A compilation of expert knowledge on a variety of topics, Legal Opinions is a valuable resource for executives on business issues. Written by attorneys, all of whom are highly educated on their featured topic, Nevada Business Magazine has been publishing this feature since 2014.
Articles in the 2022 edition of Legal Opinions cover a gamut of professional issues and each provides business leaders with a glimpse into complex legal issues.
The New Amsterdam: Cannabis Consumption Lounges in Nevada
By: Alicia Ashcraft, Partner and Las Vegas Office Managing Attorney and Jeffrey Barr, Partner, Armstrong Teasdale
This autumn, Nevada is poised to see the wide-scale proliferation of cannabis consumption lounges.
What is a cannabis consumption lounge?
Nevada law makes it illegal to consume cannabis in any place but a private residence. This means that consuming cannabis in a hotel room, car, night club or on the street is unlawful. The lack of suitable places to consume cannabis prompted state government to pass legislation allowing for consumption lounges.
Like a tavern or a night club that serves alcohol, consumption lounges are more than a place to use cannabis in public. In addition to providing a legal place for social consumption, these lounges provide a unique opportunity to combine Nevada’s newest regulated industry with Nevada’s hospitality-based economy – and “canna-tourism” is born. The lounges educate patrons about cannabis and cannabis products. They can give the unsophisticated consumer looking for an uncommon experience a place to experiment and relax among a community of consumers.
Six states other than Nevada currently permit consumption lounges: California, Colorado, Illinois, Michigan, New Jersey and New York. Unsurprisingly, California and Colorado have led the way in this regard, but 2022 saw Illinois and Michigan open their first consumption lounges. Nevada will soon join this group.
The Nevada legislature passed a bill last year establishing the framework for legal consumption lounges and creating two categories of licenses – one for “retail cannabis consumption lounges,” under which existing retail stores will be able to sell cannabis products to be consumed on-site, and a second for “independent cannabis consumption lounges,” which will operate as standalone establishments permitted to sell single-serving and ready-to-consume cannabis products. Approximately 40 to 45 consumption lounge licenses will be issued to existing retail stores. Additionally, of the 20 new independent lounge licenses, 10 are reserved for social equity applicants, who are defined as those living in historically disadvantaged areas and either were convicted or are the family member of someone convicted of a nonviolent cannabis crime.
The Nevada Cannabis Compliance Board spent the first half of this year holding workshops and taking public input on the regulations, which it then unanimously approved in June. The new rules purportedly prioritize the cannabis industry while protecting Nevadans and diversifying the economy. The regulations permit cannabis to be offered in connection with other experiences, such as yoga, food, massage and other entertainment, but not alcohol, tobacco, nicotine or gaming.
Other restrictions include that single-use cannabis products are limited to no more than 3.5 grams of usable cannabis, and any single-use products with more than 1 gram of usable cannabis must contain a potency warning. Other products such as vapes or dabs are limited to 300 milligrams of THC and must also contain a potency warning. Ready-to-consume edible products are limited to 10 milligrams of THC, and topicals are limited to 400 milligrams of THC. (THC is the psychoactive chemical in cannabis.) All other products, including transdermal patches, are limited to 100 milligrams of THC.
As with other cannabis establishment types, local governments are permitted to enact additional or more restrictive laws. Those local governments permitting the lounges in their jurisdictions will also likely step-up licensing and enforcement efforts when the new lounges start opening.
As profitable as proprietors hope they will be, lounges are not without risks. For example, because of a lack of access to banking, consumption lounges will transact with a large amount of cash. In addition, the product itself makes a lounge an attractive robbery target. Third, insuring these businesses may present issues like whether the products are safe or whether the lounges are liable for their patrons’ overconsumption. Finally, like casinos that permit smoking, there will always be concerns about indoor air quality. Time will tell whether the rewards outweigh the risks.
