COVID-19 – Impact on TexasKnow Your Legal Rights

Karen L. HartBell Nunnally khart@bellnunnally.com(214) 740-1444

Randall K. LindleyBell Nunnally rlindley@bellnunnally.com(214) 740-1417

Dominic L. CrucianiBell Nunnally dcruciani@bellnunnally.com(214) 740-1435

COVID-19 Hot Topics

• Shelter-in-Place Orders &Essential Businesses

• Force Majeure

• AR/Debt Management in Crisis Mode

Please visit the Question and Answer Portal

if you have questions.

These questions will be addressed at the end of the presentation.

Shelter-in-Place Orders and Essential Businesses

Shelter-in-Place Orders by County• Covered Today

• Dallas • Collin • Tarrant • Denton • Kaufman • Ellis

• Please note, the summary of these orders covers highlights only

Dallas County Shelter-In-Place Order

• Issued on March 24th by County Judge Clay Jenkins • Effective through at least April 3rd, unless amended

• Dallas County residents may leave their residencesonly to work for an “Essential Business,” or to engagein an “Essential Activity”

• The City of Dallas sits in five counties – Collin, Dallas, Denton, Kaufman, and Rockwall

• Dallas Mayor Eric Johnson advocated for a uniform regional approach that surrounding counties did not follow

• So, check your business’s specific location

• Residents may not go to work in an office in another county, unless they work for an Essential Business

What is an “Essential Business”?

Essential Businesses are exempt from the Order, but must observe social distancing practices

The Order defines “Essential Businesses” that may remain open in Dallas County, including:

• Healthcare operations – e.g., hospitals, clinics, dentists, pharmacies, mental health provides, etc.

• Excluded are elective medical, surgical, and dental procedures

• Critical Infrastructure – like public works, residential, and commercial construction, roads and highways work, financial institutions, public transport, gas, electric, sewage services, etc.

Essential Businesses (cont.)

• Essential Retail – e.g., grocery stores, gas stations, restaurants with carry out or delivery, laundromats, hardware stores, auto and bicycle repair shops

• Services Necessary to Maintain Essential Businessese.g., trash and recycling, mail and shipping, building cleaning, sanitation workers, and professional services like legal or accounting

Essential Businesses (cont.)

• Childcare Services – limited to facilities providing services to employees of Essential Businesses

• In a Tweet, Judge Jenkins confirmed this applies to pet daycare for essential workers

• News Media – includes newspapers, television, radio, and other media services

• Providers of Basic Necessities to Indigentsbusinesses providing food, shelter, social services, or other necessities of life

What are “Essential Activities”?People may leave their homes for “Essential Activities,” including:

• Providing essential products and services to an Essential Business

• Tasks essential to health and safety• e.g., Getting medicine or visiting a doctor

• Obtain or delivery of necessary services or supplies• e.g., food, pet supplies, sanitation, and household consumer products

• Engage in outdoor activities like jogging or biking

• Care for a family member or pet in another household

Enforcement• Dallas Mayor Eric Johnson issued emergency

regulations to enforce the Order

• Violations of the Order could result in fines from $50 to $2,000

Collin County– A Different Approach

• On March 24th, County Judge Chris Hill ordered Collin County residents to stay home

• Effective through March 31, unless amended

• But this Order provides a different approach from the Dallas County Order

• ALL businesses, jobs, and workers are essential (except entertainment businesses)

Yes, It is Confusing

• Richardson, for instance, is split between Dallas and Collin counties

• A store on the Dallas side may have to close because it is not an “Essential Business” under the Dallas Order, while a similar store in Collin County may remain open

• Dallas mayor advocated for a regional approach to guard against deviating results

Tarrant County says Y’all Stay Home

• On March 21, Tarrant County Judge B. Glen Whitley issued a Stay-at-Home Order

• Effective through March 28, unless amended

• It was extremely light on details • When Judge Whitley was asked for guidance on what

businesses are “essential,” he stated “use common sense”

• The Order effectively closed the following: bars, lounges, theaters, gyms, clubs, salons, spas, residential meeting spaces, event centers, outdoor plazas, etc.

Exempt Businesses in Tarrant County

• In Tarrant County, the following businesses are allowed to continue operating:

• Grocery stores, pharmacies, day care facilities, medical facilities, non-profit server providers, office buildings (??), essential government buildings, transportation providers, manufacturing and distribution facilities

• People working in these businesses are required to maintain social distance

Denton County Stay-at-Home Order• Issued on March 24th, by County Judge Andy Eads

• Effective through March 31, unless extended

• Modeled after the Dallas Order

• All businesses in Denton County, except Essential Businesses, are ordered to cease all activities at their facilities

• People are allowed to leave their homes only for Essential Activities, to perform Essential Government Functions, or operate Essential Businesses

Denton County Essential BusinessesThe Order defines “Essential Businesses” that may remain open in Dallas County, including:

• Healthcare operations – e.g., Hospitals, clinics, dentists, pharmacies, mental health provides, etc.

