Blogs Archives - Page 5 of 10 - Michelman & Robinson

Scan the headlines on any given day and you’re likely to come across stories about NIL rights and NFTs, both oftentimes selling for jaw-dropping amounts of money (at least before the cratering cryptocurrency market took a bite out of NFT valuations). Until recently, however, these two acronyms-which’ve become part of our daily vernacular-have rarely been uttered in the same breath. That’s no longer the case.

New laws creating previously unheard-of opportunities for student-athletes to sell the rights to their names, images and likenesses rights and cash in on their notoriety have proliferated in lockstep with companies looking to leverage non-fungible tokens as a marketing tool. The result: a slew of NFT deals between brands-which still see NFTs as promising for customer engagement despite the crypto downturn-and collegiate (and even high school) stars flexing their NIL muscles.

The University of Iowa’s Luka Garza and Gonzaga’s Jalen Suggs were pioneers when they minted NFTs just after finishing their final seasons in the NCAA back in March 2021. Since then, many student-athletes have taken their lead, including Ga’Quincy “Kool-Aid” McKinstry of the University of Alabama, who just about a year ago came to terms on a signing day NFT with Kraft Foods, Inc., makers of the Kool-Aid drink.

By some accounts, corporations have earmarked more cash toward NFTs than any other segment of the NIL market. But given the tenuous crypto landscape and relative nascency of NFT-based NIL deals, the burning question is whether brands will stay the course. All indications suggest the answer to be yes, in which case there are a variety of legal considerations for these companies to take into account.

The same is true for athletes and athletic departments given that NFTs are also a vehicle by which students can monetize their personal brands-even, in some cases, without the need for negotiating sponsorship deals. Toward that end, several major basketball programs-the University of Kansas and University of Kentucky, among them-have announced NFT deals; dozens of top collegians have signed with The Player’s Lounge, an NFT-backed community for college fans; and former NFL star Tim Tebow launched a company focused on creating NFTs through a partnership with the INFLCR+ Local Exchange.

Consequently, all participants in the NIL/NFT game would be wise to keep all of the following top of mind.

SEC Also Stands for Security and Exchange Commission

For many, NFTs are speculative assets, purchased as investments assuming their values will increase over time, in which case they can be sold at a profit. As such, despite their digital

characteristics, NFTs run the risk of being considered “securities” for purposes of their treatment under the law. Enter the SEC-no, not the Southeastern Conference.

Under the Securities Act of 1933, a security is essentially any type of negotiable instrument that represents some type of financial value. Some that immediately come to mind include fungible investments like stocks and bonds. But the definition of securities as set forth by the U.S. Supreme Court also includes “investment contracts,” meaning an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” This so-called Howey Test means that release of an NFT could implicate federal securities law.

For instance, should an NFT be purchased with the intent of licensing the underlying asset, or reselling copies for profit, then securities laws could potentially come into play. And if characterized as a security after satisfying the Howey analysis, any given NIL-related NFT would be subject to heavy duty scrutiny and regulation by the SEC, particularly when it comes time to sell the token. In that instance, the sale would require registration with the SEC, unless an exemption under federal securities law applied, and the NFT would fall under state “blue sky” laws. There is more. Platforms facilitating any NFT transaction-including the likes of the aforementioned universities and Player’s Lounge-might have to register as a securities exchange, alternative trading system, and/or as a broker-dealer.

Copyrights Matter

Intellectual property interests, namely copyrights, should always be a topic flashing brightly on the radar screens of anyone dabbling in the NFT marketplace. Indeed, parties to an NFT transaction must understand the importance of obtaining appropriate IP rights prior to consummating an exchange.

To be clear, NFT creators have to tread lightly when leveraging the work of others. More specifically, permission must be obtained from the owner of a copyright before a third-party creation is incorporated into an NFT, especially one positioned for sale. The failure to do so could subject the originator of an NFT-be it a brand, university or student-athlete-to legal action and financial exposure in the form of copyright infringement litigation. By way of example, this could happen where an NFT incorporates the logo or other IP of a school or athletic conference.

The IRS

Student-athletes and their advisors must remember that tax implications follow most every transaction, and that includes the exchange of NFTs. When selling these digital tokens, tax laws apply and need to be followed to avoid any discrepancies with the IRS.

NFT deals are typically considered to be barter transactions for tax purposes, as tokens are generally characterized as property, as opposed to currency, by the Internal Revenue Service.

This means that the fair market value of these assets must be reported on tax returns as income, and sales are to be set forth as capital gains.

