and the Albany County Bar Association to mix, mingle, and cheer on the ValleyCats.

And with that, I will leave you with the rest of this issue of EIT and with this thought: Friends may come and go, but enemies accumulate. Happy June everyone!

The Young Lawyers Section Helps City Harvest Fight Hunger in Washington Heights

On April 26th, members of the Young Lawyers Section volunteered with City Harvest at their Mobile Market in Washington Heights, Manhattan. Eleven volunteers were stationed at market tables where they helped distribute thousands of pounds of fresh produce, including apples and carrots to hundreds of market-goers. As the market participants stopped by each table, volunteers greeted them and then weighed and bagged the produce, which is distributed free of charge.

City Harvest is the nation's oldest food rescue organization, dedicated to feeding hungry people in New York City. City Harvest picks up excess food from places such as restaurants, grocers, manufacturers and wholesalers, and greenmarkets, and delivers the food to soup kitchens, food pantries, day care and senior citizen centers, homeless shelters and other places that serve those in need. This year, City Harvest will rescue 46 million pounds of excess food from food establishments throughout the city and across the country. City Harvest helps feed the nearly two million New Yorkers facing hunger.

Please stay tuned for more events brought to you by YLS's Community Service & Pro Bono Committee, including a charity spin ride with SoulCycle at their East 83rd studio in Manhattan to benefit the New York Bar Foundation on Tuesday, July 15th at 8:00PM. Click here to register!

If you are interested in joining the Community Service & Pro Bono Committee, please email Kara Buonanno, kara.buonanno@gmail.com and Erica Weisgerber,eweisgerber@debevoise.com.

2014 Civics Essay and Poster Contest Winners

This was the second year that the YLS, together with the Law Youth and Citizenship Committee, held the annual Civics Prize Contest. The contest, which was created by past-chair Michael Fox, is intended to serve as a platform to enhance students' understanding of U.S. government through their creative participation in the poster and/or essay portion of the contest. The contest invited 11th and 12th graders from schools within the 3rd, 4th, 5th, and 9th Judicial Districts of New York State to participate in the poster and/or essay portion of the contest. Poster submissions were required to include the American Flag, include all three branches of government, and address or relate to at least one issue concerning the Constitution of the United States, its Articles or Amendments. Essay submissions were required to discuss what the American Flag stands for, include a discussion of the three branches of government, address or relate to at least one issue concerning the Constitution of the United States, its Articles or Amendments, and be between 500 and 2000 words in length. This year's contest was a success, with submissions being submitted from across all involved judicial districts. The YLS Civics Prize Committee recently selected a 1st, 2nd, and 3rd place poster, and a 1st, 2nd, and 3rd place essay from the submissions. Winning participants and their schools were notified last month, and cash prizes are being awarded to the winners (1st place winners - $300; 2nd place winners - $200; 3rd place winners - $100).

Poster Winners
1st Place: Kelsey Durkin
2nd Place: Oh Louvrien Diaz Hunt
3rd Place: Keeley Paul

Essay Winners
1st Place: Christine Ma
2nd Place: Matt Foster
3rd Place: Catherine Mattis

Trial Academy

The Young Lawyers Section recently held its Fifth Annual Trial Academy at Cornell University Law School from March 29 until April 2. The program is a 5-day, intensive trial training program, which is designed to provide opportunities for attorneys to learn about trial practice as well as for attorneys with some trial experience to hone their skills. Each morning, a lecture was presented to the attendees on a relevant area of trial practice (i.e., jury voir dire, trial motions, evidence, opening statements, direct examination, cross examination, and closing arguments). In the afternoon, each attendee had the opportunity to present a portion of their case, after which they were critiqued by the faculty, both in a group setting and then in an individual setting where they watched a video of themselves and discussed their performance with one faculty member. Attendees were presented with both a civil and criminal fact pattern, so that they could learn the nuances of trying cases in both areas.

