Category Archives: Corporate Law

15 Years Later – the Hard Work Starts to Pay Off – Litigation Department of the Year

Winner of Daily Business Review's Litigation Department of the Year for Small Firms in the Section of Real Estate and Other Litigation

Litigation Partners Peter E. Berlowe and Eric N. Assouline at the 2018 DBR Awards Ceremony

Before starting the firm in 2003, both Peter Berlowe and Eric Assouline worked as associate attorneys at the Weil, Gotshal & Manges LLP law firm.  Hanging in the office of the Head of the Litigation Department was a framed plaque that read “Defense Verdict of the Year.”  This plaque commemorated the awesome accomplishment of the senior partner’s efforts, and it was recognized by the American Law Journal.  Eric Assouline used to look at this plaque in awe and wonder if he could ever achieve the heights of his mentor.

In its 15th year, Assouline & Berlowe has grown into a recognized and well regarded presence in the South Florida legal community.  Assouline & Berlowe works with businesses and individuals on a wide array of legal issues, ranging from real estate, business litigation, intellectual property, employment, and trusts, estates and probate matters.

On May 30, 2018, Assouline & Berlowe was recognized by the Daily Business Review for the tireless hard work and effort of its attorneys, when the firm was awarded Litigation Department of the Year, for Small Firms, in the areas of Real Estate and Other Litigation.

The award came as a surprise to the management of the firm, not because they did not think that they had anything short of an excellent litigation department.  Instead, it was because the litigation department of Assouline & Berlowe only consists of 7 attorneys, and the firm, as a whole only has 12 attorneys.  The Small Firm category of the DBR award was open to all firms of 69 attorneys or less.  Firm management thought that there must be dozens of other firms that had many celebrated successes worthy of trying to win this award.  Nonetheless, again, the tireless effort of the firm management did as it always does, all that could be done to try to win.

Now, the hard work for the last 15 years, is starting to pay off.

Eric N. Assouline, Esq.

 

ASSOULINE & BERLOWE, P.A.

213 East Sheridan Street, Suite 3

Dania Beach, Florida  33004

Main: 954.929.1899

Fax: 954.922.6662

Email: ENA@assoulineberlowe.com 

http://www.assoulineberlowe.com/

Intellectual PropertyLabor & EmploymentCreditors’ Rights & BankruptcyBusiness LitigationCorporate & FinanceReal EstateInternational Law

 

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“My Other Bag” is a Louis?

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Isn’t the point of a parody to be funny? “Weird Al” Yanovich is well known for his music that makes fun of popular artists/music, such as  Amish Paradise, a parody of Coolio’s Gangsta’s Paradise, and Eat It, a parody of Michael Jackson’s Beat It.   Weird Al is so well known that his successful fair use defense of copyright litigation has become a leading case on musical parody.

Fast forward to Louis Vuitton (“LV”), the Paris based luxury hand bag brand company.  Consumers world wide know the LV brand and the status behind “Having a Louis”.  LV claimed copyright and trademark infringement by My Other Bag (“MOB”), a California based entity.  In a recent decision, the Second Circuit Court of Appeals affirmed summary judgment in favor of MOB.

MOB created a series of handbags where one side of the bag had a similar pattern of famous handbag company brands and the other side said “My Other Bag”.  In this case, MOB imitated LV’s interlocking L and V letters with interlocking M, O, and B letters.  Needless to say LV did not appreciate the similarity of the style and design of its famous mark.

With respect to likelihood of confusion with LV’s brands, the court noted differences between LV and MOB’s design, lack of market proximity, and lack of actual confusion.  From a dilution standpoint, the court said MOB’s bags are a parody of LV’s bags, bringing them within the fair use exclusion of trademark dilution. The critical point was that MOB was not using LV’s brands solely to increase their own sales by confusing consumers that MOB’s bags are associated with LV’s bags.  To the contrary, MOB was using LV’s well known brand and images as a parody because it was clear MOB was not trying to pass off their bags as LV produced bags.  Consumers would know they were buying a MOB bag, not a LV bag.

While a trademark owner has obligations to police their brand, trademark owners should carefully weigh all factors before bringing suit.  In this case, the parody fair use defense was strong for MOB, along with other factors.  More importantly, LV helped market MOB’s products by instituting this action and bringing more attention to the alleged infringement.  Now, “My Other Bag”, with the help of LV, has gained notoriety in the hand bag industry.  But they have a far way to go to compete with Weird Al.