For creators, tax repercussions may be ongoing. Another extraordinary aspect of NFTs is a feature that allows digital artists and other originators to be paid a percentage whenever the tokens they created are resold. Thus, NFTs can function as an annuity for their creators, who may participate in financial gains over time, thus triggering the potential of future taxation.

NIL Compliance +

With the advent of NIL laws have come compliance obligations and other miscellaneous concerns to be contemplated by those ready to ink an NFT deal.

Agreements between NFT creators, student-athletes, brands and/or exchanges must comply with all applicable state laws, not to mention SEC regulations and Federal Trade Commission (FTC) rules governing the advertising of products and services. Likewise, NFT transactions should not conflict with university contracts, policies or procedures, including any restrictions related to the use of a school’s IP.

Given the growing popularity, intricacies and nuances of NFTs, university compliance departments would be wise to train their employees on the ins and outs of these digital assets, the federal and state laws that apply to them, athletic conference rules and regulations, and the value and place of NFTs within a student-athlete’s portfolio of NIL activity.

To be sure, the market for NIL rights and NFTs is still in its infancy and it remains to be seen the extent to which the two together will be leveraged by brands, athletes, colleges and universities and related NFT platforms. That being said, no matter how these relatively new marketing vehicles continue to evolve, the legal obligations they trigger should never be ignored.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Last night (June 30), with the deadline to apply for a loan pursuant to the Paycheck Protection Program set to expire-and with that nearly $130B in allocated funds being left untapped and on the table-the U.S. Senate passed an extension of the program to August 8. Whether the extension passes in the U.S. House of Representatives and is then signed into law is likely but remains to be seen; a House vote is pending as of this writing. In the meantime, attention continues to turn to the loan forgiveness process.

Toward that end, Michelman and Robinson reported on the streamlined loan forgiveness applications recently released by the Small Business Administration. Since then, the SBA in association with the U.S. Department of Treasury posted new Interim Final Rules (IFRs), including one relating to loan forgiveness and loan review procedures, and another concerning additional eligibility revisions. By way of this alert, M&R takes a look at the important provisions found in these IFRs which, unlike certain guidance and FAQs issued by the SBA in consultation with Treasury, have the force of law and must be followed unless and until they are overturned, struck down, or rescinded.

Q. What changes do the latest IFRs make with respect to loan forgiveness and loan review procedures?

A. The IFR found at 85 F.R. 38304 contemplates the changes made to the CARES Act and the PPP by the Paycheck Protection Program Flexibility Act (explained here), as well as the EZ and updated long-form loan forgiveness applications. Among various other things, the IFR clarifies that:

A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan-including before the end of the covered period-once the borrower has used up all of its loan proceeds
If a borrower does not apply for loan forgiveness within 10 months after the last day of the covered period, or if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), PPP loan payments will no longer be deferred and the borrower must begin paying principal and interest
In general, payroll costs paid or incurred during the covered period are eligible for forgiveness. A borrower can elect one of two available covered periods-either 24-weeks from the date the lender disbursed the PPP loan, or 8-weeks for PPP loans received before June 5, 2020
There are caps on the amount of loan forgiveness for payroll costs associated with compensation paid to business owners and self-employed individuals
Non-payroll costs are eligible for forgiveness if they were (1) paid during the covered period, or (2) incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period
The PPP Flexibility Act specifically requires certain reductions in a borrower’s loan forgiveness amount based on cuts made to the workforce (read: full-time equivalent employees) or employee salary and wages; however, this is subject to an important statutory exemption for borrowers that have eliminated these reductions on or before December 31, 2020

Q. What changes do the recent IFRs make concerning PPP eligibility?

A. Whether or not the window to procure PPP loans is extended, changes regarding eligibility remain relevant, particularly to borrowers that have already received loan proceeds. As such, the IFR found at Docket No. SBA-2020-0039 is of interest. It echoes the following eligibility revisions made to the CARES Act and the PPP by the PPP Flexibility Act and other amendments:

To the extent an applicant is ineligible for a PPP loan if that would-be borrower owns 20% or more of the equity of the applicant and is presently subject to an indictment, arraignment, or formal criminal charge in any jurisdiction, that restriction is limited to pending felony offenses only
To the extent an applicant is ineligible for a PPP loan if that would-be borrower owns 20% or more of the equity of the applicant and is on probation or parole, that restriction is limited to individuals whose probation or parole commenced within the last five years for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, and within the last one year for other felonies

For those interested, a list of IFRs, guidance, and FAQs related to the SBA’s PPP and Economic Injury Disaster Loans (EIDLs) can be found here. Of course, if you have any questions about the SBA’s updated IFRs, or would like to participate in M&R’s “PPP Loan Analysis Program,” do not hesitate to contact us at your convenience.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

On June 15, the U.S. Supreme Court issued its much-anticipated decision in Viking River Cruises Inc. v. Moriana. The high court ruled that representative actions brought pursuant to the California Private Attorneys General Act (PAGA) may be compelled to individual arbitration-a break from the position previously taken by the California Supreme Court in Iskanian v. CLS Transp. Los Angeles LLC that PAGA representative claims are not subject to arbitration agreements.

