As promised, my effort is to continue to track and deliver to you developments in consumer, tort and business related matters-especially those issues previously addressed in these newsletters. My desire is to focus on those that have impact on transactions, and typical events or relationships affecting job, home, family or business.
"The best way to get a bad law repealed is to enforce it strictly." --Abraham Lincoln
Federal: The U.S. Supreme Court recently ruled:
1. Employment Agreements/Arbitration: (With the appearance of arbitration agreements in every aspect of our daily lives, I am attempting to follow this area closely.) The Supreme Court has rejected review of a case where the decision had been to not force or compel the arbitration of sexual harassment and discrimination claims by two employees of Prudential Insurance pursuant to handbook/manual agreements they had previously signed. This decision represents an exception to the general trend of arbitration cases. In another setback to the forces of arbitration, the Court refused to review a lower court case which resulted in the voiding of arbitration clauses in gas station/minimarket franchise agreements. Incredibly, those clauses had forced upon the business persons involved "contractual" statutes of limitation (much shorter than the law), waiver of punitive damage claims, and ability to collect attorneys fees.
2. ERISA/PENSIONS/ HEALTH: The Court let stand a decision which turns basic "insurance law" principles of long duration upside down. In a complicated case, the Court basically upheld a decision which declared that the traditional insurance policy interpretation favoring the consumer would not apply to self-funded plans under the ERISA legislation of 1974. The case involved the claim of a Costco employee for an advanced fertility procedure. The practical significance is to grant greater power and authority to the Plan Administrator to determine benefit eligibility.
State: In one of the most long-awaited and dramatic rulings of the past summer, the present California Supreme Court has forever left its mark on the legal landscape. It did so by overturning a prior case-law decision which had made a residential landlord strictly liable on "product liability" theories for injuries resulting from latent defects on rental property. In a unanimous decision, the Court concluded that neither landlords nor hotel/motel proprietors may be held strictly liabile any longer for injuries to tenants and guests caused by a premises defect. (Peterson v. Superior Court, 8/25/95). Having handled many cases in this area, I can tell you that this is an important decision. The basic longterm effect will be a lessening of the number of lawsuits and claims, as well as the overall average size of cases and claims dollars paid. The
Selection of the proper business entity is often a matter of "filling in the pieces" of a puzzle. The goal should be to achieve "limited liability" without adverse tax consequences. Limited partnerships, Corporations and Limited Liability Companies provide "limited liability". Owners, however, cannot escapte total liability. Over the years, and more so with the appearance of the Limited Liability Company, I have relied on the following summary to "keynote" the kinds of liabilities that come to mind.
I hope this sketch is helpful to you for a basic understanding:
1. A general partnership, or sole proprietorship has unlimited personal liability.
2. A limited partnership, corporation or limited liability company (or partnership) has limited liability.
3. Where there is limited liability, an owner can still be liable for the following: Guaranteed debts Payroll and income tax withholding Personal conduct Environmental liability Improper distributions Securities misrepresentations Corporate obligations where the "coporate veil" is pierced
4. Finally, where there is limited liability, the existence of the entity limits the owner’s risk to capital invested plus additional value in the entity against: Business debts and obligations Claims by contractors Claims by third parties other than those noted under the owner liability comments in paragraph 3 above.
"The goal should be to achieve ‘limited liability’ without adverse tax consequences."
I am often forced to confront individuals and businesses with the issue of an "asset search" before any substantial legal activity is to take place, or before any post judgment efforts are to be made. Law school teaches lawyers about what kind of conduct is liability provoking, and what kinds of damages are compensable. The school of "hard knocks" teaches the practitioner whether any of that means a "hill of beans" given the inability to collect, judgment or no judgment.
What is an asset search? An asset search is a legal canvassing and inventorying through available public and privately accessible records or databases of the target defendant’s assets and income. Financial formulas are often employed in order to evaluate the effectiveness, or probability of litigation. Remember, and I say this often, litigation is all about "wealth transfer". In the course of an asset search, attorneys will work with private investigators and third party vendors of such information for a wide range of costs and services (stretching from real property searches to sub rosa [under cover, surveillance] efforts). The usual areas of inquiry and some of the factors of concern are: Access to credit reports: this is subject to federal law and one must have achieved "creditor" status by legal process.
Identification follow-up: this is often the most productive area of inquiry as access to SSN, driver’s license, address, employer, voter registration, "aka’s" and related information often provides a roadmap to other businesses and assets. Real property ownership: tax assessor,roll/parcel, grantee/grantor indexes are obvious areas. Vehicle title searches, including aircraft, boating, and trucking Banking information—the depth of banking and credit card information available is often surprising to the average citizen. Each of these areas has a variety of parameters, and attendant costs. Generally, a pretty good idea of property ownership, other creditor claims, lawsuit involvement, lifestyle and income status can be obtained for $500 to $1,000 or more. At every level, other factors come into play. For instance, in a recent case, my office was able to "judicially lien" a judgment debtor's future inheritance. In another matter, we discovered the owner of a business was an alter ego of the target proprietor/manager who had previously purposely misled several parties to the pending action.
My further updates will follow. With best regards, Gerald Spala September 30, 1995