We all know that memory is fickle. We have all heard about people falsely convicted based on eye-witness testimony. Any attorney who has tried a case with witnesses knows that what one remembers and what actually happens do not always coincide.
This fascinating article from the New York Times tells us more about how this works and how our memory plays tricks on us. I found it fascinating. I hope you do too. I plan to keep a copy for future reference.
http://www.nytimes.com/2011/11/29/health/the-certainty-of-memory-has-its-day-in-court.html?_r=1
Wednesday, November 30, 2011
Monday, November 28, 2011
The False Romance of Owning Your Own Business
I commend this article from the Sunday New York Times to you. It is witty, perceptive and cautionary: Starting a business-the romance vs the reality. Little in most people's work experience prepares them for the demands of starting and running a successful business. The rewards are there, true. These include the psychic benefit of being your own boss. But being the boss means you have to pay the bills, and worry about meeting payroll.
True, the financial rewards of owning your own business are unique. The profit you make is yours, at least after taxes. And business owners have tax deductions that others may not have. They have the privilege of deciding for themselves how the business is run. But the flip side is that business owners take the risks.
Running and building a business requires time, care, knowledge and attention. It is really a full-time (if not seven day a week) job. As I've written elsewhere, the easiest thing to do as a business owner is make mistakes. See www.nv-njlaw.com- a business owners guide to avoiding bankruptcy/ Successful business owners have learned to be careful, to attend to details, to know their market and their competition, and to hire and supervise the right support staff. Most importantly, they know when and how to get qualified legal and financial advice. For more about this subject, visit our website at http://www.southjerseybankruptcylaw.com/
True, the financial rewards of owning your own business are unique. The profit you make is yours, at least after taxes. And business owners have tax deductions that others may not have. They have the privilege of deciding for themselves how the business is run. But the flip side is that business owners take the risks.
Running and building a business requires time, care, knowledge and attention. It is really a full-time (if not seven day a week) job. As I've written elsewhere, the easiest thing to do as a business owner is make mistakes. See www.nv-njlaw.com- a business owners guide to avoiding bankruptcy/ Successful business owners have learned to be careful, to attend to details, to know their market and their competition, and to hire and supervise the right support staff. Most importantly, they know when and how to get qualified legal and financial advice. For more about this subject, visit our website at http://www.southjerseybankruptcylaw.com/
Sunday, November 27, 2011
"The Social Network"- a movie with some important business lessons
I just finished watching The Social Network, which if you do not already know is about Mark Zukerberg, one of the co-founders of Facebook. It is really a flashback to his days at Harvard, set against the deposition testimony he and others were giving in the two lawsuits filed against him by (1)Eduardo Saverin, his best friend and original business partner, and (2) by Cameron and Tyler Winklevoss, preppy Harvard students who thought he had agreed to develop their proto-Facebook concept.
The story holds many lessons for today's entrepreneurs. Zukerberg's failings (he still ended up a billionaire) are emblematic of the challenges and mistakes many small business people make. Here is my take on the lessons.
1. Know your limitations and the value of trusted associates whose strengths are your weaknesses. Zukerberg is protrayed as a brilliant geek. In truth, he had low "interpersonal intelligence". This is revealed in the opening scene where his girlfriend, fed up, leaves him. Zukerberg cannot read people. As such he fails to recognize the value of his best friend Eduardo, a business major, and fails to see the true character of the flamboyant Sean Parker (the founder of Napster). He is easily manipulated by Parker (brilliantly portrayed by Justin Timberlake) and by the venture capitalists Sean brings to the table.
Someone once told me that the successful law firm has four partners, the finder, the minder, the grinder and the binder. The first three are obvious. The fourth keeps the other three from killing each other. The point is that a successful venture needs multiple skill sets that rarely are combined in one person. A successful entrepreneur needs to understand her own limitations, and the importance of bringing in those who have the missing skills.
