Wednesday, September 21, 2016

The 2016 LLC Institute Agenda

LLCs, Partnerships and Unincorporated Entities Committee
2016 LLC Institute
October 20 – 21, 2016

Thursday, October 20, 2016
7:20 a.m. - 8:00 a.m.
Breakfast (included in registration)
8:10 a.m. – 8:30 a.m.
Welcome; Housekeeping
8:30 a.m. - 10:30 a.m.
Program (2 hrs.) Case Law Update (Non-Delaware)

Elizabeth Miller, Dan Sheridan,
Sean Ducharme and Tom Rutledge
This panel will discuss recent LLC and partnership cases other than from Delaware on various topics of significance, including cases dealing with fiduciary duties and veil piercing and cases illustrating pitfalls in drafting operating agreements
10:30 a.m. - 10:45 a.m.
10:45 a.m. - 12:15 p.m.
Program (1.5 hrs.) Case Law Update (Delaware)

Lou Hering, Melissa Stubenberg and Matt O’Toole
This panel will discuss recent LLC and partnership cases from Delaware on various topics of significance, including cases dealing with fiduciary duties and veil piercing and cases illustrating pitfalls in drafting operating agreements.

12:30 p.m. - 1:45 p.m.
Luncheon with Keynote Speaker – Professor Robert Thompson
“LLCs in the Mainstream of Business Associations Law: The Key Trends over the Last Two Decades”

2:00 p.m. - 3:30 p.m.
Program (1.5 hrs.) Addressing Deadlock in LLCs
Lou Conti, Lisa Jacobs, Steve Leitess and Christina Houston
This panel will discuss deadlock breaking mechanisms in LLC operating agreements, with a focus on the types and forms of such provisions, their effectiveness and limitations, and the issues involved in drafting, enforcing, and litigating them, including statutory and case law developments affecting them.
3:30 p.m. - 3:45 p.m.
3:45 p.m. - 5:15 p.m.
Program (1.5 hrs.) Nonprofit LLCs and UNPAs

Lisa A. Runquist, Cassady A. “Cass” Brewer and Elizabeth Carrott Minnigh
This panel will address the increasingly common intersection of LLCs with the nonprofit sector.  Topics to be discussed include: using LLCs as tax-exempt subsidiaries; charitable gifts to LLCs, including a recent, odd Tax Court decision respecting a single-member LLC for charitable contribution valuation purposes; using LLCs in lieu of private foundations for charitable giving; using unincorporated associations and/or stand-alone LLCs as tax-exempt entities; hybrid LLCs such as the benefit LLC, the L3C, and state-law nonprofit LLCs; program-related investments and LLCs; and the joint venture rules for LLCs with both tax-exempt and non-tax-exempt members.
6:30 p.m. - 7:30 p.m.
Cocktail Hour – Cash Bar
7:30 p.m. - 10:00 p.m.
Lubaroff Award Dinner - (this event is a separately ticketed event - obtain through the registration process)
Friday, October 21, 2016
7:30 a.m. - 8:00 a.m.
Breakfast (included in registration)
8:00 a.m. - 10:00 a.m.
Program (2 hrs.) Back Office Ethics:  Risk Management Wisdom to Keep the Law Firm Running
George Coleman, A.J. Singleton
In the context of the ABA Model Rules of Professional Conduct, this presentation will be a review a lawyer’s basic duties to clients and a discussion of best practices.  It will address the importance of new matter submission policies and procedures, including conflict checking and engagement letters; representation management, including disengagement letters and “I’m Not Your Lawyer” letters; due diligence screening and integration of lateral hires; maintaining the confidentiality of information relating to the representation of clients; and other pearls of wisdom.
10:30 a.m. - 10:15 a.m.
10:15 a.m. – 11:45 a.m.
Program (1.5 hrs.) Structuring the Management of a LLC “Board”
Brad Borden, Christine Hurt and Tom Rutledge
Management provisions can raise issues ranging from the effect of default rules to principles of agency law to concepts of corporate law. This panel will begin with a general discussion of agency concepts and how state default rules bestow agency on members and managers of LLCs. It will also draw upon language from numerous LLC operating agreements to consider how effectively those agreements incorporate or block the default rules. After establishing that basic groundwork, it will proceed to an in-depth analysis of management provisions that incorporate a board of managers or directors, and discuss how some effectively mimic the management structure of corporations and how some may cause management confusion. The discussion will review recent case law that has addresses LLC boards and how the management structure can affect whether courts rely upon principles of corporate law or partnership law to determine parties’ rights to management.
11:45 p.m. - 12:30 p.m.
Luncheon: Working Committee Meeting
12:30 p.m. - 2:30 p.m.
Program (2 hrs.) Uniform Series LLC Act
Steven Frost, Daniel Kleinberger, Marla Norton, Scott Ludwig and Allan Donn
This panel will discuss significant developments in the recently revised Uniform Limited Liability Company Protected Series Act which underwent a Second Reading at the 2016 Uniform Law Conference Annual Meeting in July 2016. The Final Reading of this Uniform Act is scheduled for July 2017.  
3:00 p.m. - 3:15 p.m.
3:15 p.m. - 4:45 p.m.
Program (1.5 hrs.) The New Partnership Audit Rules and Related Operating Agreement Drafting Considerations
Warren Kean, Chip Lion and George Hani
The repeal of TEFRA and the dawn of an entirely new set for IRS audits of partnership returns (generally effective for partnership years starting in 2018) warrants advance planning and preparation.  This panel will discuss the new audit paradigm (and the many remaining open questions) as well as review how partnership and LLC agreements could be written (or rewritten) to adjust to the new paradigm.
4:45 p.m. - 5:00 p.m.

