Monday, April 27, 2015

An Interesting Critique of the Limits of the Charging Order Remedy


An Interesting Critique of the Limits of the Charging Order Remedy

      A recent decision of a Michigan Bankruptcy Court offers some interesting commentary on the charging order remedy and some insight as to the apparent view of the powers of a Chapter 7 trustee vis-à-vis a single-member LLC.  In re: Randy K. Dzierzawski, Case No. 13-47986, 2015 WL 1612092 (Bankr. E.D. Mich. April 10, 2015)
      Dzierzawski (the “Debtor”), having some two years ago filed for Chapter 7 protection, sought to have the bankruptcy dismissed.  He owed a variety of significant debts including a judgment debt of over $1,000,000 to Vulpina.  The Debtor had transferred a 99% interest in Vinifera Wine Co., LLC to his spouse Kimberly; the opinion does not provide the debtor of the transfer vis-à-vis the entry of the judgment in favor of Vulpina.  The Bankruptcy Court had given Vulpina leave to pursue an action to have that transfer set aside under the Michigan Fraudulent Transfer Act.
      The Debtor sought to have his bankruptcy dismissed with prejudice.  In a particularly thorough analysis of the consequences of doing so, that motion was denied.
      Essentially, if Vulpina was successful in its fraudulent transfer act action, the Debtor would again be the sole member of the Vinifera LLC.  Outside of bankruptcy Vulpina would be restricted to a charging order against the Debtor’s interest therein.  Under Michigan law there is no foreclosure on the charging order remedy.  Vulpina could be left with a charging order even as the Debtor could manipulate Vinifera to insure that few if any distributions would flow to Vulpina’s benefit.

But Vulpina argues that it may be greatly prejudiced in its ability to realize any collection of its judgment from the Vinifera asset, if Vulpina must pursue its fraudulent transfer action outside of bankruptcy.  Outside of bankruptcy, Vulpina’s ability to realize any value from the Debtor’s membership interest in Vinfera may be greatly limited by Michigan’s charging-order statute that applies to limited liability companies.  Under that statute, Mich. Comp. Laws § 450.4507, a judgment creditor of a member of an LLC is limited to obtaining a charging order and lien against the membership interest of the judgment debtor.  The judgment creditor cannot foreclose on that lien, and the only thing the charging order gives the creditor is the right to receive any distributions that the member is entitled to or becomes entitled to in the future. 

      Conversely, in bankruptcy, upon a successful challenge to the transfer to Kimberly, the Bankruptcy Court could access Vinifera’s assets for the benefit of Vulpina.
By contrast, the Debtor and Vulpina appear to agree that if Vulpina is able to pursue its avoidance action within the bankruptcy case, and prevail, the resulting status of the Debtor as the 100% member of Vinifera would give the Chapter 7 Trustee the ability to cause a liquidation of the assets of that LLC, for the benefit of the creditors, including Vulpina, the largest creditor.
In their arguments, the Debtor and Vulpina both assume that if the Chapter 7 Debtor in this case is established as the sole member of this LLC, the Chapter 7 Trustee could step into the Debtor’s shoes as the sole member of the LLC, and exercise the Debtor’s rights to control the management of the LLC.  Exercising such management power, the Trustee could cause the LLC to make distributions to the bankruptcy estate, or cause the LLC to sell its assets.  Or, the parties seem to assume, the Chapter 7 Trustee could exercise the Debtor’s 100% membership rights under Mich. Comp. Laws Ann. § 450.4801 to cause the LLC to dissolve, wind down, and thereby liquidate under Michigan law.  If such a liquidation of the LLC occurred, the bankruptcy estate, as owner of the Debtor’s 100% membership in the LLC, would receive the net proceeds of the LLC’s liquidation – i.e., the proceeds that were left after the creditors of the LLC were satisfied.
      In support of this right the Court listed a series of decisions wherein a trustee was trusted as succeeding to not only the economic rights but also the management rights of a bankrupt sole member and as well similar authorities from multiple – owner structures.

