Category: Uncategorized

Philadelphia Bad Faith Lawyers: Bad Faith Claim Denied After Court Finds No Coverage for Third Party Negligence

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In Rogers v. Allstate Property and Casualty Insurance Company, the Superior Court of Pennsylvania affirmed the dismissal of bad faith claims asserted against Allstate. Finding that the insured’s auto insurance comprehensive clause did not cover negligent or poor workmanship repairs by a third-party repair shop, the claim was dismissed.

The insured was involved in a collision, and permitted an unsolicited tow truck to transport her car to Collisionworks for repairs and she agreed to complete the repairs for the cost proposed in the adjuster’s estimate directly to Allstate, who then paid Collisionworks. After the car owner noticed issues with the vehicle, she filed a claim with Allstate for the car’s condition, which was denied by Allstate. Allstate claimed that the company does not provide comprehensive coverage for loss caused by negligent repairs.

After the denial the insured filed suit against Allstate and Collisionworks. The trial court sustained Allstate’s preliminary objections and dismissed the woman’s claims of breach of contract, negligence, violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, and bad faith with prejudice. After reviewing the policy, the Court concluded that only certain categories of harm were subject to coverage, including: 1) weather-related risks, 2) Civil unrest risks, 3) Criminal Acts, and 4) falling objects. The Court stated that the insured’s claim, as pled, can only be characterized as faulty or negligent workmanship, and not a criminal act.

For more information, call Philadelphia bad faith lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Business Lawyers: SEC Rule 144

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Where a founder of a publicly traded company pledged unregistered, “control securities” to a bank to collateralize a personal loan, if the bank foreclosed on the control securities, would it be required to comply with  the Securities Exchange Commission’s Rule 144 (17 C.F.R. § 230.144)? [1]

  1. The facts of the transaction

In one of the cases handled by Sidkoff, Pincus & Green P.C.,  a client I will call “Mr. Founder,” retained forty percent of the shares of his company (“COMPANY”) when it had its initial public offering (“IPO”). As is customary, his shares were not registered with the SEC and were not part of the IPO, thus making them untradeable on the NASDAQ where the COMPANY was listed.  Mr. Founder then borrowed $50 million from a bank (“THE BANK”) and pledges his unregistered shares in the COMPANY as collateral for the loan. The loan documents stated that if the share price dropped below $5, the bank could seize the pledged shares. Due to a computerized trading glitch, the stock market crashed, and the shares of the COMPANY, which had always traded at over $10, had a brief few minutes where they (along with almost all other shares being traded the stock market that day) reached a new low when it’s shares traded at $4.25. Later in the day, the shares recovered somewhat, and closed at $7.12. When THE BANK sought to exercise its rights to foreclose on the collateral, Mr. Founder asked us to help. We began to negotiate a new loan with the loan specialist at THE BANK to replace the loan where it  had called in the collateral. One thing was evident: a new loan would need to avoid an automatic call of the collateral if there was a temporary drop in the price. In discussions, we learned that the THE BANK’s lawyers had convinced  it that a trigger price to call the collateral was needed because the shares were not tradeable because the lawyers were convinced the shares were restricted, and after THE BANK seized them, it would be required to comply with SEC Rule 144  (17 C.F.R. § 230.144).. We disagreed and presented the following argument in an effort to persuade the bank that once it obtained the shares, they would not be subject to Rule 144, and could be traded freely. Therefore, we argued, the trigger price was not necessary to protect THE BANK.