The ruling in Viking is a major development that impacts every California employer. Indeed, in the wake of the decision, employers in the Golden State may need to revise their employee arbitration provisions.

PAGA Claims

PAGA allows employees to file actions and pursue civil penalties on behalf of the state for violations of California’s Labor Code. California views PAGA as an important mechanism to ensure that labor laws are being followed and that employees are adequately protected.

For years and pursuant to Iskanian, an employee initiating a representative PAGA claim was permitted to seek redress in court, even in the event an arbitration agreement was signed. It was the finding of the California Supreme Court that a contract that waived an employee’s right to bring a PAGA action in court was invalid as a matter of public policy. As otherwise stated, the enforcement of wage-and-hour laws on behalf of the state by way of a PAGA action was not preempted by the Federal Arbitration Act (FAA)-this because such a case was not between two contracting private parties, but between the state and an employer. The bombshell opinion in Viking changes all that.

The Viking Decision

In Viking, a former sales representative named Angie Moriana initiated a PAGA action alleging wage-and-hour law violations against the river cruise company. Of note, Moriana’s employment contract with Viking contained a mandatory arbitration agreement.

In an 8-1 ruling, the U.S. Supreme Court decided that the FAA-which instructs courts to enforce arbitration agreements and preempts state rules that undermine them-serves to block the Iskanian rule, at least partially. The vast majority of justices found that Viking could push Moriana’s individual claims into arbitration pursuant to the FAA. And because of that, it was determined that California law would not permit her to continue in court with her “non-individual” claims (those brought on behalf of other workers).

According to Justice Samuel Alito, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” He went on to state, “Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.

Justice Sonia Sotomayor concurred, reasoning that PAGA does not permit a plaintiff to proceed in court with non-individual claims if her individual claims are sent to arbitration, though she opined that California’s courts and legislature are the best authorities to address questions that may arise about a PAGA plaintiff’s standing to litigate “non-individual” claims. Nonetheless, and at least for the time being, the high court’s opinion is one worthy of celebration by California businesses.

The Takeaway for California Employers

The Viking opinion provides some long-awaited relief for California employers whose employees have executed arbitration agreements that waive the right to bring a representative PAGA action. These employers should now take the opportunity to confer with counsel and review their arbitration provisions to determine whether any revisions are necessary to ensure they receive the protections afforded by Viking. Toward that end, the employment attorneys at Michelman & Robinson, LLP stand ready to assist.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Mandatory arbitration of sexual assault or sexual harassment claims is a thing of the past. Last month, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (H.R. 4445) was signed by President Joe Biden. With that, the Federal Arbitration Act was amended to allow victims of alleged sexual assault or sexual harassment-including the representative of a class or collective action-to pursue their federal, state or tribal law claims in court even if they had previously entered into an arbitration agreement or joint-action waiver.

The Net Effect of H.R. 4445

The enactment of H.R. 4445 primarily impacts employers and employees to the extent mandatory arbitration agreements are most often at issue in the workplace setting. Nonetheless, the law is certainly not limited to the employer/employee relationship and can potentially affect customers, patients and consumers as well.

Still, employers and employees are in the crosshairs of H.R. 4445 first and foremost and the net effect of the law on these parties is clear. Simply stated, employers nationwide can no longer rely on predispute agreements that require employees to arbitrate claims-or that preclude them from bringing class actions-alleging incidents of sexual assault or sexual harassment that arise or accrue on or after March 3, 2022, the effective date of the new amendment to the FAA. Significantly, the law applies to all arbitration agreements, including those executed prior to March 3.

Notwithstanding the above, cases stemming from sexual assault or sexual harassment alleged to have occurred before March 3 can still be arbitrated. Likewise, waivers of class actions for these particular pre-March 3 claims remain enforceable. In addition, the FAA as amended does not have any effect on arbitration agreements where the dispute at issue is not based upon sexual assault or sexual harassment.

