HAPPY THANKSGIVING DAY
HAPPY THANKSGIVING DAY.
NY High Court: Attorney may Disapprove Real Estate Contracts for Any Reason
New York’s Court of Appeals, the highest appellate court in the state, recently issued a decision that is incredibly simple on the surface but requires a bit of background to be appreciated by non-lawyers.
The case is Moran v. Erk, November 25, 2008. It was brought to my attention by ABAJournal.com which relied on a Newsday report.
The ruling was that a lawyer may disapprove a contract for the purchase of real estate for any reason because attorney-client confidentiality would be destroyed if the attorney had to testify about the reason for disapproval. The decision is logical and simple. But there are broader issues involved. First, why is an attorney approving or disapproving a contract?
You need to be aware that “customs and practices” that govern real estate transactions vary not only by state but within the states. Both in New York and Connecticut there are variations within the states. Our firm is most familiar with procedures in downstate New York and Fairfield County, Connecticut - - and there are significant differences.
The Moran case was from upstate New York. There, it is apparently common for contracts to be signed without the advice of an attorney. But, the contracts commonly include an “attorney contingency” clause giving the buyer three days to review the contract with an attorney and, within that time, giving the attorney the option to disapprove of the contract. In this case, the attorney disapproved for the simple reason that the clients changed their minds. The property that was to be sold to the defendants for $505,000 was ultimately resold for $385,000.
The broader issue in both states, regardless of area or county, is whether brokers should be permitted to supervise the execution of contracts for the purchase of real estate before the parties have had the opportunity to consult their respective attorneys. I understand that in some areas/counties it is now common practice to do so - - areas where we don’t practice and so can not comment specifically. Where we practice, the custom is to negotiate the final contract with the assistance of an attorney- - before it is signed.
There are good arguments on both sides on the issue of whether brokers should or should not be permitted to supervise the execution of contracts. And, the attorneys lobbies and the brokers lobbies are articulate in making their case for either practice. To review all the arguments here would extend this blog post to infinity.
Note, however, that area custom can create a necessity. It is a very bad idea in areas, like downstate New York and Fairfield County, Connecticut, where the common expectation is that you will have the assistance of an attorney, to try to do without one.
Article: Keep It Simple a Trial
ABAJournal.com, as it often does, brought out attention to an interesting article, this time on keeping things simple at trial. The article is by Kris W Scibriorski is in New Jersey Lawyer and entitled “Tools of the trade: Here’s how to win (or blow) a trial.”
The primary tip that the article offers is its “seven little words” tip” “Say it. Prove it. Say it again.”
The point is made in a clever way. And, the entire article is a lively, quick read.
The article is targeted, of course, to lawyers. But, reprints might be handed to clients on the eve of trial. They are likely to be nervous. Sometimes, unsure of the dynamics of the trial, they will sometimes try to second-guess the trial strategy or, afraid something important will be left out, urge their attorneys to throw in the proverbial “kitchen sink.”
The essence of winning at trial, should you be unfortunate enough not to be able to settle your case first, is to communicate the fundamental aspects of your case - - simply and clearly.
Law Blogs Report on New FMLA Regulations
New regulations have been issued for the Family Medical Leave Act (FMLA). Law.com reports on them and predicts more confusion and litigation in a post by Tresa Baldas of the National Law Journal entitled (“New FMLA Rules Will Create More Confusion and Litigation, Attorneys Warn”).
Daniel Schwartz in the Connecticut Employment Law Blog takes a somewhat more positive approach and in two recent posts has reported on “What Employers Need to Know About the New FMLA Regulations - Part I” and “ What Employers Need to Know About the New FMLA Regulations - Part II”).
We have to admit to not having had the opportunity to study the new regulations and refer you to the above posts until we can catch up a little.
Will Lawyers Become "legal Risk Consultants?
ABAJournal.com reported last week on a futurist’s prediction that lawyers advising corporations will change their practices to offer a wide range of advice on how to avoid legal problems. The post, “Futurist Says Lawyers Will Become Legal Risk Consultants” was by Debra Cassens Weiss. The futurist is Richars Susskind and his predictions are made in an interview in Am Law Daily.
We would like to think that we are in the forefront of that trend although we advise smaller businesses and individuals, not major corporations. The premise of this blog is that by studying trends and events in litigation, we can derive not only broad principles for managing legal risks but better practices for managing business and personal assets.
