BLOGSTEIN: THE BLOG OF NB&A
BLOG #3: Sunday - October 29, 2006
ATTORNEY NATE BERNSTEIN WAS A SPEAKER AND MODERATOR AT
THIS BUSINESS FORUM HELD AT VALLEY BETH SHALOM SYNAGOGUE
MID-SIZED BUSINESSES AND PROPERTY OWNERS
“ These gems are gained from 13 years of experience in representing business and property owners on the front lines of hard ball commercial litigation practice . . . . . ”
- Nate Bernstein, Trial Counsel
1. Do not place the title of all personal and business assets in your name, or in the name of one entity.
Why? A judgment against you can attach to multiple assets, thereby causing substantial financial harm. Therefore, set up different legal entities to protect your assets prior to incurring a legal claim. The law allows you to limit your liability by forming separate entities. Some transfers or formation structures may require consent of your mortgage creditors.
Why? If you set up an asset protection plan after you are sued, it can be unwound as a fraudulent transfer scheme. You and your transferee can be sued for fraud. A fraudulent transfer is also a criminal act in some states.
Why? The transfer can be unwound as a fraudulent transfer.
4. Revocable trusts do not protect the trustor from claims by a trustor’s creditors.
Why? The collection laws treats a trust in virtually the same manner as the trustor / settler who incurred the debt- the trust asset could be attached.
Why? In general, under insurance policies, the insurance company has a legal duty to defend and indemnify you for a covered loss. The insurance company must pay for your defense and settlement if you are sued up to the amount of insurance policy limits. Insurance is an important asset protection product.
6. Setting up a corporation or limited liability company to conduct your business is not a bullet proof asset protection strategy.
Why? You can still be sued personally if you are an “insider-” i.e. an officer, shareholder, director, or manager. In certain situations, creditors can sue an insider based on an “alter ego theory” if the entity is not properly capitalized and corporate formalities are not observed (i.e. you don’t hold regular corporate meetings or issue stock).
7. Set up a special lawsuit defense fund in case you get sued.
Why? If you get sued, you don’t want to put all of your financial dependency and reliance on an insurance company- the company may only defend the claim up to a certain level, and then you are on your own to pay the costs of defense. Also, certain policies have high deductibles- which must be paid by the insured. The insurance company could also deny coverage for the claim- leaving you with no coverage.
Why ? There have been many legal cases of bookkeepers, secretaries, and clerks who have embezzled money, and have tried to cover up the crime. Banks are often so large and inefficient that banks cannot detect, catch, or prevent the fraud.
Why? There have been many legal cases of family members who were so desperate for money, that they have embezzled money from their own mishpacha – frequently this happens when family members with the same last name write fraudulent checks “payable to cash” and bank tellers believe that the family members have authority to receive the cash, and the bank tellers cash and pay the instrument.
10. Place business agreements into a written form with simple terms, and have all parties who have proper legal authority sign all pages.
Why ? If business agreements are in written form, and the terms are in plain English and simple to read, it will be easier for the parties to understand the business relationship, and it will be easier for a court or jury to interpret the terms. If the terms are oral, or implied, then the parties have less control over the ultimate interpretation and legal outcome, conflicting oral testimony may confuse the judge or jury, and parties may lie in court to force an interpretation that works to their advantage.
Why? Partnership agreements that start with a mere handshake usually end with a fistfight and a dissolution lawsuit in Superior Court. It is worth the money on the front end to have an attorney draft a well written agreement in plain English..
12. Obtain your credit reports from Experian, Equifax, Transunion, and Dunn and Bradstreet to discover and fix errors in your credit file, and find out your FICO score.
Why? Your ability to obtain credit at a favorable rate depends in part on your FICO score. The FICO score is a number that creditors use to evaluate your credit- worthiness. The number is generated by blending different factors- outstanding credit, payment history, number of accounts, and derogatory marks on your credit history. If there are mistakes or inaccuracies, you can send letters to the credit reporting agencies to “bullseye” (delete) the errors.
Why? If the employee is driving during work hours, and the employee gets into an auto accident, the employer can be liable under the doctrine of “respondeat superior.” According to Black’s Law Dictionary, respondeat superior is a Latin phrase that means “let the master answer.” That means, let the employer pay! If your employees get into an auto accident, you or your company can get sued under theory of vicarious liability. Therefore, you want to be protected by insurance from a well rated insurer.
Why? Crooks and thieves like the global environment of international transactions because the parties are apart geographically, and they think the victims will not pursue them legally in a foreign country. Crooks and thieves can use letters of credit transactions and forged documents to orchestrate a fraudulent payment scheme. A bank issuing a letter of credit or bill of lading documents will not protect your interests. Also, it is easy for sellers to sell counterfeit goods, damaged goods, or not ship the proper quantity of goods.