Sexual Assault or Sexual Harassment Claims Can Still Be Arbitrated

H.R. 4445 reads, in part, as follows:

“. . . at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”

This provision means that the arbitration of sexual assault or sexual harassment cases is not prohibited. Rather, the law (1) serves to forbid parties, employers included, from compelling arbitration of these claims based upon predispute agreements or waivers and (2) gives purported victims the right to elect to air their grievances in courtrooms. That being said, if claimants (employees among them) want to arbitrate sexual assault or sexual harassment disputes, they are free to agree or otherwise elect do so.

A Bit of a Gray Area

In the employment context, it is not uncommon for employees to include discrimination, retaliation, wrongful termination, wage and hour or other unrelated claims within an action against their employers alleging sexual harassment or sexual assault. This begs the question: in such a circumstance and given the applicability of H.R. 4555, would the entire lawsuit be subject to litigation in court (as opposed to arbitration) at the plaintiff’s election, or only the sexual harassment or sexual assault causes of action?

As of now, the answer is unclear and we anticipate that, going forward, appellate courts will weigh in on the severability of claims unrelated to sexual harassment or sexual assault and whether those matters would continue to be arbitrable pursuant to predispute agreements or waivers. In the meantime, clever plaintiffs’ attorneys may insert sexual assault or sexual harassment claims into otherwise unrelated employment cases in an attempt to circumvent mandatory arbitration. Of course, this strategy would run afoul of the express agreements of parties who have consented to the arbitration of employment-related disputes, albeit not those arising out of sexual assault or sexual harassment, and call into question the FAA’s well-established policy favoring arbitration.

Next Steps

In the wake of the new amendment to the FAA, employers would be wise to revisit their current forms of arbitration agreement to carve out sexual assault or sexual harassment claims. But first, an important caveat for California employers.

Within the next few weeks, the U.S. Supreme Court is set to render its decision in Viking River Cruises, Inc. v. Moriana. At issue in that case is whether certain representative actions in California under PAGA are subject to arbitration pursuant to the FAA where a bilateral arbitration agreement is in place. Depending upon how the high court rules, employers in the Golden State may have additional reason to update their arbitration agreements.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

It is no secret that buying, using and trading cryptocurrency and non-fungible tokens has become more and more commonplace. Less clear is whether crypto, like Bitcoin or Ethereum, is to be treated as money. Even more of a mystery to regulators and market participants alike is how security interests in digital assets can be perfected-this so that other parties cannot improperly claim ownership. If adopted, a newly proposed Article 12 of the Uniform Commercial Code would address these issues by governing transfers (including sales and financings) of digital assets.

Article 12 as Proposed

As of this writing, crypto does not fall under the definition of “money” here in the U.S. because it has not been adopted by a domestic or foreign government, intergovernmental organization, or by agreement between multiple countries. To make matters even fuzzier, the only way to perfect a security interest in a cryptocurrency or NFT is to file a financing statement fully describing the coin or token-control over a digital wallet is simply not enough. Article 12 as proposed would remedy this.

Among other things, the proposed Article 12 would update the UCC by:

Addressing the transfer of digital assets and cryptocurrencies, providing conforming changes to Article 9 to deal with secured transactions in these assets, and coining the new term “controllable electronic records” (CERs) to define cryptocurrencies and NFTs
Facilitating secured lending against CERs
Providing protections for qualifying lenders and purchasers so they could take security interests in cryptocurrencies and digital assets free and clear of conflicting property claims
Promulgating rules regarding assignment of controllable accounts and payment intangibles
Specifying other changes such as updates to the definition of “chattel paper” and revisions to requirements for transfers and perfection of security interests in chattel paper, as well as modifying certain rules regarding negotiable instruments and payment systems

Who Would Be Affected By Article 12?

A new Article 12 would affect crypto and NFT companies, financial institutions, investment banks and parties to equipment finance or lease transactions.

For their part, blockchain-related companies would be impacted to the extent Article 12 as proposed would govern the transfer of property rights in digital assets, like cryptocurrencies, NFTs and other CERs that these companies purchase, sell and finance. Article 12 (if adopted) would specify the rights purchasers acquire in these digital assets to facilitate transactions. Doing so would reduce risk among claimants when companies use digital assets as an exchange mechanism for payment, right to receive services or goods, or interests in personal or real property.

Financial institutions and others that finance digital assets would find it easier to arrange secured lending transactions if Article 12 comes to fruition. This is because an Article 12 would provide lenders with a perfected security interest in a given underlying digital asset assuming the lender has “control” over it or the system on which the asset is recorded (read: the blockchain).

