Home Sections Archive by category Law (Page 7)

Law

Points of Interest

By
Law Sections
10 Things You Should Know About Reverse Mortgages

ANN I. WEBER, Esq.

ANN I. WEBER, Esq.

If you watch TV these days, it’s hard to avoid Fred Thompson, Robert Wagner, and a host of other actors encouraging you to consider a reverse mortgage if you are strapped for cash.
Although these financial tools can be useful, they are expensive, both in terms of bank fees and interest payments, and they can put your financial health, your home ownership, and your children’s inheritance at risk.
Because of these problems, the default rate on reverse mortgages has been significant. In response, Congress recently passed the Reverse Mortgage Stabilization Act of 2013, which gives new powers to federal regulators to change the rules of the program “to improve … fiscal safety and soundness.” As a result, most homeowners will no longer have access to large lump-sum payments up front, they may be required to set up escrow accounts for insurance and property taxes, and financial assessments will be required.
If you are thinking about applying for a reverse mortgage, here are 10 things you should know before proceeding.

1. A reverse mortgage is a loan, which accumulates interest over the life of the loan. The homeowner remains responsible for ongoing taxes and home insurance.
A reverse mortgage is similar to a purchase mortgage in that it is a loan from a bank or mortgage company to an individual. However, instead of using the funds advanced by the bank for purchase of a residence, a senior homeowner (62 or older) can use a portion of his or her home equity as collateral and receive cash in return. Reverse mortgages have fees due upon origination and servicing fees annually, and the loan will have to be repaid with interest, which accumulates over the life of the loan. The principal and accumulated interest are due when the homeonwer dies or no longer lives in the home as their principal residence.
There are three types of reverse mortgages:
• Single-purpose loans for home repair, handicap access, etc. issued by state, local, or charitable agencies. These are usually the least expensive;
• Home Equity Conversion Mortgages (HECMs), issued by banks or mortgage companies that are approved Federal Housing Authority lenders. They are federally insured and regulated. These are the most common and have some consumer safeguards due to federal regulation; and
• Proprietary loans backed by the companies that develop them. You are on your own here, but greater amounts are frequently available from these lenders.
The home is still owned by the borrower, who remains responsible for upkeep, real-estate taxes, and insurance on the home. Failure to maintain these payments can result in default and foreclosure, and as a result, escrow accounts may be required under the new law.

2. Reverse mortgage loans can be structured in a variety of ways.
The loan can be structured to make equal monthly payments to the homeowner for as long as the homeowner lives in the home or over a fixed number of years. Alternatively, the loan can create a line of credit that the homeowner can draw down at any time until the line of credit is exhausted. Some reverse-mortgage companies offer a combination of the above options. The loan plus accumulated interest is due when the homeowner dies or leaves the home for 12 months or more.
Note that, as of April 1, 2013, the federal government will no longer allow standard fixed-rate HECM mortgages to offer a lump-sum payment. Smaller lump-sum payments are still available under the HECM Saver program, which pays out a smaller percentage of the equity value of the home.

3. The amount available depends on several factors.
The older the homeowner, the more the homeowner can borrow against the value of their home. HECM loan maximums are determined based on the age of the borrower, the equity in the home,  and the current interest rate. Under federal law, loans may not exceed $625,500. However, under the new law, amounts available will be based on a lower percentage of equity, and borrowers with credit issues or little income may find that reverse mortgages are no longer a viable option for them because a financial assessment is now required.

4. Interest rates and fees are significantly higher than for conventional mortgages.
Interest rates for reverse mortgages are higher, sometimes significantly so, than for conventional mortgages, and reverse mortgages have frontloaded fees such as points, origination fees ($2,000 or 2% of the value of the home, regardless of the loan amount, whichever is higher), mandatory counseling, appraisal fee, financial-assessment fee, credit-report fee, pest inspection, flood insurance if applicable, as well as mortgage insurance. There may also be annual servicing fees charged over the life of the mortgage;  $10,000 in fees is not unusual for an upfront fee even for a relatively modest loan.

5.  The home should be mortgage-free.
While you may be able to borrow enough money to pay off an existing mortgage depending on your age and the amount of the existing mortgage, this will reduce the amount of cash that you can receive under the reverse mortgage. Consequently, it is generally more cost-effective to utilize a reverse mortgage with a home that is mortgage-free.

6. A reverse mortgage is not a good option if you are planning to sell or move in the foreseeable future.
Most reverse mortgages are not used over a short-term period due to the upfront fees. Therefore, a home-equity line or conventional mortgage may be more appropriate to provide liquidity over the short term. Also remember that the state or local government may have lower-cost loans for specific purposes.