2. Be careful what you promise, but carefully put into writing the agreements and understanding with your business partners. Zukerberg make statements to the Winklevosses that led them to believe he was working with them. He then ignored repeated emails from them asking how he was doing with their project. Had Zukerberg been someone different, he would have treated these fellow students with the directness, honesty and respect they deserved. Had he leveled with them, and had he offered them some small percentage of his project, or told them right away he was unable to help them, maybe he would have avoided the expensive settlement and legal fees that ensued.
3. Develop relationships early on with the right professionals, especially attorneys. Both Zukerberg and Eduardo failed to seek independent legal counsel when it could have helped them. Had they spent a small amount of time and money to meet with an attorney early on, they might have known more of what was coming. But like many people, they sought legal counsel only when things had gotten out of hand. In Zukerberg's case, his attorneys defending the litigation finally had to explain to him why he had to settle. By that point in the movie, that this was the right call was painfully obvious. The lesson: find a trusted and qualified legal adviser early on. An initial meeting with an attorney is usually the best value the legal profession has to offer. And developing that relationship early makes it easier and more natural to seek advice when it is needed. In matters of business, ignorance is not bliss. Zukerberg was brilliant as a programmer, but woefully lacking in the most important knowledge of all, awareness and appreciation of ones own failings and ignorance. Arrogance and inexperience in his case resulted in a lot of expensive mistakes.
One final note. In The Social Network, everything turned out all right because Facebook was so wildly successful that there was enough money to go around, and to pay settlements, leaving Zukerberg still a billionaire. But most start up businesses are not so wildly successful. The kinds of infighting and litigation Zukerberg faced would destroy most businesses. Failing to heed the lessons of The Social Network would for most of us be the real tragedy.
The story holds many lessons for today's entrepreneurs. Zukerberg's failings (he still ended up a billionaire) are emblematic of the challenges and mistakes many small business people make. Here is my take on the lessons.
1. Know your limitations and the value of trusted associates whose strengths are your weaknesses. Zukerberg is protrayed as a brilliant geek. In truth, he had low "interpersonal intelligence". This is revealed in the opening scene where his girlfriend, fed up, leaves him. Zukerberg cannot read people. As such he fails to recognize the value of his best friend Eduardo, a business major, and fails to see the true character of the flamboyant Sean Parker (the founder of Napster). He is easily manipulated by Parker (brilliantly portrayed by Justin Timberlake) and by the venture capitalists Sean brings to the table.
Someone once told me that the successful law firm has four partners, the finder, the minder, the grinder and the binder. The first three are obvious. The fourth keeps the other three from killing each other. The point is that a successful venture needs multiple skill sets that rarely are combined in one person. A successful entrepreneur needs to understand her own limitations, and the importance of bringing in those who have the missing skills.
2. Be careful what you promise, but carefully put into writing the agreements and understanding with your business partners. Zukerberg make statements to the Winklevosses that led them to believe he was working with them. He then ignored repeated emails from them asking how he was doing with their project. Had Zukerberg been someone different, he would have treated these fellow students with the directness, honesty and respect they deserved. Had he leveled with them, and had he offered them some small percentage of his project, or told them right away he was unable to help them, maybe he would have avoided the expensive settlement and legal fees that ensued.
3. Develop relationships early on with the right professionals, especially attorneys. Both Zukerberg and Eduardo failed to seek independent legal counsel when it could have helped them. Had they spent a small amount of time and money to meet with an attorney early on, they might have known more of what was coming. But like many people, they sought legal counsel only when things had gotten out of hand. In Zukerberg's case, his attorneys defending the litigation finally had to explain to him why he had to settle. By that point in the movie, that this was the right call was painfully obvious. The lesson: find a trusted and qualified legal adviser early on. An initial meeting with an attorney is usually the best value the legal profession has to offer. And developing that relationship early makes it easier and more natural to seek advice when it is needed. In matters of business, ignorance is not bliss. Zukerberg was brilliant as a programmer, but woefully lacking in the most important knowledge of all, awareness and appreciation of ones own failings and ignorance. Arrogance and inexperience in his case resulted in a lot of expensive mistakes.
