Friday, September 21, 2018

The Assassination of Flavias Aetius


The Assassination of Flavias Aetius


      Flavias Aetius was the Roman commander at the Battle of Chalons (451), where along with forces of the Visigothic Empire, it under the command of its King, Theodoric , the Huns under Attila were defeated.  Flavias  had been appointed magister militum (essentially “supreme commander” of all Roman military forces) by Valentinian III, a particularly weak (and in this era that is saying something) emperor.  While Boethius is oft identified as the last gasp of the Roman Empire’s (or at least its western components’) intellectual life, Flavius Aetius can equally be described as the last of the great western Roman generals.  Gibbons called him the Last of the Romans.

 
      Only three years after Chalons on September 21, 454, Aetius was assassinated by Valentinian.  Within the year, Valentinian would in turn be assassinated by friends of Aetius while Valentinian’s guard watched; the members of the guard had been followers of Aetius.

Tuesday, September 11, 2018

Is an LLC a “Person”?


Is an LLC a “Person”?

 
 
      Whether a LLC will be treated as a “person” is context dependent. For example, in United States v. Human Services Associates, LLC, 216 F. Supp. 3d 841 (W.D. Mich. 2016), it was held that an LLC is not a “person” within the meaning of the Criminal Justice Act entitling the LLC to appointed counsel. In contrast, it was found, in In Re M-I L.L.C., 505 F. Supp. 3d (Tx. 2616), that an LLC is a “person” for purposes of the 14th Amendment due process clause. In contrast, American Rebel Arms, L.L.C. v. New Orleans Hamburger and Seafood Company, 186 So. 3d 1220 (La. Ct. App. 5th Cir. 2016),  it was held that a LLC is not a “person” to whom a merchant owes a duty to keep a facility reasonably safe.

Saturday, September 8, 2018

Agenda for the 2018 LLC Institute


 

LLCs, Partnerships and Unincorporated Entities Committee
2018 LLC Institute
October 11 – 12, 2018
Agenda

Thursday, October 11, 2018
 
7:20 a.m. - 8:00 a.m.
Breakfast (included in registration)
8:00 a.m. - 8:15 a.m.
Welcome; Housekeeping
8:15 a.m. - 10:15 a.m.
Program (2 hrs.) Case Law Update (Non-Delaware)

Prof. Elizabeth “Beth” Miller (Baylor Law School, Waco, Texas); Kelley Bender (Chapman & Cutler, Chicago, Illinois); Sean Ducharme (Hunton & Williams LLP, Richmond, Virginia); and Dan Sheridan (Stark & Stark, Lawrenceville, New Jersey)
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.
 
10:15 a.m. - 10:30 a.m.
Break
10:30 a.m. - 12:00 p.m.
Program (1.5 hrs.) Tax & Choice of Entity

Moderator: Robert R. Keatinge (Holland & Hart, Denver, Colorado) Panelists: Bahar A. Schippel (Snell & Wilmer LLP, Phoenix, Arizona); Sam Kamyans (Baker & McKenzie, LLP, Washington, D.C.)
This panel will discuss the impact of recent tax developments on the choice of form and structure of business organization for a new or existing firm. Among the topics considered will be the comparative tax efficiencies of partnerships, S corporations, C corporations, and sole proprietorships considering changes in rates, the new deduction for qualified business income, and other tax changes; the rules applicable to employment and self-employment income and the net investment income tax; the impact of the change in the taxation of profits interests; and the effect of the new rules on firms engaged in different types of activities such as investment, personal services, and  capital intensive trades and businesses.

12:15 p.m. - 1:30 p.m.
Luncheon (included in registration)
 
Keynote address by Dana L. Trier (Davis Polk & Wardwell; Former Deputy Assistant Secretary for Tax Policy in the U.S. Treasury Department (2017-18))
1:30 p.m. - 3:30 p.m.
Program (2 hrs.)   Recent Tax Law Changes
Johnny Lyle (Adams and Reese LLP, Mobile, Alabama); Cristin Conley Keane (Carlton Fields P.A., Tampa, Florida); Sarah E. Ralph (Skadden, Arps, Slate, Meagher & Flom LLP,  Chicago, Illinois)
This panel will discuss issues affecting LLC practitioners due to recent tax law changes. Among the topics addressed will be direct and indirect impacts of provisions found in the Tax Cuts and Jobs Act and other recent tax legislation and guidance including (1) changes to 1031 like/kind exchange rules, partnership technical terminations, partnership basis rules, and nonshareholder contributions to capital, and (2) new provisions such as Qualified Opportunity Zones. The panel will also discuss drafting considerations created by the partnership income tax audit rules that went into effect January 1, 2018.
 