      Because Vulpina would lose remedies if the bankruptcy were dismissed, the motion was denied.
      One quibble with the decision is its statement that the basis of the charging order is the rule of pick your partner.  In fact that is not the case.  Rather, the charging order protects the asset segregation effect of the business entity, a rule that has important consequences to the creditors of the venture vis-à-vis judgment-creditors of a member-partner.

Friday, April 24, 2015

Beware Greeks Bearing Gifts


Beware Greeks Bearing Gifts

 

      Today marks the anniversary of the traditional Fall of Troy in 1184 B.C., thereby bringing to its culmination the Trojan War.


      The Fall of Troy is not recounted in Homer’s Iliad, the iconic epic, it rather covering only a period of ten days to two weeks within the supposed ten-year span of the war.  The Fall of Troy through the subterfuge of the Trojan Horse is briefly mentioned in the Odyssey and is referenced in several other Greek sources.  The story would not find, however, its full development until Virgil’s Aeneid.


      Some modern historians have attempted to explain the story as an analogy, suggesting actually that an earthquake – Poseidon, whose portfolio included horses, was as well the god of earthquakes.  I, for one, would rather retain the literal interpretation.


      Regardless it is a great story, especially the fall of Achilles to Paris after the former killed Hector.  Speaking of which, the movie Troy misstated the story, likely because they wanted to keep Brad Pitt on the screen.  Achilles was killed before the fall of Troy; he never entered the city.

Sixth Circuit Addresses Domicile


Sixth Circuit Addresses Domicile

      For purposes of determining whether or not diversity jurisdiction exists, the focus for natural persons is upon their state of “domicile.”  Sometimes, as there was in this case, the domicile of the plaintiff was in dispute; was it Kentucky or Tennessee?  Pitt Excavating, LLC v. Mary Lou Pitt, No. 14-5635 (6th Cir. Feb. 25, 2015).
      Pitt Excavating, LLC, wholly-owned by John Pitt II, brought suit against Mary Lou Pitt and John Pitt III.  Pitt II was the former husband of Mary Lou (in fact they had been married and divorced three times) and the father of Pitt III.  Subsequent to the third divorce Mary Lou brought an eviction action against Pitt II, whereafter he rented an apartment in Tennessee.  As the citizenship of each member of an LLC is attributed to the entity, if Pitt II were domiciled in Tennessee then there would be diversity jurisdiction against the Kentucky domiciled defendants.  If, however, Pitt II were still domiciled in Kentucky diversity jurisdiction would be lacking.
      Looking at a number of factors, the Court found that Pitt II still remained domiciled in Kentucky.  While he had an apartment in Tennessee he did not live there full time, still sleeping in Kentucky several days a week.  While Pitt II had certain licenses from Tennessee, he held them from before the eviction and while he was domiciled in Kentucky – they did not evidence a determination to move his domicile to Tennessee.  In addition, in the action he sought to recover the Kentucky residence conveyed to Mary Lou in the most recent divorce and even listed a Kentucky address on a materialman’s lien he filed after initiating the action.
      Finding that Pitt II’s suit was a vexatious and bad faith effort to create diversity in order to set aside the divorce decree, he was ordered to pay Mary Lou’s attorney fees and costs to the tune of $22,376.24. 

Kentucky Has Some Strange Laws – Biblical Genesis Is Just As Good as Scientific Evolution

Kentucky Has Some Strange Laws –
Biblical Genesis Is Just As Good as Scientific Evolution

 

      Kentucky has some strange laws, for example those defining the official drink (milk) and the official dance (clogging) of Kentucky.  Kentucky has other strange laws such as that prohibiting the renting of a room to an unmarried man and woman.  But perhaps the most curious of these laws is one which, by statute, seeks to impose an alternative world view from that of science and specifically the theory of evolution.