Cannabis lounges are not path-breaking. Cannabis cafes have been legal in Amsterdam for decades, bringing in both tourists and locals alike. Nevada’s cannabis consumption lounges may very well make Nevada the new Amsterdam.
‘Til Business Death Do Us Part: Avoiding Messy Corporate Divorces
By: Patrick Reilly, Shareholder, Brownstein Hyatt Farber Schreck
Maybe you know someone who has gone through a messy, ugly divorce. Maybe you have gone through one yourself. You know how costly and painful they can be. Corporate divorces can be just as bad.
They can also be avoided. Whether the business is a corporation, partnership, LLC or other form of organization, there is often a pattern as the relationship goes sideways. Many times, the dispute centers on the dynamic between a majority owner, who holds all or most of the power, and a minority owner, who holds little to none. Making things worse, sometimes these relationships started out as friendships, raising the stakes in a dispute and making the dispute even uglier.
There are ways to minimize the cost (financial and otherwise) of a corporate dispute and possibly avoid that breakup in the first place. Or, if litigation cannot be avoided, you can at least position the company to minimize the effects of shareholder litigation. Here are three tips to keeping your business partnerships healthy and thriving.
Disclose, disclose, disclose—Many corporate disputes are born from lack of communication. Sometimes the controlling owner fails to keep the minority informed as to the financial status of the business. Meetings are not held. Phone calls are not made. All relationships fail from lack of communication, and corporate relationships are no different. Your corporate agreement (such as an operating agreement in an LLC) will identity the minimum of what information needs to the provided. But it is a better practice to proactively communicate. Provide periodic updates, including financial statements. If you are on the receiving end of this information, read it. Many companies now use corporate document upload services like Carta to distribute information to shareholders. These services not only distribute your corporate information, but they also keep proof that it was provided, and track whether the owner has actually accessed the documents you have provided. So when that unreasonable “squeaky wheel” shareholder claims you haven’t provided information, you have proof that you did, and proof that the shareholder did not bother to review it. And yes, this does happen.
Follow the Business Judgment Rule, and Document It—Nevada law follows the so-called “Business Judgment Rule” in which corporate decisions are presumed to be made in good faith. Shareholders challenging a business decision face a high burden in Nevada; however, directors and officers should be mindful to document and communicate the basis for their decision making, particularly concerning significant issues.
Think Twice Before Self-Dealing—When a director or officer enters into a contract with the company, it is called “self-dealing.” Self-dealing has its benefits for the company when done appropriately. Such contracts can provide goods, services and other intangibles to the company on better terms than if a third party were involved. Depending on the business, sometimes self-dealing is even necessary. And Nevada law generally allows a wider berth for self-dealing than most other states. However, self-dealing has a bad reputation for a good reason, as the practice can be abusive and result in breaches of fiduciary duties when not done appropriately. Self-dealing can also create resentment among the other shareholders who may feel the officer or director is personally benefitting at their expense. And, in the event of shareholder litigation, the optics of self-dealing can be messy and even embarrassing. If you are an officer or director and are thinking of engaging in self-dealing, think twice and call a corporate attorney first.
Of course, following the basics of Nevada law is a required minimum. Corporate relationships, like any relationship, can be complicated and require personal attention. Many shareholder lawsuits can be avoided—or their impacts minimized—with the right strategy.
Been Hit With a Defamation Lawsuit or Received Such a Threat? SLAPP Back
By: R. Duane Frizell, Attorney, Frizell Law Firm
So, you or your business have been sued or have been threatened to be sued for defamation. Perhaps you work in the mainstream media, are a social media influencer or maybe just a private business or individual. If the alleged defamation involves “public interest,” you may be in luck because of Nevada’s Anti-SLAPP statutes.