7. Reverse mortgage payments are not taxable, nor are the payments considered countable income for purposes of MassHealth (Medicaid) eligibility.
However, lump-sum payments or any part of a monthly payment retained after the month of receipt will be part of countable assets. If you or your spouse are facing the possibility of long-term or nursing care, the monthly payments you receive under a reverse mortgage do not affect MassHealth eligibility. However, if you receive a lump sum or do not spend the entire monthly payment, the amount remaining after the month of receipt will be considered a countable asset.
Also, if you vacate your home for an extended period of time, usually 12 months or more for any reason, including a stay in a nursing home, the reverse mortgage may be called by the bank or mortgage company. If you do not have the funds to pay off the mortgage, the home can then be foreclosed upon and lost to the homeowner should he or she later be able to return home.

8. If the borrower is married, both spouses should be listed on the mortgage.
If only one spouse is listed on the mortgage, should the borrower spouse die, the survivor can be evicted if his or her name is not on the mortgage. In addition, problems have arisen for surviving spouses when only the deceased spouse is listed as a property owner on the deed. This situation can arise when couples opt to put a reverse mortgage in the name of the older spouse in order to maximize the loan’s proceeds. The federal government is considering instituting provisions later this year to address this problem.

9. This probably should be the option of last resort.
If you have other sources of funds for your living expenses, it is generally better use those first before moving to the reverse mortgage because of the outlay in fees and accumulating interest. You may want to consult with an attorney to be sure you understand the rules and review all your options.

10. If a reverse mortgage seems right for you, calculate all the fees and shop around.
Closing fees can vary significantly among lenders, so vigilance in comparing vendors can really pay off.

Attorney Ann (Ami) I. Weber is a partner with Springfield-based Shatz, Schwartz and Fentin, and concentrates her practice in the areas of estate-tax planning, estate administration, probate, and elder law, and she has a particular interest in creative estate planning for authors, artists, farmers, and landowners. She is a board member and past president of the Estate Planning Council of Hampden County Inc., and is a former (and founding) board member and current member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. She has recently been named one of the Top Fifty Women Lawyers in New England by Super Lawyer magazine. She is a frequent author and speaker on issues regarding estate planning, (413) 737-1131; [email protected]

Fiduciary Problems and Traps

By
Law Sections
Understanding the New 3.8% Investment Income Tax

Richard Gaberman

Richard Gaberman

The new 3.8% tax on ‘passive’ income known as the Medicare tax, which was included in the Patient Protection and Affordable Care Act, will now affect individuals whose adjusted gross income, depending on marital and filing status, is more than $125,000, $200,000, or $250,000.
However, it does affect trusts and estates with adjusted gross income in excess of $11,950. Thus, it is more important than ever for the executor or trustee to determine the adjusted gross income for the individual beneficiaries in order to determine whether to distribute income from the estate or trust to such beneficiary to avoid the 3.8% tax if that beneficiary’s modified adjusted gross income is below his or her applicable threshold.

Some Basic Information
• This new tax was effective as of Jan. 1, 2013.
• The tax applies to all taxpayers whose income exceeds a certain ‘threshold amount.’
• With respect to individuals, the NIIT is equal to 3.8% of the lesser of (a) net investment income (NII) or (b) the excess (if any) of the modified adjusted gross income (MAGI) less the threshold amount. This is basically adjusted gross income but increased for certain items of an income and for the earned-income exclusion. The threshold amounts for individuals are $250,000 if married and filing jointly, $200,000 if single, and $125,000 if married but filing separately. These are not inflation-protected.
• With respect to estates and trusts, the NIIT is equal to 3.8% of the lesser of (a) the undistributed NII or (b) the excess (if any) of the adjusted gross income over the dollar amount at which the highest tax bracket begins for that taxable year. For 2013, the highest tax bracket applicable to estates and trusts starts at $11,950. The estate and trust threshold amount is inflation-protected.
• NII includes interest, dividends, annuity distributions (if taxable), rents, royalties, income derived from passive activity, and net capital gain derived from disposition of property. It does not include salary, wages or bonuses, distributions from IRAs or qualified plans, any income taken into account for self-employment-tax purposes, gain on a sale of an active interest in a partnership or S corporation, and items that are otherwise excluded or exempt from income under the income-tax laws, such as tax-exempt bond interest, capital gain excluded under IRC §121, and veterans’ benefits.
• The NIIT will be paid with Form 1040 or Form 1041. The NIIT is subject to estimated tax penalties.
• NII includes income and gains from trades and businesses that are either passive activities (within the meaning of IRC §469) or a trade or business of trading in financial instruments or commodities. Note that, under IRC §469(c)(1), passive activity is any activity involving a trade or business in which the taxpayer does not ‘materially participate.’ Thus, one needs to review the passive-activity rules. If the taxpayer does materially participate in the activity, then NIIT will not apply to that income. The IRS regulations describe material participation for individuals, but not for an estate or trust.
• Dispositions of an interest in partnerships and S corporations require advanced planning. If the taxpayer is not active in the business, the 3.8% tax will apply to the capital gains. Note that there are ways to avoid (or defer or reduce) the 3.8% tax. Examples would involve a charitable sale, an installment sale, a 1031 real-state exchange, and a sale to family members in lower tax brackets provided the later sale to a third party occurs after two years.
Also, with respect to estates and trusts, how does an estate or trust become active in a trade or business? The executor or trustee must be active in the trade or business. An active beneficiary (who is not a trustee) will not cause the estate or trust to be ‘active.’ For example, a mother is the trustee of the trust that owns a business, but the business owned by the trust is managed by her child, who is the beneficiary of that trust.