One final note. In The Social Network, everything turned out all right because Facebook was so wildly successful that there was enough money to go around, and to pay settlements, leaving Zukerberg still a billionaire. But most start up businesses are not so wildly successful. The kinds of infighting and litigation Zukerberg faced would destroy most businesses. Failing to heed the lessons of The Social Network would for most of us be the real tragedy.
Friday, November 18, 2011
One person's thrift is another's unemployment.
I found this recent New York Times article thought provoking.
"As graduates move back home economy feels the pain." As it says, when adult children move in with their parents to save money many others lose out and the economy is deprived of the revenues that spending on forming a new household bring.
"As graduates move back home economy feels the pain." As it says, when adult children move in with their parents to save money many others lose out and the economy is deprived of the revenues that spending on forming a new household bring.
I see the point as being that until people start feeling sure of themselves financially, this will continue to go on. In this article, one young man is saving his money to buy a home someday. But like many others, including the wealthy, he is holding back waiting for the right signals to start buying.
Until the real estate market stabilizes this is going to be a recurring problem. Meanwhile we are still seeing people who are unsure which way to move going forward. Many people are looking to mortgage modifications as a way out short of bankruptcy. Efforts to make the mortgage modification process more predictable and user friendly would go a long way to getting the nation back on its feet.
For more about the ways people can get back on their feet, please visit our website at http://www.nv-njlaw.com.
Friday, November 11, 2011
The Third Circuit Issues a Warning to Lawyers: Do Not always accept everything your clients tell you.
In In re Taylor, 655 F.3d 274 (3d Cir. 2011), the Third Circuit Court of Appeals upheld sanctions imposed on lender’s counsel who too blithely and too blindly relied on inaccurate information from its client. In doing so, that Court helped better set the line that attorneys should not cross. The case is a warning to all attorneys about their professional obligations to verify and question what their clients are telling them. It is also as sign of our times, and the mortgage mess we are in.
The case arose from a Chapter 13 Bankruptcy filed by the Taylors. HSBC held the mortgage on their home. HSBC’s counsel, the Udren Law Firm, and its experienced managing attorney filed a request for relief from the automatic stay so as to permit HSBC to pursue foreclosure proceedings despite the bankruptcy filing. As a secured creditor, HSBC had filed a proof of claim. The Taylors filed an objection to that proof of claim. It was how HSBC’s attorneys handled these matters and the representations they made to the court that got them in trouble.
The Taylors had an ongoing payment dispute with HSBC. This arose when HSBC claimed that the Taylors’ home was in a flood zone, obtained "forced insurance" for the property and added the expense to the Taylors’ monthly mortgage payment. The Taylors disputed the additional cost but continued to make their previous regular payments. HSBC refused to acknowledge that the Taylors were making full monthly payments and instead treated them as partial payments, leaving the Taylors further in arrears each month.
After the bankruptcy filing, the managing partner for the Udren Law Firm, Doyle, filed a motion for relief from the automatic stay in which she stated that since the bankruptcy filing the Taylors had not made any payments. The attorney filing this motion relied on a computerized system called "NewTrak" that was processed through a third party. The information supplied to HSBC’s counsel through this system was limited to the loan number, the name and address, payment amounts, late fees and amounts past due. The attorneys initially proceeded with the motion without any knowledge or information that, in fact, there had been a pending dispute about the payments.
This was not the only problem with the motion filed by HSBC’s counsel. The monthly payment amount was inconsistent with the proof of claim HSBC had earlier filed through another firm. Also, the motion papers said that the Taylors’ home had "inconsequential or no equity", something that was later established to have had no basis in fact.
HSBC’s counsel did nothing to verify the information in the motion besides a check of the "screen prints" from the NewTrak information.