Nevada has statutes protecting against Strategic Lawsuits Against Public Participation (SLAPP)1. They protect a defendant against a defamation claim relating to speech concerning “public interest,” in the following situations: the “communication … is aimed at … any governmental or electoral action”; the communication pertains to “information or a complaint to a [government entity or official] … regarding a matter reasonably of concern to the … entity”; the “statement [is] made in direct connection with an issue under consideration by a [government body or official]”; or the “communication [is] made in direct connection with an issue of public interest in a place open to the public or in a public forum.”2
Most people understand they have a constitutional right to engage in free speech—possibly even defamatory speech—relating to the government. Many do not know, however, that they also have statutory protections for other defamatory speech made in public that concerns “public interest.” Publicly made defamatory speech pertaining to “public interest” is protected, as long as the communication is made in “good faith,” is “truthful or is made without knowledge of its falsehood,“ is made “in furtherance of the right to petition or the right to free speech,” and is uttered in “direct connection with an issue of public concern.”3
The Anti-SLAPP statutes do not protect defamatory speech regarding private interests.4 In determining whether speech involves “public interest,” courts look for the following characteristics: the communication “does not equate with mere curiosity”; it is “something of concern to a substantial number of people”; it exhibits “some degree of closeness between the challenged statements and the asserted public interest”; it is not “a mere effort to gather ammunition for another round of private controversy”; and it is not simply “private information … communicated … to a large number of people.”5 A court’s “public interest” analysis is fact-intensive.
Precedent is instructive. Courts have held that “at a minimum … the burning of flags, the wearing of armbands, and the like” may constitute “public interest,” even if defamatory.6 In one case, the court found “public interest” in an email listserv alleging an attorney’s engaging in unlawful conduct, being unethical, having undue influence, bullying a judge, and concealing bad behavior.7 So too was a statement alleging a government biologist’s mistreatment of animals made as a third-party comment posted to the defendant’s social media. Contrarily, a court has held that, depending on the circumstances, “public interest” possibly may not involve allegations regarding a private person’s “past debts,” “criminal history,” “illegal acts,” and their “mistreatment” of their parents.”
If a court determines that a defamation plaintiff’s claim is barred by the Anti-SLAPP statutes, the defendant will obtain an award of attorney fees and court costs and may obtain an additional $10,000. The defendant may also bring a separate lawsuit for compensatory and punitive damages. On the other hand, if the defendant files an Anti-SLAPP motion that is “frivolous or vexatious,” they may end up paying plaintiff the $10,000 plus fees and costs. If a court denies an Anti-SLAPP motion, the plaintiff can immediately appeal and does not have to wait until after a trial.
If you or your business have been sued for defamation or received such threats, Nevada’s Anti-SLAPP statutes may afford some protection. Consult with an attorney to see if it does.
It’s Not Over Until It’s Over: A Brief Overview of Nevada Appellate Law
By: Joseph Reynolds, Partner, Hutchison & Steffen
No matter what opinion an administrative hearing officer, a district court judge or a jury may issue in civil or criminal litigation, it is not the end of the story. A case is not truly won or lost until a decision is rendered on appeal. Only then is it over.
Fortunately, our state and federal legal systems are structured with layers of judicial review, whereby litigants have the opportunity for additional sets of eyes (and ears) beyond a trial court setting to review their case and be heard. In Nevada, appellate law begins and ends with practice before the Nevada Supreme Court.
About the Nevada Supreme Court
Origins of the Nevada Supreme Court predate Nevada’s statehood, when three justices were appointed by President Abraham Lincoln to preside over the legal affairs of the Nevada Territory. Today, the Nevada Supreme Court consists of seven justices elected by Nevadans to serve six-year terms in office.
To help expedite its review of cases, the seven-member court annually organizes itself into two three-justice panels: a northern panel and a southern panel. One of the seven justices serves as the Chief Justice and is determined annually based on seniority and court rules. The Chief Justice oversees administrative matters during their tenure.
Currently, the Honorable Justice Ron Parraguirre is the Chief Justice. Beginning January 1, 2023, the Honorable Lidia Stiglich will be the Chief Justice.