Greg M. Popowitz, Esq.

Registered Patent Attorney

AV Rated by Martindale-Hubbell

Intellectual Property Litigation

ASSOULINE & BERLOWE, P.A.

213 East Sheridan Street, Suite 3

Dania Beach, Florida  33004

Main: 954.929.1899

Fax: 954.922.6662

Email: GMP@assoulineberlowe.com

http://www.assoulineberlowe.com/

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Intellectual Property, Labor & Employment, Creditors’ Rights & Bankruptcy, Business Litigation, Corporate & Finance, Real Estate, International Law

 

 

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Recognizing Michelle Suskauer as SPBC FAWL Woman Lawyer of the Year

On March 29, 2018, the Past Presidents of the South Palm Beach County chapter of the Florida Association for Women Lawyers (SPBC FAWL) presented their annual “Woman Lawyer of the Year” award to Michelle Suskauer.  Among Michelle’s many achievements, she is most notably the President-Elect of The Florida Bar, a partner with the law firm Dimond Kaplan & Rothstein, P.A., a highly-respected criminal defense attorney and an outspoken advocate for women.

Ellen Leibovitch, head of Assouline & Berlowe, PA’s labor and employment department and Board Certified Labor & Employment attorney, is a Past President of SPBC FAWL and chair of this event.  The event was held at the beautiful Woodfield Country Club in Boca Raton, Florida, and was sponsored by over 30 organizations, including Assouline & Berlowe.

Previous winners of the Woman Lawyer of the Year award include Barbara Pariente, Justice of the Florida Supreme Court, and Samantha Schosberg Feuer, Circuit Court Judge for the 15th Judicial Circuit.

For any questions about SPBC or FAWL, please contact Board Certified Labor and Employment Partner Ellen Leibovitch.

ASSOULINE & BERLOWE, P.A.

1801 N. Military Trail, Suite 160

Boca Raton, Florida 33431

Main: (561) 361-6566

Fax: (561) 361-6466

Email: EML@assoulineberlowe.com

http://www.assoulineberlowe.com/

 

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2018 Litigation Department of the Year – for Real Estate and Other Litigation, Awarded to ASSOULINE & BERLOWE, by Daily Business Review

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ASSOULINE & BERLOWE, the BUSINESS LAW firm was very pleased to receive the following news:

Congratulations! On behalf of the Daily Business Review’s Managing Editor Catherine Wilson, Assouline & Berlowe was selected as one of the 2018 Litigation Departments of the Year in the Small Firm Category (under 70 attorneys), Real Estate and Other Litigation category by the Daily Business Review.

The DBR announced that the honorees will be recognized at an awards reception on Wednesday, May 30, at the Rusty Pelican, 3201 Rickenbacker Causeway, in Key Biscayne. The event will begin with cocktails at 6 p.m., followed by dinner and presentations at 7 p.m. 

It goes without saying that the Firm is exceptionally happy to hear of this news.

The hard work and results Assouline & Berlowe obtained for its clients in 2017 were taken into consideration by the DBR in awarding Assouline & Berlowe this prestigious award.

Case No. 1: David v. Goliaths – The Trial that Defined the Firm’s Resolve

In January 2017, Assouline & Berlowe, P.A.’s (“A&B”) client, Akbar Nikooie, reached the last stage of a “bet the firm” battle against banking giant JP Morgan Chase (“JPMorgan”) and the once ubiquitous title insurance company Attorneys’ Title Insurance Fund (“ATIF”). In a case that started in 2007, when Mr. Nikooie lost his life savings to a multi-level mortgage fraud on a mansion in the posh celebrity laden area of North Bay Road in Miami Beach, the last issue to litigate in this ten year long epic fight was a four day long trial to determine the amount of attorneys’ fees that should be awarded to Mr. Nikooie and against JPMorgan and ATIF.

A&B’s Peter E. Berlowe represented Mr. Nikooie in the original trial on the merits, which was heard in 2010 before Gil Freeman in Miami-Dade Circuit Court’s Complex Commercial Division. Judge Freeman’s judgment in the case was appealed to the Third District Court of Appeal. In 2014, the appellate court, three years after oral argument, split Mr. Nikooie’s mortgage into two parts based upon equitable subrogation grounds. However, after the appeal, Mr. Nikooie’s mortgage was deemed to be in first position on the property.