The Taylors responded to this motion with documents including cancelled checks which indisputably showed that HSBC’s papers were mistaken in important respects.
The Taylors also filed an objection to HSBC’s proof of claim which detailed the ongoing disputes over flood insurance and pointing out the obvious inaccuracies and inconsistencies in HSBC’s papers. Despite this clear documentation that HSBC’s papers were inaccurate, HSBC’s counsel nevertheless filed a pro forma response reiterating that all figures in the proof of claim were accurate and the charges claimed were contractually correct. While this was ongoing, HSBC’s counsel had served admission requests on the Taylors which they had failed to respond to within the required thirty day period. These requests for admissions sought an admission of statements that were clearly false, namely that the Taylors had made no mortgage payments and had no equity in their home.
When the matter came on for hearing, HSBC’s counsel sent a junior associate whose response to pointed questioning was to ask the court to rely on the Taylors’ failure to respond to the request for admissions. The associate initially sought to have the request for admissions admitted as evidence, even though he knew they contained falsehoods. The court initially directed that counsel obtain an accounting from HSBC. At the next hearing, the same junior associate admitted that he could not obtain any accounting from HSBC and was literally unable to contact it to verify information.
The bankruptcy court issued an Order to Show cause for potential sanctions against HSBC and its counsel, ordering the associate, his managing attorney who had filed the motions, the senior partner of the firm and others to appear and give testimony. After a hearing, the bankruptcy court imposed sanctions on HSBC, the law firm, the managing attorney, and the firm’s senior partner for violations of Rule 9011 (the bankruptcy analogue to Rule 11 of the Federal Rules of Civil Procedure). That Rule states that an attorney signing papers submitted to a court certifies that the allegations and factual contentions have evidentiary support or are likely to have such support. The Rule requires a reasonable inquiry under the circumstances.
On an initial appeal to the U.S. District Court, the bankruptcy court was reversed. The case then came before the Third Circuit Court of Appeals on an appeal filed by the United States Trustee. The Third Circuit reinstated most of the rulings of the bankruptcy court; the senior partner at the firm who had no apparent involvement or supervisory responsibility as to this matter was relieved of the sanctions, but for everyone else including HSBC (who had not been involved in the appeal) sanctions were reinstated (The junior associate got off with a requirement to obtain three CLE credits in professional responsibility.)
How the Third Circuit addressed these matters and the principles it applied are a cautionary tale for all attorneys. First, the court noted that statements by counsel that were "literally true" could still be sanctionable or misleading. Here, HSBC had overstated the amount of arrearages by only $540.00 out of a total of $4,367.00 claimed. The claim that the Taylors were actually behind on their mortgage was true, but this did not satisfy the Third Circuit. It was just as important in that court’s view that the bankruptcy court know that at least some partial payments had been made and that there was a dispute that might explain the remainder of the arrearages.
The first lesson therefore is that attorneys should be clear and complete in their recitations.
The more important lesson from this case is that attorneys cannot blindly rely on representations from their client. The inquiry by counsel has to be reasonable under all the circumstances. The factors the court cited include:
Nothing in Taylor should be surprising to experienced counsel. However, a salutary reminder to all attorneys that a "pure heart and empty head" is not a valid defense in these types of cases. For more about our firm, visit our websites. http://www.nv-njlaw.com/ or our business oriented site, http://southjerseybankruptcylaw.com/
The case arose from a Chapter 13 Bankruptcy filed by the Taylors. HSBC held the mortgage on their home. HSBC’s counsel, the Udren Law Firm, and its experienced managing attorney filed a request for relief from the automatic stay so as to permit HSBC to pursue foreclosure proceedings despite the bankruptcy filing. As a secured creditor, HSBC had filed a proof of claim. The Taylors filed an objection to that proof of claim. It was how HSBC’s attorneys handled these matters and the representations they made to the court that got them in trouble.