      KRS § 158.177, which it titled “Teaching of evolution -- Right to include Bible theory of creation,” provides:
(1) In any public school instruction concerning the theories of the creation of man and the earth, and which involves the theory thereon commonly known as evolution, any teacher so desiring may include as a portion of such instruction the theory of creation as presented in the Bible, and may accordingly read such passages in the Bible as are deemed necessary for instruction on the theory of creation, thereby affording students a choice as to which such theory to accept.
 
(2) For those students receiving such instruction, and who accept the Bible theory of creation, credit shall be permitted on any examination in which adherence to such theory is propounded, provided the response is correct according to the instruction received.
 
(3) No teacher in a public school may stress any particular denominational religious belief.
 
(4) This section is not to be construed as being adverse to any decision which has been rendered by any court of competent jurisdiction.

 
     Lets break this down, shall we.  A student is in a “science” class when the scientific method of systematic observation, measurement and experimentation for the purpose of formulating and modifying a hypothesis, and they are being told that a non-observable, non-measureable and not subject to experimentation story may be substituted as an answer.  The consequent negative impact upon scientific literacy is obvious.
Next, how does a teacher both “read such passages from the Bible” while not “stress[ing] any particular religious belief.  The Bible is about a particular religious belief.  Reading from the Bible (and only the Bible) necessary excludes all religions not based thereon.  Why isn’t the Enûma Eliš, a Babylonian creation myth, given equal weight?  The Zoroastrians are being given short treatment. 
 
      Third, the standard of “provided the response is correct according to the instruction given” may be inconsistent with the view of the students “who accept the Bible theory of creation.”  The teacher will be called upon to grade a student’s application of the instruction given even if that instruction departs from the student’s interpretation.
      Last (at least for now), the assertion that this statute “is not to be construed as being adverse to any [court] decision” is little more than wasted ink – the courts decide whether a statute is inconsistent with the law.
      Ultimately it does not matter; this statute violates the Establishment Clause of the Federal Constitution and is a dead letter.

Thursday, April 23, 2015

Be Careful – Titles Can Get You in Trouble

Be Careful – Titles Can Get You in Trouble

      A recent decision highlights the damage of using atypical titles which may be interpreted and applied to increase liability.  Watson v. Daniel, Civ. Act. No. 14-CV-1122, 2015 WL 737650 (W.D. La. Jan 9, 2015)
      Watson, the Plaintiff, suffered a slip and fall at an Outback Steakhouse Restaurant.  In state court she sued a variety of business entities she alleged to be responsible.  She also sued Randal Daniel, Jr., an individual identified at the front of the restaurant as the “Proprietor.”  Outback remanded the case to Federal court on the basis of diversity, assisting that Daniel was not a proper party in that he was a mere employee.  If Daniel were potentially liable on Watson’s claims the removal would have been improper.  Watson asserted that Daniel was a co-owner of the restaurant with the Outback Corporation and therefore potentially liable.
      Essentially:
There was a window above the front doors of the Bossier City restaurant on which was embossed in large letters: “Proprietor: Randy Daniel.” Defendants contend that this title, apparently commonly used to describe managers at Outback restaurants, does not mean Daniel owned the business.  Daniel testifies in an affidavit attached to the notice of removal as Exhibit C that he is “employed by Outback Steakhouse of Florida, LLC in the position of proprietor.”  He added:  “I do not own any part of the restaurant premises” and “am an employee of the company.”  He also testifies that he did not “personally employee any individual working at Outback Steakhouse on the night of the alleged incident.”  Outback also offered the affidavit of company official Tiffany Rebstock who testified that the allegation that Daniel was a co-owner of the Bossier restaurant was “false” because “Daniel does not own any part of the restaurant premises” located in Bossier and did not own any stake or share in Outback Steakhouse of Florida, LLC.
      Based on the evidence presented the Court determined that Daniel had no exposure on Watson’s claims and should be dismissed.
      Still, one wonders if the potential burden of explaining an atypical title is worth the perceived benefits thereof.  Here the Court accepted the explanation and dismissed Daniel.  It just as easily could have left him in place, returning the action to state court.
      I’m aware of, in Louisville, several corporate owned restaurants who on signage identify the local manager as the “managing partner” of the restaurant.  In a suit against one of those establishments, there will be questions as to the liabilities of that “managing partner.”

