In The News

Lease Rights Following the Flood: Casualty Provisions

The flood has affected many of our neighbors, including businesses.  While flood insurance or business interruption insurance may be helpful to some property owners and businesses, almost all landlords and tenants have provisions that relate to casualties in their leases.  The water and flood damage of the magnitude suffered in Middle Tennessee almost certainly qualifies as a casualty.

The rights of landlords and tenants under these casualty provisions generally are independent of insurance and liability provisions, and these casualty provisions will help guide the parties’ next steps, regardless of whether the property is determined to be a total loss or not. Many times, these casualty provisions give landlords the sole right to determine whether the lease will continue post-casualty (i.e., once flood waters subside from the property).  The landlord usually has some amount of time to repair and/or rebuild, and if the repair/re-build happens within a certain amount of time, the lease will continue.  If repair/re-build cannot happen on the given timetable, the lease may terminate.  This is good for landlords because it affords some measure of control over their property.

The good news for tenants is that many leases allow for rent abatement during the time that the property is unusable.  So, from the time water damage or flood waters forced the tenant from the leased property until the time repair/re-build is completed, the tenant may not have to pay rent.

Some casualty provisions are short and straightforward, and some are complex.  Always consult your lease if you have questions, and seeking legal advice may be helpful.  Most casualty provisions may be reviewed quickly and efficiently.

Flood Relief Contractor: Dealing with Damage Requiring Immediate Repair

The disastrous floods throughout Middle Tennessee have left many in our area dealing with damage to their homes that requires immediate repair.  Contractors and home restoration services will certainly be in high demand, which may open the door to less reputable contractors trying to exploit desperate consumers. In the rush to get your home restored, it is critical that you know what to do when selecting a home repair/restoration professional in order to prevent further hardship.

Here are a few tips:

Get an estimate in writing from your contractor.  Despite the urge to get the work started as soon as possible, document your engagement with the contractor. Sure, there may be unforeseen issues resulting from the damage, but you are entitled to some fair advance expectation of what the job will cost. Getting an estimate in advance places the burden on the contractor to provide you with notice of those unforeseen issues…and advance notice of any increase in costs.

Be sure that the contractor you hired is licensed with the state.  In the rush to get somebody—sometimes anybody—working on the damage, a homeowner may neglect to take the “due diligence” precautionary measures of vetting the contractor with whom they are dealing. The State of Tennessee Board for Licensing Contractors has an that allows homeowners to investigate whether the contractors they are dealing with are licensed.

If you live in an impacted area, you may be approached by door-to-door contractor solicitations. This could be a legitimate contractor reaching out to people who need help the most, or it could be somebody seeking to exploit other people’s hardship. Again, check on the contractor through the State’s online records, or call the State contractor board at (800) 544-7693. Additionally, the Tennessee Secretary of State maintains records of all corporate entities authorized to do business in Tennessee and provides an online database with those companies. Ask questions about the contractor and their particular experience, and, of course, get it all in writing.

Don’t be afraid to ask questions and seek guidance There are many government and private institutions offering guidance and help in dealing with the aftermath of a flood, including:

Tennessee Emergency Management Agency for specific guidance as to available services in Tennessee.

Tennessee Board for Licensing Contractors

Tennessee Secretary of State

Local resources, such as blogs, may have the most up-to-date information on aid and agencies seeking to provide relief.

Casualty Losses: Qualifying for Federal Tax Deductions

Now that the rains have stopped and the flood levels are receding, many Tennesseans are surveying the damage done to their property, whether personal property or business property.

  The good news is the federal tax laws allow a deduction for losses of personal and business property due to a casualty—a sudden, unexpected, and unusual event such as a fire, storm, flood or hurricane—for which many Tennessee residents qualify.

Regardless of the type of property, if you suffer a loss from the recent floods, then your loss will be equal to the less of either: (1) the adjusted basis of the property (generally, what you paid for it); or (2) the loss of value by reason of the casualty (generally, the value immediately before the flood minus the value immediately after).  In addition, your loss may be reduced by any compensation received from insurance or otherwise.