  1. Analysis of whether pledged shares are considered control shares after foreclosure

As adopted and interpreted by the Securities Exchange Commission, Rule 144 is concerned with the distribution of restricted securities, both in private companies and companies that have stock that is publicly traded. While the issue here is the application of Rule 144 to the COMPANY shares pledged to THE BANK, Rule 144 was actually designed to provide a method for a CEO of a public company who obtained his shares from a source other than buying them on a stock exchange or through a stockbroker (such as in an IPO) to sell their shares.[2]  The scheme of Rule 144 allows the CEO to sell his shares without being considered an “underwriter”, a term broadly defined by the Securities Act of 1933 (15 U.S.C. § 77a et seq. Section 2(11)) to include one who “has purchased from an issuer [or from one who controls an issuer] with a view to … the distribution of any security” as well as one who “sells for an issuer [or for one who controls an issuer].” Id. at § 77b (11) (which generally means a person or entity involved in the market for a security and its distribution). Under § 5 of the Securities Act of 1933 (15 U.S.C., at § 77), an underwriter must comply with the requirement of registering the stock under the Securities Act of 1933, and essentially pursue an IPO or secondary offering. While Rule 144 generally treats an “issuer” (i.e., COMPANY) as if it were an underwriter, it provides a path for the issuer’s CEO to dribble out a small amount of the stock in the first six months (the “holding period” established under Rule 144(b) for listed companies). However, Rule 144 establishes hurdles and limitations on when, and how many shares can be sold; and also what kind of notice of the sale must be filed with the SEC to inform the public of the intended sale. Rule 144 focuses on the words “restricted security” and its definition is broad. For purposes of Rule 144, and as is pertinent here, an “affiliate” of an issuer is defined as “a person that directly, or indirectly controls the issuer.”

In the hypothetical sale (not the actual pledge situation), because the CEO is the founder and president of COMPANY, he would be deemed by Rule 144 to be an affiliate of COMPANY, and subject to Rule 144. (See, 17 C.F.R. § 230.144). Further, the shares that the CEO were deemed “control securities” (See the definition of “person” at § 230.144 (3) (a) (2).)[3]  In other words, using a hypothetical sale scenario for purposes of analyzing what the typical and anticipated Rule 144 case looks like, the CEO’s shares would be viewed as control securities.  If there had been no pledge of these shares to THE BANK, and if the CEO proposed to sell the shares, Rule 144 would oblige the CEO to file papers with the SEC, at a minimum, to comply with the public information and notice of sale requirements of Rule 144(c). That notice would state that the shares satisfied the holding period of Rule 144(b), and otherwise meet all of the other requirements of Rule 144 (i.e., COMPANY has filed its reports with the SEC, and trades robustly on NASDAQ). The shares could then be sold in accordance with volume requirements of Rule 144.

  1. Under the better legal authority, Rule 144 does not apply to the COMPANY shares pledged to THE BANK once they are seized

With these definitions and interpretations of the various SEC rules in mind, we now turn to the unique circumstances here that distinguish this case. The most critical fact in this case is that the shares have been pledged as collateral, not sold to THE BANK; and if THE BANK should have the need to foreclose on them and then resell them, THE BANK would not be an “affiliate” of COMPANY, and would not be subject to the SEC Rules. Furthermore, it would be almost impossible for THE BANK to attempt to obtain approval under Rule 144 for the sale of the COMPANY shares when it took the collateral, before there was a default, and to also satisfy Rule 144(i) since it would require that THE BANK have a bona fide intention to sell within a reasonable time. The awkwardness demonstrates why THE BANK would not be deemed reasonably to be subject to Rule 144.

Hence, on its face, THE BANK, by accepting as collateral, shares in COMPANY, does not fit the definition of “underwriter” as set forth in the Securities Act of 1933, 15 U.S.C. § 77a et seq. which defines “underwriter” broadly to include one who “has purchased from an issuer [or from one who controls an issuer] with a view to … the distribution of any security” as well as one who “sells for an issuer [or for one who controls an issuer].” Id. at § 77b(11) (Emphasis added). Section 4 of the Act creates a number of exemptions from this general rule. Id. § 77d. The exemption in Section 4(1) exempts “transactions by any person other than an issuer, underwriter, or dealer.” Id. § 77d(1).  As noted, an underwriter is defined in relevant part in Section 2(a)(11) as “any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking.” Id. § 77b(a)(11). For purposes of the underwriter definition only, an issuer includes any person controlling, controlled by, or under common control with the issuer of the securities. Id. In light of the purpose of the Act, exemptions generally are to be interpreted to promote full disclosure of information necessary to protect the investing public. SEC v. Ralston Purina Co., 346 U.S. 119, 124-25 (1953). None of these factors or the reasoning, applies to THE BANK, which had no interest in purchasing COMPANY shares from COMPANY to help sell the shares in connection with the distribution of the shares.

