Important MLMIC Update: Major Victory for Policyholders in New York State

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April 24, 2020 Decision in the Maple-Gate Case Is a Major Victory for Policyholders in New York State.

 

The Appellate Division, Fourth Department issued its decision in Maple-Gate Anesthesiologists, P.C. v. Nasrin, CA 19-00612, 2020 NY Slip Op 02389 (4th Dep’t Apr. 24, 2020) (“Maple-Gate”), creating a split of authority with an earlier appellate decision of the First Department in Matter of Schaffer, Schonholz & Drossman, LLP v. Title (171 A.D.3d 465 [1st Dep’t 2019]) (“Schaffer”).  As explained below, Maple-Gate represents a major victory for MLMIC policyholders in disputes with employers over entitlement to the cash consideration resulting from the demutualization and sale of MLMIC to Berkshire Hathaway.

 

On October 1, 2018, Medical Liability Mutual Insurance Company (“MLMIC”) was converted from a mutual insurance company to a stock company and sold to Berkshire Hathaway for $2.502 billion in cash consideration. Under the New York Insurance Law, mutual insurance companies are owned by their policyholders.  Consistent with Insurance Law § 7307(e)(3), MLMIC’s Plan of Conversion provided that all MLMIC policyholders during the time period July 15, 2013 through July 14, 2016 would be eligible to share in the cash consideration. Eligible MLMIC policyholders would receive a cash payout of approximately 1.9 times the amount of premiums paid on their policies during this three-year period.  In nearly all cases, the healthcare professionals covered through MLMIC policies are on record as the eligible policyholders.

 

Following MLMIC’s sale, litigation ensued throughout New York State between healthcare providers and their employers or former employers over which of them was entitled to receive the cash consideration:  (i) the employee/healthcare providers, who became MLMIC policyholders—and thereby acquired an ownership interest in MLMIC—as part of the bargained-for exchange of consideration under their employment agreements; or (ii)  their employers, who paid the MLMIC premiums pursuant to, and in exchange for their employees’ services under, the employment agreements.  The answer to that question is simple, compelled by, among other things, the statutory framework of the Insurance Law, the Plan of Conversion, the plain terms of the employment agreements, and controlling New York  common law:  The employee/policyholder is entitled to the MLMIC cash consideration.

 

Indeed, this was the holding of the Erie County Supreme Court in Maple-Gate Anesthesiologists, P.C. v. Nasrin (96 N.Y.S.3d 837 [Sup. Ct. Erie Cty. 2019]), which, among other things, confirmed that “Insurance Law § 7307 does not confer an ownership interest … to the cash consideration to anyone other than the policyholder,” and stressed that “the cash consideration was clearly intended to be in exchange for the extinguishment of the [policyholder’s] membership interest in MLMIC.”

 

However, shortly after the Erie County Supreme Court issued its decision, the Appellate Division for the First Department issued a decision in Schaffer. The First Department, acting as a court of original jurisdiction under CPLR 3222, summarily held that the doctor/policyholder would be unjustly enriched by receiving the cash consideration because her employer had paid her policy premiums.  The Schaffer decision was unusual in that the First Department did not cite to the Insurance Law, did not reference the MLMIC Plan of Conversion or the Department of Financial Services’ Decision approving the MLMIC Plan, did not refer to the parties’ employment agreement, did not rely upon any New York unjust enrichment law, and did not provide any reasoning for its conclusion.

 

Schaffer has had a significant impact on MLMIC policyholder litigation throughout New York as a result of the doctrine of stare decisis (Latin, meaning “stand by thing decided”).  As background to understanding stare decisis, it is important to understand New York’s court structure. In New York, the basic trial level court is the Supreme Court. Appeals from the Supreme Court are taken to the Appellate Division, which is divided into four Departments.  The First Department hears appeals from New York County and the Bronx.  The Second Department hears appeals from the downstate counties surrounding New York and Bronx Counties, and north to Dutchess and Orange Counties.  The Third Department covers the eastern part of upstate New York, and the Fourth Department covers the central and western parts of upstate New York.  Appeals from the Appellate Division are taken to the New York Court of Appeals.

 

While the doctrine of stare decisis has many nuances and exceptions, for purposes of this discussion and as applicable to MLMIC policyholder cases, the doctrine requires that where an issue has been decided by the Court of Appeals or the Appellate Division for a particular Department, the Supreme Court judges within that Appellate Division Department are required to adhere to the Court of Appeals’ or Appellate Division’s decision.

