Founded in 2010, Empire Distribution is a record label that records and releases albums in the urban music genre, which includes hip hop, rap, and R&B. In 2015, Fox premiered Empire, a dramatic television series about a fictional New York based hip-hop record label, and the storylines that revolve around its inception, founding members, executives, and artists. The show features songs in every episode, some of which are original, and Fox contracted with Columbia Records to distribute the music in the show under the Empire brand. After receiving several threatening letters from Empire Distribution about Fox’s use of the “Empire” name, Fox filed a declaratory judgment action seeking a determination that its Empire show, its associated music releases, and affiliate merchandise did not violate Empire Distribution’s trademark rights. Empire Distribution counterclaim for trademark infringement, unfair competition, and false advertising. The fight centered on whether Fox’s creative work, which utilized the protected name and trademark of Empire Distribution, was exempt from the Lanham Act as a First Amendment expression.

When it comes to First Amendment protections for trademark use, the discussion must start with the test expounded by the Second Circuit in Rogers v. Grimaldi, 875 F.2d 994, 999 (2d Cir. 1989). Courts generally apply the Rogers test in determining whether an expressive work runs afoul of the Lanham Act where “the public interest in avoiding consumer confusion outweighs the public interest in free expression.” Pursuant to Rogers, use of another’s trademark or protected identifying material in an expressive work does not violate the Lanham Act unless the use “has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless it explicitly misleads consumers as to the source or content of the work.”

Analyzing the first prong, the Ninth Circuit found Fox used the word “Empire” for artistically relevant reasons because the show was set in New York, the Empire State, and its subject matter is a music and entertainment conglomerate. The court rejected Empire Distribution’s contention that for a use to have an artistic relevance it must refer to the owner’s mark, in this case Empire Distribution, holding that supporting the themes and geographic setting of the work was sufficient to satisfy the first prong of the Rogers test, which simply requires minimal relevance.

Turning to the second prong, the Ninth Circuit found Fox’s use of the title Empire did not explicitly mislead consumers. Absent an “explicit indication,” “overt claim,” or “explicit misstatement” that causes such consumer confusion, the second prong of the Rogers test will be satisfied. Since Empire did not mislead consumers into believing it was produced or created by Empire Distribution, the Court affirmed the lower court’s grant of summary judgment in favor of Fox.

Tucked away in the Ninth Circuit’s decision is the acknowledgment that not only is an expressive work protected from trademark infringement liability if it passes the Rogers test, but also are similarly branded ancillary promotional activities and commercial products based on the expressive work. So as long as the attendant commercial use is auxiliary to the expressive work and not explicitly misleading, it falls within the protective umbrella. Thus, Fox can sell Empire branded CDs, t-shirts, and music, as well as put on and promote Empire concerts without infringing on Empire Distribution’s “exclusive” rights to use the Empire name in conjunction with those goods and services. Although the Ninth Circuit’s decision may be a significant victory for Fox and other creators of expressive works, brand owners will likely see this decision as a setback to trademark enforcement and an expansion of the Rogers test. With bated breath, we anticipate how other courts apply and expound on Rogers in light of the Ninth Circuit’s decision, and whether the Supreme Court will weigh in on the topic.

Digital piracy on peer-to-peer networks can have severe financial consequences for copyright holders. As one member of Congress put it:

Under U.S. law, stealing intellectual property is just that—stealing. It hurts artists, the music industry, the movie industry, and others involved in creative work. And it is unfortunate that the software being used—called “file sharing,” as if it were simply enabling friends to share recipes, is helping create a generation of Americans who don’t see the harm. [1]

As digital pirates increasingly use BitTorrent and other peer-to-peer networks to share media, copyright holders have pressed the courts for recourse.  To combat losses from peer-to-peer file sharing, copyright holders have filed a spate of lawsuits against infringers in federal courts across the country. See, e.g., BMG Rights Mgmt. (US) LLC v. Cox Commc’ns, Inc., 881 F.3d 293, 298-99 (4th Cir. 2018); Killer Joe Nevada, LLC v. Does 1-20, 807 F.3d 908, 910 (8th Cir. 2015); Dallas Buyers Club, LLC v. Madsen, 2015 U.S. Dist. LEXIS 148445 at *1 (W.D. Wash. Nov. 2, 2015) (noting that the action is “one of 13 practically identical cases filed” alleging BitTorrent users’ infringement of the movie Dallas Buyers Club).