There is considerable legal support holding that a pledgee such as THE BANK, that took a pledge of restricted shares as collateral for a loan, and might have to sell that collateral at a foreclosure sale, would not be an underwriter. A.D.M. Corp. v. Thompson, 707 F.2d 25, 26-27 (1st Cir. 1983).  In A.D.M., the Court held that the bank had a direct and separate economic interest in the restricted, control shares from the interest of the borrowers; and that it was not an underwriter since it did not directly or indirectly participate in the distribution of the asset. See, Rule 144(d)(3)(iv) and (e)(3)(ii); SEC Release No. 33–6099 (August 2, 1979), Q.49 (SEC treated estate as separate from its beneficiaries for purposes of determining the volume limitation).  While recognizing a contrary view in the dicta of SEC v. Guild Films Co., 279 F.2d 485, 489-90 (2d Cir. 1950), the Court was persuaded by the criticism of the position taken there, citing Fox v. Glickman Corp., 253 F. Supp. 1005, 1011-12 (S.D.N.Y. 1966) as well as the leading experts whose treatises on securities law was then, and still is, found by courts to be persuasive: 1 L. Loss, Securities Regulation 645-51 (2d ed. 1961); 11 H. Sowards, Business Organizations, § 4.01[3][b] & [c]. See, also, Getz v. Cent. Bank of Greencastle, 147 Ind. App. 356 (1970).

It likewise has been the position of the SEC for many years that a bank in the shoes of THE BANK is not obliged to comply with the requirements of filing a prospectus or obtaining an exemption under Rule 144 when accepting unregistered or controlled shares as collateral for a loan; and there are numerous SEC staff, “no-action letters” declining to bring enforcement actions in scenarios where banks and creditors took as collateral unregistered securities, and then sought to seize and sell the shares but were not considered to be underwriters. See, Russell Ranch, SEC No-Action Letter, 1995 WL 476256 (Aug. 11, 1995); Angelo K. Tsakopoulos, SEC No-Action Letter, 1993 WL 31695 (Feb. 5, 1993); Sec. Pac. Bank Ariz., SEC No-Action Letter, 1992 WL 159159 (June 26, 1992); Albuquerque Fed. Sav. & Loan Ass’n., SEC No-Action Letter, 1987 WL 108519 (Oct. 26, 1987); Harbor Properties Inc., SEC No-Action Letter, 1983 WL 28691 (Sept. 22, 1983); In the Matter of Otc Live, Inc. & Mark A. Suleymanov, SEC No-Action Letter, Release No. 261 (Sept. 30, 2004).

In each of these cases, a bank or other creditor sought to seize unregistered or otherwise restricted shares and to then resell the shares to satisfy the debt for which the shares provided security. In each case the Court or the SEC found that a creditor does not fit the definition of an “underwriter” on the one hand, and on the other, there was no policy gain to distort the language of the SEC Rules to transform the creditor into an underwriter. The gist of these holdings and SEC-No Action Letters was that the banks, accepted the unregistered, restricted stock as collateral for loans. If a bank foreclosed on the collateral, it seeks to mitigate its loss on the loan through sale of the collateral.  The bank never intended to participate in a public distribution of unregistered securities, thus differentiating a bank from an underwriter.

Accordingly, when we presented the weight of the authority and our view that it compelled the conclusion that the COMPANY shares pledged by the FLP would not be Rule 144 shares (as that term is commonly used) if they were seized, loan was renegotiated with terms that were favorable to our client.

For more information, call our Philadelphia business lawyers at 215-574-0600 or contact us online.

 

[1] Researched and written by Gary Green, Esquire, who is the Managing Partner of Sidkoff, Pincus & Green P.C.. This was copyrighted on January 26, 2016 by the author.

[2] Obviously, Rule 144 applies to owners of shares in addition to those who are the CEO of an issuer; but because the CEO’s issue was what we dealt with, we will use his status in this discussion for the sake of clarity.