Why? There have been cases where a debtor has filed a countersuit against the lender based on the state usury laws. To avoid getting sued on this type of claim, keep the interest rate at 10 % or less if you are not in the credit card business.
Why? There are smart, opportunistic residential tenants out there who will try to take advantage of landlords, and will stop paying rent. Many tenants with poor credit histories and prior evictions try to intentionally arrange a squatting environment. Tenants will try to sub let the unit to their friends for a profit. Have the tenant sign a formal rental agreement with all terms set forth in writing, including the names of authorized occupants. Also, without a written agreement signed by the tenant you cannot recover your attorney’s fees if you win an eviction case.
Why? You can force a plaintiff to drop a suit or settle on favorable terms if the plaintiff knows they can only recover a small, fixed amount of money after a trial. Litigating about the legality and enforceability of such clauses can cause a plaintiff to get sidetracked from the merits of a legal case, will buy time, and the Court may enforce the clause.
Why? Arbitration is a process whereby the legal dispute is decided by a “rent a judge” outside of court. In certain fact situations you can force a party into binding arbitration, and block a plaintiff’s potential for achieving run away jury verdicts. Arbitration can be expensive for a plaintiff to afford, and the plaintiff may not pursue the claim. Arbitration can also be used to limit rights to appeal a decision.
Why? The ability to shift attorney’s fees and costs to a party who loses a case on the merits drastically increases the risk of litigation, and may cause a party opponent to settle a case on favorable terms. If you win a lawsuit and have a well drafted attorney’s fees clause, you can shift all costs and attorney’s fees to your losing opponent. However one caveat-, if you lose the case, the winning opponent can shift costs and attorney’s fees to you.
20. Don’t back date stock options.
Why? Corporate officers have been criminally indicted for doing this process. It is simply not worth the risk, and they’ll indict you even if you are Jewish or Israeli.
Why? It is a myth that setting up a Nevada corporation can insulate corporate officers, directors, and shareholders and insiders from liability for lawsuits in California. A Nevada corporation that does business in California can be sued as easily as a California corporation. If you set up a Nevada entity to obtain credit, and you don’t pay back your creditors, you could get sued.
Why? Internet pirates, thieves, and crooks send” fishing” e-mails to unsuspecting persons and business owners, and illegally copy and use phony trademark logos from major banking institutions to request personal financial information- i.e. social security number and banking records in order to steal money. Don’t respond to this scam, and contact your bank, and forward the e-mail to bank’s fraud department.
Why? If your financial records are ever audited by a tax agency or subpoenaed, you want to be organized and represented in the audit. In addition, you want to understand the tax consequences of your personal and business affairs so that you can minimize your taxes, and prevent a taxable event.
Why? Even if you receive a referral by a friend to a professional, you need to do your due diligence before you hire the professional. It is advisable to request personal references from clients who have work on similar cases. Contact the state licensing board to check if the professional has ever been subject to professional reprimand or discipline, and check for proof of current professional liability insurance with a declarations page.
Why? A recorded homestead declaration can protect a certain equity in your home from the claims of certain types of creditors. Creditors cannot attach a portion of your equity- generally, $ 75,000.00 for a family, and $ 125,000.00 for a senior citizen. There is no reason why you should not take advantage of these legal benefits that the law allows. Please remember that a homestead declaration does not shield your equity from a mortgage creditor’s foreclosure sale.
Why? You can receive meaningful discounts on attorney’s fees and other legal benefits if you join a legal service plan. You can save 25 – 30 % discounts on hourly rates. Call (818) 995-9475 for more information.
BLOG #2: Wednesday - March 15, 2006
Shhhh! Secrets to Winning Quiet Title Actions
Moving for an Undertaking Can Win the Case before Trial (Without a Summary Judgment Motion)
Published in Bar Notes, A Publication of the San Fernando Valley Bar Association, Volume 13, Issue 1, March 2006
By Nate Bernstein
In a recent lawsuit filed in downtown Superior Court, the plaintiff/seller of real property alleged an oral agreement with a purchaser/owner of a single family home. The plaintiff alleged that the defendant was obligated under the agreement to transfer the property back to the seller after a pre-sale refinance. The parties had not entered into a formal purchase agreement, but had opened and closed escrow, and the plaintiff transferred title to the defendant.
The action alleged claims for Breach of Agreement, Quiet Title, Specific Performance, Constructive Trust, and monetary damages.
The Defendant filed an unsuccessful demurrer based in part on the Statute of Frauds, with the Court citing an exception to the Statute. The plaintiff recorded a Notice of Pending Action (“lis pendens”) at the time of filing the complaint.