 

Where neither the Court of Appeals nor the Appellate Division for the Department where an action is pending has decided the issue, but the Appellate Division for another Department has a decision on point, all Supreme Court judges throughout the state must follow that decision. Where there are conflicting Appellate Division decisions (and no Court of Appeals decisions) on an issue, Supreme Court judges within a Department whose Appellate Division has issued a decision must follow the decision of their own Department; but Supreme Court judges in other Departments are not bound by stare decisis and may render decisions on the merits.

 

With the foregoing in mind, Schaffer (which was decided on April 4, 2019) has for the past year been the only Appellate Division decision to have decided a dispute as to the MLMIC cash consideration.  Consequently, Supreme Courts, relying on Schaffer as binding authority, have decided numerous MLMIC cases throughout New York against policyholders.  In the cases we are handling, we are pursuing appeals of these adverse decisions.

 

On April 24, 2020, the Appellate Division for the Fourth Department issued its decision in Maple-Gate (2020 NY Slip Op 02389 [4th Dep’t Apr. 24, 2020]) affirming the above decision of the Erie County Supreme Court. Whereas Schaffer (a) did not reference the parties’ employment agreement, (b) did not cite the Insurance Law, the MLMIC Plan of Conversion or the DFS Decision, and (c) did not rely upon any New York unjust enrichment law, the Fourth Department (i) emphasized the employer’s agreement to pay the premiums pursuant to the parties’ employment agreements, (ii) stressed that the Insurance Law, the Plan of Conversion and other documentary evidence establish that the named policyholders (the employees) are to receive the MLMIC cash consideration, and (iii) relied upon New York unjust enrichment law in unequivocally holding that, “as a matter of law . . . [the employer] had no legal or equitable right of ownership to the demutualization payments.”

 

As a result of the Fourth Department’s Maple-Gate decision, there are now conflicting Appellate Division decisions, and Schaffer cannot even arguably be viewed as binding authority outside the First Department. Under the doctrine of stare decisis, Maple-Gate is likely to be viewed as binding authority within the Fourth Department. Supreme Court judges in the Second and Third Departments are now free to decide cases based on their own views of the merits, and we expect many of these judges will find Maple-Gate persuasive.

 

Nolan Heller Kauffman LLP represents more than 100 healthcare professionals in over 50 cases throughout New York State relating to disputes over MLMIC cash consideration.  If you are or were a MLMIC policyholder and have questions, or would like to learn more about this subject,  please contact Justin A. Heller, Esq. at jheller@nhkllp.com or Alexandra B. Becker, Esq. at abecker@nhkllp.com, or call us at (518) 449-3300.

 

Nolan Heller Kauffman LLP is a preeminent, award-winning business law firm with offices in Albany and Syracuse, New York, and serving clients throughout New York State.

 

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Commercial Real Estate Impacts From COVID-19 May Warrant a Tax Assessment Challenge

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COVID-19 Impact May Warrant a Tax Assessment Challenge

Each year New York provides an opportunity to challenge your tax assessment if you believe it is unfair. This year the deadline to file a tax assessment grievance was May 26, 2020, but the deadline has been extended per Executive Order 202.22.

With business income down, and income properties losing rent, 2020 may be a good year to consider challenging your commercial tax assessment.

Nolan Heller Kauffman LLP has successfully obtained tax reductions for a wide range of property owners in the Capital Region, Warren County, Clinton County and Essex County. Property types have included:

  • Shopping centers and plazas
  • Professional office buildings
  • Hotel and motel properties
  • Recreational property
  • Multi-tenant mixed use properties
  • Manufacturing and warehouse
  • Multi-family rental and income properties

Why Challenge Your Assessment?

With many landlords having to defer or forfeit rent, income properties are in a period of financial stress. Additionally, growing reliance in online purchasing during the COVID-19 pandemic risks an acceleration away from brick and mortar stores. This massive shift presents a long-term change to the economic model for some traditional retail income properties.

Tourist-related businesses also confront unprecedented vacancy levels, with considerable uncertainly in the short and medium-term. With a loss of traditional sources of customers, such as large sporting attractions, seasonal tourism, and college-related customers, and drastic reductions in travel generally, many year-round hotel, motel and restaurant properties are now closed, and seasonal properties face uncertainty as to when they may be able to open.