The program was our most attended to date, with 65 attendees having come from as far away as California and the Netherlands. The faculty and lecturers were distinguished and experienced trial practitioners from across the State, including judges from the federal and state courts including the Court of Appeals.

Many Thanks to our Sponsors of the 2014 Young Lawyers Section Trial Academy

Platinum Plus
Trial Lawyers Section

Platinum
Family Law Section

Gold
Business Law Section
Torts, Insurance and Compensation Law Section
Young Lawyers Section

Silver
Criminal Justice Section

Bronze Plus
Corporate Counsel Section

Bronze
Intellectual Property Section

Corporate Sponsor
USI Affinity (Sponsor of our insulated tumbler cups)

Recent Events:

The Elder Law Section has changed its name to the Elder Law and Special Needs Section to more accurately depict the focus of the section and its membership. As these topics are so closely related, it was felt among the Section that this was a move in the right direction in furthering the Section's goals.
The Elder Law and Special Needs Section recently convened in Poughkeepsie for the Spring 2014 Unprogram. The Unprogram is a forum which allows practitioners to meet in groups of ten or less to discuss topics of interest selected by the attendees. There is no "program", no prepared presentations or pre-selected speakers (hence the name). This program is held each Spring and is an excellent opportunity for individuals new to the area of law to learn from more experienced practitioners and to exchange ideas with colleagues who are facing similar challenges.

New York Estate Tax Legislation

Members of the Elder Law and Special Needs Section are busy digesting the new legislation passed in New York increasing the estate tax exemption amount, among other things. Prior to April 1, 2014, taxable estates under $1,000,000 avoided payment of New York estate tax. Effective April 1, 2014, the exclusion amount is now $2,062,500 and increases incrementally over the next several years to eventually become equal to the federal estate tax exemption amount (which is currently $5,340,000). At first blush, this legislation appears to reduce the estate tax for larger estates.

However, there is a "cliff" that individuals must be aware of. If a decedent's taxable estate is greater than 105% of the basic exclusion amount (see the table below), the estate receives no exclusion at all.

For instance, a decedent who passes away in April 2014 with a taxable estate of $2,300,000 will have to pay New York estate tax on the full value of the estate because it exceeds 105% of the basic exclusion amount for 2014 ($2,165,625). The estate taxes owed by this decedent's estate will not be reduced by the exclusion amount.

Date of Death Basic Exclusion Amount 105% of Basic Exclusion Amount

4/1/2014 - 3/31/2015 $2,062,500 $2,165,625
4/1/2015 - 3/31/2016 $3,125,000 $3,281,250
4/1/2016 - 3/31/2017 $4,187,500 $4,396,875
4/1/2017 - 12/31/2018 $5,250,000 $5,512,500
After 12/31/2018 Indexed for Inflation

Mentoring Program

The Elder Law and Special Needs Section continues to offer its mentoring program, which pairs an experienced elder law attorney with a Section member new to the practice of elder law for the coming year.

TO BE A MENTEE:
1. You must be practicing elder law for fewer than 5 years;
2. You must be a member in good standing of the Elder Law and Special Needs Section of NYSBA; and
3. You must attend at least 2 Section meetings.

If you are interested in participating in this program, please contact Anne Dello-Iacono at anne@raskinmakofsky.com for more information.

Upcoming Events

Elder Law and Special Needs Section Summer Meeting
The Elder Law and Special Needs Section's Summer Meeting will be held August 7 - 10 at Hershey Hotel in Hershey, Pennsylvania. Check the Elder Law and Special Needs Section's website for more information in the coming months!

On January 14, 2014, the Intellectual Property Law Section, in conjunction with The City of New York and WeWork, hosted a Pro Bono Clinic on Intellectual Property Issues for Startups, held at The Lounge at WeWork, 173 Lafayette Street, New York, NY 10013. The clinic explained intellectual property issues and strategies that are important for startups, and paired attendees with volunteer attorneys for no-fee 30 minute consultations.