Wednesday, August 31, 2016

Lawyers of the Year

Lawyers of the Year

      While I have significant concerns as to the rating criteria as applied to myself, I do want to congratulate my law partners for recognition as being tops in their fields.  HERE IS A LINK to the announcement.

Wednesday, August 24, 2016

Make Sure Your Annual Report Has Been Filed with the Kentucky Secretary of State

Make Sure Your Annual Report Has Been Filed with the Kentucky Secretary of State


      Staying current on your annual reports to the Secretary of State is very inexpensive. Conversely, having to get a company reinstated is expensive. Your choice.

      HERE IS A LINK to some additional information.

Monday, August 22, 2016

A Horse, a Horse, my Kingdom for a Horse

A Horse, a Horse, my Kingdom for a Horse

      Today is the anniversary of the Battle of Bosworth, the final major battle of that English civil war titled The War of the Roses (this conflict was at the time sometimes referred to as the Cousin’s War).  It was at this battle that King Richard III, variously identified as the last King from the House of Plantagenet or the House of York, fell, he being the last English King to die in battle.  Henry Tudor, the victor, then became King Henry VII.

      Henry’s victory in battle was if anything surprising.  Richard’s forces outnumbered those of Henry.  Meanwhile, Lord Stanley (William Stanley) held back his own force; if combined with that of Henry, that of Richard would have been out-numbered.  Conversely, if Stanley joined with Richard, the weight of the forces arrayed against Henry would have been overwhelming.  Richard held Stanley’s son as a hostage.  As battle was about to commence, Richard sent word to Stanley that if Stanley did not join with him, he would execute Stanley’s son.  Stanley replied, “I have other sons.” 

To provide but a taste as to why this conflict was referred to as the Cousins War, consider that William Stanley was the brother of Thomas Stanley, husband of Margaret Beaufort and mother of Henry Tudor.  Ergo, Lord Stanley was the brother-in-law to Henry’s mother.  Thomas Stanley had previously been married to Eleanor Neville, sister to Warwick the Kingmaker and aunt to Richard III’s recently deceased wife. That wife was a daughter of Warwick.

      Richard’s attack upon Henry’s position nearly succeeded;  Henry’s standard-bearer William Brandon was killed at Henry’s side.  Polydore Virgil, a contemporary historian/chronicler, recorded that Richard fought well.  However, Richard’s fate was sealed when the Stanley family and its retainers, having until then not committed to either side, rode against Richard’s infantry as his cavalry was separately moving against Henry.

      William Brandon’s son Charles, ultimately Duke of Suffolk, would become the best friend of Henry VIII.

       In 2012, Richard’s remains were located in the course of excavations under a parking lot that now covers part of what was the Blackfriars (Dominican) Church in Leicester, England; early 2013 saw the announcement that testing had confirmed the remains were those of Richard.  In sad testimony to the modern age, litigation ensued as to whether Richard should be re-buried in Leicester Cathedral, apparently consistent with the terms of the agreement by which the archaeological work was performed and other British law, or in York where certain claimed descendants of Richard assert he would want to have been buried.  That question was resolved in favor of Leicester, and earlier this year Richard III was laid to rest in Leicester Cathedral.

            Notwithstanding Polydore Virgil’s positive comments as to Richard III, in proof of the adage that the winners write the history, his reputation was besmirched by various Tudor affiliates such as St. Thomas More and William Shakespeare.   He is currently being reassessed by historians who are not so indebted to supporting the legitimacy of the House of Tudor.

Expelling LLC Members

Expelling LLC Members


      Peter Mahler, in his otherwise excellent blog New York Business Divorce, has this week posted an interview with me wherein we discussed member expulsion, reviewed the recent IE Test case and as well the string of decisions arising out of the All Saints University of Medicine, Aruba, LLC dispute.
      HERE IS A LINK to that interview.