These suits are not without controversy: many involve “copyright trolls” who buy up copyrights to adult films and then sue masses of unknown BitTorrent users for illegally downloading pornography. [2]

Peer-to-peer networking involves a “decentralized infrastructure whereby each participant in the network . . . acts as both a supplier and consumer of information resources.” [3] In other words, “peers” download content from fellow peers, while leaving their own folders of digital content available for others to download. One type of peer-to-peer networking involves the BitTorrent protocol, in which a file is broken up into smaller pieces from various peers and then reassembled upon completion of a download. With BitTorrent, “each user is both downloading and uploading several different pieces of a file from and to multiple other users.” [4] Peer-to-peer networks like BitTorrent are “ideally suited for sharing large files, a feature that has led to their adoption by, among others, those wanting access to pirated media, including music, movies, and television shows.” [5]

BitTorrent is a system designed to quickly distribute large files over the Internet. Instead of downloading a file, such as a movie, from a single source, BitTorrent users are able to connect to the computers of other BitTorrent users in order to simultaneously download and upload pieces of the file from and to other users. To use BitTorrent to download a movie, the user has to obtain a “torrent” file for that movie, from a torrent website. The torrent file contains instructions for identifying the Internet addresses of other BitTorrent users who have the movie, and for downloading the movie from those users. Once a user downloads all the pieces of that movie from the other BitTorrent users, the movie is automatically reassembled into its original form, ready for playing on the recipient’s device.

Strike 3 hires forensic investigators to tap into BitTorrent and track the uploading and downloading of the hash files that comprise its copyrighted adult film works.  Using specially designed software and tools, the investigators can ascertain when an IP address is used to download all of the hash files for a complete movie.  The investigators then continue to monitor that IP address for months or years until the number of tracked downloads triggers Strike 3 to take legal action (usually more than 20).

When John Doe’s IP address is named in a complaint, John Doe is none the wiser until he/she receives a letter from his/her Internet Service Provider (“ISP”) (such as Comcast, Verizon, AT&T, Time Warner, etc.) informing John Doe of a subpoena the ISP received directing it to reveal John Doe’s name and address to Strike 3.  Thus, John Doe is forced to deal with a lawsuit alleging illegal downloading of pornographic materials even though Strike 3 does not yet have any actual proof that John Doe – as opposed to some other individual with access to John Doe’s Wi-Fi – was the internet user who actually downloaded Strike 3’s films.

This of course implicates privacy concerns and the potential for reputational harm of an innocent John Doe being named in or associated with a salacious lawsuit.  That is why courts insist on anonymity and protective orders to protect a John Doe’s privacy while still allowing Strike 3 to obtain the information it needs to prosecute its case.

In balancing John Doe Defendants’ privacy interests with Plaintiff’s right to pursue those who anonymously violate its intellectual property rights, many courts find that entry of a limited protective order strikes the right balance between Strike 3’s interests and individual defendants’ misidentification and invasion of privacy concerns.  See, e.g., Manny Film LLC v. Doe Subscriber Assigned IP Address 50.166.88.98, 98 F. Supp.3d 693, 696 (D.N.J. 2015) (granting expedited discovery but directing the internet service provider to provide the internet subscriber with a copy of the order and a copy of the subpoena received from the plaintiff and upon receipt of the order and the subpoena, granting the internet subscriber twenty-one (21) days to quash the subpoena or move in the alternative for a protective order. Further, the court ordered that the ISP shall not provide any responsive information to the plaintiff until the latter of the expiration of twenty-one (21) days or resolution of any motion to quash or for a protective order); Strike 3 Holdings, LLC v. Doe, 2019 U.S. Dist. LEXIS 168379, at *7 (D.N.J. Sept. 30, 2019) (declining to issue a protective order but permitting the plaintiff to proceed anonymously); Strike 3 Holdings, LLC v. Doe, 330 F.R.D. 552, 556-57 (D. Minn. 2019) (entering a comprehensive, multifaceted protective order to aid in protecting privacy interests and limit risks of embarrassment and misidentification); Malibu Media, LLC v. Doe, 2013 U.S. Dist. LEXIS 189452 at *2 (D.N.J. Aug. 19, 2013) (limiting the scope of a pre-Rule 26(f) conference subpoena to a subscriber’s name and address); Voltage Pictures v. Doe, 2013 U.S. Dist. LEXIS 155356, at *9-10 (D.N.J. May 31, 2013) (granting leave to serve subpoena requesting only the name, address, and media access control address associated with a particular IP address).