Estates and Trusts
• The estate trust that accumulates income will pay the income taxes attributable thereto unless and to the extent that such income is distributed to any beneficiaries thereof. Note that, if a beneficiary is below his own applicable threshold, then the estate/trust may avoid the 3.8% NIIT to the extent the NII is distributed to such beneficiary who, after that distribution, is still below his threshold.
• However, note that if an irrevocable trust is a ‘grantor trust,’ then all of the income of that trust is reportable by the grantor on his or her personal income-tax return.
• Trusts not subject to NIIT generally involve split-interest charitable trusts and grantor trusts. However, distributions from a charitable trust to a non-charitable beneficiary may carry out NII subject to the 3.8% tax.
• What about electing small-business trusts (ESBT)? Although the proposed regulations recognized the ESBT as separate trust funds for each beneficiary, it does require consolidation into a single trust for determining the adjusted gross income threshold amount.

Planning for Reducing NII
• Consider municipal bonds, a 1031 exchange, an installment sale, tax-deferred annuities; life insurance; ROTH IRA conversions (helps to reduce MAGI), rental real estate (due to the benefit of the depreciation deduction), and oil and gas investments (helps reduce MAGI).
• Regarding estate/trust distributions, principal issues include the executor and trustee fiduciary duties and liability when making distributions to one or more beneficiaries. From an income-tax-planning point of view, consider distributions to lower-income-tax-bracket beneficiaries to save income taxes that would otherwise be payable by the estate or trust which may be in a higher income-tax bracket. Consider distributions to beneficiaries who may not have to pay the 3.8% NIIT. You need to read the applicable provisions of the will or trust that governs the executor’s or the trustee’s right to make distributions to the beneficiaries. Also, although accumulated pre-2013 NII is exempt from the 3.8% NIIT, under the proposed regulations, the first NII being distributed to beneficiaries does not come from the pre-2013 NII income. It is deemed to come from 2013 or later NII first.
• The gain on the funding (pecuniary bequests) of a marital deduction and bypass trust may be subject to the 3.8% tax. The tax planning for estates and trusts is now more complicated due to the new 3.8% tax, the high 39.6% income tax rate, and the huge spread between the low $11,950 threshold for estates and trusts and the high threshold for individual beneficiaries. At the same time, the fiduciary must be aware of potential fiduciary liability when making or not making distributions to the beneficiaries. Read the will and trust documents, and seek the advice of a qualified attorney and accountant.

Richard M. Gaberman, Esq. is of counsel at Springfield-based Robinson Donovan, P.C. He has been recognized for 20 consecutive years by Best Lawyers in America in the practice areas of tax law, trusts and estate, real-estate law, and corporate law. He has also been recognized for 10 years by Super Lawyers for New England in the practice area of estate planning; (413) 732-2301; [email protected]

Conflicting Reports

By
Law Sections
Rulings Blur the Lines on Associational Disability Discrimination