In light of the foregoing, lenders and other secured parties would be wise to take note of the proposed Article 12 and they may want to amend current credit facilities that are secured by blanket or broad liens on “substantially all assets” of the debtor, including intangibles. To be sure, lenders should carefully craft their credit facilities and provide for an express security interest in CERs, controllable accounts, and controllable payment intangibles. If Article 12 becomes effective, the failure to do so could result in the loss of their position should another party obtain “control” over assets in this class.

Further, Article 12 would also have an impact on structured finance and securitization transactions because they often involve bundles of various types of secured loans. Any party involved in investments in-or underwriting of-these types of deals should become familiar with the relevant sections of Article 12 as proposed, especially those relating to payment obligations, assignments of accounts, and discharge of obligors on digital assets, as well as the provisions which set out the requirements for a purchaser to acquire protection as a good faith purchaser for value of a CER, controllable account and controllable payment intangible.

Finally, parties to equipment financing and/or lease transactions should pay close attention to the changes that an Article 12 would bring to the UCC. In its current form, Article 9 defines “chattel paper” as a monetary obligation that is either secured by specific goods (like a car or other tangible asset) or arises in connection with a lease of specific goods. A new Article 12 would change all that.

What Is Excluded?

Article 12, if adopted, would be limited in scope and apply only to CERs for cryptocurrencies and other digital assets. Likewise, it would not (1) define who has rights in or title to digital assets; (2) touch on federal or state securities laws, data privacy, cybersecurity or other regulations; (3) incorporate banking laws; (4) provide rules for the taxation of digital assets; (5) tackle anti-money laundering laws; or (6) affect transferable records under the Uniform Electronic Transactions Act or E-SIGN.

What Is Next?

The American Legal Institute (ALI) has until this month to approve the draft of Article 12 as proposed. If approved, the provisions would go to the Uniform Law Commission for approval no later than July 2022. After that, Article 12 would be submitted to the states for adoption.

Of course, we will continue to monitor the status of Article 12 and provide updates as they develop.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The business of mental health and addiction treatment is continually evolving. Here, we shine a light on five trends in the mental health and substance use disorder (SUD) space, from insurance company challenges to developing therapeutic methodologies.

Payor Pressure

Many private insurance companies (payors), which provide customers with health plans that offer cost coverage and reimbursements for SUD treatment and care services, are now required to align treatment and payment policies with American Society of Addiction Medicine (ASAM) or equivalent industry guidance. This has led to some more reasonable requirements for providers. Nevertheless, payors are still conducting medical record audits, placing providers in SIU or pre-payment review, and often delaying or denying payment on legitimate claims.

For their part, SUD providers must be diligent about tracking all hours of services provided, including specifying the individuals providing those services and making sure they are qualified to do so. This is especially important because some payors are using minor documentation discrepancies as a basis to deny payment for an entire day, or even an entire week, of treatment-an outcome that can create conflicts with clients.

Some payors are also using improper guidelines as a basis for denying payment, including inconsistent standards applied by different auditors even within the same payor organization. Providers need to get ahead of these issues, ideally before they get audited. If providers are sent to SIU or pre-payment review, they should act immediately and aggressively to avoid payment denials and delays that can have a devastating financial impact on their organizations.

State Laws Regarding Advertising

Several states are enacting their own SUD industry-specific advertising restrictions. These laws generally prohibit misleading advertising, particularly as to the location, services or identity of a given provider. Others require specific credentials or licenses for advertisers. In light of the national reach of online advertising, providers must be diligent in determining what advertising rules apply to them, with an eye toward compliance with new laws as they continue to spring up across the country.

Market Expansion Combined With Overwhelmed Public Agencies

As money continues to flow into the SUD space, public agencies continue to be backlogged and overwhelmed from COVID-19-related restrictions and prioritization directives. Consequently, new facilities are facing unprecedented delays in obtaining licenses, which is creating financial burdens for providers and access to care issues for clients.

Tension Between State and Local Governments on NIMBY Laws

Over the law few years, several California cities and counties have attempted to limit the number, type, operations and size of SUD facilities and sober living/transitional living homes. Some of these restrictions are patently unconstitutional. Federal and state agencies have reiterated parity concerns and their desire to protect clients who are seeking treatment for mental health and SUD issues. While certain local governments are heeding this guidance, others are disregarding it entirely. And even cities that do not have so-called NIMBY laws on the books will nevertheless target mental health or SUD facilities with frequent unannounced visits by officials or law enforcement. Oftentimes, no citations are ever issued; instead, the goal seems to intimidate providers and their clients.

