Rogers & Tartaro Business Litigation Blog : New York and Connecticut Business Litigation Lawyer & Attorney : Rogers & Tartaro Law Firm : Commercial Litigation : Westchester County NY, Fairfield County CT

At a recent meeting of the Ridgefield Rotary Club, I had the opportunity to hear Marion Roth, Executive director of the Chamber of Commerce, speak about some of the new initiatives she and the Chamber’s Board have been working on. Her general goal is to develop a sense of cooperation among the agencies and organizations concerned with economic development, including the Chamber, the Town’s Economic Development Commission and private groups like the Chamber itself and Downtown Ridgefield. One of the Chamber’s most interesting initiatives involves leveraging cultural resources to make Ridgefield a destination for the arts, theatre, restaurants and inns.  The "Look.  Listen.  Stay." initiative will be inaugurated in May, and will coincide with several local events.

These are exciting plans. I regret that for now I can only touch the surface because there is much more to learn about these initiatives and the people, along with Marion, making things happen. Our firm is a member and we’ve supported its past activities (partner Bev, a long time resident, being actively involved). I hope to cover the progress of the new initiatives and report on future developments in greater depth.

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A group of friends and I are considering going into business together. What kind of partnership agreements/incorporations would be best? What exactly is a “closely held business?”

We are often contacted by friends intending to go into business together. The first thing we tell them is that they are now negotiating among themselves so their interests are in conflict. They may each want to consult their own attorneys until the agreements that they need to form the business are put in place. They can waive the conflicts and consult an attorney together but should do so only if they fully understand the conflicts they are setting aside.

The term “closely held business” is generally used to distinguish the business from a publicly traded business. So, it is a business owned by a relatively small number of people. Obviously, there can be wide variations: from one owner to hundreds. And, in specific tax contexts, the definition can be more precise and technical. 

Entire books have been written on selection of a form of ownership: sole proprietorship, “S” corporation, “C” corporation, limited liability company (LLC), partnership, limited liability partnership and so on. One of the first considerations should be to effectively limit the liability of the owners. Then, there are many tax and business considerations. The selection has to be based on considerations specific to each business and its principals but here is a general point to remember: after the selection of form of ownership is made, it is important to observe the formalities so that you do not lose any of its benefits.

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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.

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A New York Appellate Court, in a recent decision, reminds us that in a real estate transaction, the parties should rely only on the written contract. The case is Friedman v. Kagan, 2008 Slip Op. 07624 (2d Dep’t).

The plaintiffs commenced the lawsuit because, having purchased a single family residence, they claimed the defendant/sellers dissuaded them from having the basement professionally inspected for mold. The house was contaminated with “toxic” mold. But, the written contract included a disclaimer that the purchasers were not relying on oral representations and the house was being sold “as is.”

The trial court granted summary judgment to the defendants and the appellate court affirmed. For our non-lawyer readers, that means decision for the defendants without a trial because there are no facts at issue. The facts not at issue are that the written contract disclaimed any reliance of oral representations.

The plaintiffs tried an alternative theory that the mold was fraudulently concealed but that went no where either.

We shouldn’t need the reminders but, being human, repetition is helpful: a real estate contract has to be in writing. A disclaimer, similar to that found in this case, tends to be the norm. Thus, the parties should not rely on oral representation, they should “get it in writing.”

Image: Slime Mold from Wikipedia Commons

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A recent blog post suggesting that decreasing asset values present opportunities did not get my full appreciation until I put it together with an unrelated experience in an estate litigation case to draw a broader lesson.

The post was in the Utah Business, Real Estate and Estate Planning Blog, by Matt Fankhauser and entitled “A Silver Lining in Decreasing Asset Values.” The point was that decreasing asset values present opportunities for high net worth individuals. With gift and estate taxes not likely to go away, individuals can make gifts at a discount (that is, at depressed values) to take maximum advantage of lifetime gift tax exemptions and annual exclusions. 

While seemingly unrelated, the idea brought to mind my experiences with the parties in a will contest that was resolved only after years of litigation.

Valuable investment property had been in the family 35 years with the decedent refusing to allow it to be sold in her lifetime. One party in the will contest fought to gain control of that property intending to keep the property from being sold and as a family asset even longer. The estate also happened to include overseas properties that may have been owned by the decedent for 50-60 years.

In holding properties 35, 50, 60 years, the decedent (and other family members) exhibited a distinct long-term mindset. Since they intended to hold on to the assets for the long term, this family might very well consider a period of depressed values to be an opportune time to make tax-saving gifts.

More generally, a longer-term mindset, even in an uncertain economic environment, may identify opportunities that would otherwise be overlooked. That is as true of personal financial issues, such as estate and gift tax planning as it is of core business issues.

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The Wall Street Journal Law Blog reports that the federal judge who rendered the Borat decision has been nominated for an appointment to the U.S. Second Circuit Court of Appeals. I doubt there was an actual connection. So, we congratulate the judge and move on to more thought-provoking aspects of the story and case. The post is “In Wake of Borat Ruling, Judge Preska Nominated to 2d Cir High Five.” The decision ishere.

The case was also reported in ABAJournal in a post by Martha Neil (“’Borat’ Filmmakers Win Legal Battle”).

I have not seen the movie. But, I’m not going to discuss the movie. I am going to discuss waivers, merger clauses and the importance of understanding and resolving the ambiguities in contracts before they are signed.   

In the Borat case, the claims against the producers for fraudulent inducement to participate in the movie were dismissed because the plaintiffs signed a contract that included a waiver of all claims. The court found that the waiver, for participation in a documentary-style film, was not ambiguous.

The determination that there was no ambiguity turned on the meaning of the term “documentary-style,” which described the movie. The Court emphasized that the operative word is “style.” Thus, the movie did not need to be an actual documentary. The plaintiffs’ argument that “documentary-style” is ambiguous was unavailing. The term “documentary-style,” according the Court, is a film “displaying the characteristics of a film that provides a factual record or report.”

The claim that the plaintiff-participants were fraudulently induced to enter into the film was defeated because each contract included a “merger clause.” The participants waived their reliance on promises or statements, other than any stated in the contract, by anyone involved with the film.

Although our small business clients may never be invited to participate in a “documentary-style” movie, they are invited to sign all kinds of contracts, all of the time. Thus, the Borat story has an element of universality: the parties to a contract will be presumed to have understood the contract terms. 

And, the Borat litigation story also reminds us to be acutely aware of the merger clause in a contract. The Borat contract waiver, as is commonly the case, explicitly stated that the plaintiffs relied on no representations other than those stated in the contract. Thus, when ambiguous terms are defined, clarified or explained, it is important that the definitions, clarifications and explanations be in writing so as to become an integral part of the contract.

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