3:30 p.m. – 3:45p.m.
Break
3:45 p.m. - 5:30 p.m.
Program (1.75 hrs.) Beneficial Ownership Reporting

Garth Jacobson (CT, a Wolters Kluwer business, Seattle, Washington); Cari Stinebower (Crowell & Moring LLP, Washington, DC); Kevin L. Shepherd (Venable LLP); US Senator Sheldon Whitehouse (invited); Sarah Runge, Credit Suisse, (recently retired Director, Office of Strategic Policy, Terrorist Financing and Financial Crimes US Dept. of Treasury)  Howard Mendelsolm, Chief Client Officer Kharon  (Formerly with US Dept of Treasury 2001 - 2011)

 

This program will address the issues and latest legislative developments related to business entity beneficial ownership disclosure. This is a chance to learn the latest on this hot topic about anti-money laundering efforts and stopping terrorist financing while balancing the interests of entrepreneurs and business entities.
 
6:00 p.m. - 7:00 p.m.
Cocktail Hour – Cash Bar
7:00 p.m. - 9:00 p.m.
Lubaroff Award Dinner - (this event is a separately ticketed event - obtain through the registration process)
 
Friday, October 12, 2018
 
7:30 a.m. - 8:00 a.m.
Breakfast (included in registration)
 
8:05 a.m. - 10:05 a.m.
Program (2 hrs.) Delaware and Bankruptcy Case Law Update
Lou Hering (Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware); Tammy Mercer (Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware); James J. Wheaton (Boston University School of Law, Boston, Massachusetts)
This panel will discuss recent LLC and partnership cases from Delaware on various topics of significance, including cases dealing with fiduciary duties, the implied covenant, dissolution and cases illustrating pitfalls in drafting operating agreements. Jim Wheaton will provide an update on recent bankruptcy decisions of interest.

10:05 a.m. - 10:15 a.m.
 
Break
10:15 a.m. – 12:15 p.m.
Program (2 hrs.) Derivative Actions
Moderator: Warren Kean (Shumaker, Loop & Kendrick, LLP, Charlotte, North Carolina)
Panelist: Professor Deborah DeMott (Duke); Brock Czeschin (Richards Layton & Finger, Wilmington, Delaware)
This panel will discuss the history of derivative actions and their pre-emptive application in the context of limited liability companies and partnerships, particularly with respect to the legal standing of members to bring legal and equitable claims for the alleged breach of an LLC’s operating agreement (or the partnership agreement of a partnership).  Another case of unmindful “corporification” of LLCs and partnerships?  The panel will explore the fundamental differences between corporations and LLCs/partnerships particularly under Delaware law (and similar, contractarian law of LLCs of other states), how those fundamental differences may be being overlooked by lawyers and judges when determining the standing of members to seek redress for other members and those who manage LLCs, and how matters concerning direct and derivative claims should be addressed in operating and partnership agreements.
 
12:15 p.m. - 12:45 p.m.
Luncheon: Working Committee Meeting (included in registration)
12:45 p.m. - 2:45 p.m.
Program (2.0 hrs.) Ethics: The Top 15 Things Your Ethics Counsel-Risk Manager Hope You Know (and Hopefully Remember)
A.J. Singleton (Stoll Keenon Ogden PLLC, Lexington, Kentucky); Professor Nancy J. Moore (Boston University School of Law, Boston, Massachusetts)
This panel will discuss “The Top 15 Things Your Ethics Counsel-Risk Manager Hope You Know (and Hopefully Remember)”  No matter how long we’ve practiced, we all need reminders.  This program will identify some of the recurring legal ethics issues that practicing attorneys face, and will provide some practical solutions along the way.  It will also show how compliance with the Rules of Professional Conduct is also good risk management. 
 