[1] Privacy and Piracy: the Paradox of Illegal File Sharing on Peer-To-Peer Networks and the Impact of Technology on the Entertainment Industry: Hearing Before the S. Comm. on Governmental Affairs, 108th Cong. 10-14 (2003) (statement of Sen. Levin); see also id. at 1-2 (statement of Sen. Boxer) (asserting that “downloading copyrighted works is theft” and “is a real problem”).

[2] Glacier Films (USA), Inc. v. Turchin, 896 F.3d 1033, 1035 (9th Cir. 2018).

[3] Columbia Pictures Indus., Inc. v. Fung, 710 F.3d 1020, 1024 (9th Cir. 2013).

[4] Fung, 710 F.3d at 1027.

[5] Id. at 1025; see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 919-20 (2005).

In this matter, the subcontractor had properly completed its work and said work had been approved by the contractor, thereby triggering the N.J. Prompt Pay Act. Thereafter, the contractor certified to the general manager that it paid the subcontractor for the concrete work, even though it had not paid the subcontractor. Shortly thereafter, the contractor filed for bankruptcy and it sought the protection of the bankruptcy court against any claims brought by the subcontractor.

During the course of the bankruptcy proceedings, the bankruptcy court pierced the corporate veil of the contractor and allowed the subcontractor to seek reimbursement directly from the principals of the corporation. The court explained that the principals of the contractor had fraudulently induced the subcontractor to enter into the agreement, and moreover, that said funds were due to the subcontractor pursuant to the terms of the N.J. Prompt Pay Act. As a result of this decision, principals of the general contractor became personally liable for the payment of the judgment, and moreover, the award of counsel fees and costs that were granted to the subcontractor. This decision clearly highlights how strong the New Jersey Prompt Pay Act is and how it can be utilized for a subcontractor to obtain the relief it seeks.

While some bullheaded District Court judges have stopped Strike 3 in its tracks by denying its request for early discovery, most appellate courts to have considered the issue find that Strike 3’s allegations of copyright ownership and illegal downloading of their works by an identifiable IP address are enough to permit Strike 3 to discover the IP address owner’s name and address.

Federal Rule 26(d)(1) generally prohibits parties from seeking discovery “from any source before the parties have conferred as required by Rule 26(f).”  Further, Rule 26(d) does not set a standard for determining when expedited discovery should be permitted.  District courts possess broad discretion in managing the discovery process and may expedite or otherwise alter its timing or sequence. In re Fine Paper Antitrust Litig., 685 F.2d 810, 817 (3d Cir. 1982) (“matters of docket control and conduct of discovery are committed to the sound discretion of the district court”). Absent guidance from the rule itself, courts faced with motions for leave to serve expedited discovery requests to ascertain the identity of John Doe defendants in internet copyright infringement cases often apply the “good cause” test.

Good cause exists where the “need for expedited discovery, in consideration of the administration of justice, outweighs the prejudice to the responding party.”  Malibu Media, LLC v. John Doe, 2016 U.S. Dist. LEXIS 32445 *1 (D.N.J. Mar. 14, 2016). Under the good cause test, whether to permit expedited discovery is decided by considering the totality of the circumstances and the balancing of the interests of the plaintiff and defendant.

A non-exclusive list of factors courts typically examine in conducting the good cause analysis include:

(1) the timing of the request in light of the formal start to discovery;

(2) whether the request is narrowly tailored;

(3) the purpose of the requested discovery;

(4) whether the discovery burdens the defendant; and

(5) whether the defendant can respond to the request in an expedited manner.

Other courts have offered related but different factors for consideration, including:

(1) the plaintiff’s ability to make out a prima facie showing of infringement,

(2) the specificity of the discovery request,

(3) the absence of alternative means for obtaining the information sought in the subpoena,

(4) the need for the information sought in order to advance the claim, and

(5) the defendant’s expectation of privacy.

[See Strike 3 Holdings, LLC v. Doe, 329 F.R.D. 518, 521 (S.D.N.Y. 2019) (citing Arista Records, LLC v. Doe 3, 604 F.3d 110, 119 (2d Cir. 2010).]

It is a first principle of federal civil procedure that litigants are entitled to discovery before being put to their proof.