Thursday, August 18, 2016

Necessity of Classification of Italian Srl For Purposes of Diversity Jurisdiction Avoided; Regardless of Whether Incorporated or Unincorporated, Diversity Existed

Necessity of Classification of Italian Srl For Purposes of Diversity Jurisdiction Avoided; Regardless of Whether Incorporated or Unincorporated, Diversity Existed

In order to access the federal courts on the basis of diversity jurisdiction, none of the plaintiffs may have the same citizenship as that of any of the defendants. A corporation is a citizen of its jurisdiction of organization and the jurisdiction in which it maintains its principal place of business. In turn, all other organizational forms including limited liability companies redeem citizens of each jurisdiction in which any of its members/owners are citizens. A persistent question is how to classify certain non-US business organizations is either being corporations or unincorporated. In a recent decision from Louisiana, a court analyzed and Italian Societ√† a Responsibilit√† Limitata (“Srl”) under both of analytic formats. Regardless of which was applied, diversity existed. PGS USA, LLC v, Popi Trading, Inc., Civ. Act. No: 16-6669, 2016 WL 4261726 (E.D. LA August 12, 2016).
In this breach of contract action, the defendant was a New York corporation with its principal place of business in New York. As such, Popi Trading, Inc. was a citizen of New York for purposes of diversity jurisdiction. It complained, however, that PGS USA LLC had failed in the complaint to fully detail its citizenship in a manner sufficient to confirm that diversity existed.
With respect to analysis of the Srl as a corporation, it was found to be organized in Italy, and likewise that its executive officers were in Italy. On that basis, be treated exclusively as a citizen of Italy.
Alternatively, when the Srl was treated as being unincorporated, analysis was undertaken of all of its members. One of those members was in turn another Srl, and its members needed to be investigated. Regardless, ultimately all were natural person citizens of Italy. And on that basis the Srl was treated as an Italian citizen.
Either way, diversity jurisdiction existed.
While this case is a useful reminder of the rules to be applied in assessing the citizenship of incorporated versus unincorporated entities, it unfortunately does not move forward the question of the analytic paradigm to be applied to non-US organized business organizations.

Wednesday, August 17, 2016

Significant Attorney’s Fees Awarded the Defendants In a Failed Derivative Action

Significant Attorney’s Fees Awarded the Defendants In a Failed Derivative Action

      Earlier this year, of the federal court for the Eastern District of Kentucky dismissed, on the grounds of a lack of standing, a derivative action purportedly brought on behalf of a Michigan nonprofit corporation. Pagtakhan-So v. Cueto, Civ. Act. No. 5:14-370-DCR, 2016 WL 617429 (E.D. Ky. February 16, 2016). That decision has now been appealed to the Sixth Circuit Court of Appeals. However, even while that appeal is pending, the trial court has ruled with respect to a motion for attorney’s fees filed by the defendants in that action, and a significant award of attorney’s fees has been made. Pagtakhan-So v. Cueto, Civ. Act. No. 5:14-370-DCR, 2016 WL 4094877 (E.D. Ky. August 1, 2016).

      In the initial decision, the derivative action that was filed on behalf of the nonprofit corporation had been brought by persons who were no longer directors of the corporation. No longer being directors, they lacked standing to bring a derivative action. In addition, it was found that they had failed to comply in any manner with Federal Rule of Civil Procedure 23.1, it governing derivative actions filed in federal court. On that basis, the claims were dismissed with prejudice.
      The second opinion involved the consideration of the defendant's motion for attorney’s fees. Under the Michigan Nonprofit Corporation Act, an award of attorney's fees to the defendants is permissible, the statue providing:
In an action brought in the right of a corporation by a record holder or beneficial owner of shares of the corporation or a member, the court having jurisdiction, upon final judgment and finding that the action was brought without reasonable cause, may require the plaintiff to pay to the parties named as defendants the reasonable expenses, including fees of attorneys, incurred by them in the defense of the action.
      Initially exhibiting what can only be described as chutzpah, the plaintiffs first asserted that this was not and was never intended to be a derivative action, a treatment that was evidenced by the failure to comply with Rule 23.1. This argument was rejected on the basis that the character of the action is derivative or direct is based upon the nature of the relief sought. Here, as the only alleged injury was to the corporation, the action must have been derivative on its behalf. Further, the court relied upon portions of the plaintiffs’ pleadings in which they, while not using the word “derivative,” indicated they were acting on the corporation’s behalf. In that the claims were derivative, the question was whether they were brought “without reasonable cause.” On bases including the complete failure to comply with the requirements of Rule 23.1, attorney’s fees were awarded. With respect to one defendant, those fees are in the amount of $40,805.84, and with respect to another individual defendant the attorney’s fees awarded are $50,623.00. As to the nonprofit corporation itself, it received attorney’s fees in $100,364.14. In total, the plaintiffs are responsible for attorney’s fees in the amount of $190,792.98.