Sunday, April 12, 2015

Kentucky Court of Appeals Rules on Challenge to Charging Order


Kentucky Court of Appeals Rules on Challenge to Charging Order

 

In the decision rendered last Friday, the Kentucky Court of addressed the propriety of a charging order issued against the interest of the judgment-debtor in some eight different limited liability companies. Unfortunately, the Court of Appeal seems to have rather glossed over the most interesting aspect of the charge orders that were issued.  Vance v. Spring Hill Signs, LLC, No. 2013-CA-001264-MR (Ky. App. April 10, 2015).

Spring Hill Signs held several judgments against Donna Vance.   In an effort to collect thereon, Springhill sought charging orders with respect to Vance’s interest in numerous LLCs.  In addition, Spring Hill sought the appointment of a receiver with respect to her interest in each of those LLCs.  While the charging orders were issued, the trial court denied the request that a receiver be appointed. Specifically, and most interestingly, the charging order provided that:

if any disbursements are made to other members, then a corresponding disbursement for Donna Vance's share/interest must be made at the same time.

Vance then brought this appeal, asserting that the charge in order as I enter by the trial court “exceeded its authority and adjudicating the rights of non-parties.” Slip op. at 4.

Initially, Spring Hill sought to avoid the appeal by arguing that the entry of a charging order is not a final and appealable order. The Court of Appeals rejected that argument and determined that an appeal could be taken therefrom.  Also, notwithstanding a determination that the argument with respect to the validity of the charging orders was not argued to the trial court and therefore could not be brought on appeal, the Court of Appeals did go on to consider it.

Essentially, as characterized by the Court of Appeals, it was:

[Vance’s] allegation that the trial court's charging order assumes jurisdiction over those eight limited liability companies, which are not parties to the action, when they restricted the method or means by which those limited liability companies may make distributions to their members.  Slip op. at 9.

 
Initially, the Court rejected this on the basis of a statue recognized by Vance, it providing that an LLC is itself not a necessary party to the application for a charge in order.  Note, however, that the opinion contains a typo in its reference to KRS § 275.260(2) as the controlling statute. Rather, it is KRS § 275.260(6) which provides: “the [LLC] is not a necessary party to an application for a charging order.”

Implicitly, the decision of the Court of Appeals was that the charging order should be read narrowly to the effect that, if and to the extent distributions are made, a distribution on Vance’s behalf, subject to diversion pursuant to the entered charging order, must take place, and the LLC may not “bank” the distributions that would otherwise go to her or otherwise make disproportionate distributions.  Pursuant to that reading, the entered operating charging order did not impact the internal affairs of the LLC or otherwise permit the holder of the charging order to influence its management and affairs.  There is, however, an alternative reading of the charging order which, again implicitly, seems to of been rejected. Under that alternative reading, the LLC and its constituent members would be precluded from altering Vance’s sharing ratio in the various companies during the pendency of the charging order.  Clearly such a charging order would be invalid as it would intrude into the internal affairs of the LLC.  Unfortunately the Court of Appeals did not squarely address that question.

For a general review of the charging orders utilized in Kentucky's LLC Act, the same statutory provisions as well appearing in Kentucky's partnership and limited partnership acts, see Thomas E. Rutledge and Sarah Sloan Wilson, An Examination of the Charging Order under Kentucky’s LLC and Partnership Acts (Part I), 99 Kentucky Law Journal Online 85 (2011); An Examination of the Charging Order under Kentucky’s LLC and Partnership Acts (Part II), 99 Kentucky Law Journal Online 107 (2011).