The immediate implementation of work at home policies has resulted in many businesses developing a reduced demand for physical commercial office space, as technology and corporate culture changes have created a capacity to effectively conduct business from home.

Due to COVID-19, municipal tax assessors do not have capacity to adjust assessments to reconcile values for the economic reality.

Experienced and ready, Nolan Heller Kauffman is ready to assist its existing and new clients during these uncertain times. Our team can provide a fee-free initial consultation, to evaluate whether you qualify for a property assessment reduction. If you feel you have an assessment that is out of line with market values, please contact John Hartzell at (518) 432-3106, or jhartzell@nhkllp.com.

Nolan Heller Kauffman Attorneys Can Help Albany Area Businesses Evaluate and Navigate the Bankruptcy Process In These Uncertain Economic Times

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Effects from the unprecedented closure of all non-essential businesses as a result of Governor Cuomo’s executive orders, intended to slow the spread of COVID-19, are being experienced by businesses throughout the Albany area and Upstate New York.  Real estate development, manufacturing, construction, hospitality, restaurants, and a host of other retail and wholesale businesses have been shut down and business owners are feeling the impact on cash flow, with many struggling to maintain payments to creditors while attempting to provide income to affected employees.  These effects will likely continue for many businesses even as they begin to reopen after the restrictions are eventually eased.

Many lenders are working with their customers to extend payment terms during this initial period of disruption while business loan programs provided for or enhanced under the federal CARES Act (Coronavirus Aid, Relief, and Economic Security Act) are rolled out to borrowers.  While some borrowers will be able to resume operating when the economy reopens or will find the necessary relief in government-backed loan programs, others will be more challenged because of financial issues that pre-dated the pandemic or because of lingering effects of the shut-down of the economy on their particular businesses. For these businesses, it may be advisable to consider bankruptcy options.

Recent bankruptcy legislation, along with several bankruptcy-specific provisions of the recently enacted CARES Act, may help businesses in Upstate New York and elsewhere recover from this period of economic and financial uncertainty.

Chapter 11 for Small Businesses

The Small Business Reorganization Act (the “SBRA”) took effect on February 19, 2020, adding Subchapter V to the Chapter 11 provisions of the Bankruptcy Code, with the intent to provide a more streamlined process for small businesses to reorganize their debts.  Prior to enactment of the SBRA, businesses facing financial difficulties and attempting to reorganize under Chapter 11 had to contend with rules and processes often more suited to larger business concerns, such that a company with only one or a few shareholders or members and a small number of employees had to contend with the same statutory requirements as American Airlines or General Motors.  While several amendments to the Bankruptcy Code over the years attempted to address this disparity, none were as far-reaching as the SBRA.

Specifically, for certain debtors with less than $2,725,625.00 in debt, the statute eliminated certain burdensome documents previously required to be prepared and filed with the Bankruptcy Court to propose a plan for payment to creditors and shortened the time period to file that plan with the Court.  Similarly, small business debtors will not face the prospect of having a committee of unsecured creditors appointed in their cases and are not obligated to pay quarterly fees to the Office of the United States Trustee.  These changes were intended to reduce the cost of reorganization to qualifying small business debtors and streamline the process to approve a plan for payment to creditors.

The elimination of rules requiring the consent of at least one class of creditors to a payment plan and prohibiting the company’s owners from retaining ownership unless they invested new money make Chapter 11 a more viable and attractive option for many business owners.  Small business plans can propose repayment of a portion of debts over a period of three to five years, with debtors receiving a discharge of amounts unpaid either at the time the plan is approved or at the conclusion of the payment plan term.

Business owners who borrowed against the equity in their homes to finance their businesses can modify the terms of those mortgages, including reducing the interest rate, extending the maturity date or reducing the amount due based on the equity in the property securing the loan.  The statute also provides for the appointment of a Subchapter V trustee to assist with negotiations between a debtor and its creditors to attempt to reach agreement on a payment plan for creditors.

Amendments to the SBRA under the CARES Act

The CARES Act was enacted on March 27, 2020 in response to the outbreak of the COVID-19 virus and accompanying pandemic.  While the CARES Act enhanced or created a number of government-backed loans for small businesses, it also made several beneficial changes to Subchapter V of Chapter 11.  In particular, it increased the debt limit for eligible businesses to $7.5 million, which greatly expanded the pool of potential businesses eligible to utilize the streamlined and less costly procedures under Subchapter V.  At this point, the debt threshold reverts to the roughly $2.7 million limit one year from the enactment of the CARES Act.  Congress could make further adjustments to the debt limit,  but at this point that is not definite so businesses should not delay seeking advice on the efficacy of this relief on the assumption that the increase will be extended or made permanent.