2:45 p.m. – 3:00 p.m.
Break
3:00 p.m. - 4:30 p.m.
Program (1.5 hrs.) Charging Orders
Jay Adkisson (Las Vegas, Nevada)  
Panelists: Lou Conti (Holland & Knight LLP, Tampa, Florida); Diana Espanola (Espanola Law, LLC, Cambridge, Massachusetts); John L. Williams (Williams Law Firm, Wilmington, Delaware); Thomas E. Rutledge (Stoll Keenon Ogden PLLC, Louisville, Kentucky); Lisa Jacobs (DLA Piper, Philadelphia, Pennsylvania)
This panel will discuss hot-topics in LLC charging order law, including procedural issues, representing the LLC in charging order situations, the LLC member in bankruptcy, and tax issues arising from the charging order and foreclosure from the viewpoints of the debtor, the creditor, and the LLC.
4:30 p.m. - 5:00 p.m.
Wrap-Up

Thursday, September 6, 2018

Yet Another Court Holds That An LLC Must Be Represented By An Attorney

Yet Another Court Holds That An LLC Must Be Represented By An Attorney

      Continuing a long string of decisions, in a recent decision, the Louisiana Court of Appeals held that an LLC must be represented by legal counsel and may not be represented by its sole member. In Re The Rouge House, LLC, 246 So.3d 580 (La. Ct. App. 4th Cir. 2018).
      In this instance, the member of an LLC sought to appeal the denial of a liquor license to her wholly owned LLC. Rejecting her ability to do so, the court wrote:
Rouge House, as a limited liability company, is a separate and distinct entity from Riley. Riley cannot represent Rouge House on appeal, as she is not an attorney. Instead, Rouge House must be represented by counsel.

Wednesday, September 5, 2018

Are You At Risk of Administrative Dissolution?


Are You At Risk of Administrative Dissolution?

      If your corporation, LLC or other business entity has not filed its 2018 annual report with the Kentucky Secretary of State, it is subject to being administratively dissolved. That dissolution will take place on September 10 unless the annual report is filed.
      Completing the annual report will take just a few minutes; it is literally the size of a postcard. The filing fee is $15.00.
      Alternatively, if your company is dissolved, and would need to be reinstated, the filing fee is $115.00, and you can expect to run up at least several hundred dollars in legal fees getting the company reinstated.
      Only one of those is a cost-effective option.
      You can check to see if your annual report has been filed on the Secretary of State’s website. If the annual report has not been filed you may file it electronically. HERE IS A LINK to that website.

Friday, August 31, 2018

The Passing of Henry V


The Passing of Henry V

      Today marks the anniversary of the passing, in 1422, of King Henry V of England. Things would go essentially downhill from there.
      The victor of Agincourt would be succeeded by his 9 month old son, henceforth named Henry VI. His was not a pleasant succession. England fell into dissension with factionalism among various nobles as to who, during Henry VI’s minority, would rule the country. Meanwhile, from the heights of success in the Hundred Years War at Agincourt, leading to the marriage of Henry V to Catherine of Valois, daughter of Charles IV, King of France. Charles would also name Henry V as his heir. While Henry VI would be formally crowned King of France, in reality he was not. Rather, over his reign, and notwithstanding his marriage to Margaret of Anjou, an effort to further solidify the claim on the French throne, the French would push England out of the country save for the remaining toehold in Calais.
     The weakness of Henry VI, combined with significant acrimony between the English nobility generally and Margaret of Anjou, would precipitate what is today referred to as the War of the Roses (at the time typically referred to as the “Cousins War”). Ultimately, Henry VI would be deposed by Edward IV assisted by Richard Neville, Earl of Warwick and a/k/a “the Kingmaker.”
      Today is as well the anniversary of the birthday of the Roman Emperors Caligula and Commodus.
      All in all, it’s just not a good day in the terms of historical events.

California to Impose Gender Requirements on Boards of Publicly Held Companies


California to Impose Gender Requirements
on Boards of Publicly Held Companies

      The California legislature has passed, and there has been sent to the governor for either approval or a veto, a new law governing gender composition of certain boards of directors. The new law (assuming it is enacted) is applicable to publicly traded securities that are either (a) incorporated or organized in California or (b) are a foreign entity with its principal place of business in California. For those companies, by not later than December 31, 2019, the company must have at minimum one female director. Then, for that same class of companies, not later than December 31, 2021, the company must have a number of female directors set by sliding scale: (i) if the company has four or fewer directors, one female director; (ii) if the company has five directors, it must have a minimum of two female directors; and, (iii) if the company has six or more directors, it must have a minimum of three female directors.
       Companies are required to submit a report to the California Secretary of State with respect to their compliance with these new requirements. The law imposes significant penalties for any “failure to timely file board member information.” Those fines are $100,000 for the first violation and $300,000 for each subsequent violation.
       The penalty provision here is somewhat curious. The fines are imposed for failure to file the report, rather than the failure to comply with the board composition requirements. As written, it would appear that a company could be out of compliance with the board composition requirements, file an accurate report indicating it is out of compliance, and not be subject to the fine. Put another way, it is not clear that the statute includes an enforcement mechanism as to the minimum female board member composition obligation.
      It bears noting that this obligation is applicable to publicly traded companies with her principal place of business in California. At least some of those companies are going to be organized outside of California, often in Delaware. California holds the view that it may impose substantive corporate law requirements on companies doing business in California irrespective of where organized. I would not be surprised if litigation ensues over California’s efforts to impose its substantive corporate law on companies organized in other jurisdictions.