 

 

Saturday, April 11, 2015

Tennessee Legislature to Consider Bill Designating the Bible as the "Official Book" of Tennessee


Tennessee Legislature to Consider Bill Designating the Bible as the
"Official Book" of Tennessee

 

As has been widely reported, there is now pending before the Tennessee legislature bills which, if enacted, would designate the Bible as the "official book" of Tennessee.  HB 0165 and SB 1108. HERE IS A LINK TO HB 0165, and HERE IS A LINK TO SB1108.  There is also a House amendment which adds prefatory language as to why the law is justified; HERE IS A  LINK TO THE AMENDMENT. The bills have already passed both Senate and House Committees.
 
What puzzles me about this effort is how members of the legislature, who are required  to swear to uphold the Tennessee Constitution (see Tennessee Constitution, section 4) can consider a bill of this nature when that same Constitution of Tennessee, at section 3, provides in part:
 
 [T]hat no preference shall ever be given, by law, to any religious establishment or mode of worship.
 
Isn’t designating an overly religious text the “official book” of Tennessee giving the religion(s) which rely upon that text a preference. 
 
Also, since there are several books which may be designated the “Bible,” well, which is it?   The Catholic version or the Protestant version from which several books included in the Catholic Bible were excluded?  The Protestant Bible has 66 books while the canon of the Ethiopian Orthodox Church has 81 books. 

Wednesday, April 8, 2015

Arkansas Legislature Passes "10" Commandments Bill – Unintended Indictment of Arkansas Education System?

Arkansas Legislature Passes "10" Commandments Bill –
Unintended Indictment of Arkansas Education System?


            As has been not as widely reported as was the passage and then the amendment of the Arkansas Religious Freedom Restoration Act, the Arkansas legislature has passed legislation approving of a 10 Commandments monument on the state capitol grounds (albeit paid for with private funds).


            While the findings in the bill to the effect that the 10 Commandments formed a foundational text of the United States and Arkansas and lay out a philosophy of government are certainly open to critique and criticism, that can be a discussion for another day.  Rather, what is initially interesting is that the bill sets forth the required text of the 10 Commandments, namely:


“The Ten Commandments

I AM the LORD thy God.  

Thou shalt have no other gods before me.

Thou shalt not make to thyself any graven images.

Thou shalt not take the Name of the Lord thy God in vain.

Remember the Sabbath day, to keep it holy.

Honor thy father and thy mother, that thy days may be long upon the land which the Lord thy God giveth thee.

Thou shalt not kill.

Thou shalt not commit adultery.

Thou shalt not steal.

Thou shalt not bear false witness against thy neighbor.

Thou shalt not covet thy neighbor's house.

Thou shalt not covet thy neighbor's wife, nor his manservant, nor his  maidservant, nor his cattle, nor anything that is thy neighbor's.”


That is copied directly from the bill.  What is interesting is what happens when you start numbering the “10” Commandments, namely:


“The Ten Commandments

I AM the LORD thy God.  

(1)   Thou shalt have no other gods before me.

(2)   Thou shalt not make to thyself any graven images.

(3)   Thou shalt not take the Name of the Lord thy God in vain.

(4)   Remember the Sabbath day, to keep it holy.

(5)   Honor thy father and thy mother, that thy days may be long upon the land which the Lord thy God giveth thee.

(6)   Thou shalt not kill.

(7)   Thou shalt not commit adultery.

(8)   Thou shalt not steal.

(9)   Thou shalt not bear false witness against thy neighbor.

(10) Thou shalt not covet thy neighbor's house.

(11) Thou shalt not covet thy neighbor's wife, nor his manservant, nor his  maidservant, nor his cattle, nor anything that is thy neighbor's.”


Last time I checked eleven was not ten.  Is there something in the Arkansas education system we should know about?


Now I’m not suggesting that the 10 Commandments are not important, although I view their posting by or with the support of the state to be a violation of the Establishment Clause.  What is important to realize is that various denominations number the Commandments differently in order to make different combinations so that the total number is 10 (and not 11).  In the Catholic tradition the numbers (1) and (2) above are a single commandment, while in Talmudic Judaism the “no coveting” (10) and (11) above are combined.  Maybe Arkansas wanted to avoid legislative adoption of one or the other of the numbering systems in order to avoid an Establishment Clause argument, but in doing so they gave us the 11 Commandments on a 10 Commandments monument.