On remand, Judge Thornton, now presiding over the Complex Commercial Division, referred the attorneys’ fees trial to Special Magistrate Retired Chief Judge Joseph P. Farina (the “Fee Trial”). Mr. Nikooie was only represented by A&B partners Eric Assouline and Peter Berlowe. JPMorgan and ATIF, working together, were represented by legal giants Gray Robinson, Carlton Fields, Lerman & Whitebook, and Ballaga & Freeman.

Through the Fee Trial, A&B advised that although their case was initially handled on an hourly basis, when the client’s balance grew to a point where he could not keep up with JPMorgan and ATIF’s relentless onslaught, the A&B was prepared to withdraw from the case. A&B ultimately agreed to represent Mr. Nikooie on a partial contingency basis and expended over 3,500 hours on the case. The appeal was handled with co-counsel Erik Scharf on a full contingency basis. Mr. Nikooie sought to have all of the reasonable attorneys’ fees awarded to him and placed on his first position mortgage. Mr. Nikooie also sought a contingency fee multiplier as to any fees that were handled on a contingent basis.

At the Fee Trial, JPMorgan and ATIF argued that Mr. Nikooie’s attorneys’ fees should be split into two parts, as was done by the appellate court with the mortgage. JPMorgan and ATIF also argued that Mr. Nikooie should not be granted a contingency fee multiplier. Judge Farina heard testimony from the attorneys in the case and from expert witnesses Glen Waldman and David Friedman regarding the reasonableness of the attorneys’ fees sought.

Judge Farina issued a twenty-one (21) page Report and Recommendation and awarded Mr. Nikooie all of his attorneys’ fees and costs, plus a 2.25 contingency fee multiplier, totaling $1,497,913.43, and agreed with Mr. Nikooie that the fee award should all be placed in first position with the first part of Mr. Nikooie’s split mortgage. This trial, which culminated ten years of litigation, was instrumental in bringing the parties to an amicable resolution.

Case style: Washington Mutual v. Gabriel Martin, P.A., et al., Case No. 07-01168 CA 40, Miami-Dade Circuit Court

  1. Name of client: Akbar Nikooie, Telephone: 305-235-8116
  2. Lead partners: Peter E. Berlowe and Eric N. Assouline, of Assouline & Berlowe, P.A.
  3. Opposing counsel: Leonard C. Atkins, of Ballaga & Freeman; Carlos D. Lerman, of Lerman & Whitebook; Marty J. Solomon, or Carlton Fields; and, Roland E. Schwartz, of Gray Robinson.

Case No. 2: Who Says You Cannot File a Lis Pendens for Unpaid Attorneys’ Fees?

A&B represented the personal representative of deceased attorney James Keegan. When Keegan died he had a very large receivable due to his firm for defending a client, Barbara Callado, and her family, on over twenty-five different mortgage foreclosure cases filed across the State of Florida on Callado’s real estate properties.

A&B filed suit on behalf of the estate and filed notices of lis pendens (“LPs”) for the particular balances due on the properties Keegan defended from foreclosure actions on behalf of Callado. Ordinarily, LPs are only filed based on a recorded instrument or a fraudulent transaction that involves tracing the funds to the property involved. Callado’s attorney moved to dissolve the LPs and argued that an attorney cannot obtain LPs without having such a right in their retainer agreement, i.e. a charging lien. In response, A&B argued that Keegan had benefited Callado and the property by providing the foreclosure defense services, no different than a material man provides a benefit under the construction lien statute. A&B argued that there was a “fair nexus” between Keegan’s legal fees generated protecting Callado’s properties from foreclosure and the properties themselves.

Judge Rodney Smith, the soon to be new federal judicial appointment by the President for the United States District Court for the Southern District of Florida, denied Callado’s motion to dissolve the LPs, and Callado appealed. Miami’s Third District Court of Appeal affirmed Judge Smith’s order denying the motion to dissolve the LPs.

With little precedent on this issue, attorneys may now be able to secure payment on their unpaid legal fees through an LP on real property based on their work saving the property from foreclosure, or some other benefit to the property. The hard work establishing this previously unrecognized position was helpful in bringing a resolution to this dispute.