On the surface, it may seem like an idealistic position but there are many, many practical examples. To cite one example, a recent post commented on performance reviews as a rich source of evidence for either side in employment litigation. But, it is not a stretch that if you manage performance reviews effectively, you will effectively manage performance.
So, we tend to agree with the futurist cited by ABAJournal.com that lawyers advising businesses will in the future position themselves as “legal risk consultants” and we venture to predict that litigation will become “dispute resolution.”
Confusion Arises Over Who Owns the Mortgage
The flood of foreclosures has created more than one kind of confusion, the latest coming to light is over who owns the mortgage and has the right to foreclose.
The situation was reported both by the Wall Street Journal Law Blog (“Foreclosure Mess: Two Different Plaintiffs Claim to Own Same Mortgage”) and ABAJournal.com, citing the WSJ post (“Practice Tip for Foreclosure Defendants: Make Sure Lender Owns Mortgage”).
The confusion comes about, of course, because mortgages have been packaged, “securitized,” and sold, possibly several times over. Identification of the legal entity with ownership rights may become unclear. Or, simple bureaucratic confusion among the entities serving as trustees and servicers may lead to errors.
As suggested by ABAJournal.com, the situation is of more than just humorous interest. It may suggest a defense.
Performance Reviews Can Cut Both Ways in Litigation
In an “Update Post,” Daniel Schwartz in the Connecticut Employment Law Blog comments, among a number of items, on an article suggesting that performance reviews should be eliminated and a more recent one suggesting that performance reviews should not be eliminated but “owned” by managers.
I have a long history with performance reviews, starting, of course, as a corporate employee and manager being reviewed; then, as human resources professional and as manager doing reviews; and now, as an attorney using them to help resolve emploument disputes.
The last experience has been the most consistently interesting. In litigation, performance reviews can cut either way. They can be a rich source of discovery for employee plaintiffs - - practically demonstrating inconsistencies and discrimination. On the other hand, reviews can embody an effective defense for management showing business justification for whatever adverse employment action may be at issue.
For managers, “ownership” may be the right metaphor. Eliminating the reviews may mean eliminating the hard evidence that justifies management’s actions with regard to employment issues (both positive and negative).
On the other hand, if the reviews do exist, managers are going to “own” them one way or the other. Either the reviews establish clarity of communications on performance-related issues. Or, the reviews become a permanent record of management’s lack of clarity on those same issues.
And, it’s not just a matter of taking a defensive posture toward litigation. Long before that it’s a matter of establishing credibility with employees and communicating clearly on issues of performance.
Layoffs, Lawsuits and Severance Agreements
As if in counterpoint to our last post, about avoiding litigation through greater professionalism is managing workers, ABAJournal.com, in a post by Martha Neil, reports that workers laid off from failing investments banks are suing their former employer (“More Laid-Off Workers, More Work-Related Lawsuits”).
The post includes an observation that to protect themselves companies are requiring terminated employees to sign releases. Actually, that’s old news for major employers: as part of a severance agreement (with or without generous severance benefits), employers expect a release.
The “takeaway” here covers both sides of the equation: (1) smaller employers (more likely to be among our readers) should consider carefully thought-out severance agreements when laying off workers; and (2) corporate mid-to-senior-level professionals (also among our readers) should review their severance agreement with an attorney- - sometimes negotiations can improve them a little but, just as important, you should be aware of the rights you are signing away.
Avoiding Litigation and Making it Through a Deteriorating Economy
A short post in the New Jersey Employment Law Blog succinctly makes the point that while a deteriorating economy means belt-tightening, layoffs and severance agreements, obtaining advice before taking action is the one way to avoid making a difficult situation even worse.
I’d like to elaborate on that point and comment on a related but different aspect of the economy. There is no doubt that survival is the overriding business objective when the economy deteriorates. The real question though is whether the actions being taken to “survive” might actually accelerate the demise of the business.
The business will not only survive but may actually come out stronger if (1) costly and demoralizing litigation and controversies are avoided while (2) building habits that establish a more professional, effective style of management towards workers and the business in general.
On a different aspect of the deteriorating economy: there has not been sufficient time for all the government-generated liquidity and rescue funds to make any kind of impact. Without being over-optimistic, there is a good chance better times may be coming sooner than widely expected. Our businesses and professional practices need to exercise patience, professionalism and perseverance to position themselves for better times ahead.
Evading the "Nanny Tax" Is a "No-No"
ABAJournal.com reports that more individuals are evading the “Nanny Tax,” that is, they are failing to pay payroll taxes for domestic employees (“More Individuals Evade ‘Nanny Tax,’ a Risky Strategy in a Tough Economy,” posted by Martha Nell). The data on “Nanny Tax” evasion was first reported by the Wall Street Journal.