Unfortunately, you bear the burden of proving the facts needed for qualifying for the deduction—including the existence of the casualty as the cause of the loss, the resulting decline in fair market value, the adjusted basis of the asset(s), and that you actually owned the asset(s).  Proof of the casualty is easy enough.  Keep copies of newspaper or online articles about the recent floods, and also obtain a copy of the Presidentially-Declared Disaster Area notice for your county.  In substantiating the loss, you must establish: (1) the adjusted basis of the asset(s) involved; (2) the decline in value of the property as a result of the casualty; and (3) the amount of any reimbursement.  In order to justify your loss, you will need proof of what you paid for your property, as well as proof of its value before and after the flood, if you have it.  In order to prove the value of real estate and other substantial assets after the flood, an appraisal may be necessary.

If the loss is from property used in a trade or business or income-producing property (such as rental property), then you can deduct the full amount of the loss as determined above.  If the loss is from non-business (or personal) property, certain limitations apply restricting the amount you can deduct.

Generally, a loss is deductible in the year it is sustained, 2010 in this case.  However, losses sustained because of natural disasters in Presidentially-Declared Disaster Areas may be deducted in the prior year, 2009 in this case.  Therefore, you have a choice to wait until early 2011 to claim this deduction and hopefully get a refund, or file an amended return for 2009 and get a refund sooner.  The one drawback to claiming the loss sooner is that if you get insurance proceeds after filing the amended return, you may have to file another amended return paying some of your refund money back.

The IRS also has resources available on its website for calculating the amount of your casualty losses (go to and search for Publication 584).


National Flood Insurance Program: What Lenders Should Know

The National Flood Insurance Program (NFIP) was created by the National Flood Insurance Act of 1968.

 Two subsequent laws, the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994, have made the purchase of flood insurance mandatory for Federal or Federally-related financial assistance for acquisition or construction of buildings in Special Flood Hazard Areas (SFHAs).

Flood insurance is mandatory for buildings in FEMA-identified high-risk flood areas, referred to as SFHAs.  Whenever you make, increase, extend or renew a mortgage, home equity, home improvement, commercial or farm credit loan in an SFHA, you must require flood insurance. You may require flood insurance on all loans, even those outside SFHAs.

Ensure that flood insurance coverage is maintained for the term of all the loans on a building. Escrowing flood insurance premiums can help make sure you meet this requirement, and it helps protect you and your borrowers from uninsured flood losses.

Know the amount of flood insurance coverage to require. The required coverage is the lesser of the following: (i) the maximum amount of NFIP flood insurance coverage available, (ii) the outstanding principal balance of the loan, or (iii) the value of the building only. (Land and land values are not covered under the NFIP.)

Notify borrowers in writing of the requirement to buy flood insurance for new and existing loans. If you determine that a home or business is in an SFHA before loan closing, you are required to notify the borrower within a reasonable time prior to the loan closing. If you determine that an existing loan for a home or business is in a SFHA, you are also required to notify the borrower within a reasonable time.

There is no waiting period for flood insurance to go into effect when it is purchased in connection with making, increasing, renewing or extending a loan. In most other instances, there is a 30-day waiting period before flood insurance goes into effect.

For more information about the mandatory purchase of flood insurance requirements, and other related topics, read the .

Flood insurance and the mandatory purchase laws help protect your investments as well as your borrowers’ against uninsured flood losses. Floods can occur in unexpected areas of the country. Make sure you and your borrowers are protected from uninsured flood losses for their homes, businesses and belongings by following these requirements.


Health Risks of Flood Waters: EPA Guidelines

The Environmental Protection Agency (EPA) cautions the public and emergency responders about the potential hazards associated with flood waters. During heavy rains, sanitary sewers may overflow into floodwaters. Avoid contact with floodwater due to potential contamination with raw sewage and other hazardous substances. Avoid swimming and boating in floodwaters and do not allow children or pets to wade or play in floodwaters.

EPA offers the following guidelines for those in contact with flood water:

- Wash your hands before drinking and eating;

- Wash frequently using soap -- especially disinfecting soap;

- Do not smoke;

- Limit direct contact with contaminated flood water;

- Pay attention to any cuts or open wounds and limit exposure to flood water;

- Pay attention to any unusual symptoms and report them to health care professionals;

- Keep vaccinations current.

The public and emergency response personnel should follow guidelines from federal, state and local health and safety professionals. Early symptoms from exposure to contaminated flood water may include upset stomach, intestinal problems, headache and other flu-like discomfort. Anyone experiencing these and any other problems should immediately seek medical attention.