Case style: Arianne E. Keegan, as personal representative of the estate of James D. Keegan v. Barbara Callado, et al. – Lower Case No.: 15-010712-CA-01; Appeal Case No.: 3D17-0302

  1. Name of client: Arianne Elisabeth Keegan c/o Stuart Gitlitz, personal attorney for Ms. Keegan
  2. Lead partner: Eric N. Assouline, of Assouline & Berlowe, P.A.
  3. Opposing counsel: Gary M. Murphree and Brandy Abreu, AM Law

Case No. 3: Vacation of $2.3 Million Dollar Judgment and Quashing of Service for Non-Compliance with the Hague Convention.

Assouline and Berlowe, P.A. obtained the vacation of a $2.3 million dollar default judgment and a charging order on client’s membership interest in a Florida LLC, quashing of substitute service, and ultimately, the Plaintiff’s abandonment of its case against firm client, Andrés Alvarez Fonseca. Local international dispute resolution firm GST LLP (“GST”) represented Plaintiff WF Worldwide Group Mexico Financiamiento y Colocación de Equipo (“WF Worldwide”) and obtained the 2.3 million dollar default judgment that was ultimately vacated.

When Mr. Alvarez Fonseca, a Mexican businessman with real estate holdings in Miami, first approached the firm, he had just learned of the case against him and the resulting default judgment. Upon consultation with Mr. Alvarez Fonseca, the firm took swift and aggressive action that resulted in a significant victory for the client.

Upon investigating the lawsuit, A&B learned that Plaintiff WF Worldwide had filed the case on September 9, 2016. Plaintiff had then unsuccessfully attempted to serve Mr. Fonseca, a Mexican National residing in Mexico, in Miami and Mexico under the Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters (the “Hague Convention” or the “Hague”). Upon its unsuccessful service attempts, Plaintiff sought substitute service through the Florida Secretary of State. Plaintiff submitted an affidavit of substitute service with the Court and subsequently obtained a default judgment in the amount of 2.3 million dollars against Mr. Fonseca.

A&B first filed Defendant Andrés Ricardo Alvarez Fonseca’s Motion to Quash Service of Process and Motion to Vacate Default Final Judgment (“Motion to Quash and Vacate Judgment”). Therein, A&B argued that Plaintiff’s substitute service was defective, primarily, because compliance with the Hague is mandatory where there is an occasion to transmit judicial documents for service abroad and Plaintiff had failed to comply with the Hague by prematurely seeking default judgment in contravention thereof.

While A&B’s Motion to Quash and Vacate Judgment was pending, Plaintiff moved forward with its collection efforts. During this time, Plaintiff obtained a charging order against Mr. Fonseca’s interest in a LLC, which held real property in Miami. A&B filed a Notice of Appeal on the Charging Order.

Honorable Judge Eric Hendon who presided over the case heard the Motion to Quash and Vacate Judgment, agreed with A&B’s argument, and ordered the substitute service quashed and the subsequent default judgment and charging order vacated.

After agreeing to accept service on behalf of its client, A&B cemented its victory by filing a strong Motion to Dismiss for Lack of Personal Jurisdiction or Forum Non Conveniens and in the Alternative to Compel Arbitration (“Motion to Dismiss or Compel Arbitration.”). The Motion to Dismiss or Compel Arbitration was the last filing in the case, as Plaintiff abandoned its prosecution of the matter. The case has since been closed.

Case style: WF Worldwide Group Mexico Financiamiento y Colocación de Equipo, S de R.L. v. Andrés Ricardo Alvarez Fonseca; Case No.: 2016-023579

  1. Name of client: Andrés Alvarez Fonseca
  2. Lead partner: Daniel E. Vielleville and Peter E. Berlowe of Assouline & Berlowe, P.A.
  3. Opposing counsel: Quinn Smith, Katherine Sanoja and Derek Womack of GST LLP

Although Assouline & Berlowe has other departments, the litigation department was built through the backbone of the firm’s founders, litigators Eric Assouline and Peter E. Berlowe. Assouline & Berlowe litigation attorneys have regularly had to go up against some of the top attorneys and firms in South Florida in battles against much better funded adversaries. Never deterred, the firm has pressed on, often against the odds, in order to zealously represent their client’s interest. Eric and Peter have steadfastly trained their associates to work with the same ethic and have only brought in partners with the same mindset. In no year in the past has this been more evident than in 2017, when the firm’s resolve was truly tested.