On Tuesday, January 28, 2014, the Intellectual Property Law Section held its Annual Meeting Executive Committee Meeting, as well as a program on Something Bold, Something New: How Global Changes Can Affect All of You!, for which topics included: International Changes in IP--Is it Chaos or the New Normal?; The Changing Environment for Patents: Claim Construction and Inter Partes Review -- What Is the New Normal?; The Constantly Changing Online World: Advertising, Trademarks, Metadata, and Key Word Searching; Top Ten IP Cases of 2013; The Intersection of IP and Financial Transactions: Assets, Monetization and Collateralization Issues; Ethics: Subject Matter Conflicts.

It was a successful year for the Intellectual Property Law Section's annual law student writing competition. There was a good response, and many excellent papers were submitted. The First Place winner was Mara Wilber, and the Second Place winner was Alexander Stark. Cash prizes of $2,000 and $1,000 were awarded to the first the second place winners, respectively. Details on this year's writing competition will follow later in the year.

The IPLS Young Lawyers Committee held a Spring Social networking event on April 23rd at Opal Bar in Manhattan. Approximately 50 people attended, and 18 new members joined the Section. The Committee is also planning to send a web-based survey geared towards younger Section membership to gauge interest in different CLE topics and other events of potential interest. Current plans are for the Committee to host a CLE in September 2014. Topics currently under consideration are a basic skills course in how to apply for federal registration of a trademark or copyright or pointers for social networking and job seeking.

The IPLS's Fall Meeting will take place at the Sagamore Hotel on Lake George, October 23-26th. Each of the Section's Committees, including the Young Lawyers Committee, are being asked to contribute CLE topics for the meeting. Any topic not presented on at a YLC CLE in September would be a possibility.

Last December, Governor Andrew Cuomo signed the Nonprofit Revitalization Act of 2013 into law. Among myriad changes that take effect on July 1, 2014, the law, which revises portions of fifteen different statutes, includes new definitions for "related party" and "related party transaction" under the Non-profit Corporation Law [hereinafter "NPCL"], and the plain language interpretation of these definitions carries implications for attorneys presently serving on boards of nonprofit corporations. In some cases, attorneys merely sit on the board; in others, these nonprofit corporations are also clients of the attorneys' respective firms. The legislative changes may affect attorneys who fit into one or both categories. Unfortunately, the statute fails to define key phrases on which attorneys' ability to comply with the law turns. The law desperately needs clarification that can only be provided by amendments to the law, opinion letters or guidance from the Attorney General's office, or court decisions from cases that will not be filed for months.

Why You Should Care

The changes grant much more power to the Attorney General in his enforcement capacity. Under NPCL Section 715(f), the AG can "bring an action to enjoin, void or rescind any related party transaction or proposed related party transaction that violates any provision of this chapter or was otherwise not reasonable or in the best interests of the corporation at the time the transaction was approved, or to seek restitution, and the removal of directors or officers." The AG may also require an individual or entity to do the following: 1) account for any profit received from the transaction and pay that amount back to the corporation; 2) pay back the corporation for any value derived from use of the corporation's property or other assets used in the transaction; 3) replace or return assets, property, income, or appreciation lost to the corporation as a result of the transaction; or 4) pay a sum up to double the amount of any benefit obtained improperly in the case of willful, intentional conduct. NPCL § 715 (f)(1)-(4).

The New Definitions

NPCL Section 102(a)(6)(23) states that "related party" includes:

(i) any director, officer or key employee of the corporation or any affiliate of the corporation; (ii) any relative of any director, officer or key employee of the corporation or any affiliate of the corporation; or (iii) any entity in which any individual described in clauses (i) and (ii) of this subparagraph has a thirty-five percent or greater ownership or beneficial interest or, in the case of a partnership or professional corporation, a direct or indirect ownership interest in excess of five percent.