The requirement, summarized by ABAJournal.com and WSJ is as follows:
Those who pay a household employee more than $1,600 annually are required to pay Social Security and Medicare taxes, federal and state unemployment insurance and other taxes on their behalf . . .
Domestic workers seem to present the greatest temptation but small businesses in general, for any type of workers, may be tempted to rationalize away their payroll tax-compliance obligations. The "Nanny Tax" designation is used when applied to domestic workers but the concept is the same when applied to any small business. In either case, It’s a bad idea. Or as ABAJournal.com put it, it’s a “risky strategy.”
And, equally bad is the idea of rationalizing that the workers (domestic or otherwise) are not employees but “independent contractors.” As we have said quite often before: the determination of whether a worker is an independent contractor is very fact-dependent and can be challenged in litigation, whether with a disgruntled ex-employee or the IRS.
NY Appellate Court: Money Paid In Court Does Not Stay Foreclosure Sale Without a Motion
Plaintiffs in New York foreclosure actions are aware that they must follow procedure carefully to foreclose a mortgage on real property. A New York appellate court remindsus that the same is true of the defendant.
The case is NYCTL 1999-1 Trust v. 573 Jackson Avenue Realty Corp., 2008 N.Y. Slip Op 08173.
The defendant paid all the money due on the mortgage into court. Since the foreclosure sale was pending, the defendant notified the plaintiff and stated that the sale should be stayed (halted, for nonlawyers) “per statute.” The Court noted that the governing statute, NY RPAPL sec. 1341, requires the trial court to dismiss the complaint and stay all proceedings. In fact, the court has no discretion about it, all proceedings are to be stayed.
The sale went on anyway. The First Department of New York’s Appellate Division, in disposing of the appeal, pointed out the statute is not “self-executing.” The defendant needed to make a motion. Since no motion was made, the foreclosure sale stands. Not only that, but even though the plaintiff was notified, the plaintiff had no obligation to warn the defendant that the sale was going to go on anyway in the absence of a motion.
The lesson here is more for attorneys than business managers although the latter should certainly be aware of that there are procedural pitfalls in foreclosure proceedings, for either side.
Former Employees As Witnesses
When a former employee is to be a witness in litigation involving the employer, issues are raised which need to be resolved carefully and thoughtfully. Law.com, in an In-House Counsel post by Linda L. Listrom of The Corporate Counselor, has covered the issues and developed useful guidelines for attorneys acting as in-house counsel for the employer (“When Your Witness Is a Former Employee”). We offer some additional insights for the smaller business employer, especially one too small to employ in-house counsel.
The guidelines offered by Ms. Listrom are summarized in her conclusion:
A former employee can be a pivotal witness for your company. Fortunately, the ethics rules permit you to help your former employee by alleviating some of the hardships of testifying. If a former employee wants counsel, you can provide it. If he wants to be compensated for his time, you can do that, as long as the fee is reasonable. But you cannot discourage him from cooperating with your opposing counsel, if he chooses to do so.
The analysis presented by the post is primarily for in-house lawyers since it is focused on the interpretation and application of ethical rules for lawyers, relying on the ABA Model Rules. Here are a few thoughts that may be of interest to the nonlawyers who may be running a small business (as well as the attorneys who advise them):
- The situation where a former employee is to be a witness highlights the problem of “burning bridges,” a problem we usually associate as the employee’s, not the employer’s. An employee who is “forced out’ by harassing tactics, rather than leaving on good terms may present a whole new set of issues. The better management practice is to be aware of the possibility and always take the high road when it comes to terminations and performance management.
- The Law.com post notes that it is proper to compensate former employees for their time acting as witnesses, within certain limits. If you use a severance agreement, and you probably should, you should discuss with counsel the possibility of including these provisions. They cost nothing unless you really are in litigation. Then, cooperation may be priceless.
- If the business has no in-house counsel, it is all the more important to contact to get advice from outside counsel on how to handle the former employee witness. In fact, as reflected in the Law.com post, it is primarily the lawyer’s role to contact former witnesses, even employers. Conversations about the case between a manager and a former employer are not likely to be privileged and are likely to be the proper subject of cross-examination,
Common sense tells us that if the employer business is involved in litigation, it is no stretch to anticipate that an employee may be a witness. That's why it is important to understand the issues presented and the appropriate ways to deal with the situation.