• Excluded are elective medical, surgical, and dental procedures

• Critical Infrastructure –like public works, residential, and commercial construction, roads and highways work, financial institutions, public transport, gas, electric, sewage services, etc.

Essential Businesses (cont.)• Essential Retail – e.g., grocery stores, gas stations,

restaurants with carry out or delivery, laundromats, hardware stores, auto and bicycle repair shops

• Services Necessary to Maintain Essential Businessese.g., trash and recycling, mail and shipping, building cleaning, sanitation workers, and professional services like legal or accounting

• Education – heads of Denton School districts may designate those personnel they deem essential to the support of long-distance teaching

Enforcement

• Violation of the Denton Order may be punished by civil or criminal enforcement

• Punishment may include a fine up to $1,000 or confinement in jail for up to 180 days

Kaufman County Shelter-in-Place Order • Issued on March 24 by County Judge Hal Richards

• Effective through April 8, unless amended

• Individuals may leave their residences only to preform “Essential Activities,” including:

• Work at “Essential Businesses” or providing products/services to supports such businesses

• Tasks essential to health and safety• Obtain medical services or supplies• Engage in outdoor activity • Care for a family member or pet in another household

Essential Business in Kaufman County• This Order includes an extremely detailed list of

essential businesses, spanning 14 pages• On a high level, these include:

• Healthcare & Public Health Workers• Public Works, Residential, and Commercial Construction • Law Enforcement & First Responders • Essential Retail Workers• Transportation and Logistics• Petroleum, Natural Gas, and Propane Workers• Electric, Water, and Wastewater Workers

• Review the Order itself for specific questions

Ellis County Shelter-in-Place Order• Issued on March 24th by Ellis County Judge Todd Little

• Effective through April 3rd, unless amended

• Restricts individuals from leaving their residences except for Essential Activities, to work at an Essential Business, Government Service, or Critical Infrastructure

Essential Businesses in Ellis County

• Healthcare providers• Hospitals, clinics, doctors, pharmacies, chiropractors

• Essential Critical Infrastructure• Includes public works construction, but does NOT

specifically list residential and commercial construction• Financial institutions • Essential manufacturing• Sewer, gas, electric

Zooming Out Gov. Abbott’s Approach For Texas

• On March 19, Governor Abbott issued an executive order which set the statewide minimum restrictions for COVID-19

• These restrictions include:• Avoiding gatherings of more than 10 people• Avoiding bars and restaurants, gyms, and salons• Not visiting nursing homes• Temporarily closing schools

• The Executive Order does not prohibit:• People going to grocery stores, parks, or banks• Essential Businesses from operating

Zooming Out Gov. Abbott’s Approach For Texas

• On March 22, Abbott issued an Executive Order expanding hospital bed capacity, postponing elective surgeries, and setting up a Supply Chain Task Force

• On March 26, Abbott ordered travelers arriving in Texas from New York, New Jersey, Connecticut, and New Orleans to self-quarantine for 14 days

• Violations may result in a $1,000 fine and/or 180 days in jail

Force Majeure

Force Majeure

Is the COVID-19 outbreak a force majeure?

It depends on your contract….

So… READ YOUR CONTRACT.

Force Majeure• No “standard” force majeure (FM) clause.

• Negotiated clauses like any other.

• FM terms vary by industry & by contract.

Force Majeure

The contract controls.

Should performance of any obligation created under thisAgreement become illegal or impossible by reason of fire,flood, storm, act of God, governmental authority, labordisputes, war or any other cause not enumerated hereinbut which is beyond the reasonable control of the Partywhose performance is affected, then the performance ofany such obligation is suspended during the period of, andonly to the extent of, such prevention or hindrance,provided the affected Party provides reasonable notice ofthe event of force majeure and exercises all reasonablediligence to remove the cause of force majeure.

Sample clause…

Force Majeure

List of events …

• Flood • Earthquake• Fire • Storm • Governmental authority• Strike or labor stoppages• Acts of terrorism • War• Natural Disaster

• Epidemic ….?• Pandemic…? • Virus …?

• Act of God • Catch–All

Force Majeure

• Force or act of nature• Unforeseeable• Could not be prevented by reasonable

foresight or care• Global COVID19 pandemic….will be litigated.

Act of God….?