We do not know what the phrase "a direct or indirect ownership interest in excess of five percent" means. Possibilities for interpretation include equity ownership, paid-in capital, or an individual's income in any given year. "Relative" encompasses ancestors, domestic partners, spouses, sisters and brothers (full or half), children (natural or adopted), grandchildren, great-grandchildren, and all spouses of sisters, brothers, children, grandchildren, and great-grandchildren. NPCL § 102(a)(6)(22).

Furthermore, NPCL § 102(a)(6)(24) defines "related party transaction" as "any transaction, agreement or any other arrangement in which a related party has a financial interest and in which the corporation or any affiliate of the corporation is a participant." Any attorney who sits on a nonprofit board and meets the definition of related party makes any transaction, agreement, or other arrangement in which he or she has a financial interest a related party transaction. We do not know what the statute contemplates by the phrase "financial interest."

I Meet the Definition of Related Party--Now What Do I Do?

Initially, you need to know that the new statute eliminates the "Type" system of classifying nonprofit organizations. Under NPCL § 201(a), nonprofit corporations are now either non-charitable or charitable. Corporations formerly Type A are now all non-charitable, corporations formerly Types B and C are now all charitable, and corporations formerly Type D are either non-charitable or charitable, depending on their purpose statements. NPCL § 201(b)-(c).

As a general rule, nonprofit corporations cannot enter into related party transactions, "unless the transaction is determined by the board to be fair, reasonable, and in the corporation's best interest at the time of such determination." NPCL § 715(a). If you are a related party serving on the board of a nonprofit corporation that is considering a related party transaction, you must in good faith disclose the material facts that give rise to your interest in the transaction. NPCL § 715(a).

If you are a related party serving on the board of a charitable nonprofit corporation, however, the board may need to take additional steps. In this instance, if you are a related party with a "substantial financial interest" in the transaction, the board must do three things: 1) consider "alternative transactions to the extent available" before entering into the transaction; 2) approve the transaction "by not less than a majority vote of the directors or committee members present at the meeting"; and 3) document the basis for the board or authorized committee's approval of the transaction in writing at the same time as the vote, including its consideration of alternative transactions. NPCL § 715(b)(1)-(3). This section of the statute generates serious challenges for compliance.

The biggest problem stems from the fact that we do not know what "substantial financial interest" means. And since we do not even know what "financial interest" means as used in the definition of "related party transaction," we do not have the ability to extrapolate an existing definition to surmise possible interpretations. "Substantial financial interest" seems to require a monetary threshold, yet, the statute does not provide one.

Another void with which we must grapple is the lack of a definition for "alternative transactions to the extent available" as required in NPCL § 715(b)(1). This phrase might require boards to send out requests for proposals from other law firms if the board decision is whether to hire a board attorney's firm as legal counsel. The "extent available" portion seems to reflect a reasonableness approach, thus, "alternative transactions" might mean different things to different boards, possibly depending on size of the board, size of the corporation, or the time available to decide upon the transaction. Regardless, the possibility that a firm's attorney might put the business relationship between the firm and the nonprofit client in jeopardy simply by the fact that that attorney sits on the board is disconcerting.

Closing and Recommendations

While the statute provides the AG with tools to come after individuals and entities that fail to comply with the changes, it does not elucidate any guidelines that the AG will follow in evaluating whether related party transactions are in the best interest of the corporation. Additionally, the statute does not recognize good faith efforts at compliance.

Complying with the statute will require a combination of guesswork and risk-rewards analysis. Until we have a better handle on the new law, I caution against panicking. But it is in everyone's best interest to start contemplating the ramifications of the changes, especially where attorney board positions could put business relationships at risk.

Rebecca is a Buffalo native, and currently practice in Binghamton at Hinman, Howard and Kattell, LLP. Her practice areas include corporate law, credit union and banking regulation and compliance, and residential and commercial real estate. She completed her undergraduate studies at Washington and Lee University where she graduated magna cum laude with a B.A. in English. She graduated cum laude from SUNY Buffalo Law School.