 

 

 

 

 

Chou v. Chilton, Round Two(2)


Chou v. Chilton, Round Two(2)

      In 2014, the Kentucky Court of Appeals issued a decision parsing the claims brought by Chou and classifying them as claims he could bring for his own account versus claims that could be brought only on behalf of the LLC. HERE IS A LINK to my review of that decision.
      That determination was apparently appealed to the Kentucky Supreme Court.  In order dated March 25, 2015, discretionary review of that ruling was denied.  However, the Supreme Court did order that the decision of Court of Appeals not to be published.

Tuesday, April 7, 2015

Court of Appeals Applies Up-the-Ladder Immunity from Liability Under Worker's Compensation Law




Court of Appeals Applied Up-the-Ladder Immunity from Liability
Under Worker’s Compensation Law

 

   In a recent decision, the Kentucky Court of Appeals determined that a particular company was a subcontractor of another and that, consequent to that relationship, the contractor had a put the ladder immunity from a claim of a subcontractors employee for an on-the-job injury. Ervin Cable Construction, LLC v. Lay, No. 2014-CA-001047-MR (Ky App. April 3, 2015).

      Lay was an employee of Advanced Cable.  Employees of that company and of Ervin Cable were one morning gassing and loading trucks in preparation for the workday.  Lay was struck by a truck which reversed; it was then being driven by an employee of Erwin Cable.

      Lay pursued and was awarded Worker's Compensation benefits against his employer, Advanced Cable.  He then brought a separate action against Ervin Cable seeking additional damages.   Ervin sought dismissal of that action at the trial court based upon its immunity from liability consequent to the exclusivity of the Worker's Compensation law system and up-the-ladder immunity.  When summary judgment was denied by the trial court, this appeal to the Court of Appeals was taken.

      After noting that the denial of a motion for summary judgment on the basis of Worker's Compensation immunity is an exception to the rule that, generally, the denial of a motion for summary judgment is interlocutory and cannot be appealed, the court turned its attention to the question of whether up-the-ladder  immunity here applied.

      Notwithstanding Lay's assertion that the relationship between his employer and Ervin Cable was not that of a subcontractor/contractor, and is well disposing of Lay’s assertion that somehow his injury was not work-related, the court determined that in fact a contractor/subcontractor relationship existed  even in light of the apparent lack of a written agreement to that effect.   For that reason, Ervin Cable was entitled to up-the-ladder immunity from Lay’s tort claim, and he was held to his workers compensation benefits as his exclusive remedy.
 
 

Sunday, April 5, 2015

Sanctions Awarded For Interference with Arbitration


Sanctions Awarded For Interference with Arbitration

 

      A recent decision from the Court of Appeals Affirmed an award of sanctions against a person who interfered with an arbitration.  Cher-o-kee Truckbodies v. E.S.T. Tool & Machine, Inc., No. 2013-CA-001062-MR (Ky. App. March 27, 2015).


      Susan Cherry had an undefined relationship with Cher-o-kee.  In turn, Cher-o-kee and A.S.T. had a contractual dispute which was per the agreement referred to arbitration.  The arbitration took place, with $26,587.85 awarded to Cher-o-kee and $9,879.79 to E.S.T., yielding a net of $16,708.06 to Cher-o-kee.  Cher-o-kee moved for a new hearing, and both it and E.S.T. submitted arguments (presumably written).


      Before the arbitrator could rule as to the motion for a new hearing, Cherry sent an ex parte letter to the arbitrator insisting that he disqualify himself on the basis that in 2003 he had donated five hundred dollars to the Attorney General campaign of Greg Stumbo, father of [E.S.T.s] attorney. The decision makes clear that Cherrys then attorney was unaware of the letter.  The arbitrator contacted the KBA Ethics Hotline, who determined that the arbitrator did not have a conflict of interests.  Unhappy with that determination, Cherry again ex parte wrote to the arbitrator demand[ing] to know if the arbitrator had any other connections to the father of opposing counsel.  In response the arbitrator recused himself because he did not want to continue dealing with Cherrys persistent accusations. 