Business owners who guaranteed some or all of a company’s debts and need to consider a personal bankruptcy filing also see some expanded relief under the CARES Act.  Funds received from governmental programs to replace lost income are not included in the calculation to determine eligibility for filing for relief under Chapter 7 or Chapter 13, or for calculating disposable monthly income to determine the amount of monthly Chapter 13 plan payments.

For business owners already in Chapter 13 and whose plans were confirmed prior to March 27, 2020 and who are experiencing material financial hardship directly or indirectly as a result of the COVID-19 pandemic, the CARES Act allows those plans to be modified to provide for payment terms of up to seven years from the date the first payment under the confirmed plan was due.  As with the increased debt limit under Subchapter V, these provisions revert to the pre-amendment terms of the statute one year after enactment of the CARES Act.

Conclusion

The wide-spread impact of the current economic shutdown will have long-term ramifications on businesses, even after restrictions on operating are eased or lifted.  Supply chains and consumer economic activity will likely be slow in returning to pre-COVID-19 levels for some time.  In turn, businesses throughout the Albany area and Upstate New York and across virtually all industries will experience the combined effects of extended interruption in business operations and reduced consumer demand.  The attorneys at Nolan Heller Kauffman have decades of experience assisting businesses in restructuring their operations and debt, including utilizing bankruptcy and non-bankruptcy options, and are available to discuss these alternatives and help guide you through these unprecedented economic times.  Please feel free to contact Justin A. Heller, Esq. by e-mail (jheller@nhkllp.com) or phone (518.432.3118) or Francis J. Brennan, Esq. by e-mail (fbrennan@nhkllp.com) or phone (518.432.3159) to learn more and discuss these options.

Nolan Heller Kauffman LLP Advises Capital Region & Upstate New York Businesses on COVID-19 Bankruptcy Options

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Businesses throughout the Capital Region and Upstate New York have closed their doors to combat the spread of COVID-19. Business owners face unprecedented legal, business and financial challenges.

Nolan Heller Kauffman LLP has decades of experience in advising and representing troubled businesses in connection with bankruptcy and non-bankruptcy strategies and solutions, and is highly regarded throughout the Capital Region and Upstate New York for its Bankruptcy, Insolvency and Business Reorganization Practice.  NHK Partners Justin A. Heller, Esq. and Francis J. Brennan, Esq. have more than 50 years of combined experience, across industry lines including: real estate development, construction, hospitality, restaurants, retail and wholesale, transportation, healthcare, manufacturing, services and a host of other industries.  Justin and Frank have each been named as top bankruptcy attorneys in the Upstate Edition of Super Lawyers magazine, and U.S. News & World Report has rated NHK a Tier 1 law firm in Bankruptcy and Creditor-Debtor Rights/Insolvency and Reorganization Law.

Contact Nolan Heller Kauffman LLP for assistance in evaluating possible bankruptcy and non-bankruptcy strategies for addressing the impact of COVID-19. Please contact Justin A. Heller, Esq. by e-mail (jheller@nhkllp.com) or phone (518.432.3118) or Francis J. Brennan, Esq. by e-mail (fbrennan@nhkllp.com) or phone (518.432.3159).

Liquor Licensing: Seminar on Brewery and Distillery Law in New York

Alexandra Becker of Nolan Heller Kauffman will be speaking at a seminar on “Brewery and Distillery Law in New York” to be held on Monday, June 24 in East Syracuse, New York. The topics to be discussed include various issues relating to the brewing and distilling industries, such as licensing, labeling, regulatory compliance, tax reporting, negotiation and drafting of brewery and distillery contracts, intellectual property concerns and more. The brewing and distilling industries are growing rapidly in New York, but complex state and federal regulations present obstacles to both startups and established businesses. Sponsored by the National Business Institute, the program is intended to teach attorneys, accountants, tax preparers, paralegals, bankers and loan officers, and brewery owners and operators how to build a solid business; minimize liability; and navigate licensing, labeling, and tax reporting challenges. For more details, go to:  Brewery and Distillery Law in New York.