SUSAN G. FENTIN

SUSAN G. FENTIN

Two recent rulings by Massachusetts appellate courts have both confused and clarified the state’s anti-discrimination statute, Mass. Gen. L. Ch. 151B, which bars employers from discriminating against employees based on their handicap/disability.
In July, the Massachusetts Supreme Judicial Court (SJC) ruled, in Flagg v. AliMed, that Ch. 151B can, under certain circumstances, protect an employee when the employee himself is not actually disabled but instead is associated with a disabled individual. Then, in August, the Massachusetts Appeals Court dismissed a similar lawsuit brought by an employee who claimed that he was terminated because of his association with his autistic son.
In Flagg, the employee had worked for AliMed for 18 years with good performance appraisals. Flagg was a salaried employee entitled to benefits under AliMed’s health-insurance plan. Unfortunately, his wife had to have surgery to remove a brain tumor, and Flagg then became responsible for caring for the couple’s children. Flagg asked for permission to occasionally be briefly absent from work to pick up his daughter from school, and his manager told him to do whatever he needed to do to take care of his family.
AliMed later terminated Flagg, however, allegedly because he had failed to punch out and had, therefore, been paid for hours he had not actually worked. Apparently, the real reason for the decision to terminate Flagg was that his wife had again been hospitalized, and AliMed did not want to be financially responsible for the enormous medical bills. Flagg sued, but the trial court dismissed his suit on the grounds that the plain language of the statute protects only a handicapped employee, not an employee who is associated with a handicapped person.
Flagg appealed, and the SJC overturned the trial court’s decision. The SJC concluded that, when an employer takes action against an otherwise satisfactory employee because of his spouse’s impairment, it is targeting the employee as the direct victim of its discriminatory attitude, punishing the employee as if he were the handicapped individual himself. Accordingly, the SJC ruled that Ch. 151B could be read to incorporate the concept of handicap discrimination based on association.
The Massachusetts Appeals Court’s decision in Lashgari v. ZOLL Medical followed the SJC’s decision in Flagg, but reached the opposite result. In Lashgari, the employee claimed that he was forced to resign because of mistreatment by the employer. The employee alleged that he told his supervisor in February 2010 that he could not work overtime because his autistic son required constant care. He was subsequently demoted by a different member of management and placed on a performance-improvement plan.
This demotion apparently led to severe emotional distress, and ultimately, the employee felt he had no choice but to resign. In its decision, the Appeals Court affirmed the trial court’s decision dismissing the case. Citing Flagg, the court ruled that Lashgari’s complaint did not allege any facts that would show that he was fired because of his association with his handicapped son. The court found no connection between Lashgari’s conversation about his son’s autism and the subsequent adverse employment actions imposed by another supervisor, and the timing of the demotion, by itself, was not enough to support a claim of associational disability discrimination under Ch. 151B.
Significantly, in a concurring opinion to Flagg, two justices raised their concern that the decision might be interpreted more broadly than the SJC had perhaps intended. Although the Flagg decision, in a footnote, states that it is not intended to address reasonable accommodations for employees who are associated with disabled individuals, the concurring opinion cautioned that this ruling should be strictly limited to cases where a spouse’s disability could, for example, increase the employer’s health-insurance expenses or where the employer might fear that an employee could contract a disabling or contagious disease through his association with a disabled person.

Bottom Line
The SJC’s decision in Flagg makes it clear that an employer may not terminate an employee because of fears that its health-insurance premiums will go up, even if those expenses will not increase because of an employee’s own disability but instead because of a disabled individual associated with the employee. It is unresolved at this point whether the SJC’s Flagg decision will impact the ability of an employee to claim he is entitled to a reasonable accommodation for the disability of someone with whom he is associated.
Following the SJC’s decision, this case was returned to the Superior Court for trial, and we can imagine that the damages here will be hefty if the jury finds for Flagg.

Susan G. Fentin is a partner at the firm Skoler, Abbott & Presser, P.C., and editor of the Massachusetts Employment Law Letter; (413) 737-4753; [email protected]

Bullying in the Workplace

By
Law Sections
Legislation Seeks to Protect Workers from Abuse, Harassment

By KATHRYN S. CROUSS, Esq.

Kathryn Crouss

Kathryn Crouss

A public hearing was held on June 25 before the Joint Committee on Labor and Workforce Development regarding HB 1766, proposed legislation titled “An Act Addressing Workplace Bullying, Mobbing, and Harassment, Without Regard to Protected Class Status.” Dubbed the ‘Healthy Workplace Bill,’ the bill seeks to provide protections for workers against workplace abuse and harassment.

Under the current state of the law in Massachusetts, workers who are members of a protected class have legal recourse for harassment and abuse suffered in the workplace. Existing statutes in Massachusetts establish remedies for employees who are subjected to a hostile work environment in the context of sexual harassment, or if the hostile behavior is motivated by race, color, sex, sexual orientation, national origin, or age.

However, Massachusetts does not presently offer general legal protection to employees against hostile treatment in the workplace otherwise. In an ‘at-will’ employment state such as Massachusetts, employers and employees are free to enter into or exit from a working relationship at any time, absent an express employment agreement. Under the at-will employment rule, continued employment is at the discretion of the employer, and employers are not prohibited from making arbitrary employment decisions, even decisions that may appear dishonest, distasteful, or rude.