Children are at greater risk than adults from contaminants carried by flood water. Since they dehydrate faster, they need to drink plenty of fluids. If the safety of your water is in question, either use bottled water or bring tap water to a rolling boil for at least one minute...and let it cool before use.

EPA and the Tennessee Department of Environment and Conservation have compiled other useful information on the web to assist individuals and municipalities address post-flooding clean up concerns. Issues include mold, septic systems, municipal water treatment plants, drinking water and food.

Stephen Zralek Moderates Panel on Termination of Transfer Rights

Bone McAllester Norton attorney Stephen Zralek moderated a panel of distinguished faculty on Termination of Transfer Rights on May 3, 2010.

  The seminar addressed provisions of the Copyright Act that allow authors to recapture rights to their works, which they may have transferred earlier in exchange for getting their works published.  Recapture rights currently is one of the biggest issues in copyright law, as the Copyright Act allows authors to exercise such rights only within certain windows of time, some of which are opening and/or closing in the next few years.  The seminar was produced by the American Bar Association Copyright Litigation Committee, of which Stephen is Vice Chair.  It was recorded and is accessible from this link:


Artists' Rights & the Law

I had a good conversation with sculptor John T. Unger on his Internet radio show, Art Heroes, on February 25, 2010.  John is a client of mine who creates artisanal firebowls.  He's also a big proponent of social media and uses it to market his art and create an online community of artists.  In 2009, I had the privilege of representing John in a federal court lawsuit over his copyrights and trade dress in the firebowls when unauthorized replicas of his bowls began appearing on the market.

In our conversation on Art Heroes, we talked about "Artists' Rights and the Law."  John began by asking me to discuss the difference between rights under copyright, trademark, trade dress and patent law.  We talked about the benefits conferred on artists who register their works (such as the right to recover statutory damages in court, the right to attorneys fees under copyright law, and the presumption of validity that accompanies registrations).  We also talked about how for most artists, copyright provides the longest amount of protection (life of the artist plus 70 years), compared with trademark (10 year periods open to renewal) and design patents (14 years).  Applying for copyright registration is also  more affordable ($35 filing fee) than applying for trademark registration ($335 filing fee per class), both of which are significantly more affordable than applying for a patent ($5,000-$10,000 including attorney fees).

We also talked about when an artist may use, rely on, critique or "sample" other artists' work.  Copyright protection confers exclusive rights on authors, but an exception to this exclusivity is the doctrine known as "fair use."  For most artists, the question comes down to whether their newer work that borrows from earlier work is "transformative."  I'll blog more on Fair Use in the future.

We also talked about something known as "Recapture Rights" or "Termination of Transfer Rights," which highly impacts literary authors and singers/songwriters, among other artists.  Often when young or budding artists are getting established, they transfer their copyright rights to publishers or others in exchange for securing a book or record deal.  Realizing the inherent inequities of this draconian step, Congress gave artists the right to "recapture" their copyright rights for five year periods. For works created Jan. 1, 1978 to present, recapture rights kick in after first 35 years for a 5 year window from year 35 to year 40 (the earliest this would apply is 2013).   For most works created prior to Jan. 1, 1978, the recapture period is between 56th and 60th years, and artists get a second bite at the apple between years 75 and 79.   Artists get the remainder of the copyright term if they provide notice of termination of transfer during these five-year periods.  Don't forget: recapture rights are "use it or lose it" rights -- if you miss the five-year window, you're out of luck.  I'll blog more on Recapture Rights in the future, too.

John asked me what I thought about, an online service that provides a central repository for artists' online works.  Myows stands for "My Original Works," and, which it is still in its infancy, looks like a great supplement to copyright registration. provides a time-stamp on all online works, down to the minute, which could be useful in establishing priority in copyright infringement suits.  To the extent offers legal advice, I found several statements that were inaccurate and hope, instead, that Myows will delete these pages.  Major upside: Myops is FREE.

John hosts different people every week to talk about art and artists' rights. Check out his next show this coming Thursday at 9pm Central.  Future guests are scheduled to talk about licensing rights and becoming famous as an artist without leaving your day job.