      HERE IS A LINK to the statute.

Thursday, August 30, 2018

Sixth Circuit Interprets Take Or Pay Contract


Sixth Circuit Interprets Take Or Pay Contract

      In the decision rendered earlier this month, the Sixth Circuit Court of Appeals was called upon to characterize a “take or pay” provision in a supply contract. In this instance, the court found that the agreement was to be characterized as one offering either performance or a liquidated damages provision. Hemlock Semiconductor Corp v. Kyocera Corp., No. 172276, 2018 WL 3949110 (6th Cir. August 16, 2018).
      Kyocera entered into a contract with Hemlock pursuant to which Hemlock would sell to Kyocera polysilicon to be used in the construction of solar panels. The contract they entered into contained a so-called “take-or-pay” provision under which Kyocera was required to purchase a specified quantity of polysilicon each year or, in the alternative, pay full price for the product not taken. In effect, Kyocera was required to buy the fixed quantity irrespective of whether it needed the product. The contract as well contained an acceleration provision providing that, in the event of Kyocera’s default, it would be required to pay to Hemlock the total amount that would be paid over the contract’s remaining term.
      The contract fell victim to macroeconomic developments.
Several years into Kyocera and Hemlock’ deal, the Chinese government disrupted the solar-panel market by subsidizing Chinese solar-panel companies. This intervention reduced the market price of polysilicon such that the price Kyocera agreed to pay Hemlock was far greater than the going rate.
      Efforts to renegotiate the agreement were ultimately unavailing, and Hemlock filed suit seeking a declaratory judgment that Kyocera had repudiated the contracts by indicating it would no longer perform under the take or pay provision. Kyocera counterclaimed, arguing that the “pay” aspect of the take or pay provision is an unlawful penalty as is the acceleration provision. The trial court dismissed Kyocera’s claims, and this appeal followed. The Sixth Circuit characterized the question as follows:
[T]he key question is whether the take-or-pay provision offer Kyocera two viable performance options, on the one hand, or one performance option coupled with a liquidated damages provision, on the other. If the former, the take-or-pay provisions are enforceable as written. If the latter, the question becomes whether the “pay” option quantifies lawful liquidated damages or an unlawful penalty. If the payment obligation is a penalty, it is unenforceable - regardless of what the parties’ contract labels it. 2018 WL 3949110, *2 (citations omitted).
      The court would find that contract should be characterized as one involving a performance option coupled with a liquidated damages provision. From there, it assessed the “pay” option under liquidated damage jurisprudence, assessing whether it truly is liquidated damages or the nature of a penalty. It would ultimately determine that the “pay” should be characterized as an impermissible contract penalty. That determination was based largely upon the economics of the transaction. For example, under the “pay” option, while Hemlock would receive 100% of the contract amount, it would never incur the costs of production.
      Kyocera’s challenge to the acceleration clause, which had likewise been dismissed by the trial court, was dismissed as well by the Sixth Circuit, it finding a lack of ripeness.

Wednesday, August 29, 2018

LLC’s Members Waived Limited Liability, Held Liable on LLC’s Debts and Obligations