When to File an Appeal
There are instances when an issue of high public importance that involves an interpretation of the Nevada Constitution may be raised directly with the Nevada Supreme Court, or rare instances where an issue may be raised on appeal during mid-trial. However, most appeals are not properly filed until a final decision is made by a hearing officer, a judge or a jury, i.e., one that resolves the entire litigation between the parties. If an appeal is not filed within 30 days of the final order, the ability to appeal is generally waived. Time is always of the essence.
Types of Appeals
Common appellate actions include petitions for judicial review, direct appeals, and writ petitions. If the legal proceeding was before a Nevada administrative hearing officer, body, or commission, you may appeal a decision of the administrative agency to a district court. This is referred to as a petition for judicial review. If the proceeding was before a district court judge or jury, you may appeal that decision ‘directly’ to the Nevada Supreme Court. This is referred to as a direct appeal. Upon receipt, the Nevada Supreme Court will perform an initial screening of the appeal and decide whether it is within its jurisdiction or should be transferred to the Nevada Court of Appeals for review. An original writ petition is technically not an appeal at all, as it bypasses the traditional fact finding process in a lower court. It is a request for relief made directly to the Nevada Supreme Court. A writ is reserved for extraordinary circumstances. They are rarely granted.
Only Issues of Law
Not all matters will be considered on appeal. Factual findings are not made. New evidence is not heard. An appeal is generally limited to review of the record, which consists of the evidence, transcripts and rulings that have already been made. Therefore, what is (or is not) included in the record can often set in motion the fate of an appeal.
To each of the above rules, there are exceptions. Then there are exceptions to the exceptions. If you do not agree, you may appeal.
Family Law Affects Businesses Every Day: Why Family Law Matters to Business
By: Keith Pickard, Founding Partner, Nevada Family Law Group and Senator, Nevada Senate District 20
You might ask: why write about family law in a business magazine? The answer is that family law touches nearly three quarters of working adults at various times during their working lives, and their interaction with the legal system is felt by businesses in a variety of ways. From missed workdays and reduced productivity to the growing inability to attract future workers and leaders, the realities of family life impacts business leaders’ ability to fulfil the mission of their companies.
Most business owners and managers will encounter someone who is facing a family law issue each year. Family law is the generic term that encompasses everything from divorce and child custody actions, to adoption, guardianship of minors or adults and even death and probate. For some, such as adoptions or guardianships, these might be the result of a deliberate decision that can be planned in advance. But for most of our workforce, a court case can unexpectedly consume a substantial amount of their attention, and thus their ability to contribute at work. And recent U.S. trends are tending to restrict mobility of parents, which makes recruiting workers from out of state even harder.
Over the past several decades, legislatures and courts across the country have responded to a demand for a balancing of the fundamental parental rights for individuals. No longer is a mother expected to sacrifice her job to have children, and men are afforded family leave to help care for family members. Legislative histories are replete with calls for equality for women in positions of leadership. Men are demanding more consideration in custody matters where, decades ago, mothers were presumed to be the “better parent” with whom children would be placed after divorce. Each of these shifts have caused other consequences.
For example, in Nevada, we’ve seen a move away from the “tender years presumption’ of the early 20th century give way to a presumption for joint legal custody (decision making authority) and a preference for joint physical custody (parenting time) when all other factors are equal. This trend followed women taking more of an equal role in the workforce. In doing so, however, conflicts with traditional views of job loyalty became apparent. The “working man” that was expected to arrive at work on-time and remain on the job without interruption has yielded to periods of leave, as provided by the Family Medical Leave Act. And businesses have had to address childcare as a necessary benefit in order to attract the best and brightest workers. These are all well understood trends.