The More Interactive Your Website, the More Likely Your Business Can Be Forced to Defend Lawsuits in Other States

Businesses need to be intentional about how interactive they allow their websites to be, since they can be forced to defend themselves in lawsuits filed in another state if they actually make sales in other states through their websites.  In a decision issued August 28, 2009, federal Judge Aleta Trauger held that the U.S. District Court for the Middle District of Tennessee had no personal jurisdiction over the Denver-based defendant that had been sued for trademark infringement and unfair competition in Nashville, despite the defendant having a fully interactive web page from which Tennessee residents could order services.  Capital Confirmation, Inc. v. Auditconfirmations, LLC, No. 3:09-0412 (M.D. Tenn.).  My law partner and I served as local counsel for the defendant, along with Bobbee Musgrave of Denver.

For many reasons, it is almost always preferable to defend a lawsuit in your hometown or home state.  In today's environment, where almost every business has a website, many businesses would be surprised to learn they can be forced to defend themselves in a lawsuit in another state, depending in part on how interactive their website is.  Fully interactive websites are those that allow customers to order goods and services from the site.

In general, the law requires plaintiffs to sue defendants where they reside or have their principal place of business, or where the acts giving rise to the lawsuit occurred.  But where defendants "purposefully avail" themselves of the benefits of another state, they can be forced to defend in that other state.  Before the Internet, defendants who sold their goods and services in person typically did so locally, and could not be sued in other states.  The Internet, however, has allowed businesses of all sizes to expand their reach without ever physically leaving their home state.  Businesses with a robust Internet presence may unwittingly be at risk for defending against out-of-state lawsuits.

In the Sixth Circuit (the appeals court that covers Tennessee, Kentucky, Ohio and Michigan), a website's interactivity is measured on a sliding scale.  At one end are "passive sites that only offer information for the user to access."  At the other end are "active sites that clearly transact business and/or form contracts."  In the middle are "hybrid or interactive sites that allow users to exchange information with the host computer," and these middle cases must be evaluated on an individual basis.  See Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 890 (6th Cir. 2002).

Following well-established Sixth Circuit precedence, Judge Trauger's decision makes clear that an interactive website by itself is insufficient to be haled into federal court in Tennessee.  As she explained, suing an out-of-state defendant in Tennessee requires "something more" than merely an interactive web page.

In Capital Confirmations, the defendant's web page was fully interactive, but it had no legitimate sales into Tennessee.  The plaintiff had posed as a non-existent individual named "Frank Jepson," purporting to enter into a transaction on the defendant's web page from within Tennessee.  The court considered these transactions to be illegitimate.  The only other interaction with Tennessee was from a request that was aborted before any payment was made by the customer, so the court considered that interaction to be incomplete and of no impact.  The mere fact that a Tennessee resident could theoretically purchase goods or services over the defendant's web page is insufficient to hale the defendant into Tennessee.

The lesson to be learned from this decision is that businesses need to be intentional about the level of their web pages' interactivity.  One upside of the Internet is the ability to sell and market all across the country, not to mention all over the world.  The downside is that sales in other states can create jurisdiction in courts far from home.  One step businesses can take to minimize the chance of being sued by their customers out of state is to include a provision in all contracts that sets the exclusive jurisdiction in the place where the business is headquartered.  But such a provision will not work in suits by non-customers.  Instead, businesses need to gauge their appetite for defending lawsuits in other states before selling goods and services there, whether through the Internet, over the telephone, through distributors or in person.

In Long-Awaited Move, President Obama Appoints IP Czar

In a long-awaited move, President Obama has nominated the US Intellectual Property Enforcement Coordinator, otherwise known as the "IP Czar."  This position was created with the enactment of the PRO-IP Act, which former President Bush signed into law on October 3, 2008.  He deferred nominating anyone for the IP Czar position until the Act received partial funding, which did not occur until 2009, and until the next president took office.

On September 25, 2009, President Obama nominated Victoria Espinel , who currently serves as a visiting assistant professor at the George Mason University School of Law.  Her nomination awaits confirmation by the Senate.

Some are calling Ms. Espinel the Copyright Czar, but that title is too narrow, since her role stretches beyond mere copyright issues.  She will chair the newly created IP Enforcement Coordinator advisory committee, comprised of representatives from multiple federal departments, and her primary responsibility will be to coordinate efforts across the entire federal government to protect American intellectual property in all its forms.

