Litigation

Watch John Fiorillo as explains the Uniformity Principle.

Owners of commercial and residential real estate should watch this informative video to learn more about the Uniformity Principle. Property values have decreased over the past few years. If you believe your property is assessed at a rate higher than its fair market value, contact John Fiorillo for information on how you might be able to reduce your property tax bill by filing a real estate tax appeal.

Attorney John Fiorillo is a partner in the firm of Unruh, Turner, Burke & Frees, PC., with offices located in West Chester, Malvern and Phoenixville, PA.

By: Daniel P. Dwyer

If you operate a business you might consider whether it meets the federal definition of a small business. Business concerns that meet the Small Business Administration’s (“SBA”) definition of a “Small Business” can qualify for preferential financing and award of federal government contracts. The purpose of this article is to briefly discuss what a Small Business is and the advantages of determining whether your business meets that definition.

There are many advantages to being a Small Business. If your business would sell its products to the federal government, there are certain set-asides and preferential rules for the award of federal contracts to small, disadvantaged or veteran-owned businesses. Also, there are many loan and financing programs available to Small Businesses. These include American Recovery Capital Loans (“ARC”) – interest-free loans for companies harmed by the recent recession, loans for small businesses involved in export, micro-loans of $35,000 and long-term fixed financing for modernizing or acquisition of fixed assets.

The relevant term, for purposes of the Small Business Act, is a “small business concern.” To be eligible for that Act’s benefits, the entity must be both a “business concern” and “small.” A business concern is, ” … a business entity organized for profit, with a place of business located in the United States, and which operated primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor. 13 CFR Sec. 121.105. This definition is very broad: it requires that a recipient of SBA assistance be a business located in the United States, that pays taxes to the United States and/or uses domestic products, materials or labor. This still leaves the question of what is “small.”

By: Daniel P. Dwyer

Previously, I blogged about the “standing” requirements that must be satisfied if a shareholder or member of a corporation or other entity, like an LLC, wants to sue its officers, director or managers for mis- or malfeasance. That blog described the requirement for court certification that a plaintiff in such a derivative action adequately represents all other shareholders or members. A related issue is how Pennsylvania’s courts apply the “business judgment rule” and how this interacts with Pennsylvania’s pleading requirements.

The business judgment rule limits courts in second-guessing corporate decisions. Like any such protection, it must be designed to protect others from abuse of the discretion it provides. The Pennsylvania Supreme Court, in Cuker v. Mikalauskas, 692 A.2d 1042, 1045 (Pa. 1997), indicated that a corporate officer will not be liable for the consequences of his or her decision if:

- It was a business decision, and;

- done in good faith, and;

- the corporate official had no personal interest in the outcome, and;

- he or she was informed about the decision to the extent they reasonably believed was appropriate under the circumstances, and;

- he or she rationally believed it to be in the best interests of the corporation.

One need only look at the qualifiers and modifiers in that paragraph to conclude that the protections of the business judgment rule can be very limited. This is particularly true when one considers Pennsylvania’s pleading and motion standards. Therefore, while the business judgment rule may protect a corporate officer from liability, it will not necessarily protect him or her from lawsuits.

Pennsylvania’s courts, while stricter than the federal courts, give a plaintiff a great deal of latitude when asserting claims. A plaintiff only has to plead facts sufficient to place a corporate defendant on notice of the claims against which he must defend. These facts can sometimes be pleaded “on information and belief” that is, the plaintiff’s personal belief about what may have occurred. Finally, there is a judicial preference in favor of rejecting initial challenges to claims; courts prefer to let the parties go through discovery to collect evidence before claims are dismissed. If a claim requires proof of many facts and subjective conditions, it is more likely to proceed to litigation.

In conclusion, although the business judgment rule may protect an officer or director from ultimate liability, it does not necessarily protect him or her from the time and cost of the litigation necessary to establish whether that rule’s protections apply. Even if a corporate officer or director acted in good faith without personal interest and with sufficient information, he or she could still have to pay significant legal fees.

What can business owners, entrepreneurs and lawyers do about this exposure? When forming a corporation, the founders should consider whether the entity should indemnify, that is compensate, the officer or director for legal fees and other litigation-related costs. They should also be aware of the provisions of Pennsylvania’s Business Corporation Law that address indemnification of corporate officers and directors: under some circumstances indemnification is mandatory; under other circumstances, it is prohibited. Finally, parties who serve in these capacities should know whether they are indemnified and the extent of that indemnification.

A subsequent blog will address the law of indemnification of corporate officers. If you have any questions about these topics, please contact Dan Dwyer.

By: Nancy J. Glidden

The old adage, “ignorance of the law is no excuse,” has been underscored in the context of debt collection practices in a recent decision issued by the United States Supreme Court. In Jerman v. Carlisle (2010 WL 1558977 U.S.), the Court held that the “bona fide error” defense to civil liability under the Fair Debt Collection Practices Act (“FDCPA”) has no application to mistakes of law. The decision resolves a split within the District Courts that have addressed the issue.

The mistake committed by the creditor’s attorney in Jerman, was relatively subtle. In a statutorily-required communication with the debtor, the attorney advised the debtor that the debt would be presumed valid unless the debtor disputed the debt in writing. The FDCPA, however, contains no such in writing requirement. It mattered not whether the addition of the in writing language was inadvertent or intentional - it was a mistake of law insofar as it constituted a misinterpretation of the statute by the creditor’s attorney.