[3] Although it is not a term defined in Rule 144, “control securities” is used commonly to refer to securities held by an affiliate of the issue regardless of how the affiliate acquired the securities. See, REVISIONS TO RULES 144 AND 145 Release No. 8869 FILE S7-11-07 December 6, 2007.

 

Philadelphia Employment Lawyers: Liability for Temp Employees

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A recent Third Circuit decision overhauled previous notions of non-liability for temporary employees.  Typically, a temporary employee is thought to be the liability problem of the staffing agency that places the employee. The Third Circuit’s decision in Faush v Tuesday Morning, Inc. suggests otherwise. In this case, Plaintiff Matthew Faush and two other employees were ordered to clean up trash in the back of the store. When Faust complained about the assignment he was told by the store manager that minorities were not allowed to work in the front due to risk of theft. Faust was then fired shortly after. The district court decided that Faust was not an employer and could not be liable under the discrimination statutes.

The Third Circuit Court examined the factors and ruled that the company was liable for its temporary workers because it: indirectly paid Faush’s wages, had the power to demand replacement workers, gave assignments, and directly supervised the temporary workers.  Individuals employed by third party staffing firms may have a relationship not only with the staffing agency, but with employers as well, and that relationship should be closely examined when dealing with incidents involving liability. Individuals employed by staffing agencies should carefully review their contracts to ensure that such agreements provide adequate protection against potential adverse actions taken by the employer.

For more information, call Philadelphia employment lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Trial Lawyers: Proposed Civil Asset Forteiture Ban

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Proposal to Ban Civil Asset Forfeiture to Come Before Pennsylvania State Senate Committee

In July of 2015, a bipartisan group of lawmakers introduced a bill requiring prosecutors to convict an individual of a crime before the State could take his/her property permanently through civil forfeiture. Civil asset forfeiture is used by police and prosecutors to take property from individuals suspected of a crime. Previously, this meant that the state could take property from an individual, even if that individual had never been convicted. Types of forfeitable property include cash, cars, homes, and other personal property.

Sentiment has been moving away from Pennsylvania’s use of civil forfeiture. In November of 2012, Judge Dan Pellegrini of Pennsylvania’s Commonwealth Court stated that Pennsylvania’s civil asset forfeiture law amounted to “little more than state-sanctioned theft.”

The Philadelphia Trial Lawyers at Sidkoff, Pincus & Green Represent Individuals Suspected of a Crime

If you or a family member is suspected of a crime and need experienced legal representation the Philadelphia Trial Lawyers at Sidkoff, Pincus & Green can help.  For more information contact us online, or call 215-574-0600.

Philadelphia Business Lawyers: Bucks County Court Allows Plaintiff to Pierce Corporate Veil

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A Bucks County Court of Common Pleas judge awarded a packaging company more than $138,000 in compensation against a limited liability company, and allowed the plaintiffs to pierce the corporate veil to recoup the money. Plaintiff, Power Line Packaging Inc., is a small, family-owned manufacturing and repackaging company focusing on personal care products. Judge Gary Gilman awarded plaintiff money after finding that Defendnats Hermes Calgon/THG Acquisition LLC and its principals intentionally made misrepresentations to plaintiff and were unjustly enriched.

Hermes Calgon was formed as a limited liability company by previous executives of a company that owned several personal care product brands. Hermes Calgon approached Power Line to develop a line of products for Shoppers Drug Mart, which is a large retailer in Canada. The defendants claimed that Shoppers Drug Mart had already placed orders with the company. Based on the representations, Power Line bought materials to create the product line, and developed product line formulas at the defendants’ request.

Power Line was never told payment was contingent on the placement of purchase orders or payments from Shoppers. Shoppers advised the defendants that the company needed to review the product pricing strategy, but defendants did not notify Power Line of Shoppers’ position. In June 2009, the defendants were told that Shoppers would not purchase the products. Power Line sued the defendants, arguing that the defendants repeatedly reassured Power Line they would pay for the purchase and storage of materials related to developing the product line.