Medication Assisted Therapy

Medication Assisted Therapy continues to become more mainstream and both federal and state governments are dedicated to reducing discrimination against clients receiving this form of treatment. However, MAT can create a conflict with abstinence-based programs, as well as with sober living or transitional living homes. Although some traditionally abstinence-based providers are now incorporating MAT, others are resistant to what they consider government overreach into treatment philosophies and methodologies. By virtue of these differences in opinion, we will likely see more discourse on this topic within the recovery industry.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Eight million dollars. That’s the mind-bending potential value of an NIL deal recently signed by a 2023 five-star football recruit-a kid still in high school who’s now positioned to join the seven-figure club by the time he’s a college senior.

NIL deals were also front and center during March Madness. Several men’s and women’s basketball players participating in the tournament were endorsing footwear, apparel and the like in exchange for big bucks.

But this should come as no surprise. Last year, new state laws and NCAA rule changes dramatically shifted the landscape of college sports by allowing athletes to cash in by selling their name, image and likeness (NIL) rights. With that, more than a few student-athletes are now flush with cash, which is great for those reaping the benefits of endorsement and promotional agreements. Still, NIL mania is creating real problems in terms of athletic recruiting and is upsetting the balance of power in college sports programs nationwide.

It’s Tough to Compete With the Almighty Dollar

According to several Power 5 conference coaches, recruiting strategies pale in comparison to the availability of NIL opportunities. This explains the surge of donor-led collectives that are exploiting NIL rules and playing havoc with the ability of some universities to attract players to their schools, especially through the advent of the transfer portals, which allow student-athletes to freely transfer between schools without losing a year of eligibility

These collectives are funded by boosters and businesses that pool resources to lure student-athletes looking to monetize their personal brands with NIL deals. Between collectives, which are technically independent of universities, and local media markets, certain colleges, depending on their location and popularity, are essentially able to buy players-and given the NCAA’s relatively recent about-face on the sale of NIL rights, they can do so legally.

Human nature dictates that recruits will flock to the conferences and universities offering the greatest money-making opportunities. This reality hasn’t been lost on administrators, with athletic departments across the country now working to educate, engage and entice athletes with the specter of NIL paydays. This includes the creation of the aforementioned collectives that are committing millions to the cause.

Anything to Stay Competitive

In light of the new economics informing athletes’ college decisions, schools are getting rather creative, even beyond collectives. Some, like Oregon State and the University of Nebraska, are creating NIL marketplaces, platforms where businesses can access students and offer NIL opportunities. For their part, interested athletes can leverage marketplace technology to create profiles so that third-parties can contact, pitch and (ultimately) pay them. This is over and above the work brands are doing to connect directly with student-athletes for paid endorsements and other NIL arrangements. No matter the vehicle used to promote the promise of NIL riches, there can be no doubt that the collegiate playing field is no longer a level one, as universities and their boosters are looking for new ways to entice top talent to their athletic programs.

NIL-Related Legal Disputes on the Horizon

While some are lining their pockets in a big way, many other student-athletes are certainly being taken advantage of, with some likely signing away the exclusive rights to their NIL. Not only that, it’s inevitable that a share of NIL deals, big and small, will go south. And to make matters even worse, there’s an overwhelming lack of federal guidelines in place to protect the kids being hounded for their NIL rights. Parenthetically, the unregulated NIL marketplace will reach a tipping point at some point that’ll leave the NCAA and the federal government scrambling to enact protections for student-athletes and the very integrity of collegiate athletics.

Along with these potential problems, and the lawsuits that may eventually accompany them, comes a perceived lack of financial literacy on the part of those earning significant sums of money for the first time. The tax filing deadline is just days behind us, but how many student-athletes understand their tax liabilities, let alone what to do with a 1099? Bottom line: a flurry of disputes stemming from NIL agreements-tax-related or otherwise-are a virtual certainty.

Without question, NILs are turning the college sports world upside down. And to think we’re just in the infancy of the NIL frenzy. Watch this space.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Just over a year ago, Michael Winkelmann-better known as Beeple-shook the art world when an NFT of his work, a digital collage titled “Everydays: The First 5000 Days, sold for $69 million through an auction at Christie’s. Some would say this is the eye-popping sale that cemented the NFT craze that continues to make headlines.

Since then, NFTs have expanded well beyond fine arts. In fact, non-fungible tokens have exploded, creating new business models across industries. This includes the music space, which has joined the chorus of NFT innovation.