Founded in 2003, Eric and Peter obtained their litigation training as associates working with some the top lawyers in their fields at the international powerhouse, Weil, Gotshal & Manges, LLP. At Weil, Eric and Peter were trained to accept nothing short of excellence in their work product and this training was instrumental in building the firm’s culture.

The firm’s culture is, and always has been since it was formed, to obtain the absolute best result for its clients, while thinking outside of the box and being ready to keep fighting for the client even when it may not be economically beneficial to the firm.

Intellectual Property litigation department:

1. Filed 10 patent infringement lawsuits in the Southern District of Florida ranging from technology for breakaway safety vests to secured automated notification systems. The cases that were filed by the firm are:17-cv-80529 – Electronic Communication Technologies, LLC v. TJX COS, Inc.; 17-cv-80512 – Electronic Communication Technologies, LLC v. Lumber Liquidators, Inc.;  17-cv-80511 – Electronic Communication Technologies, LLC v. Balsam Brands, Inc.; 17-cv-80385 – Electronic Communication Technologies, LLC v. Gemvara, Inc.; 17-cv-80259 – Electronic Communication Technologies, LLC v. Batteries Online, Inc.  Opposing counsel includes: Bob Lee, Esq. of Alston & Bird LLP; Neil McNabnay Esq. of Fish & Richardson; David Finkelson, Esq. of McGuire Woods, Eleanor Barnet, Esq of Heller Waldman.

2. Resolved various patent infringement and declaratory judgment cases filed in Ed. TX, N.D. Iowa, and N.D. Indiana; Peter A. Koziol of Assouline & Berlowe was the lead partner on the Triple7Vaping.Com, LLC case, as he replaced Jerold Schneider (of Schneider Rothman IP Law Group) who at the time was 2017’s Florida Bar Intellectual Property Law Certification Committee chair. Opposing counsel was:Ms. Ranieri’s co-counsel were: David Conrad, Esq. and Ricardo Bonilla Esq. of Fish and Richardson (Dallas, Texas); Mathew S. Sarelson Esq. of Kaplan Young & Moll Parron (Miami)  The main contact person for the Intellectual Property litigation department is Peter A. Koziol, Esq., pak@assoulineberlowe.com – Telephone: 561-361-6566.

3. Served as lead counsel in a highly publicized action filed by the Electronic Frontier Foundation against the nation’s allegedly most “prolific’ patent licensing entity (according to the EFF), Triple7Vaping.Com, LLC et al v. Shipping & Transit LLC, S.D. Fla. Case No.: 16-cv-80855, and Case No. 17-1066 (Fed. Cir. 2017).

4. Led litigation and/or licensing negotiations in over 200 patent infringement matters (some pre-suit) throughout the United States in 2017 alone (approximately 10% being filed in various district courts throughout the country);  According to Justia, this accounts for approximately 15% of the total patent litigation new cases filed in the Southern District of Florida for 2017.

  • 17-cv-80262 – Electronic Communication Technologies, LLC v. BTO Sports, Inc.; 17-cv-80261 – Electronic Communication Technologies, LLC v. Ellison Systems, Inc. d/b/a Shoplet.com; and
  • 17-cv-80510 – Electronic Communication Technologies, LLC v. C & A Marketing, Inc.;
  • 17-cv-80528 – Electronic Communication Technologies, LLC v. Dailylook, Inc.;
  • 17-cv-80914 – Safety Supply Corporation v. Abel Unlimited, Inc.

Upcoming matters in Intellectual Property litigation department:

  • Multiple trademark infringement actions for internationally acclaimed restaurant in Miami against misappropriators in New York and Georgia; and
  • Representation of game changing pharmaceutical benefit company against deceptive and tarnishing use of its name against a company accused of an organized enterprise pattern of “feedback extortion.”
  • Representation of foreign manufacturer of exercise equipment against rouge distributor that misappropriated its trademarks, merchandise and trade secrets;

In 2017, due to its litigation strength, the firm was able to resolve many matters for clients without filing suit. The firm helped it clients manage large portfolios of IP assets, including patent portfolios under development and used these assets to foster joint ventures, licensing and cross licensing agreements. The firm’s clients were able to use funding generated by licensing for further research and development of new technologies. However, when the clients’ intellectual property was misappropriated and the parties were unable to resolve their disputes amicably, the firm represented its clients in Court over what were often highly contested positions.