In reaching its decision, the Court strictly construed the statute, and invited Congress to address whether the FDCPA should be amended to provide enhanced safeguards for creditors and their attorneys. Such action is unlikely to happen any time soon, however, so for the foreseeable future, attorneys representing creditors are advised to exercise the utmost caution, and closely scrutinize and understand all provisions of the FDCPA in order to avoid the prospect of liability, (with attorney’s fees and enhanced damages).

For more information contact Nancy Glidden.

By: Daniel M. Hanifin

“Selling away” is when a broker leads an investor to investments that are not offered through their brokerage house. Investing in securities outside of your brokerage account can be extremely risky, because investors will miss important investor protections that flow from the broker’s and the firm’s regulatory obligations, including the firms supervision of the brokers activities.

These investments are often presented as “alternative investments” or “outside investments.” Investors are often lured to these investments by promises of high returns with low risk. Another common theme in these cases is a representation by the broker that he/she has personally invested in the investment. Outside investments can take many forms including unsecured notes, limited partnerships, and limited liability companies.

Many of these alternative investments are in reality Ponzi schemes. Ponzi schemes are fraudulent alternative investment schemes that typically attract investors with promises of high returns and the investment initially produces some nice returns. However, these returns are money of subsequent investors. Ponzi schemes continue to pay investors with money received from subsequent investors, but eventually collapse when the well of new investors runs dry.

FINRA, the Financial Industry Regulatory Authority, takes these types of claims seriously. In April 2010, an arbitration panel in Kansas, awarded an investor more than $500,000 in damages flowing from her investment in two outside companies that her broker recommended.

If you think you have been a victim of one of these fraudulent investment schemes please contact Daniel Hanifin at (610) 692-1371.

By: Nancy J. Glidden

With the approach of Spring and Summer comes a more active residential real estate market. The process of buying or selling a home may have become just a little more complicated due to the recent decision handed down by the Pennsylvania Superior Court in Trowbridge v. McCaigue.

Buyers, sellers, and real estate agents need to be aware that, under certain circumstances, what is intended to be only an “offer to purchase” can instead be a legally binding and enforceable “contract for sale.” According to the majority of the Court in Trowbridge, this occurs when an “offer to purchase” real estate contains all essential terms. However, one of the judges, Justice Shogan, felt the majority ignored the plain language of the document as well as the intention of the parties. He indicated that what was clearly identified as a “purchase offer” was an “agreement to agree,” and it was not on its face intended or otherwise to be an express and binding contract.

To avoid the result that was obtained in Trowbridge, one lesson seems to be that when making an offer to purchase real estate, clearly specify that any essential terms referenced in the offer are intended to be the subject of further negotiations.

For more information, contact Nancy Glidden.

By: James C. Dalton

More often than not, the answer to the question posed above is “No”. The general rule in American courts provides that each party to a lawsuit is responsible for paying their own attorneys fees, unless one of the following exceptions applies:

A statute or rule of court authorizes the recovery of fees (for example, consumer protection and anti-discrimination laws provide for the recovery of “reasonable fees” under certain circumstances), or

A clear agreement between the parties in a document provides that the prevailing party may recover fees (for example, a contract, lease or other document that refers specifically to attorneys fees. Note, however, that general language regarding “costs” is not enough).

While the American rule can be criticized for favoring the party with “deeper pockets” and forcing some litigants to compromise otherwise valid claims in order to avoid the cost and delay of litigation, it remains the law and is a factor in every case. The potential cost of litigation, and availability of exceptions to the American rule allowing recovery of counsel fees, should be discussed with an experienced litigation attorney before a claim is filed.

Please contact James C. Dalton for further information.

By: Stephen P. Lagoy

The Financial Industry Regulatory Authority (FINRA), which administers the arbitration program to which brokerage customers must bring their complaints, is considering using arbitration panels comprising all “non-industry” members.  Presently, panels must include at least one industry member among the three-person panel.  The remaining member(s) are “public” (i.e. from outside the brokerage industry).  FINRA is now running a pilot program that allows parties to choose an all-public panel.  This move may be in response to public criticism of FINRA’s arbitration program as being too lenient on brokerage misconduct. For more on the FINRA program and how securities arbitration works, see Forexyard News.

If you would like to know more about arbitration and how it may be used effectively as an alternative to court litigation, please call Stephen Lagoy.

By: Stephen P. Lagoy

After initially indicating that terminated dealers would be reinstated through the federally-mandated arbitration procedure or not at all [see blog post: Chrysler and GM Take Different Approaches to Dealer Arbitration], Chrysler now says that it will offer to reinstate 50 of the 789 dealerships it terminated last year.  The auto manufacturer also indicated that there may be more to come when, in a statement issued on March 26, it said ”discussions to find mutually beneficial alternatives to arbitration with other dealers are under way.”  For more on Chrysler’s changing arbitration posture, see CNN article dated March 3, 2010.

For more information, contact Stephen P. Lagoy.

By: Stephen P. Lagoy

Baseball arbitrations (see previous blog posts here and here) have become increasingly rare as the owners and players opt to negotiate a contract rather than place their fate in the hands of an arbitration panel. The only exception thus far this year has been the case of Milwaukee Brewers outfielder Corey Hart. In the first Major League Baseball salary arbitration this year, Hart won his case against the Brewers. The three-member panel of arbitrators awarded Hart the $4.8 million salary he was seeking for 2010. The Brewers had proposed $4.15 million. Under the rules of baseball arbitration, the arbitrators had to pick one proposal or the other — splitting the difference isn’t permitted.

For a very interesting account of the arbitration procedure in Hart’s case, see:

http://mlb.mlb.com

Contact Steve Lagoy for more information on how the arbitration process can help you and your business.