Force Majeure

• Can be broad or narrow• “Any like events”• “Other similar events”• “Other events beyond the reasonable control”• Courts often read in unforeseeability requirements• May be limited by the list of described events in the

FM clause (Latin: ejusdem generis)

Catch-all Clause

Force Majeure

• Impossible

• Impracticable

• Illegal

• More than financial hardship

Standard for Non-Performance

Force Majeure

• What does your clause require? Reasonable? Prompt?

Immediate? Within 5 days?

• When did the force majeure begin?

– When WHO declared a pandemic?

– When President Trump declared a national emergency?

– When Governor Abbot declared state disaster?

– When Dallas County issued shelter in place order, only

allowing “Essential Businesses” to operate?

Notice requirements

Force Majeure

• Impossibility/Impracticability

– Where the thing necessary for performance has been destroyed

or deteriorated and where the action is prevented by government

regulation.

– The situation must be such that “the thing cannot be done,” not

that “[you] cannot do the thing.”

– Again, more than mere financial hardship.

– Narrowly construed.

Common Law Defenses

Force Majeure

• Seller did not assume the risk of the event.

• The non-occurrence of the event was a basic assumption.

• Performance “commercially impracticable” as a result of

the event.

UCC Defenses - Section 2-615

Force Majeure

• To take advantage of FM, contract may require you to

provide notice.

• But if you are wrong or premature, you could be in

breach of the contract… for your failure to perform or

for wrongfully invoking FM…

• Are there specific carve-outs for payments or monetary

obligations?

• What if you are on the receiving end of a FM notice?

Risks and BenefitsForce Majeure

AR/Debt Management In Crisis Mode

Pay the Pied Piper….Buyer

Seller

Landlords

Vendors

Lenders

Insurers

Customer says:

“Force majeure…”

or

“We can’t pay…”

Now what?

Contractual

-Serve required notices

-Serve demand letters

Statutory

-Serve lien notices

-Record liens/security interests

Plan for Logistical Issues

-CMRRR

-Fed Ex

-Regular Mail

-Office closures

-Essential business restrictions

Perfect/Protect Your Rights

Be ProactiveDon’t be an Ostrich.

-Don’t wait. Communicate. -Reach out to customers-Find out if you are you a priority. Where are you on the “list?”-Problem won’t be going away-Assess cash flow needs -Reach out to your “Pipers” (lenders, insurers etc.)

Consult with counsel sooner, rather than later.-Devise responses to FM notices-Devise plans for workouts -Advice on applicable statutes of limitations-Advice on what is allowable with your “Pipers”

Options & AlternativesFight

• Send Demand • Dispute force majeure • Insist on full & immediate payment • File suit • Enforce judgments

Compromise (for now)

• Workouts

Many courts remain open, subject to modifications. Lawsuits can still be filed. Pleadings can still likely be filed E-filing Clerks may be short handed or limited operations or

closed for processing

Expect delays. Especially with trial settings Courts will expect cooperation on pre-trial deadlines

Fight

Video pre-trial proceedings becoming more

common and permitted

Hearings (telephonic, some video)

Depositions

Mediations

“Zoom” popular platform.

Fight

Check applicable judicial disaster orders.

May permit video attendance at depos

May stay statute of limitations

May halt certain proceedings (e.g., evictions, foreclosures)

Fight

Payout/Workout agreements

Reduced principal

Reduced interest rates

Forbearance/abatement

Document, document, document!

Compromise

Did I say document???

Payouts

Personal guarantees

Promissory notes

Agreed Judgments

Get it writing!

Preserve, don’t waive rights

Workout Options

Payouts• Lump sum payment

• Payout period? Days, weeks, months, years?

• Unsecured

• Secured by agreed judgment

• Secured by “pocket judgment”

• Secured by collateral

• Secured by personal guaranty

• Combination of security

The World of “COVID-19 Credit”

• Many hurdles

• Unfortunately, there is no legal “magic wand”

• The solution:

• Diligent Communications

• Smart Credit Decisions

• Swift Action

• When the Going Gets Tough . . . THE TOUGH GET GOING!!

Addressing “COVID-19 Excuses”Head On!! Four Scenarios

• Existing Debt with a Long-Term/Reliable Customer

• Existing Debt with New Customers

• Existing Debt, Plus a Future Order (an extension of more credit)

• Future Order – i.e., an extension of credit

Existing Debt with a Long-Term/Reliable Customer

• Communicate about the debt• Current invoices (e.g., Net 30)

• Ask for early payment• Request specifics on timing

• Past due invoices• Explain you have a shorter fuse than ever before• Request specifics on timing

• If payment is not forthcoming, explain you are not a bank, therefore you need security

• Personal Guaranty• Security Agreement

Existing Debt with New Customers

• Communicate about the debt

• Current invoices (e.g., Net 30)