The Taylors had an ongoing payment dispute with HSBC. This arose when HSBC claimed that the Taylors’ home was in a flood zone, obtained "forced insurance" for the property and added the expense to the Taylors’ monthly mortgage payment. The Taylors disputed the additional cost but continued to make their previous regular payments. HSBC refused to acknowledge that the Taylors were making full monthly payments and instead treated them as partial payments, leaving the Taylors further in arrears each month.
After the bankruptcy filing, the managing partner for the Udren Law Firm, Doyle, filed a motion for relief from the automatic stay in which she stated that since the bankruptcy filing the Taylors had not made any payments. The attorney filing this motion relied on a computerized system called "NewTrak" that was processed through a third party. The information supplied to HSBC’s counsel through this system was limited to the loan number, the name and address, payment amounts, late fees and amounts past due. The attorneys initially proceeded with the motion without any knowledge or information that, in fact, there had been a pending dispute about the payments.
This was not the only problem with the motion filed by HSBC’s counsel. The monthly payment amount was inconsistent with the proof of claim HSBC had earlier filed through another firm. Also, the motion papers said that the Taylors’ home had "inconsequential or no equity", something that was later established to have had no basis in fact.
HSBC’s counsel did nothing to verify the information in the motion besides a check of the "screen prints" from the NewTrak information.
The Taylors responded to this motion with documents including cancelled checks which indisputably showed that HSBC’s papers were mistaken in important respects.
The Taylors also filed an objection to HSBC’s proof of claim which detailed the ongoing disputes over flood insurance and pointing out the obvious inaccuracies and inconsistencies in HSBC’s papers. Despite this clear documentation that HSBC’s papers were inaccurate, HSBC’s counsel nevertheless filed a pro forma response reiterating that all figures in the proof of claim were accurate and the charges claimed were contractually correct. While this was ongoing, HSBC’s counsel had served admission requests on the Taylors which they had failed to respond to within the required thirty day period. These requests for admissions sought an admission of statements that were clearly false, namely that the Taylors had made no mortgage payments and had no equity in their home.
When the matter came on for hearing, HSBC’s counsel sent a junior associate whose response to pointed questioning was to ask the court to rely on the Taylors’ failure to respond to the request for admissions. The associate initially sought to have the request for admissions admitted as evidence, even though he knew they contained falsehoods. The court initially directed that counsel obtain an accounting from HSBC. At the next hearing, the same junior associate admitted that he could not obtain any accounting from HSBC and was literally unable to contact it to verify information.
The bankruptcy court issued an Order to Show cause for potential sanctions against HSBC and its counsel, ordering the associate, his managing attorney who had filed the motions, the senior partner of the firm and others to appear and give testimony. After a hearing, the bankruptcy court imposed sanctions on HSBC, the law firm, the managing attorney, and the firm’s senior partner for violations of Rule 9011 (the bankruptcy analogue to Rule 11 of the Federal Rules of Civil Procedure). That Rule states that an attorney signing papers submitted to a court certifies that the allegations and factual contentions have evidentiary support or are likely to have such support. The Rule requires a reasonable inquiry under the circumstances.
On an initial appeal to the U.S. District Court, the bankruptcy court was reversed. The case then came before the Third Circuit Court of Appeals on an appeal filed by the United States Trustee. The Third Circuit reinstated most of the rulings of the bankruptcy court; the senior partner at the firm who had no apparent involvement or supervisory responsibility as to this matter was relieved of the sanctions, but for everyone else including HSBC (who had not been involved in the appeal) sanctions were reinstated (The junior associate got off with a requirement to obtain three CLE credits in professional responsibility.)
How the Third Circuit addressed these matters and the principles it applied are a cautionary tale for all attorneys. First, the court noted that statements by counsel that were "literally true" could still be sanctionable or misleading. Here, HSBC had overstated the amount of arrearages by only $540.00 out of a total of $4,367.00 claimed. The claim that the Taylors were actually behind on their mortgage was true, but this did not satisfy the Third Circuit. It was just as important in that court’s view that the bankruptcy court know that at least some partial payments had been made and that there was a dispute that might explain the remainder of the arrearages.