In conducting any discovery inquiry, the Third Circuit has suggested that district courts risk reversal if their rulings will make it impossible for any party to “obtain crucial evidence[.]”  See In re Fine Paper Antitrust Litig., 685 F.2d at 818 (quoting Eli Lilly & Co. v. Generix Drug Sales, Inc., 460 F.2d 1096, 1105 (5th Cir. 1972)) (“[the Third Circuit] will not upset a district court’s conduct of discovery procedures absent ‘a demonstration that the court’s action made it impossible to obtain crucial evidence'”).  After all, it is a first principle of federal civil procedure that litigants “are entitled to discovery before being put to their proof.” Bennett v. Schmidt, 153 F.3d 516, 519 (7th Cir. 1998).

The legal standard requires, however, that where well-pled factual allegations exist, courts should “assume their veracity” at the pleading stage.  Alston v. Parker, 363 F.3d 229, 233 n.6 (3d Cir. 2004) (cautioning that courts should permit “discovery before testing a complaint for factual [as opposed to legal] sufficiency”).  It is well settled that a pleading is sufficient if it contains “a short and plain statement of the claim showing that the pleader is entitled to relief.”  Fed. R. Civ. P. 8(a)(2).  The focus, therefore, is not on whether the plaintiff will ultimately be able to prove each of the alleged facts in the complaint, but simply whether, if such facts are later proven to be true, the plaintiff has stated a legally actionable claim.

In a Strike 3 Holdings case brought in the District of New Jersey, the District Court reversed the Magistrate Judge’s denial for early discovery (Strike 3 requested permission to serve a subpoena on an ISP to obtain the name of the owner of the IP addressed alleged to have been used to download Strike 3’s videos) holding that Strike 3’s allegations that it owned the rights to films that the named John Doe Defendants pirated on particular dates and times using an identifiable IP address were sufficient to allow for early discovery.  See Strike 3 Holdings, LLC v. Doe, 2020 U.S. Dist. LEXIS 114598, at *11-14 (D.N.J. June 30, 2020).  The Magistrate Judge had based its decision on seven considerations:

1. Strike 3 bases its complaints on unequivocal affirmative representations of alleged facts that it does not know to be true;
2. Strike 3’s subpoenas are misleading and create too great of an opportunity for misidentification;
3. the linchpin of Strike 3’s good cause argument, that expedited discovery is the only way to stop infringement of its works, is wrong;
4. Strike 3 has other available means to stop infringement besides suing individual subscribers in thousands of John Doe complaints;
5. the deterrent effect of Strike 3’s lawsuits is questionable;
6. substantial prejudice may inure to subscribers who are misidentified; and
7. Strike 3 underestimates the substantial interest subscribers have in the constitutionally protected privacy of their subscription information.

But, the Magistrate Judge erred in not accepting Strike 3 allegations as true and presuming that just because Strike 3 had not yet obtained evidence to link the IP address owner to the alleged infringement it could not do so in the future after obtaining relevant discovery.  Plaintiff is not required to sufficiently establish the John Doe Defendant did the infringing at the pleading stage, rather Plaintiff must only allege facts that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.  See Blakeslee v. Clinton Cty., 336 F. App’x 248, 250 (3d Cir. 2009) (“Use of John Doe defendants is permissible in certain situations until reasonable discovery permits the true defendants to be identified”).  Relying on Third Circuit precedent, the District Court re-affirmed that meritorious claims must be permitted to proceed even if a plaintiff cannot adduce all the necessary facts at the outset, including the identity of the Defendant.

Because Strike 3 sufficiently stated a viable claim of copyright infringement against the identified IP addresses and its placeholder-defendant subscribers, Strike 3 is entitled to discovery to further assist it in identifying the underlying wrongdoer.  Any consideration of the merits of Strike 3’s claims before permitting discovery to identify the placeholder-defendants, including whether Plaintiff has sued the correct Defendants, would be inappropriate at the pleading stage.

Finally, because the requested early discovery (name and address of IP subscriber) was narrowly tailored (requesting no more than would be required to identify the relevant individual) and there did not exist an alternative means for legally obtaining this crucial information, the District Court joined a growing number of other courts in finding good cause existed for Strike 3’s request to serve a subpoena to obtain the name and address of the John Doe owner of the IP address.