But what might not be as apparent are the trends within family law that can affect businesses. In this year alone, the Nevada Supreme Court and Court of Appeals addressed issues regarding child relocation and custody. In the case of Monahan v. Hogan, the Nevada Court of Appeals dealt with a parent’s ability to relocate out of state with children over the objection of the other parent. The Court correctly interpreted a 2015 law intending to balance the interests of parents with the best interests of children in maintaining their relationships with both parents. But some have argued that the Nevada Supreme Court made relocation harder in Romano v. Romano when they raised the bar for seeking primary physical custody of a child. When parents have joint physical custody – the predominant custody award today – and a parent wants to seek better employment in a distant city or another state, that parent must ask for a change in custody as part of their effort to relocate. By making change more difficult, the Supreme Court possibly made finding qualified workers outside our immediate locations harder.
For these and a multitude of other reasons, it is important for business leaders to consider the impacts of family law on their businesses and employees and to become aware of how those laws affect their daily activities. Doing so will help them plan for a more stable workforce.
This Is More Complicated Than I Thought: Breaking Down the M&A Process
By: Krisanne S. Cunningham, Partner and Caylye L. Nordling, Associate, Rice Reuther Sullivan & Carroll
While each mergers and acquisitions (M&A) transaction has its own complexities, many transactions follow a similar framework. As a typical first step, the potential buyer and the seller sign a nondisclosure and confidentiality agreement (NDA), so that the seller can comfortably provide confidential information to the buyer about its business. After the NDA is signed, the potential buyer often sends an initial “due diligence” request list to seller in order to gather specific information about the seller’s business and its operations.
After initial information is exchanged, if the seller and potential buyer decide to move forward, they routinely sign a “letter of intent” (LOI) to ensure that they are largely on the same page regarding the major business terms of the transaction before the potential buyer conducts a more extensive due diligence process, or their counsel begins drafting the definitive agreement.1
While much of the LOI is typically considered “non-binding,” certain provisions, such as confidentiality and exclusivity, are often specifically enumerated as binding. However, despite the “non-binding” nature of the majority of the LOI, practically speaking, the deal terms it contains are often difficult to change after the LOI has been signed. The LOI should therefore be given careful consideration and review before signing.
Once the LOI is signed, buyer conducts more extensive “due diligence” with respect to seller’s business, operations, assets and liabilities, with a key focus on seller’s financials and underlying accounting. Since buyer often derives the purchase price by applying a “multiple” to seller’s EBITDA (earnings before interest, depreciation, taxes and amortization), seller’s financials (and their accuracy) are incredibly important. For example, if buyer is using a multiple of 10, and finds either that (1) seller’s revenues are overstated by $100,000 based on GAAP (generally accepted accounting principles) or (2) seller’s expenses are understated by $100,000 based on GAAP, buyer would adjust the purchase price downward by $1,000,000. Often, the buyer will do its own “quality of earnings” (QofE) analysis to ensure accuracy, which may add 1-3 months or more to the buyer’s due diligence process.
As buyer’s due diligence process is winding down, buyer’s counsel drafts the definitive purchase agreement to begin the more detailed negotiations with the seller. The time it takes to reach final agreement varies widely (typically one to three months or more), based on a number of factors, including the quality of the initial draft, the complexity of the transaction and whether the purchase agreement requires extended back-and-forth negotiation.
While finalizing the definitive purchase agreement, the parties simultaneously take steps to prepare for closing. For example, buyer may want/need to (1) acquire third party consents from seller’s customers, suppliers and/or landlord(s) in order to obtain the benefits of these existing contracts, (2) obtain certain licenses required for operation of the business going forward, (3) collect payoff letters from lenders with respect to seller’s existing borrowed debts (often paid off at closing), (4) form one or more new entities as part of buyer’s structuring, and (5) establish a transition plan to facilitate the smooth transition of the business from the seller to the buyer, especially for the employees. The buyer and seller also work together to prepare and finalize any additional “ancillary” documents.