Firm Adds Named Partner & Recommits to Downtown Albany with New Office Location

Albany, N.Y. – Longtime Albany business law firm Nolan & Heller announced today that as it moves to a new downtown location at 80 State Street it has been renamed Nolan Heller Kauffman, adding Madeline H. Kibrick Kauffman, one of the firm’s two managing partners, as a named partner.

Madeline H. Kibrick Kauffman

Firm History:

Since its founding in 1964, Nolan Heller Kauffman has provided a full range of legal services in business and commercial matters, including corporate and commercial real estate transactions, commercial litigation, banking, creditors’ rights, bankruptcy and reorganizations, corporate law, environmental law, governmental relations (including regulatory issues involving liquor licensing and gaming), land use, zoning and planning law, municipal law, and securities. Its clients include publicly traded and privately held businesses, financial institutions, commercial real estate owners and developers, contractors, entrepreneurs and start-ups, municipalities and state government agencies.

Kauffman has been with Nolan & Heller since 1987, serving both domestic and international clients. She is one of only a few women to become a named partner of a well-established Capital Region law firm. Kauffman concentrates her practice in the areas of creditors’ rights, commercial loan workouts and restructurings, commercial lending, commercial and real estate transactions, business counseling and contracts, cash management documentation, complex commercial litigation and large-scale collections. She is a member of the American Arbitration Association Roster of Neutrals, holds an “AV” ® Preeminent™ Martindale-Hubbell Peer Review Rating, and has been selected to the Upstate New York Super Lawyers list since 2012. Kauffman has served as counsel to the Albany County Business Development Corporation since 2013. She is a graduate of Union College and Albany Law School.

“For decades, Nolan & Heller has served clients throughout New York State and beyond, providing them with creative and innovative solutions to complex problems. I am extremely proud that the firm to which I have dedicated my entire career now bears my name, along with the names of its founders, Howard Nolan and Mark Heller, and that of his son, my fellow managing Partner Justin Heller,” said Kauffman.

Recommitting to Downtown Albany:

Nolan Heller Kauffman moved from 39 North Pearl Street and now occupies 7,000 square feet on the 11th floor of 80 State St. in Albany. Its staff of 20 includes 15 attorneys and five support staff.

“We are thrilled to renew our commitment to maintaining our offices in downtown Albany, as we have for the past 55 years,” said Heller. “We have earned a reputation as one of the Capital Region’s top law firms – delivering Wall Street quality legal services and results – and we look forward to continuing to do so from our new location.”

MILMIC Payout Update

Medical Liability Mutual Insurance Company Payout for Eligible Policyholders.

Berkshire Hathaway’s ongoing purchase of the Medical Liability Mutual Insurance Company (aka “MLMIC”) has created a potential cash payout to healthcare professionals who were MLMIC policyholders for any time during the period July 15, 2013 through July 14, 2016. Generally, healthcare professionals covered through MLMIC are on record as the eligible policyholders, and entitled to receive a share of the proceeds of the $2.502 Billion purchase price.  MLMIC has estimated the payout to be approximately 1.9 times the amount of premiums paid during this period.

However, MLMIC has provided consent forms for individual policyholders to designate their policy administrator or employer to receive the payout, and administrators or employers who claim entitlement to the proceeds may file an objection to payment to the policyholder if the policyholder does not sign the consent.  In that case, the proceeds will be paid into escrow pending resolution of the dispute.

Nolan & Heller, LLP has been retained by healthcare professionals to assist them in protecting their rights where their employers (or former employers) have objected, or may object, to payment of MLMIC sale proceeds directly to the policyholder.

If you are a healthcare professional covered through MLMIC during the applicable period, and have concerns over your right to receive sale proceeds and/or your employer’s or former employer’s possible claim to the payment, please feel free to contact us to discuss your rights and how we may be of assistance to you.  You will not be charged for an initial telephone or in-person consultation.  In the event you decide to engage us, we offer our services on a contingency basis, under which we will be paid only in the event you receive sale proceeds.

Please contact Justin A. Heller, Esq. at jheller@nhkllp.com or Alexandra B. Becker, Esq. at abecker@nhkllp.com, or call us at (518) 449-3300

Nolan & Heller, LLP is a preeminent, award winning business law firm with offices in Albany and Syracuse, New York, and serving clients throughout New York State.

 

 

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