In previous guidance, the SEC discussed how an investment adviser’s (“adviser”) fiduciary duty and Rule 206(4)-6 under the Advisers Act are related to an adviser’s exercise of its voting authority on behalf of its clients and provided examples to help the adviser comply with its obligations related to proxy voting. The previous guidance is now supplemented based upon the SEC’s ongoing review of the proxy voting process and the Amendments. The SEC expects that the Amendments will provide issuers, among other things, with access to the proxy advisory firms’ recommendations in a timely manner and will allow issuers to share any additional information with shareholders that may be material to their voting decisions. Proxy advisory firms, as a condition of their reliance on Rules 240 14a-2(b)(1) and (b)(3), must also develop policies and procedures that are reasonably designed to provide advisers and other clients with a mechanism by which they can be reasonably learn of the additional information before making proxy voting decisions.

The Guidance is intended to:

1. Assist advisers in determining how to consider any additional information that will become more readily available as a result of the Amendments; and
2. Address the disclosure obligations and considerations that may arise when advisers use proxy advisory firms, electronic vote management systems or other voting execution services for voting proxies.

Pre-Population of Voting Proxies

Since pre-population and automated voting occur before the submission deadline for proxies to be voted at a shareholder meeting, advisers that pre-populate clients’ votes now have an obligation to determine whether an issuer plans to file or has already filed additional soliciting materials reflecting its views regarding the voting recommendations. This should be done as part of an adviser’s reasonable due diligence into matters on which it votes. Some steps that an adviser could take to demonstrate that it is making voting determinations in a client’s best interest include, but is not limited to:

• Review the policies and procedures to determine whether they are reasonably designed to address circumstances where the adviser becomes aware that an issuer intends to file or has filling additional soliciting materials with the SEC after the adviser has received the proxy advisory firm’s voting recommendations but before the submission deadline;
• Determine whether the proxy advisory firm may obtain non-public information about how an adviser will vote clients’ proxies and then review all agreements with the proxy advisory firm to determine whether the agreements will permit the proxy advisory firm to use that non-public information in a manner that would not be in the best interest of the adviser’s clients; and
• Determine whether policies and procedures are reasonably designed to address the adviser’s disclosure obligations.

Disclosure Obligations

Advisers are required, as part of its duty of loyalty to clients, to make full and fair disclosure of all material facts relating to the advisory relationship including, material facts related to the exercise of its proxy voting authority. Advisers that use automated voting should disclose:

• The extent of the adviser’s use of automated voting and under what circumstances it will use automated voting;
• How the adviser’s policies and procedures address the use of automated voting when the adviser becomes aware that an issuer intends to file or already filed additional soliciting materials with the SEC regarding a matter to be voted on prior to the submission deadline for proxies to be voted at the shareholder meeting; and
• Sufficient and specific information which will provide a client with enough information to understand the role of the automated voting in the adviser’s exercise of its voting authority and to provide informed consent to the use and scope of automated voting.

The Amendments and the Guidance, in part, are focused on ensuring advisers act “in a manner consistent with their fiduciary obligations” and that they provide investors with enough information to make informed decisions when voting proxies. The new requirements could impact an adviser’s continued use of electronic proxy voting and the use of proxy advisor voting firms due to the Amendments and the corresponding anticipated increased cost of compliance. If your firm is engaged in voting proxies on behalf of your clients (either directly or via the use of a proxy voting vendor), then Stark and Stark is available to help you evaluate your proxy voting process and assist you with meeting your obligations under the Guidance.

The Court explained that the arbitration clause was unenforceable since it lacked the required waivers with regard to the right to file a state court action, and the right to a trial by jury. Such waivers are mandatory and must be included in order for an arbitration clause to be found enforceable by the Court.

The court further explained that the clause lacked the mutuality of assent, because it was less than 10-point font, and thus, was not easily discernable. This issue of legibility adds yet another pitfall for drafters of contracts to avoid. Gone are the days of fine print which may be dispositive. Instead, the Court explained that any such material provision must be clearly legible. As such, all contractors must be aware of this ruling and should carefully review their agreements in order to correct any such potential issues.

The D.C. Circuit recently revived one of thousands of copyright lawsuits filed by an adult film studio, Strike 3 Holdings, overturning the lower District Court Judge who declined to allow Strike 3 to engage in early discovery sharply criticizing the film studio plaintiff for using the courts as an ATM. See Strike 3 Holdings, LLC v. Doe, No. 18-7188 (D.C. Cir. 2020). The three-judge appellate panel, however, ruled that the judge erred in refusing to grant Strike 3’s request to subpoena an internet service provider in order to identify the name and address of a John Doe subscriber of an IP address allegedly used to illegally download Strike 3’s films using BitTorrent.