With the steady stream of NFTs now disrupting the music scene, those creating and investing in these digital assets must be aware of the dangers that come with the territory. In fact, legal landmines associated with NFTs are already beginning to surface, as is litigation arising from less-than-diligent NFT practices.

But before diving into their potential pitfalls, let’s begin with an overview of how NFTs are starting to change the face of the music biz as we know it.

An Enhanced Relationship Between Artists and Fans

NFTs are digital assets stored on a blockchain used to record ownership. Among so many other things, songs, albums, album art, lyrics, soundbites and most anything else music related can all be tokenized. And musicians in the know are doing just that-creating and selling NFTs, which is decentralizing the business away from streaming services and record companies and, at the same time, markedly changing the way artists and fans interact.

Kings of Leon was the first band to directly release a complete album as an NFT. In addition to the group’s music, purchasers were able to unlock special perks, such as a limited edition vinyl, and secure front row seats to upcoming concerts. Kings of Leon also released a separate NFT which included exclusive audiovisual artwork.

The NFT options for acts like Kings of Leon are many. Blockchain technology allows musical artists to offer NFTs that include access to audio files, alternate mixes, and PDFs that deliver lyrics, album art or even personalized messages. Remember, the NFT itself is simply a token-or key-to gain access to any type of digital file or provide authentication for off-chain physical items; say, Kings of Leon merch, tickets for entry to exclusive shows, or the chance to hang backstage with the band.

NFTs can also be minted to be upgradeable. This means that songs can be released that fans or collaborators can build upon-an offering that bypasses the legal firewall normally in play when music is sampled or remixes are created. Parenthetically, these NFTs allow original creators to maintain a modicum of control and even profit directly when their works are “upgraded” (more on the pros of NFTs for artists in just a moment).

As NFTs become more mainstream within the world of music, it’ll become abundantly clear that, for fans, NFT purchases will far exceed the streaming experience or other methods of music listening.

A Potential Windfall for Musical Acts

NFTs can be a boon for musicians as well.

Artists typically earn a minority percentage from the sale or licensing of their music, regardless of the distribution channel. Music streaming to paying subscribers pays very low rates-rates that are significantly worse for ad-based streaming. It’s concert tours that provide the primary revenue source for many musical acts, but live events were an impossibility during most of the COVID-19 pandemic. This lack of touring income highlighted the low rates paid for streaming consumption and negatively impacted artist earnings over the past two years.

By selling music, collectibles, limited access events and similar items as NFTs, musicians are in the driver’s seat, able to increase revenues without relinquishing ownership or control to content platforms. In fact, when minting NFTs, musical acts can use smart contracts to decide the scope of rights to release, if any, and to whom those rights should flow. For instance, a performer who sells an NFT can continue to receive royalties automatically, even after the original buyer decides to sell the digital asset at a later date. Better yet, this process can continue each time the NFT is sold or re-sold-all because of the blockchain and the NFT’s own metadata that record and store transfers of ownership. And to the extent these offerings are sold directly by artists, they realize an additional income source not subject to recoupment by labels or publishers.

Artists can leverage NFTs to sell royalty streams along with their music too. That’s right, available technology can be used to embed rights into NFTs so that buyers can receive royalties from the songs or albums they purchase. However, allowing fans to become financial stakeholders in their favorite bands’ music can be a dicey proposition given the federal securities issues that may arise.

To be sure, selling music royalties to the general public by way of NFTs is a revolutionary strategy, though the scheme could be seen as soliciting investments to those expecting to turn a profit through no direct work of their own. This is risky and requires legal counsel, especially when federal regulators may be chomping at the bit to police NFTs and reprimand artists who knowingly or unknowingly attempt to skirt federal law.

The Perils of the NFT Trade

Without question, there are plenty of reasons why fans, investors and musicians would want to jump on the NFT bandwagon. But they’d all be wise to do so with caution. Here are but some of the reasons why.

As mentioned, certain NFTs may be regulated as securities; specifically, those that include participation in royalty streams, which will likely be scrutinized by the SEC or other securities regulatory agencies. If NFTs like these aren’t compliant with applicable securities law and they lose value for market reasons, buyers may have claims for recission of their investments and creators could face regulatory actions to boot.

NFTs sometimes incorporate the works or rights of others, without having the rights associated with the underlying IP. This is a real problem because the failure to secure permission from a copyright or other IP owner before including the protected material in an NFT could subject the originator of the digital asset to legal action and financial exposure in the form of infringement litigation. This has already come up in a case involving Roc-A-Fella Records and Damon Dash, Quentin Tarantino’s proposed NFT involving the Pulp Fiction script, and a StockX NFT involving a pair of Nike sneakers.

Another red flag is waved when NFTs are issued based on opaque licensing language or vague disclosures. To say the least, music licensing is extremely complex and requires a sophisticated knowledge of royalty streams, overlapping rights and related issues. In the context of NFTs, some underlying licenses are-or will be-just too ambiguous and related disclosures unclear, a combination likely to wind up being litigated when investors believe their NFTs include certain rights but issuers have something different in mind.

A Whole New World

Many in the music space treat NFTs like something out of the Wild West. Carrying this metaphor a step further, artists and buyers may soon find themselves embroiled in courtroom shootouts.

The peril of lawsuits and regulatory actions aside, NFTs look to be a win-win for fans and musicians alike. Blockchain technology facilitates unique offerings that heighten the fan experience and fosters a never-before-seen level of interaction between collectors and creators. Contemporaneously, musical acts have at their disposal an entirely new method of monetizing their art, albeit in a manner that-once more universally adopted-could potentially have a fundamental impact on the economics of the music industry.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Last week, the California Supreme Court denied a petition and depublication request by California’s insurance commissioner and consumer organizations in a case entitled State Farm General Insurance Company v. Lara. The repercussions of this decision are potentially huge for carriers.

By virtue of the state supreme court ruling, State Farm will not have to refund approximately $100 million, as was previously ordered in 2016 by then-Insurance Commissioner Dave Jones, who determined that the insurer was charging excessive rates for homeowners, condo and renters coverage based on its expenses and investment income.

Back then, State Farm agreed to lower its rates for this insurance by 7%, as mandated by Commissioner Jones; however, the insurance company refused to pay the refunds as ordered and instead challenged the directive in court in its case against Jones’s successor, Commissioner Ricardo Lara.

Fast-forward, and the Superior Court of San Diego County agreed with State Farm’s position, finding that refunds were not necessary because insurers are legally entitled to charge rates that have-or had-been approved by the Department of Insurance, as was true in the case of State Farm’s homeowners, condo and renters policies. This determination ran counter to the Insurance Commissioner’s argument that Proposition 103 provided the authority to order rate refunds in order to ensure that Californians are charged fair rates.

The lower court ruling was affirmed by the California Court of Appeal in San Diego, which held last October that State Farm was actually required to charge the approved rate-that which the Department of Insurance ultimately deemed to be excessive-until a different rate had been authorized. It was that decision that was brought before the California Supreme Court.

The Fallout

By virtue of the recent denial by the state high court of the petition and depublication request filed by Commissioner Lara and company, State Farm is off the hook for the nine-figure refund. But the decision may not be limited in scope to that company, as the ruling casts doubts about the ongoing enforceability of Lara’s order that insurers refund an estimated $3.5 billion in overcharges collected from California motorists during the pandemic. Despite this cloud, it should be noted that carriers have returned more than $2 billion in premium relief to California drivers in the shadow of COVID-19.

Of course, if you have any questions regarding the impact of State Farm General Insurance Company v. Lara or other rate-related concerns, the insurance regulatory team at Michelman & Robinson, LLP is here with answers.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

In a rare show of bipartisanship, the U.S. Senate has just passed legislation arising out of the #MeToo movement that guarantees the victims of workplace sexual harassment or assault the ability to pursue litigation against their employers in court, as opposed to arbitration.

The bill, which made its way through the Senate on Thursday (February 10) after previously being passed by the U.S House of Representatives, now heads to the desk of President Joe Biden for signature. Of note, he supports the legislation, which the White House says, “advances efforts to prevent and address sexual harassment and sexual assault, strengthen rights, protect victims, and promote access to justice.”

Essentially, the new law will prohibit provisions in employment contracts that require third-party arbitration of workplace sexual harassment or assault claims. Once signed, the legislation will amend the Federal Arbitration Act, effectively banning agreements mandating arbitration in these instances. Of note, the bill is retroactive, voiding any mandatory arbitration clauses in contracts that have already been signed by employees. That being said, arbitration of these claims is permissible if the employee elects that method of dispute resolution.

It is important to emphasize the legislation is narrowly written, focusing only on sexual assault and harassment claims. As such, the law should not have the unintended effect of nullifying arbitration agreements in all employment contracts.

In the wake of this significant workplace development, employers should revisit their employment contracts and address conflicting language in existing arbitration provisions. Of course, the employment team at Michelman & Robinson, LLP is available to answer any related questions you may have.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.