Recapping the 2018 LLC Institute

 

Recapping the 2018 LLC Institute

 

The 2018 LLC Institute (Day 1)

 

Notwithstanding the hurricane then working its way through the south-east, the first day of the 2018 LLC Institute convened on Thursday morning. While a great number of familiar faces were distributed throughout the room, it was great seeing so many new faces. Hopefully they found the the LLC Institute to be a great presentation and will be back with us in future years.

 

After introductory remarks from Chair Garth Jacobson, the morning began with the Case Law Review chaired by Professor Beth Miller, she joined by Sean Ducharme, Dan Sheridan and Kelley Bender. As always there were more cases reviewed in the materials than there was time to discuss. Regardless, the highlighting of particular factors from cases around the country brought everyone up to speed on how things can go wrong, even in the face of an operating agreement or statute that (on its face) enables the conduct in question. Furthering the discussion of Allison v. Erickson, Peter Mahler described a case in which the trial court seemed to have ignored distinctions between statutes and disapproved a squeeze out merger that was effected in accordance with the controlling statute.

 

Beth Miller, in response to a discussion of dissolution and cases reviewed by Kelley Bender, suggested that we at an upcoming institute do a program on dissolution. To quote Yul Brynner, “So let it be known, so let it be done.”

 

By the way, Peter Mahler’s blog, New York Business Divorce, should be on your reading list.

 

As you know, the October LLC & Partnership Reporter distributed last did not contain the case law review materials as they were still in the works so that they could be as up to date as possible. Be looking next week for a distribution of a substitute Reporter containing all of those materials.

 

The second morning panel, Tax & Choice of Entity, featured Bob Keatinge and Steve Schneider. Unless you have been living in a cave cut off from the news for the last year (in which instance I am most jealous), you know that the 2017 amendments to the federal tax code have significantly altered the choice of entity calculus, often making “back of the envelope” assessments questionable. The program began with a caveat - tax laws can and do change, and we can today only assess based upon what is the law today. No promises as to what could change tomorrow (or even later today).  From there the presentation addressed the application of section 199A. Steve suggested that companies and their owners consider reorganization only after the 2018 tax return is filed; only then will the application of the 2017 changes to a particular venture be clear. Also reviewed was the application of section 1202 to the choice of entity question, requiring a comparison of current returns versus an anticipated exit. The complexities of section 199A were then reviewed in detail.

 

At lunch we began with the presentation to Peter Hutcheon of the Committee’s Content Award that all else being equal would be named after Beth Miller. Highlighted were his long tenure as the Editor of what was then the PUBOGRAM, his work on legislative drafting committees in his home state of New Jersey and on the uniform acts with which we have been involved, his participation in Committee seminars as well as other ABA committees, and his Over 30 columns. Peter’s remarks focused on his foundation of the PUBOGRAM and the challenge in the early years to collecting materials (it is now much easier). Laura Holoubek wrote of Peter’s receipt of this recognition:

 

Peter -

 

Let me start by saying I can neither speak nor write like Peter.

 

Peter was one of the first people I met on the Committee after being introduced to the Committee by Tom Rutledge.

 

Beyond his incredible intellect, extensive reading, historical knowledge and ability to turn a phrase (in a way I often don’t understand), Peter is a genuine, kind, interested and engaging person. Not just a lawyer’s lawyer dedicated to service to his clients but a great person and friend.

 

As a new committee member I always looked forward to Peter’s thoughtfully edited Pubogram as a primer and reminder of all that I didn’t know and needed to learn. His final words in the Pubogram were my favorite. Even if I had to go look up some things. Or all the things.

 

Perhaps more importantly Peter and Barbara have become my good friends. He and Barbara have been so kind and inclusive since my first meeting.

 

We share a love of not just wine but horses and horse racing. Today they do a better job of keeping up with and watching current racing events than I do. It is always fun to receive their emails before or after a big race and know of their excitement and rooting interests.

 

As to contributing content to the committee and to the bar at large, I cannot imagine a more deserving recipient.

 

Congratulations Peter. Thank you for your kindness and friendship!

 

Laura Holoubek

 

 

The lunch continued with a keynote address from Dana Trier. After an introduction by Lou Conti, Dana provided his insights as to the tax changes made in 2017. Having participated in the crafting of those provisions, he explained the policy decisions and their place in the broader context of tax policy, the federal budget and the economy generally. He as well touched upon certain proposals, an example being section 1402 and classification for employment tax purposes, that were in the early draft but which ended up on the cutting room floor by the time of the final package. He joked about the anticipated section 162(j) regulations, questioning whether they will be 500 pages or only 450 pages. As for that final product, he did observe “It could have been much worse.”