The case is one of over 3,000 lawsuits Strike 3 has filed since 2018. The suits target John Doe owners of IP addresses, seek to subpoena internet service providers to identify the name of the John Doe owner, then typically settle out of court. Taking issue with the salacious nature of Strike 3’s copyrighted works, the volume of identical lawsuits filed by Strike 3, and the playbook pattern that typically results in settlements and case dismissals, the District Judge refused Strike 3’s request for early discovery to obtain the name of the John Doe defendant: “Armed with hundreds of cut-and-pasted complaints and boilerplate discovery motions, Strike 3 floods this courthouse (and others around the country) with lawsuits smacking of extortion,” Judge Lamberth of the District Court wrote. “It treats this court not as a citadel of justice, but as an ATM. Its feigned desire for legal process masks what it really seeks: for the court to oversee a high-tech shakedown. This court declines.” Concerned with the potential for misidentification and Strike 3’s inability to allege with any certainty that the John Doe subscriber is the one who downloaded the videos, as opposed to a neighbor, a spouse, a household member, or a visiting friend, the District Court found that Strike 3’s need for the subpoenaed information was outweighed by the “potentially-noninfringing defendant’s right to be anonymous”—a privacy interest the court found especially weighty given the “particularly prurient pornography” at issue, and therefore dismissed the complaint without prejudice.

In reversing, the Circuit Court concluded that Strike 3’s well pled complaint for copyright infringement entitled it to discover the name of the John Doe subscriber associated with the IP address Strike 3’s investigators determined was used to illegally download dozens of Strike 3’s adult videos.

To avoid expensive appeals and recalcitrant judges, Strike 3 has moved its settlement mill to Miami-Dade County in Florida. Rather than file hundreds of lawsuits against individual IP addresses, Strike 3 has recently taken advantage of Florida’s “Pure Bill of Discovery” procedure, which allows a litigant to obtain a court order for the production of information or documentation, which may then be used in a later lawsuit. Pure Bills of Discovery have traditionally been used to investigate fraud, to inspect and preserve evidence, and to obtain pertinent documentation. Generally speaking, a Pure Bill Of Discovery can be used by a person or entity to obtain information from another prior to filing a lawsuit on the merits.

Therefore, in one fell swoop Strike 3 can obtain an order allowing it to subpoena ISPs to turn over the identities of the owners of hundreds of IP addresses. No more wayward district court decisions and constantly fighting over Strike 3’s entitlement to pre-answer discovery in individual federal lawsuits. When John Does fight back by moving to quash the subpoenas or challenge the Florida court’s jurisdiction, Strike 3 will dismiss that defendant’s IP address from its Pure Bill of Discovery suit and file an individual suit in John Doe’s home state. So far, Strike 3’s new litigation strategy seems to be paying off as the settlements continue and the cost savings (filing fees, motion fees, etc.) stack up.

In this case, the Court appointed several family members as guardians for their aunt who had about $3,000,000 in assets. In 2018, the guardians sought Court approval for $450,000 gifts which had been made by the guardians from their aunt’s assets between 2015 and 2017. Even though the application was unopposed, and the aunt’s income substantially exceeded her expenses throughout this period, the Court partially denied the request. One of the major factors cited by the Court was a restriction found in the aunt’s 2006 power of attorney. This restriction limited the amount of the gifts to the federal gift tax annual exclusion (then $14,000 per person per year).

To understand the importance of this restriction, an understanding of the basic gift tax rules is necessary. Annual exclusion gifts are transfers of assets or cash that do not exceed the annual gift tax exclusion – currently $15,000 per recipient per year. Thus, most married couples can give up to $30,000 per recipient in this calendar year. Depending on the circumstances, many annual exclusion gifts do not require a Federal Gift Tax Return (Form 709) and are not considered taxable gifts. Annual exclusion gifts reduce the overall value of the donor’s estate but do not reduce the Federal Estate Tax Exemption of the person making the gift.

Gifts in excess of the annual exclusion amount still avoid Gift Taxes if the person making the gift applies his or her Gift Tax Exemption by filing IRS Form 709. The Gift Tax Exemption is unified with the Estate Tax Exemption at $11.58 million for 2020. Gifts in excess of the annual exclusion ($15,000 per person currently) reduce the $11.58 million exemption for purposes of both the Gift Tax and the Estate Tax.