Lis Pendens
A lis pendens (Latin for“pending suit”), or “notice of pendency of action” is recorded at the county recorder’s office in the real property division. It gives constructive notice to the world that a lawsuit involves a claim affecting title, possession or use of an easement on real property. The notice is also required to be filed in Court. Code of Civil Procedure sec.s 405.20, 405.40.
By recording a notice of lis pendens, a party to that action preserves rights or interests, if any, in the real property pending the final determination of the action. Any taker of a subsequently created interest in that property thus takes that interest subject to any judgment rendered in the pending action. See La Paglia v. Superior Court (1989) 215 Cal.App.3d 1322, 1326, 264 Cal.Rptr. 63.
The practical effect of recording a lis pendens is that it causes a cloud or charge to be placed on the title, such that the current title holder will find it difficult to finance, refinance or sell the property. Lending institutions will generally not loan money secured by the real property. Title insurance companies will not insure the title. The title to the subject property becomes unmarketable until the lis pendens is expunged or voluntarily removed.
Removing the Lis Pendens Notice from the Record
In this matter, because the plaintiff’s claim concerned the title to the subject real property (a quiet title action), a Motion to Quash the Lis Pendens would be a waste of time. However, a Motion to Require the Claimant to Post a Bond pursuant to Code of Civil Procedure section 405.34 was more on-point. If the bond motion was granted, and the plaintiff could not post a bond, this would extinguish the Notice of Pending Action, and also, potentially, the claim for quiet title.
The statute, Code of Civil Procedure section 405.34, UNDERTAKING AS CONDITION OF MAINTAINING NOTICE INDEPENDENT OF MOTION TO EXPUNGE, states:
Subject to the provisions of Sections 405.31 and 405.32, at any time after a notice of pendency of action has been recorded, and regardless of whether a motion to expunge has been filed, the court may, upon motion by any person with an interest in the property, require the claimant to give the moving party an undertaking as a condition of maintaining the notice in the record title. However a person who is not a party to the action shall obtain leave to intervene from the court at or before the time the person moves to require an undertaking. The Court may permit evidence to be received in the form of oral testimony, and may make any orders it deems just to provide for discovery by any effected party. An undertaking required pursuant to this section shall be of such nature and in such amount as the court may determine to be just. In its order requiring an undertaking, the court shall set a return date for the claimant to show compliance on the return date, and if the claimant fails to show compliance on the return date, the court shall order the notice of pendency of action expunged without further notice or hearing.
The provisions of the statute include:
· A Motion to Expunge Lis Pendens need not be filed concurrently or prior to the suit
· Any party with an interest in the property can require that the plaintiff/claimant post a bond
· Any non-party can seek leave to intervene in the action, and file the Motion
· Discovery related to the notice may be initiated by any affected party
· The Court sets the amount as it deems “just,” a flexible standard
· The Court sets a return hearing date to prove compliance
· Notice of pendency of action is expunged automatically without further notice and hearing if the bond is not purchased
The language and impact of section 405.34 is different from its neighboring language in section 405.33. The sections are easily confused because they both deal with notices of pending actions and undertakings. However, these sections cover different situations.
Under Section 405.33, the Court shall order that the notice be expunged if the court finds that the real property claim has probable validity, but adequate relief can be secured to the claimant by giving of an undertaking. The expungement order shall be conditioned upon the giving of such nature and in such amount as will indemnify the claimant for all damages proximately resulting from the expungement which the claimant may incur if the claimant prevails upon the real property claim.
Under section 405.33, the Court must decide the sometimes difficult question of “probable validity” of the claim, and the undertaking is ordered in favor of the plaintiff/claimant in place of the lis pendens notice. Under section 405.34, the Court is to order the undertaking in favor of the moving party with the interest in the property.
Amount Requested
Regarding the amount of the bond, little case law exists that provides standards interpreting Section 405.34. Counsel can approach this issue creatively and present evidence in the Motion.
For example, counsel may want to ask for a large bond amount based on the value of the property, or at least the amount of the client’s equity in the property, plus attorney fees and costs in defending the action. Counsel may want to include in the filing a declaration by the client stating the amount of equity and an opinion of fair market value, perhaps using a realtor or appraiser to testify about fair market value. Counsel can argue that the Court should award the amount of the equity plus attorney fees and costs as the amount of the bond because the client is prevented from using the equity while the lis pendens is on record.
Strategic Uses for the Motion
One useful aspect of the section 405.34 motion is that counsel can test an opponent to determine how serious the plaintiff/claimant is about the case. Does the plaintiff/claimant really want to try the case, or is the party seeking a quick monetary settlement? Does the claimant really have a valid claim that could prevail at trial, and that the claimant is willing to preserve by posting a large bond?