Peter A. Koziol chairs the Firm’s IP litigation department, which also includes Peter E. Berlowe, Eric N. Assouline, and Greg M. Popowitz. The firm credits the IP litigation department’s success with its client’s favorable positions, its members, and the additional support that it receives from the firm’s staff and other attorneys who are either seasoned litigators with experience in business, trade secrets and anti-trust law, or Florida Board Certified in Intellectual Property Law like partners Ellen M. Leibovitch and Loren D. Pearson.

It is Assouline & Berlowe’s experience that although IP litigation is generally a specialty practice, various litigation strategies require input from experts in other practice areas to obtain the best results possible for the client. Unique to Assouline & Berlowe is the law firm’s dedication to its current and past clients and the sophistication and experience of its attorneys which all share a strong focus and team approach to promoting business, commerce and technological innovation.

This included, for example the firm being retained in 2017 to defend an inventor funded company, Shipping and Transit, LLC (“S&T”) in a highly publicized dispute filed by the Electronic Frontier Foundation (“EFF”). The EFF, which openly advocates for the abolition of software patents and is funded by variously similarly minded organizations (see, e.g. https://www.eff.org/thanks), sought to invalidate U.S. Pat. Nos. 6,415,207, 6,763,299, 6,904,359, and 7,400,970, and accused S&T of violating Maryland Law. The Order of Dismissal is attached and also available at: https://ecf.flsd.uscourts.gov/doc1/051117870855?caseid=485292&de_seq_num=337.

For questions about Assouline & Berlowe PA and any of its 2017 achievements, please contact Eric Assouline, Esq., co-founder and Litigation Department Chair.

ASSOULINE & BERLOWE, P.A.

213 East Sheridan Street, Suite 3

Dania Beach, Florida  33004

Main: 954.929.1899

Fax: 954.922.6662

Email: ENA@assoulineberlowe.com

http://www.assoulineberlowe.com/

Intellectual Property, Labor & Employment, Creditors’ Rights & Bankruptcy, Business Litigation, Corporate & Finance, Real Estate, International Law

 

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5.72% – New Interest Rate for Judgments in Florida

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As we have mentioned in prior Blog posts, every quarter of the year, Florida reassesses the interest rate that must be charged on judgments in the State of Florida.

What is interesting is that Florida’s statutory interest rate is, little by little, or not so much, creeping up.   Just in the last year, the interest rate has gone up by .67 basis points.

See a chart below with the gradual increase, just in the last 12 months.

April 1, 2018 Judgment

Notably, any prejudgment claim to interest is also governed by this statute.  So, claims that are pending for years have appreciated in value just by the nature of the increase in the statutory interest rates.

Eric N. Assouline, Esq.

Assouline & Berlowe, P.A.

www.assoulineberlowe.com

Miami – Ft. Lauderdale – Boca Raton

 

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VENTURE FINANCING: WHAT LEGAL INSTRUMENT?

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Start-up and Emerging Growth Companies often struggle with structuring a Private Securities Offering. Without “giving away the store,” Founders want to maximize realized funding and maintain management control. Potential investors want a reliable exit strategy and realistic profit multiples; capital enhancement with “belt and suspenders” safeguards. Structuring a Financing Package that includes a legal instrument with terms and conditions that balance these conflicting interests is no easy task.

A Company’s business life-cycle position is critical in attracting potential investors, and in successfully negotiating reasonable financing terms and conditions. When competing for funds, a technology start-up with no “proof of concept,” a weak management team, and no revenue stream is certainly disadvantaged. A more mature firm, with strong management and a product near commercialization, will be more attractive. Also, many entrepreneurs fail to create an “alignment of interests” construct; an investor universe with a risk–reward strategy compatible their operational and financial growth horizon.

There is no perfect financing instrument template for all financing deals. Creating an attractive Financing Package, that establishes a solid co-owner relationship (without possible future “buyers’ remorse”), requires careful analysis by a Deal Team that includes business, financial, and legal counsel. The relationship’s “mortar” is the financing instrument’s legal architecture.

Stand-alone Convertible Notes, in many early-Seed rounds, have terms and conditions more easily explained to less-sophisticated investors. Debt instruments, they have no impact on valuation. The drawback; they must carry interest (at least, the Federal rate), and a maturity date. From an investor’s perspective, the conversion features are positive add-ons to the Notes’ purchase price.