Once the documents are finalized and conditions to closing are satisfied, the parties proceed with the closing. The buyer wires the purchase price, less holdbacks and pay-offs, to seller and takes ownership of the business.
While there is no such thing as a typical deal, a majority of M&A transactions follow this general framework and timing in reaching the end goal, closing.
Nevada OSHA: Heat Illness Emphasis Program
By: Dawn Davis, Partner, Snell & Wilmer
On September 20, 2021, President Biden announced an inter-agency effort to protect workers from heat-related illness and injury. On April 12, 2022, Federal OSHA launched its National Emphasis Program (NEP) aimed at protecting workers from heat illness.
Nevada runs its own state OSHA plan and adopted a heat illness emphasis program on June 15, 2022 that largely tracks Federal OSHA’s NEP. Currently, Nevada OSHA (NV OSHA) must cite the general duty clause (GDC) for heat-related violations because it doesn’t have a specific heat illness standard. However, NV OSHA is developing a standard to use in regulating and enforcing heat illness, thereby avoiding the need to prove a GDC violation. Meanwhile, NV OSHA inspectors are performing unannounced inspections of construction, manufacturing, warehousing and other businesses on days that reach 90 degrees Fahrenheit instead of first receiving a complaint. Additionally, health compliance officers are accompanying safety compliance officers to sites to simply conduct heat illness inspections. The time frame for enactment of Nevada’s heat illness standard is unknown, though it is expected to become effective long before a Federal OSHA standard.
Under the current draft of NV OSHA’s proposed standard, heat illness is defined as “a medical condition resulting from the body’s inability to cope with a particular heat load and includes, without limitation, heat cramps, heat rash, heat exhaustion, fainting and heat stroke.” The American Conference of Governmental Industrial Hygienists (ACGIH) has developed Threshold Limit Values (TLV) that outline appropriate protective actions to limit heat exposure depending on the type of work performed. To set its proposed TLVs for indoor and outdoor work, NV OSHA assumed that at 90 degrees with low humidity, a worker can perform moderate work at 75 to 100 percent per hour with a 0 to 25 percent rest period per hour and heavy work at 50 to 75 percent per hour with a 25 to 50 percent rest period per hour. NV OSHA thus proposes to set 90 degrees as the “trigger” for action to protect workers from heat exposure. Because of generally low humidity levels in the state, Nevada’s proposed 90 degree “trigger” temperature is higher than the 80 degree trigger that Federal OSHA proposes to adopt in its heat illness standard.
NV OSHA’s proposed standard would require an employer whose employees are exposed to temperatures of 90 degrees or above (whether indoors or outdoors)1 to develop a written safety program addressing heat illness. At a minimum, the “Heat Illness Program” would require the employer to, provide drinking water, rest breaks for employees showing signs of heat illness, shade during daylight hours, an “acclimatization” period for at least the first 14 days of employment, heat illness training for employees and management, procedures for handling a heat illness-related emergency, monitoring for signs of heat illness and identification and mitigation of work processes that generate additional heat or humidity. Importantly, the proposed standard would not require employers to force employees to drink water or take shaded breaks. But the proposed standard would require employers to provide water and shade, to train employees and to monitor for signs of heat illness.
So, what does this mean for businesses? When NV OSHA’s proposed heat illness standard becomes effective, employers whose workers are exposed to temperatures of at least 90 degrees throughout the year will be required to develop, implement and enforce a compliant heat illness safety program. This program should detail how employees and management will be trained to monitor for and prevent heat illness. When implementing and deploying these programs, employers may want to consider the proximity of work sites to direct sunlight and/or heat-producing equipment, assess which employees are performing strenuous physical labor and evaluate whether certain types of personal protective equipment (PPE) affect the body’s ability to dissipate heat.
For now, employers with workers who are exposed to high temperatures may want to consider adopting a written heat illness program that includes access to water and shade, an acclimatization process, a procedure to address high heat days, emergency response steps and employee training.