“The court held that if you’re going to form an LLC, you need to follow the formalities of that company, and if those formalities are not followed, the individuals forming the LLC may be subject to liability[.]”

The Philadelphia Business Lawyers at Sidkoff, Pincus & Green Handle Lawsuits against Limited Liability Companies

The Philadelphia Business Lawyers at the Law Offices of Sidkoff, Pincus & Green represent clients is all areas of business law, including commercial litigation and employment law.  Contact us online, or call us at 215-574-0600.

Philadelphia Wrongful Death Lawyers: $7 Million Awarded in Dram Shop Settlement Outside Philadelphia Bar

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In June of 2015, the estate of Kevin Kless was awarded $7 million after Kless was attacked and beaten to death by three assailants in Old City. Defendants Lucy’s Hat Shop and G Lounge paid out their policy limits after they were found liable for serving two of the assailants, who were minors.

Dram Shop laws allow victims and their families to hold establishments liable for serving alcohol to individuals who later commit alcohol-related crimes. According to Pennsylvania Dram Shop laws, an establishment can be liable for the entire verdict even if it is only 1% liable on damages.

For more information or to discuss a possible claim of medical malpractice, call Philadelphia wrongful death lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Police Misconduct Lawyers: $40 Million in Settlements

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Over the last four years, police misconduct lawsuits within Philadelphia have spiked. Over 600 cases have been settled, resulting in close to $40 million in payments. According to MuckRock, an organization which helps individuals in filing governmental requests for information through the Freedom of Information Act, the largest settlements have involved police related shootings. Compared to other major cities such as San Francisco and Austin, Philadelphia has settled five times as many Police misconduct cases. Most common were cases involving assault and excessive force. Shooting related cases lead to the bulk share of the dollars settled; over $14 million dollars have been paid out to these victims and their families.

The biggest specific payout involved a shooting where police thought a man was intruding a building in which he lived. The family settled for $ 2.5 million dollars. Settlements continue to increase as the year progresses. In a highly controversial case in 1999 which involved the shooting and death of a male individual, the case was settled for $ 712,000 dollars. Recently in February a case was settled for $200,000 involving a man who was brutally beaten by police prior to his arrest which was also not warranted. The man broke his orbital bone, had lacerations on his face and was bleeding badly. Video surveillance displayed evidence that thus man was falsely arrested.

For more information, call Philadelphia police misconduct lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Business Lawyers Report on Recent Trademark Infringement Lawsuit

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Crayola, a division of Hallmark Cards, Inc., recently filed a lawsuit against Alex Toys LLC, a New Jersey toy company, alleging unauthorized trademark use on crayons.  According to the complaint, crayons sold by Alex Toys LLC bore wrappers labeled with the word “Crayola.”  Alex Toys LLC sold crayons bearing the Crayola trademark as part of their Colossal Art Set and in a bucket of crayons available on their website.

Crayola petitioned the court to prohibit further infringement, award monetary damages to Crayola, and order Alex Toys LLC to destroy existing products and promotional materials bearing the word “Crayola.”  In addition, Crayola requested that Alex Toys LLC be required to pay all legal fees incurred by Crayola for this lawsuit including attorney fees and litigation costs.

Philadelphia business attorneys at the Law Offices of Sidkoff, Pincus & Green are dedicated to protecting the intellectual property of our clients.  We have extensive knowledge and experience pertaining to all aspects of trademark infringement law.  Our lawyers are skilled negotiators, litigators, and consultants.  Contact us online or call our Philadelphia intellectual property attorneys at 215-574-0600 to find out how your company can benefit with Sidkoff, Pincus & Green on your side.

Pennsylvania Landlord-Tenant Law: Holdover Tenancy and Eviction

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Under Pennsylvania law, a holdover tenant is an individual who “unjustifiably refuses to surrender possession of a leasehold premises at the end of the term of the lease.”  U.S. Gypsum Co. v. Schlavo Bros., Inc., 668 F.2d 172, 182 (3d Cir. 1981) (citing Restatement (Second) of Property, Landlord and Tenant § 14.1 n.1 (1977)).  A landlord may sue a holdover tenant for possession and recovery of damages suffered due to the tenant’s refusal to surrender the property.  See id.