Management of the Gift and Estate Tax Exemptions is important given the uncertainty over future exemptions and tax rates. If no legislative action is taken, the current Estate and Gift Tax Exemptions will conclude at the end 2025 and return to the 2010 Exemption amount of $5.0 million, plus indexing. The upcoming election and changes in law may result in a reduction of the Gift and Estate Exemptions before 2025. For some New Jersey residents, the New Jersey Inheritance Tax may also be an issue to consider. Gifts made more than three years before death may avoid New Jersey Inheritance Taxes, resulting in substantial savings in tax at the state level.

Proper use of these exemptions is important, particularly given future uncertainties. If a parent or donor becomes disabled or incapacitated, the disability may compromise his or her ability to make gifts. To address this issue before a problem arises, a power of attorney with appropriate gift provisions should be in place. Failure to draft these provisions properly may result in undesirable limitations. Similarly, if you are a guardian or an agent under a power of attorney, it is important that all gifts be made in accordance with the gift provisions found in the power of attorney as well as any Court restrictions that may apply.

The lawsuit alleges the contractual procedures required to cancel or delay the season were not followed. Moreover, the lawsuit asserts that although, the players are not parties to that contract, they enjoy certain rights as third-party beneficiaries and therefore have standing to assert those claims. Legally, the players’ assertion that they somehow enjoy third-party status is in my opinion extremely weak. Under Nebraska law, in order for the players to enjoy third-party beneficiary statute, “it must appear by express stipulation or by reasonable intendment that the rights and interests of such unnamed parties were contemplated and provision was made for them.” Properties Inv. Group v. Applied Communications, 242 Neb. 464, 470 (1993). In other words, the Court is likely to look to the express language of the contract or governing documents between the member institutions to determine whether or not it expressly or reasonably confers the rights to student-athletes to sue for violating the same. I expect that the express language of the contract between the 14 schools in the Big Ten does not give rights to their student-athletes to sue.

The lawsuit also alleges that because these players were permitted under Nebraska state law to sell their name and likeness the Big Ten’s decision to cancel or delay the season will result in damages. The players’ lawsuit alleges that the Big Ten tortuously interfered with their business expectancies. Factually, those claims are problematic because a review of the rooster, reveals that most of the plaintiffs are redshirt freshman with little to no playing experience. Moreover, based upon both the short and long term uncertainty concerning COVID-19, it will be extremely difficult, perhaps impossible for the players to prove that the Big Ten’s decision was “arbitrary and capricious.” Douglas Cnty v. Archie, 295 Neb. 674, 688 (2017). Nebraska law holds that an “action is ‘arbitrary and capricious’ if it is taken in disregard of the facts and circumstances of the case, without some basic which would lead a reasonable and honest person to the same conclusion.” In my opinion, based upon the medical and scientific data and the member institutions concerns for the health and well-being of their students, it will be next to impossible for the plaintiffs to meet that extremely high burden. Even if it turns out that the Big Ten made the wrong decision will not be dispositive to this issue.

The players’ lawsuit is also legally flawed because Nebraska law holds that damages cannot be speculative or conjectural. Pribiil v. Koinzan, 266, Neb. 222, 227-228 (2003). Although, the players assert that if they were given the opportunity to play, it would have resulted in them being able to sell their name and likeness, I suspect none of these players had contracts, endorsements or agreements when the Big Ten decided to cancelled or delay its college football season. If so, I believe the players’ damages would be speculative or conjectural and not subject to recovery. Because this is a legal issue, not a factual question, I suspect, the claim is likely to be dismissed at some point in the litigation.

I expect the Big Ten to file a pre-answer motion seeking the dismissal of the entire. I expect the Big Ten to assert that the players do not enjoy third-party beneficiary status, the decision was not arbitrary and capricious and that the alleged damages as asserted in the case are speculative and conjectural. While the Court in deciding a pre-answer motion to dismiss is required to assume all of the facts contained in the lawsuit are truthful and accurate, I suspect that most, if not all of the claims asserted in this lawsuit will be dismissed. Even if the damages issue were to survive a pre-answer motion to dismiss, I suspect after the completion of discovery the remainder of the case would be dismissed by way of summary judgment motion.

If you would like to hear more about this case and potential legal issues associated with the Big Ten’s decision to cancel or delay college football, please listen to my radio interview here.

To easily understand the streamlined process utilized by the AAA for resolution of relatively straightforward, typically collection related disputes, a brief outline of the necessary steps involved is helpful.