You can read more about the expected role of the IP Czar in the context of IP reform, in an article entitled "The PRO-IP Act: Another Weapon Against a Failing Economy," which Dylan Ruga and I wrote, and which the American Bar Association published in the January/February 2009 issue of Landslide.

Middle District of Tennessee adopts Narrow Approach to Copyright Registration -- for the Time Being

A split exists among the various federal circuits in the United States over what is required before a plaintiff may file a lawsuit asserting copyright infringement.  Recently, the Middle District of Tennessee issued a reported decision that adopted the “narrow approach.” Specific Software Solutions, LLC v. Institute of Workcomp Advisors, LLC, 615 F. Supp. 2d 708 (M.D. Tenn. 2009).  Thus, for the present time, copyright owners in the 32 counties comprising Middle Tennessee must actually have received a determination from the Copyright Office as to the registrability of their works before they may sue another party for infringement in this judicial district.

The question before the court in Specific Software was, “What constitutes registration?”  The Copyright Act states at 17 U.S.C. Section 411(a), and the Sixth Circuit has held, that registration is a prerequisite to filing a copyright infringement suit.  But the Sixth Circuit has not decided what constitutes “registration” under this provision of the Copyright Act, and courts across the country have reached different conclusions.

The “narrow approach” holds that registration is not considered complete until the Copyright Office reaches a determination on the merits of the application and either accepts it or rejects it.  Some of the courts that follow the narrow approach include: the Western District of Michigan, the Central District of California and, for now, the Middle District of Tennessee.

The “broad approach” holds that registration is not dependent upon any consideration or action by the Copyright Office.  Instead, courts following the broad approach generally consider the registration requirement to be satisfied upon the plaintiff’s submission of the following to the Copyright Office: an application, deposit copy of the work and required fee.  These courts note that the Copyright Office’s eventual acceptance or rejection of the application has no bearing since the Copyright Act explicitly allows a plaintiff to initiate suit for infringement even when the application has been rejected.  Some of the courts that follow the broad approach include the District Court for the District of Columbia, the Middle District of North Carolina, the Fifth Circuit and the 10th Circuit.

In adopting the narrow approach, the Specific Software Court noted that those courts adopting the broad approach have “correctly recognized that there is something ‘uneconomical’” about dismissing a complaint simply because a plaintiff does not yet have a certificate of registration, especially since the plaintiff is allowed to sue even if the Copyright Office ultimately rejects the application and denies registration.  615 F. Supp. 2d at 715-16.  But the court was constrained by its interpretation of the Copyright Act, as currently worded, and settled on the narrow approach.  Id. at 716.

Across the country, this issue is far from settled.  Presently pending before the Supreme Court is the case Reed Elsevier, Inc. v. Muchnick, which, among other issues, raises the question of how “registration” should be defined under the Copyright Act in relation to initiating a suit for infringement.  It is set for oral argument on October 7, 2009.  Expect to see more clashes among the circuits until the Supreme Court issues a decision in that case.  Depending on how the Supreme Court comes out on that issue, the holding in Specific Software may or may not be overruled.

In my own role as Vice Chair of the American Bar Association’s Copyright Litigation Committee, I am helping lead a working group that has examined this precise issue.  For a number of reasons, we are recommending that the Copyright Act be amended to adopt the broad approach.  Among other reasons, the broad approach is consistent with the fact that, under the Copyright Act, copyright owners enjoy protection from the moment they create their work, regardless of whether they ever register their work.  Amending the Copyright Act to adopt the broad approach would also put the United States on equal footing with other Berne Convention countries, and abolish the higher burden currently placed on United States works, as compared with non-United States works. 

For the present time, plaintiffs who need to sue for copyright infringement but who have not yet obtained either registration or rejection from the Copyright Office should consider suing in one of the courts that has adopted the broad approach.  Many times, plaintiffs have a choice in where they file suit.  They can sue either where the defendant resides or has its principal place of business.  But they can also sue where the transaction giving rise to the lawsuit occurred.  These are often two different states.  And as I discussed in my last post, many courts will exercise personal jurisdiction over defendants who make significant and repeated sales into a specific state, even through the Internet.  For now, plaintiffs who do not yet have a determination from the Copyright Office in hand should weigh all their options and bring suit in one of the states following the broad approach.