LLC’s Members Waived Limited Liability,
Held Liable on LLC’s Debts and Obligations
     In a decision rendered last Friday, the Kentucky Court of Appeals affirmed a determination that, consequent to the wording of a particular operating agreement, the members in the LLC assumed and are liable to satisfy the LLC’s debts and obligations. VanWinkle v. Walker, No. 2016-CA-000097-MR, 2018 WL 404-3388 (Ky. App. August 24, 2018).
     VanWinkle, Walker and Crawford formed TLC Developers, LLC in 2004, executing an operating agreement in connection therewith. That operating agreement provided, in part:
The profits and liabilities of the Company shall be divided as follows: Carl David Crawford = thirty-three and one third  (33 1/3%), Lyle A. Walker = thirty-three and one third (33 1/3%) percent and Troy Van Winkle [sic] thirty-three and one third (33 1/3%).
     When the company fell upon hard times, Walker and Crawford contributed additional amounts in order that the company could meet its business expenses. As recited by the court, “in their view, in the event TLC did not have the cash on hand to pay the liabilities itself, the operating agreement mandated that the three members would pay the liabilities of TLC equally.” VanWinkle did not make those contributions, apparently of the belief that the operating agreement did not require him to do so. He did, however, on two occasions contribute one-third of the amount necessary to satisfy TLC’s property taxes.
     Ultimately, Walker and Crawford filed a complaint seeking a declaration of rights with respect to the obligation to satisfy TLC’s liabilities and the interpretation of the operating agreement. After a bench trial, the circuit court held that “the operating agreement unambiguously stated that the three members agreed to split the liabilities of the company in thirds,” and ultimately ordered VanWinkle to pay $87,300 has his share of the company’s liabilities. This appeal followed.
     VanWinkle had essentially two arguments. First, the operating agreement, and the LLC Act, protected him from liability for the LLC’s debts and obligations. Second, he would argue that personal liability for the LLC’s debts and obligations is antithetical to the very notion of an LLC and for that reason could not be enforced. Both arguments would fail.
     While the operating agreement recited that the members enjoyed limited liability from the debts and obligations of the LLC, essentially repeating the language of KRS § 275.150(1), the court went on to note, however, that while not recited in the operating agreement, the LLC Act continues with KRS § 275.150(2), which provides:
Notwithstanding the provisions of subsection (1) of this section, under a written operating agreement or under another written agreement, a member or manager may agree to be obligated personally for any of the debts, obligations, and liabilities of the limited liability company.
     Applying this language, the court found that “that is exactly what TLC’s members did when they agreed to split the liabilities of the company in the ‘Division of Profits and Liabilities' provision.” of the operating agreement.
      As for the argument that imposition of liability for company obligations is  antithetical to the very notion of an LLC, the court noted as well KRS § 275.003(1), it providing that it is the public policy to give maximum effective principle of freedom of contract and the enforcement of operating agreements. As to this point, the court wrote:
While holding the members personally liable for the TLC’s liabilities may seem contrary to the very point of establishing an LLC, it adheres to the intent of the General Assembly: namely, to allow business partners the freedom to contract and establish an LLC that fits the needs of the respective members. Here, following a meeting of the minds, TLC’s three members each decided to split the liabilities of the company in equal shares.

Tuesday, August 28, 2018

Manager’s Efforts To Graft Prior Notice Into Operating Agreement Rejected


Manager’s Efforts To Graft Prior Notice Into Operating Agreement Rejected

      In a recent decision from the Delaware Chancery Court, it rejected the assertion of a removed manager that it’s removal for cause was ineffective because it had not received notice that it was to be removed, an explanation as to why or the opportunity to respond to the allegations. Rather, the court applied the operating agreement as written; it contained none of those requirements. Re: A&J Capital, Inc. v. Law Office of Krug, C.A. No. 2018-0240-JRS, 2018 WL 3471562 (Del. Ch. July 18, 2018).
      A & J Capital, Inc. (“A & J”) served as a manager of LA Metropolis Condo I, LLC (“LAMC”). Under the LAMC operating agreement, a majority of the members thereof could remove A & J for “gross negligence, intentional misconduct, fraud or deceit.” Those same members, after the removal of the manager, had the right to appoint a new interim manager. In this instance, after A & J was removed, the Law Office of Krug was appointed as that new interim manager.
      After majority of the members of LAMC voted to remove A & J is the manager, they delivered to A & J notice of that action. A & J, objecting to its removal, asserted that in that the operating effectively required that he could be removed only for cause, he was entitled to pre-removal notice and an opportunity to challenge that assertion.
      Cutting to the chase, after noting that an operating agreement typically will provide those procedural protections when desired, “in the absence of such provisions, the Court will not infer them or rewrite the contract to include them.” 2018 WL 3471562, *3.
      A & J’s reliance upon corporate law requiring, where a director is to be removed for cause, that there be notice and opportunity to be heard, was rejected on the straight forward basis that LLCs are not corporations.
      In that neither notice nor opportunity to object were written into this operating agreement, the court refused to write those provisions, for which there had never been negotiation, into the agreement.