 

Lunch was closed out with wishing Cristin Keane a most happy birthday.

 

The afternoon began with a program by Johnny Lyle and Cristin Keane on other tax law changes. Expanding on the discussion from the morning’s tax program, they reviewed in detail topics including opportunity zones and the now effective partnership audit rules.

 

The last program of the day was about beneficial ownership reporting. Garth Jacobson, chair of the program, was joined by Senator Whitehouse and a crack panel of participants in the ongoing debate as to whether and how beneficial ownership should be reported. After the Senator’s remarks there was a frank exchange of views as to whether beneficial ownership reporting will be effective. A recurring comment was to the effect the criminals are willing to violate the law (its in the job description), and they are going to file misleading beneficial ownership reports. From there we turned to comments from the other participants, Kevin Shepherd leading the way by explaining the alphabet soup (e.g., FATF) of this area. You just have to love the DNFBP; Designated Non-Financial Business and Professionals. FYI, attorneys are DNFBPs. In response to a question about the scope of the latest Geographic Targeting Order, which has not been published, and compliance therewith, it was explained that Treasury has reached out of everyone subject to it; if you were not contacted you need not comply with it. There was a debate, sometimes heated, regarded the viability of a variety of elements of beneficial ownership reporting.

 

The day ended with the Martin I. Lubaroff Dinner at which an entirely unworthy recipient of the Lubaroff Award was well roasted. Jim Wheaton with free time is a dangerous thing, but Beth Miller stole the show. The evening closed with a vigorous curling match (you needed to be there; too difficult to explain).

 

The 2018 LLC Institute (Day 2)

 

The second day of the 2018 LLC Institute began with the Delaware / Bankruptcy Case Law Review chaired by Lou Hering and including as well Tammy Mercer and Jim Wheaton. Jim’s presentation reviewed a variety of issues including what assets are in the estate and the current status of bankruptcy remote structures. Lou and Tammy reviewed cases on LPs and LLCs from the last year, explaining how they are clear and easily reconcilable (yeah, right). Actually they remarked on how different cases, sometimes even from the same judge, can and have come to different conclusions, typically based upon even slight changes in the language between the controlling agreements.

 

The second panel of the morning, chaired by Warren Kean and included Brock Czeschin and Professor Deborah Demott, was on derivative actions in LLCs. Having Professor DeMott present is an aspect of our efforts to bring in the leading academic authorities to share their insights. As well, hopefully, our questions will hopefully inform their work going forward. I would note as well the Professor Robert Thompson came to the Institute for this one program; we were glad to welcome him to our proceedings. Warren began the program by “I’m confused and I’m here to get less confused.” Professor DeMott began the presentation with a review of the history of derivative actions and how courts have oft found standing to bring a representational action absent a statute to that effect. Brock reviewed where is Delaware law as to what is a direct action, what is a derivative action, and what is a mixed case. Warren emphasized the contractual nature of LLCs and the need ab initio to review the operating agreement to assess what rights the members, individually and jointly, hold. Only then can there be an assessment of whether the claim may be direct even if absent the agreement it would be derivative.

 

We held a a general Committee meeting over the lunch break. It featured a presentation to Katie Koszyk. Katie is the ABA/BLS staff member who provides above and beyond support for all our activities, and she is integral to the event. As well, there was delegated to Scott Ludwig and me the authority to on behalf of the Committee give approval to the final Fundamental Principles on Beneficial Ownership Reporting and the related resolution being proposed to the House of Delegates.

 

The first session of the afternoon addressed legal ethics. AJ Singleton and Professor Nancy Moore presented 15 Topics Your Risk Management Partner Wishes You Would Remember. The presentation was focused upon the problems faced by transactional (rather than litigators) attorneys, including “who is the client,” a problem of particular concern during the pre-formation stage. Other topics included engagement letters and security in client communications. The application of Rule 4.2 in the days just before a deal closes vis-a-vis the emails where an attorney has included her or his clients in the cc: and the “reply to all” was reviewed.

 

The last panel was on Charging Orders. The program was chaired by Jay Adkisson, author of the Charging Order Practice Guide. Along with Lou Conti, Lisa Jacobs, John Williams and the undersigned, the oft confusing aspects of the remedy were reviewed.

 

Our annual Brigadoon now concluded, we dispersed to catch planes, trains and automobiles.

 

Epilogue

 

Planning for 2019 LLC Institute has already begun. Shortly there will be meetings to discuss the dates and location. That information will be distributed as soon as it is available. Again, if you have ideas for programs, please send them to Garth Jacobson or Christina Houston.

 

 

TER