• Demand payment

• Past due invoices

• Provide a deadline, then take action (early bird gets the worm)

Existing Debt, Plus Future Order (an extension of more credit)

• Communicate about the debt

• Current invoices (e.g., Net 30)

• Demand payment

• Past due invoices

• Provide a deadline, then take action (early bird gets the worm)

• Require additional security for the future order

Future Order (an extension of more credit)

• Communicate with debtor

• Make it personal

• “I need your assurance of prompt payment”

• Require security

• Personal Guaranty

• Collateral

COVID-19 – Legal Articles for Creditors

• COVID-19 Issues and Answers for NACM Members• https://www.bellnunnally.com/covid19-issues-and-answers-

for-nacm-members

• Preparing for a Slowdown In Accounts Receivable Collections Due to COVID-19

• https://www.bellnunnally.com/preparing-for-a-slowdown-in-accounts-receivable-collection-due-to-covid19

COVID-19 Legal Services Resource Directory

• See the following link on the Bell Nunnally website• https://www.bellnunnally.com/covid19-legal-services-resource-

directory

• Legal Topics Include• Bankruptcy and Financial Restructuring • Commercial Finance• Immigration• Intellectual Property• Labor, Employment, and Benefits• Litigation• Tax• White Collar

ITS NOW TIME FOR ANSWERS TO THE QUESTIONS

RAISED IN THE PORTAL

Please call us with any additional questions regarding COVID-19 legal issues

• Randall K. Lindley – (214) 287-4411 (mobile)

• Karen L. Hart – (214) 435-6373 (mobile)

Randall K. Lindley is a creditors’ rights attorney with over 33 years experience litigating commercial disputes.

Randy is a member of NACM-SW. He has taught numerous educational seminars for NACM-SW, and other NACM affiliatesfor over 30 years. He is currently coordinating the NACM-SW’s efforts to participate in the Texas legislative process relatedto the possible amendment of the Texas Lien Laws.

Randy Lindley represents clients in the areas of creditors’ rights and commercial litigation. He is skilled and experiencedwith creditors’ rights, post-judgment remedies, commercial litigation, civil appeals, mechanic’s and materialman’s lienclaims, construction litigation, landlord-tenant litigation, and foreclosures.

He has represented creditors in trials and appeals based on promissory notes, guarantees and unpaid accounts, and insequestration actions to recover collateral. His representation of creditors often focuses on the payment of judgmentsthrough garnishments, turnover actions, and judicial foreclosures. He also assists creditors in discovering assets via post-judgment depositions and on-line investigations. In addition, he frequently domesticates judgments from other states intoTexas for enforcement purposes. He has significant experience defending creditors from FDCPA lawsuits and usury claims.

Randy is frequently engaged by clients in the construction and financial industries. His financial industry clients routinelyseek his assistance concerning the collection of defaulted loans and the recovery and foreclosure of secured properties. Inthe construction industry, he represents contractors and suppliers in construction litigation, arbitration proceedings, andthe perfection of lien claims and payment bond claims. Randy additionally counsels with credit managers regarding unpaidaccounts, as well as credit policies and procedures.

Karen L. HartBell Nunnally & Martin LLPkarenh@bellnunnally.com214-435-6373 (mobile)214-740-1444 (office)

Karen L. Hart is a business attorney with over 18 years of experience litigating commercial disputes.

Karen counsels clients on creditor’s rights issues, real estate and landlord-tenant matters as well as various other contractand business disputes. She is a tireless advocate for her clients, providing guidance on business legal matters, such as lease,purchase and sale, brokerage and property management disputes, specific performance claims, commercial evictions, lispendens, lien and bond claims, lien priority disputes, promissory note claims, commercial foreclosures, bankruptcy claims,professional ethics and liability matters, bills of review, confidentiality, non-competition and non-solicitation agreementsand related disputes and injunctive proceedings, and business tort claims, including tortious interference with contractsand business relationships, civil theft, fraud, and misappropriation of trade secret claims.

Prior to joining Bell Nunnally, Karen served as a law clerk to the Honorable Hayden Head, Jr., United States District Court,Southern District of Texas, Corpus Christi Division. Karen is an honors graduate of the University of Texas at Austin Schoolof Law.

Karen’s recent accolades include: Dallas Top 50 Women Lawyers Award, Texas Diversity Council (2017); Best Lawyers inAmerica (2017-2019); Winning Women Award, Texas Lawyer (2014); Women in Business Award, Dallas Business Journal(2012); Leadership Council on Legal Diversity Fellow (2017). Karen also serves as Bell Nunnally’s General Counsel.

Randall K. LindleyBell Nunnally & Martin LLPrlindley@bellnunnally.com214-287-4411 (cell)214-740-1417 (office)