Introduced in 2013, by YCombinator, a Silicon Valley firm providing Startup funding, Simple Agreement for Future Equity (“SAFEs”) are debt-equity hybrids “intended to replace convertible notes in most cases…while preserving their flexibility.” Without interest and maturity provisions, SAFEs “are designed to have the same economics and mechanics as convertible notes.” The only significant negotiating terms are the conversion discount rate and the valuation cap; the highest valuation that can be used to determine the Notes’ price.

In early seed deals with family, friends, and less sophisticated Angels, Common Stock seems simple and most cost-effective. While affecting valuation, investors are granted no greater rights or preferences than existing shareholders; interests are aligned. Attempting to maintain decision-making control, Founders think about dual-class Common Stock. Venture capitalists, especially institutions, view this as unpalatable. A collateral rights agreement may be helpful in those situations.

Convertible Preferred Stock remains the instrument of choice for institutional and more sophisticated investors. Conversion is tied to the “Next Qualified” financing, the documentation does not affect valuation, and both parties can negotiation specific conversion formula at inception. Moreover, in the event of insolvency and other specified event, this form carries preferences placing the Preferred ahead of Common Stock.

Market appetite is always the principal driver in any Financing. As of December 2017, PitchBook (a financial data and software company) estimated that 157 US Venture Capital Funds, with $24 Billion in project commitments, have $92 Billion in “Dry Powder;” available for investment. To attract those funds, a Financing Package must demonstrate a strong management team, a well-developed business and financial thesis, and include a legal instrument that mitigates conflicting interests.

Carl H. Perdue, JD, LLM
Senior Counsel and Partner
Business and Finance

The above material is for information purposes only; and is not to be considered legal or financial advice.

ASSOULINE & BERLOWE, P.A.

1801 N. Military Trail, Suite 160

Boca Raton, Florida 33431

Main: (561) 361-6566

Fax: (561) 361-6466

Email: CHP@assoulineberlowe.com

http://www.assoulineberlowe.com/

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SEC Chairman’s Remarks at the Securities Regulation Institute

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Speaking at Washington, DC, on January 22, 2018, Securities and Exchange Commission Chairman, Jay Clayton spoke about two issues before the Commission: (1) his expectations for market professionals, particularly when dealing with new products or new forms of old products, especially concerning Initial Coin Offerings (“ICO”)and (2) the SEC’s approach to remaining Dodd-Frank rulemaking mandates.

Chairman Clayton said “Market professionals, especially gatekeepers, need to act responsibly and hold themselves to high standards….It is expected that they will bring expertise, judgment, and a healthy dose of skepticism to their work. Said another way, even when the issue presented is narrow, market professionals are relied upon to bring knowledge of the broad legal framework, accounting rules, and the markets to bear…The SEC is undertaking significant efforts to educate the public that unregistered securities investments offered by unregistered promoters, with no securities lawyers or accountants on the scene, are, in a word, dangerous….The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering.”

As to the remaining Dodd-Frank mandates, the Chairman noted that the Commission is actively working on “ pursuin(g) an agenda that is true to the agency’s mission as viewed through the lens of long-term Main Street investors…(including) the broad dissatisfaction with the current regulatory approach to retail investment advice, which is commonly referred to as the “fiduciary rule.”…Executive compensation rules for both public companies and SEC-regulated entities…e rules are challenging…as a result of the complexity and scope of the existing executive compensation disclosure regime, as well as the nature of the mandates, I believe a serial approach is likely to be most efficient and best serve the SEC’s mission. I am pleased that we recently issued interpretive guidance to help companies comply with the new pay ratio rules.

The Chairman also discussed the interplay of the Securities Laws with the Administrative Procedure Act and the Congressional Review Act and the Court rulings on that subject, He indicated that the Staff is “crafting rules” sensitive to the substantive constraint of those statutes.

Concerning clawbacks related to executive compensation, the Chairman remarked that although several companies have publicized clawback policies, some going beyond what Dodd-Frank requires, few companies have attempted clawback compensation this is one area that will be given rulemaking priority.

Carl H. Perdue, JD, LLM
Senior Counsel and Partner
Business and Finance

The above material is for information purposes only; and is not to be considered legal or financial advice.

ASSOULINE & BERLOWE, P.A.

1801 N. Military Trail, Suite 160

Boca Raton, Florida 33431

Main: (561) 361-6566

Fax: (561) 361-6466

Email: CHP@assoulineberlowe.com

http://www.assoulineberlowe.com/

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