The Motion potentially forces the plaintiff/claimant to incur a large financial burden if the bonding surety company requires that the bond be secured by the claimant’s assets, or if the claimant must produce significant cash to purchase the bond. The cost of purchasing the bond may make the pending lawsuit untenable for the plaintiff/claimant. If counsel prevails in the Motion and the claimant does not post the bond, the Notice of Pending Action is expunged automatically by operation of law, without further hearing.
Counsel should bring the Motion early in the case, because the plaintiff/claimant may withdraw the underlying action if Court expunges the Notice of Pending Action. If the Court grants the Section 405.34 Motion, the plaintiff/claimant bears substantial risk that the defendant will refinance or sell the subject property prior to trial.
Attorney Fees
Another useful section within this statutory scheme (depending whether counsel is on the winning or losing end of the Motion) is reasonable attorney’s fees and costs for the party prevailing on the Motion under the companion statute, Section 405.38. The section states:
The court shall direct that the party prevailing on any motion under this chapter be awarded the reasonable attorney’s fees and costs of making or opposing the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust.
This section applies in the instant matter, where the buyer and seller did not have a real estate purchase agreement with an attorney fees clause.
In the case at issue, the Court granted the Defendant’s motion and required the claimant to post a $140,000 bond (the equity amount in the property), and granted counsel’s request for attorney fees and costs on the motion. The plaintiff/claimant was unable to post the bond by the time of the compliance hearing and the Court expunged the Notice of Pending Action. The defendant negotiated dismissal of the matter with prejudice.
Client Caveat
On a cautionary note, even if counsel prevails on the Motion, if the owner/defendant transfers or refinances real property at the time a lawsuit for damages is pending, the plaintiff/claimant may name the owner/defendant in a cause of action for “fraudulent transfer.” Civil Code sec. 3439, et. seq. (Uniform Fraudulent Transfer Act).
Even if the plaintiff/claimant can not post a bond, this does not necessarily mean that the claimant has no viable claim. Counsel should advise clients in this situation not to rush to refinance or sell the subject property, unless the client has a good reason to do so, one that will not harm potential or actual creditors, including the claimant.
This is especially true if the plaintiff/claimant is suing the client for monetary damages in addition to quiet title. The theory of this claim would be that the client transferred or took out equity that could be used to pay creditors while a creditor claim was pending. To protect against this claim, counsel should try to negotiate a release that covers this cause of action if the claimant is going to dismiss the quiet title action, or the entire action.
Conclusion
Counsel should consider utilizing the power of Code of Civil Procedure Sec. 405.34 early in the case if the client gets trapped in a shakedown quiet title lawsuit, where a lis pendens is recorded, and the title of client’s home is placed in jeopardy.
Counsel can make a compelling argument that the defendant will be prejudiced during the course of the action while the Notice of Pending Action is recorded. The purchase of a generous undertaking is therefore in the client’s best interest.
BLOG #1: Friday - June 30, 2006
1. Write the down the exact date that you received the papers. This is important, so that you know the legal deadline when you must respond by. If you respond too late, this can be
2. Read the papers and exhibits that were served upon you so that you can determine how to respond. Keep all papers in a safe place, and make a set of copies for your attorney.
3. Make notes of everything that happened about the factual situation. You can make a factual timeline with dates, facts, events, and witness statements. If the notes are written to your attorney, then the notes are not discoverable by the opposition under the rules of attorney client privilege, work product, and confidentiality.
4. Take photographs if necessary, say of an accident of real property.
5. Organize and preserve the documents that pertain to a particular transaction or event. Make copies of the documents. Be sure to preserve originals in a safe place. Order any documents that you may need like checks or deeds.
6. Do not discuss the merits of the matter with the plaintiff’s attorney, the plaintiff, or the opposing party. Do not send e-mails about the matter to plaintiff’s attorney, plaintiff, or third parties. You should not discuss the case with third parties who may have no loyalty to your cause or defense. It is alright to get an extension of time to file a response. If plaintiff’s attorney gives you an extension, send the attorney a confirming letter about the extension.
7. Make a list of the names, addresses, phone numbers, and e-mail addresses of all percipient witnesses or persons that have information. Make a list of all places, such as business offices or web sites that have information pertaining to the legal matter.
8. Explore the possibility of filing a lawsuit against the plaintiff. Do you have an independent claim against the plaintiff, whereby the plaintiff owes you money? Is it related to the case filed against you?
9. Do not destroy evidence, as this may be in violation of civil law, and also a crime in the form of obstruction of justice.
10. Call Nate Bernstein & Associates for a free consultation.
WHAT DO YOU DO IF YOU RECEIVE A SUMMONS, AND GET SUED:
TIPS FOR THE WISE: