Featured in the Journal of Corporate Renewal

Written by Kirk B. Burkley, Managing Partner, Bernstein-Burkley

The U.S. opioid crisis and the avalanche of lawsuits it has produced may lead numerous pharmaceutical companies to seek bankruptcy relief, perhaps rivaling the asbestos bankruptcies of the late 1990s and early 2000s.

New legal actions are being filed against pharmaceutical manufacturers and distributers nearly every day. Due to the already enormous amount of litigation and increased regulatory scrutiny by federal and state agencies, it is likely that these companies will experience significant impacts to their profits and operational costs. The crisis is likely to force certain pharmaceutical companies into insolvency.

Continue reading “Drugmakers May Turn to Bankruptcy to Lessen Opioid Liability”

This article was originally featured in the December 14th edition of the Pittsburgh Business Times.

Q: What are some of the biggest obstacles facing companies in financial distress from considering restructuring?

Advice: Like most things in life, the biggest obstacle is recognizing that there is a problem. Too often when a business is in financial distress, the owners believe that the solution is right around the corner. This often results in owners continuing to infuse their own capital into a failing enterprise without considering structural changes to the business.

If a business is going to restructure and survive, or liquidate and pay creditors, the owners must recognize the trends quickly and take decisive action. During financial distress, cash is king. Identifying problems, preserving cash and obtaining professional advice is the best recipe for a successful restructure or wind down, and will result in the best outcome for both the creditors and the owners of the business.

Robert Bernstein
412-456-8101
rbernstein@bernsteinlaw.com

This feature originally appeared in the Pittsburgh Business Times.

Q:  My company (or an employee of my company) was just served with a subpoena in a lawsuit that we are not a party to. Why did we receive this and what should we do next?

Advice:  If you or your company has been served with a subpoena in a lawsuit you are not a party to, it probably means that one of the parties to that lawsuit believes that you have documents or information relevant to their case. A subpoena is the legal mechanism by which a party to a lawsuit can obtain documents or information from a non-party that they believe may be related to their lawsuit. The subpoena may request documents, an inspection of property or real estate, or attendance at a deposition, court hearing or trial.

The first thing you should do if you are served with such a subpoena is READ IT CAREFULLY AND DON’T IGNORE IT. Once you or your company have been served with a subpoena, you are legally obligated to either comply with the subpoena or provide a valid and legal reason to the requesting party and possibly the Court as to why you cannot or should not be required to comply. If you fail to comply with a valid subpoena, you may be subject to serious legal sanctions.

Once you review the subpoena, I recommend you contact an experienced commercial litigation attorney to help you assess whether you have any responsive information and whether you have valid, legal reasons to oppose the subpoena.

If you have any questions related to subpoenas, do not hesitate to contact Bernstein-Burkley.

Kirk B. Burkley
412-456-8100
kburkley@bernsteinlaw.com

This feature originally appeared in the September 21st edition of the Pittsburgh Business Times.

Q: I am considering forming a limited liability company but do not understand how the entity is governed. What are my options?

Advice: There is remarkable flexibility associated with the governance alternatives for limited liability companies. The decision as to which alternative you select primarily depends upon who you want to have in control of the company. A limited liability company can be “member-managed” or “manager-managed”.

The governance mechanisms of a limited liability company can be structured to provide a certain level of authority to a majority interest, but also require the unanimous consent of all members for more significant decisions. Similar limitations of authority can be imposed upon a manager. In forming the entity and deciding what governance structure will be followed, it is just as important to determine how an impasse will be resolved in the event of a deadlock (if the governance structure you select allows for the possibility of an impasse). Lastly, do not overlook what is required to change the governance structure at a later date.

If you have any questions related to limited liability company governance, do not hesitate to contact Bernstein-Burkley.

Kirk B. Burkley

412-456-8100

kburkley@bernsteinlaw.com

When utilized in contracts and leases, a liquidated damages clause can serve as a tool to avoid unnecessary litigation. In situations where a party has breached the terms of a lease, the parties can include a liquidated damages clause in order to determine the amount to be paid upon default for damages resulting from the breach. Courts have typically upheld such clauses as long as the agreed upon amount is not deemed a penalty or punitive. Several factors are taken into consideration when determining whether a liquidated damages clause will bring the lessor party whole or act as a penalty to the lessee/lessor.

Generally speaking, the U.S. Supreme Court stated in Priebe & Sons, Inc. v. United States¹ that liquidated damages provisions can be useful when fair and reasonable, and that they are a “particularly useful function when damages are uncertain in nature or amount or are unmeasurable.”² The Tenth Circuit Court of Appeals ruled that the burden of demonstrating 1) the damages would be difficult to ascertain and 2) the liquidated damages provision isn’t punitive rests on the party seeking to enforce the clause.³ When ruling, the Courts will look to:

• The specific lease;
• The state law upon which it was drafted or agreed upon; and
• The facts and circumstances surrounding each case.

Note that if the Court finds that the liquidated damages provision constitutes a penalty, the provision will be deemed void even if the damage resulting from a breach would be difficult to ascertain.⁴

When lease terms are breached before or during a bankruptcy, liquidated damages may fall under the jurisdiction of the Bankruptcy Courts. The timing of a breach of terms is significant in bankruptcy matters. Was the lease breached by the bankruptcy debtor prior to filing for bankruptcy? If so, those damages would be calculated as part of the pre-petition debt and amount necessary to cure a default in order for the lease to be assumed. When parties in a bankruptcy are deciding whether or not to assume the lease, 11 U.S.C. § 365(b) (1) provides that should a lease be assumed, the amount due and owing under the lease must be cured or provide adequate assurance that the lease will be cured, as well as provide assurance of future performance. Should a requirement be made to pay the liquidated damages as part of the cure? Unless otherwise objected to, it should be part of the cure. The bankrupt debtor could be the party attempting to enforce the liquidated damages provision to reduce the cure amount. In either situation, is the party seeking to collect on the liquidated damage provision able to show that those damages are actual damages that have been incurred? The party seeking to meet the burden of proof will need to show that the calculated liquidated damages were meant to make the party whole in anticipation of the breach and not act as a penalty. Resolution of such an issue could be lengthy depending upon the provision and amount. It is possible that the lease can be assumed pending resolution of the cure amount and whether or not it includes the liquidated damages.

Ideally, liquidated damages should be used when actual damages are not able to be ascertained at the time of the execution of the contract or lease. In order to be enforceable, these damages should not be disproportionate to the contract or lease amount. How can a party ensure the provision is enforceable in order to minimize the risk of litigation should a breach occur? The parties should:

• Confirm that reasonable damages are not able to be ascertained at the time of the drafting of the contract or lease.
• Decide on a specific number that would make the non-breaching party whole (i.e. rents, insurance, anticipated attorney fees/costs) based on the type of breach.

Thoughtful consideration should be given to the calculation of potential breach damages. Providing a haphazard amount could result in litigation in state or bankruptcy court.

To help avoid unnecessary litigation, creditors and lessors should seek immediate legal assistance when navigating this legal process. Bernstein-Burkley, P.C. is experienced in such matters and can lend its legal expertise in dealing with liquidated damage provisions in both state and bankruptcy courts.

Written By: Robert S. Bernstein

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Footnotes

1. Preibe & Sons, Inc. v. United States, 332 U.S. 407 (1947)
2. Id.
3. Yale 41 Associates, et al v. Five Shopping Center Company 16 Fed. Appx. 921 (2001)
4. Yale 41 Associates, et al v. Five Shopping Center Company 16 Fed. Appx. 921 (2001); Sun Ridge Investors, Ltd. v. Parker, 956 P.2d. 876, 877 (Okla. 1998)

Click Here for Bernstein-Burkley’s Summer 2018 Newsletter

Included in the Newsletter:

• Bernstein-Burkley Welcomes Mark A. Lindsay as Partner, Expanding The Firm’s Bankruptcy & Restructuring Practice Group

• Three Bernstein-Burkley Partners Recognized by Best Lawyers®

• Recovering Attorney’s Fees and Collection Costs in Pennsylvania

• Navigating Oil and Gas Lease Issues

• The Five Minute Legal Master: Chapter 11 Disclosure Statements

• Preference Claim Fundamentals

This feature originally appeared in the August 31st edition of the Pittsburgh Business Times.

Q: I have a business tenant that hasn’t paid rent. What should I do?

Advice: First, look at your lease to determine what remedies are set forth in the agreement. Many commercial leases include a confession of judgment clause for possession of the leased premises. This allows you to have the tenant immediately ejected from the premises for failing to pay rent. You may also have a confession of judgment clause that will allow you to collect money for past due rent.

If your lease does not contain these remedies, send your tenant a 30-day notice to vacate the premises. If they don’t vacate, be prepared to file suit in district justice court for possession of your premises and for unpaid rent. You may want to consult with counsel to assist you in enforcing the confession of judgment clauses and filing suit. Often, commercial leases contain a provision for recovery of attorney’s fees should legal action to enforce the lease become necessary.

Robert Bernstein
412-456-8100
rbernstein@bernsteinlaw.com

This feature originally appeared in the July 20th edition of the Pittsburgh Business Times.

Q. What are the fiduciary duties of the board of directors for a company or organization?

Advice: Board members have two primary duties, the duty of loyalty and the duty of care. If they exercise these duties properly, the will likely be shielded from liability for those decisions.

The duty of loyalty imposes on the board an affirmative duty to protect the interests of the corporation, and also an obligation to refrain from conduct that would injure the corporation and its shareholders. Board members must avoid any conflict between the interests of the organization and self-interest. Undivided allegiance to the corporation’s best interest is required. In the event of conflict between these interests, disclosure is a best practice.

The duty of care requires directors to make a business decision based on all available information and to act in an informed manner. Board members must believe that their actions promote the best interest of the company based on a reasonable investigation of the options available. They should take the time to review information, attend meetings and ask questions to make sound decisions.

Kirk Burkley
412-456-8100
kburkley@bernsteinlaw.com

So many clients have asked me the same question over the years. “Can I recover my collection costs and attorney’s fees? This customer really wronged us and they should have to pay every dime we are owed!” they say. As much as I wish I could tell these clients that we can and will recover all of their collection costs and attorney’s fees, the law in the Commonwealth of Pennsylvania simply isn’t as helpful in this regard.

The Commonwealth of Pennsylvania generally follows the American Rule. That means that all of the parties to any given lawsuit are generally required to pay for their own attorney’s fees. The exception to that general rule is that the law allows a party to recover their attorney’s fees if there is a statute permitting recovery of the same or if the underlying contract between the parties to the lawsuit calls for the prevailing party to recover their attorney’s fees.

Collection costs are similar, but generally, they must be found within the parties’ agreement. I’m not familiar with a statute that calls for a party to be able to recover collection costs, but maybe someday we will.

So what does this mean for you? Put a clause in your contracts, invoices, terms and conditions, and anywhere else you have contractual language that calls for you to recover attorney’s fees and collection costs in the event of a default under your agreement! Otherwise, you will be left hoping a statute exists that allows you to recover them, and for most collection clients, that statute simply doesn’t exist.

If you have a contract that you would like to revise to include a clause to permit you to recover your attorney’s fees and collection costs, or if you are wondering if a statute exists that might let you collect them, please give Bernstein-Burkley a call so we can talk through your concerns and set you up for future success.

Click Here for Bernstein-Burkley’s Spring 2018 Newsletter

Included in the Newsletter:

• Four Bernstein-Burkley Partners Named 2018 Super Lawyers
• Bernstein-Burkley Named Tier 1 Law Firm by US News – Best Lawyers 2018 “Best Law Firms”
• Dealing with Liquidated Damages In and Out of Bankruptcy
• Impact of Critical Vendor Payments on Lessors in Chapter 11 Cases
• The Five Minute Legal Master: The Bankruptcy Claims Process
• To Fraud or Not to Fraud: That Is the Question
• Bankruptcy Attorneys: Good for More Than Just Bankruptcy