The first lesson therefore is that attorneys should be clear and complete in their recitations.
The more important lesson from this case is that attorneys cannot blindly rely on representations from their client. The inquiry by counsel has to be reasonable under all the circumstances. The factors the court cited include:
- The amount of time available to the signor for conducting factual and legal investigation;
- The necessity for reliance on a client for the underlying factual information;
- The plausibility of the legal position advocated;
- Whether the case was referred to the signor by another member of the bar; and
- The complexity of legal and factual issues implicated.
Nothing in Taylor should be surprising to experienced counsel. However, a salutary reminder to all attorneys that a "pure heart and empty head" is not a valid defense in these types of cases. For more about our firm, visit our websites. http://www.nv-njlaw.com/ or our business oriented site, http://southjerseybankruptcylaw.com/
Monday, November 7, 2011
Buying and Selling Real Estate- unwelcome surprises and new problems- "parties beware"
A recent Smart Money article, "How appraisals are derailing home sales" points out that lenders have established new and much more stringent requirements for appraisals to support mortgage loans. The result is that many deals are being jeopardized when the appraisal comes in below the sale price and the financing applied for is not available. When this happens, the buyer may want her deposit back and the seller will be unhappy at that demand.
The problem is that the "standard form" real estate contract commonly used by brokers creates a critical ambiguity that may result in a needless battle. The problem is in the mortgage contingency clause, which provides that a buyer may cancel if mortgage approval is not obtained by a specified date. On its face this sounds fine, but as always the devil is in the details.
For more on how we can help, please visit our website, http://www.nv-njlaw.com/
Consider the situation where a buyer receives mortgage approval, but that approval is subject to conditions that the buyer cannot meet or did not expect. This could include a "satisfactory appraisal" or an appraisal at a specified value. What then? While New Jersey Courts have interpreted mortgage contingency clauses to mean and require that the buyer have a "firm" commitment, and have allowed Buyers to cancel and get their deposit money back where the commitment had conditions outside their control. Davis v Strazza, 380 N.J. Super 476 (App Div. 2005), who wants to have to go to court because the contract is unclear?
So we always recommend that the contract make clear that the buyer must have a "firm" mortgage commitment that results in availability of mortgage funds at closing, except where the inability to get financing is due to something within the buyer's control, despite good faith efforts.
No one wants a real estate deal to go sour, but even less do we want to end up in court. Given the fluid market we are in, careful review and careful drafting is called for. An experienced attorney should be consulted to make sure there are no unwelcome surprises
The problem is that the "standard form" real estate contract commonly used by brokers creates a critical ambiguity that may result in a needless battle. The problem is in the mortgage contingency clause, which provides that a buyer may cancel if mortgage approval is not obtained by a specified date. On its face this sounds fine, but as always the devil is in the details.
For more on how we can help, please visit our website, http://www.nv-njlaw.com/
Consider the situation where a buyer receives mortgage approval, but that approval is subject to conditions that the buyer cannot meet or did not expect. This could include a "satisfactory appraisal" or an appraisal at a specified value. What then? While New Jersey Courts have interpreted mortgage contingency clauses to mean and require that the buyer have a "firm" commitment, and have allowed Buyers to cancel and get their deposit money back where the commitment had conditions outside their control. Davis v Strazza, 380 N.J. Super 476 (App Div. 2005), who wants to have to go to court because the contract is unclear?
So we always recommend that the contract make clear that the buyer must have a "firm" mortgage commitment that results in availability of mortgage funds at closing, except where the inability to get financing is due to something within the buyer's control, despite good faith efforts.
No one wants a real estate deal to go sour, but even less do we want to end up in court. Given the fluid market we are in, careful review and careful drafting is called for. An experienced attorney should be consulted to make sure there are no unwelcome surprises
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