      E.S.T. moved the Court to sanction Cherry under Rule 11, seeking the attorney fees and costs it had incurred in the arbitration.  It also sought dismissal of the action, or to approve the findings and award made by the arbitrator.  The trial court (i) awarded E.S.T. the monetary relief (attorney fees and expenses) it had requested, and (ii) declined to award Rule 11 sanctions.  In addition, the trial court approved the withdrawal of Cherrys attorney.

 
      On appeal, Cherry proceeded pro se; how she was able to do so when a non-attorney may not represent a legal entity is not discussed.  While she argued that her conduct did not rise to the standard required for Rule 11, the Court of Appeals noted that was not the question.  Rather, the point was whether she abused the process of Court-ordered arbitration.  Citing Gentry v. Gentry, 798 S.W.2d 928, 938 (Ky. 1990), it was observed that a court has wide discretion to award fees when a partys conduct and tactics waste the courts and attorneys time.’”  Finding that an arbitrator is equivalent to a judge and that ex part communications are improper, it was observed that if Cherry thought the arbitrators determination was incorrect her recourse was review of the award by the courts.

We conclude that by persisting in circumventing our legal procedures, Cherry is responsible for the prolonged post-arbitration proceedings, comprising nearly three years.  Therefore the trial court did not abuse its discretion when it awarded fees to E.S.T.

Friday, April 3, 2015

Derivative Actions in Kentucky Nonprofit Corporations


Derivative Actions in Kentucky Nonprofit Corporations

 

      Kentucky’s nonprofit corporation statute, which is in many respects charitably characterized as antiquated, is largely (although not entirely) silent as to the bringing of derivative actions. Certain individuals have put forth the position that, as the statute is (largely) silent on derivative actions in nonprofit corporations, they do not exist. This position is flawed in that it assumes that derivative actions are created as a matter of positive law. In fact they are not. Rather, derivative actions arose in the courts of equity, and they are not dependent upon any statutory authorization.
In connection therewith, the Kentucky Law Journal Online has published Who Will Watch The Watchers?: Derivative Actions in Nonprofit Corporations, an article which reviews those rules as they arose in the courts of equity and the various cases that have explored the interrelationship of those rules of equitable standing and their subsequent reduction to statute. HERE IS A LINK to that article.

Wednesday, April 1, 2015

Elemental Principles of Contract Law


Elemental Principles of Contract Law

      Last week, the Kentucky Court of Appeals issued a generally uninteresting decision with respect to a foreclosure. Of interest, however, are the elemental rules of contract formation and interpretation which the court relied upon in making that determination. Dimitrov v. PBI Bank, Inc., No. 2013-CA-002087-MR (Ky. App. March 27, 2015).
      One allegation that the Court rejected was that the bank had violated its obligation of good faith and fair dealing by failing to provide Dimitrov with information as to the outstanding balances on the subject loans. Initially noting that the information had actually been provided, the Court focused as well on the fact that those terms had been set forth in loan modification agreements. With respect thereto, the Court wrote that:
One who signs a contract is presumed to know its contents, and if he had an opportunity to read the contract he signed, he is bound by its provisions.

Slip op. at 5. In connection therewith, the court cited Hathaway v. Eckerle, 336 S.W.3d 83, 89 (Ky. 2011).
      Dimitrov also claimed that PBI had violated a duty by failing to afford him until a certain date to move the loan to another bank or work out a payment plan with PBI. Rejecting this assertion, the Court noted that:
Dimitrov has not pointed to any evidence in the record which indicates that PBI or any of its agents offered Dimitrov an extension. The only mention of this extension through October 2012 is in an email from Dimitrov to PBI’s loan officer, Joe Varner, in which Dimitrov requests an extension. Dimitrov produces no reply to indicate that an extension would be granted. This one-cited proffer is obviously insufficient.

Slip op. at 6, emphasis added.