“When a tenant holds over the landlord has a ‘choice of remedies.’  He [the landlord] might have looked upon the tenant as a trespasser and summarily ejected him, or he might have treated him in holding over as a tenant by sufferance, or he might have regarded the holding over as a continuance under the terms of the lease.”  H. F. D. No. 26, Inc. v. Middletown Merchandise Mart, 467 F.2d 253, 255 (3d Cir. 1972) (quoting City of Pittsburgh v. Charles Zubik & Sons, 171 A.2d 776, 778 (Pa. 1961)).  “Once a landlord has exercised his choice of remedies and determined how he plans to treat a holdover tenant, he may not alter his position.”  H.F.D., supra at 256 (citing Emery v. Metzner, 156 A.2d 627, 631(Pa.Super. 1959)).

A landlord who repossesses rental property through eviction suspends the tenant’s obligation to pay rent.  Walnut-Juniper Co. v. McKee, Berger & Mansueto, Inc., 344 A.2d 549, 551 (Pa.Super. 1975).  Once a landlord retakes possession from the lessee tenant, the landlord is precluded from a claim of holdover tenancy as a matter of law.  See Restatement (Second) of Property, Landlord and Tenant § 1.2 (stating: “[a] landlord-tenant relationship exists only if the landlord transfers the right to possession of the leased property.”).

Although the termination of the landlord-tenant relationship may restrict a landlord from asserting a claim of holdover tenancy, a landlord may pursue other legal remedies.  For example, a landlord who reclaims possession of the premises is still entitled to recover damages if the former tenant leaves behind personal property.  See Restatement (Second) of Property, Landlord and Tenant § 12.3 cmt. l (stating that landlord may recover from tenant cost of removing and storing personal property left behind, and for any other damages he sustains).

If you think that you might have a claim – as either a landlord or tenant – for legal remedies stemming from a landlord-tenant relationship, please contact the experienced lawyers at Sidkoff, Pincus & Green in Philadelphia, who are licensed to practice law in all courts in Pennsylvania and New Jersey.

Discrimination Claims in Pennsylvania under the Equal Credit Opportunity Act – Brief Overview

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The Equal Credit Opportunity Act (“ECOA”) makes it unlawful for creditors to discriminate against any credit applicant with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status or age.15 U.S.C. § 1691(a)(1).

The ECOA applies to “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing credit extension (including, but not limited to, information requirements; investigation procedures; standards of creditworthiness; terms of credit; furnishing of credit information; revocation , alteration, or termination of credit; and collection procedures).”12 C.F.R. § 202.2(m).

Under the ECOA, a creditor is required to notify an applicant of any action on an application “within 30 days…after receipt of a completed application for credit.”15 U.S.C. § 1691(d)(1).When a creditor takes adverse action against an applicant, such as denying an application for credit, the applicant is entitled to a statement of reasons for such adverse action.15 U.S.C. § 1691(d)(2).

To establish a claim of discrimination under the ECOA, a plaintiff must show that the plaintiff (1) is a member of a protected class; (2) applied for credit from defendant; (3) was qualified for credit; and (4) despite qualification, the plaintiff was denied credit.Chiang v. Veneman, 385 F.3d 256, 259 (3d Cir. 2004), abrog. on other grounds by In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008).Additionally, because the ECOA applies to every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit, a potential creditor’s refusal to provide an application form to a prospective applicant is also part of a “credit transaction” within the meaning of the ECOA.Chiang, supra at 265.Therefore, “a refusal to provide a loan application on the basis of race, color, religion, national origin, sex or marital status, or age would be a prototypical ECOA violation, as it would deny members of a protected class any access to credit.”Id.

If you believe that you might be a victim of unlawful discrimination under the ECOA, please contact the experienced lawyers at Sidkoff, Pincus& Green in Philadelphia at 215-574-0600, who are licensed to practice law in all courts in Pennsylvania and New Jersey.