• AAA arbitration is initiated by the filing by the Claimant of a Demand for Arbitration. The Demand, the administrative filing fee, and the provision providing the authority for arbitration before the AAA must accompany the Demand for the filing to be deemed complete. The Demand for Arbitration under the Commercial Arbitration Rules is a simple two- page form wherein the parties are identified, a description of the dispute is provided, and the amount of the claim is stated.
• The Respondent may file an Answering Statement, typically within 14 days after notice of the filing of a Demand has been sent by the AAA. If no Answering Statement is filed, the claim will be deemed as having been denied. The Respondent may also file a Counterclaim. The Counterclaim must include a statement setting forth the nature of the counterclaim including the relief sought and the amount involved.
• Following the filing of the Demand and Answering Statement or Counterclaim if any, the Arbitrator will typically schedule a Preliminary Hearing Conference Call. That call will result in a Scheduling Order and will address the dates for submissions by the Claimant, Responses and Replies. It will also schedule an additional status conference, if needed, as well as the timing of Motions, Discovery, Exhibits and a determination as to whether the Final Hearing will be documents only, in person, or by telephone or videoconference. It will also address the timing of the ultimate Award.

Regarding collection cases, if the matter in controversy is less than $25,000, the matter may be heard on the documents submitted, without any in person or telephonic hearing. For matters more than $25,000, such cases can also be heard on documents only if the parties agree. Of course, this is typically the fastest and least costly way to submit matters to the AAA.

When submitting a collection claim to the AAA, the Claimant’s Brief should include the Governing Document sections addressing the payment of maintenance fees, the authority pursuant to NJSA 46:8B-1 et seq. as well as the authority pursuant to the Declaration/Master Deed and By Laws of the association to pursue owners in the event of non-payment, including interest, attorney’s fees and costs, as well as the authority to proceed by way of AAA arbitration. Certifications of Proof must include the amounts due and owing per the ledger, including legal fees and costs, any offsets and credits, and the total amount sought in the arbitration award. A Certification of Attorney’s Fees should also be included.

When the authority of the association is clear, and the ledger and Certification of Fees are also detailed and clear, the Arbitrator should be able to decide the matter on the documents submitted. Frequently, the Arbitrator will decide the case and issue a Decision within 14 days of the “Hearing”. Ordinarily, the rendering of a Decision will conclude the matter and result in ultimate payment. When payment is not made, however, the Claimant must then proceed by way of suit to confirm the Award and have Judgment entered so that collection efforts can be commenced. In such cases, the advantages of AAA arbitration diminish due to the need to incur additional legal fees.

If it becomes necessary to file suit to confirm the arbitration Award and seek the entry of Judgment, such action should be commenced by Verified Complaint and Order to Show Cause. The suit is a summary action pursuant to NJ Court Rule 4:67-1 et seq and NJSA 2A:23B-22, the NJ Uniform Arbitration Act. Under the Act, upon the filing of a summary action with the Court by a party to an arbitration proceeding, the Court “shall” confirm the arbitration Award pursuant to NJSA 2A:23B-22 unless there are grounds to vacate the award under NJSA 2A:23B-23. The grounds typically alleged when seeking to vacate an arbitration Award, are that the Award was procured by corruption, fraud or other undue means; the court finds evident partiality by the arbitrator, corruption by the arbitrator; misconduct by the arbitrator prejudicing the rights of a party, or the arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to consider evidence material to the controversy, or otherwise conducted the hearing contrary to section 15 of the Act, so as to substantially prejudice the rights of a party to the arbitration proceeding; or the arbitrator exceeded his or her authority.

Unfortunately, if it becomes necessary to proceed by way of OTSC to confirm the Award and seek entry of Judgment, the benefits of proceeding by way of arbitration decrease because the time and costs incurred by the association increase. However, with the possibility that the legal fees incurred by the association in having to bring the confirmation proceeding, might be imposed on the defendant, many times the defendant rethinks his or her position, and the Award by the arbitrator constitutes the end of the controversy and the last of the fees incurred by the association. In such cases, the arbitration process might prove to have been a good alternative to traditional litigation. However, if the fees borne by the association in seeking confirmation of the Award and entry of Judgment are not imposed on the defendant, the benefits will be greatly diminished.

As a result, while benefits of AAA arbitration are certainly possible, whether they are realized, will differ case by case and will only be known at the conclusion of the matter.