Exceptions to the employment-at-will doctrine are narrow and limited. The law defers to the decisions of employers and intervenes on an employee’s behalf only for exceptionally strong public-policy reasons. Examples of such public policies are when an adverse employment decision is motivated by an employee serving on a jury, filing a workers’ compensation claim, or reporting criminal activity at work, whether the report is made internally or to public authorities.

According to the bill’s co-sponsors, Rep. Ellen Story of Amherst and Sen. Katherine Clark of Melrose, the Healthy Workplace Bill seeks to provide legal remedies for employees who have been harmed psychologically, physically, or economically by deliberate exposure to abusive work environments. The bill indicates that “at least a third of all employees will directly experience health-endangering workplace bullying, abuse, and harassment during their working lives, and this form of mistreatment is approximately four times more prevalent than sexual harassment alone.”

Additionally, the bill’s co-sponsors indicate that it incentivizes employers to prevent and respond to abusive mistreatment of employees by allowing employers to minimize liability. The bill states that “abusive work environments can have serious consequences for employers, including reduced employee productivity and morale, higher turnover and absenteeism rates, and increases in medical and workers’ compensation claims.”

Finally, the co-sponsors say the bill includes provisions that discourage weak or frivolous claims. The bill establishes affirmative defenses for employers when:

• The complaint is based on an adverse employment action reasonably made for poor performance or economic necessity;

• The complaint is based on a reasonable performance evaluation; or

• The complaint is based on an employer’s reasonable investigation about potentially illegal or unethical activity.

Clark recently indicated that “it is important to understand that this bill is not about everyday disagreements in the office, or someone having a bad day, or a boss providing directives, oversight, and feedback. Instead, it seeks to address a regular pattern of health-harming mistreatment at a work environment in the form of verbal abuse, offensive and threatening behavior, or malicious work interference.”

The bill is not without its detractors, however. Many believe workplace bullying is better addressed internally, such as by an employer’s human-resources department, as opposed to within the court system. Regulating workplace bullying, they say, might serve only to create a venue for disgruntled employees, opening the doors to frivolous lawsuits filed by employees in response to legitimate negative performance reviews. Such legislation could inhibit employers from making even constructive criticism of an employee’s performance for fear of a retaliatory lawsuit. Some fear the proposed legislation would allow an employee to avoid accountability.

Although this is the bill’s third submission, having been first introduced during the 2009-10 legislative session without success, there are indications that workplace anti-bullying legislation is gaining momentum. Since 2003, variations of the Healthy Workplace Bill have been introduced in 25 states, and 12 states (in addition to Massachusetts) are currently pushing for such legislation, according to David Yamada, a professor of labor and employment law at Suffolk University Law School, and one of the bill’s proponents.

It is too soon to determine the potential outcome regarding the bill. However, employers are advised to take caution. Language in the proposed bill indicates that an employer will be vicariously liable for violations of the statute committed by its employee. In other words, employers may be legally responsible for the actions of their supervising employees, if such employees are found to have engaged in abusive conduct or to have created an abusive work environment as defined by the statute.

Employers can defend against a lawsuit only if “the employer has exercised reasonable care to prevent and correct promptly any actionable behavior, and the complainant employee unreasonably failed to take advantage of appropriate preventive or corrective opportunities provided by the employer.”

Employers are advised to be vigilant about ensuring that managers treat employees with respect and dignity. Further, employers should ensure that they include anti-bullying language in their code of conduct policies, in order to preserve the availability of the affirmative defense. Employers are advised to contact an employment-law attorney about creating policies that will comply with the proposed legislation.

 

Kathryn S. Crouss, Esq. is a member of Bacon Wilson’s litigation department and handles all aspects of civil litigation, including employee- and management-side employment-law litigation, personal injury, and domestic-relations litigation; (413) 781-0560.

Language Lessons

By
Law Sections
Recent Cases Show Emerging Trends in Non-compete Agreements

John S. Gannon

John S. Gannon

It’s no secret that courts are skeptical of non-compete agreements. This is especially true when enforcement will restrain employees from earning a living.

In Massachusetts, the ‘material changes doctrine’ can provide a court with just the right ammunition to shoot down the enforceability of a non-compete agreement. Under that doctrine, a non-compete is unenforceable if the employer-employee relationship has changed significantly since the employee signed the agreement. Several recent cases illustrate how the doctrine works in practice.

 

Case #1: Rent-A-PC Inc. v. March (D. Mass. May 28, 2013)

Robert March began working for SmartSource as a senior account executive in June 2006. SmartSource provides short-term rentals of audio-visual, computer, and other equipment. March signed a non-compete agreement at the outset of his employment that restricted him from working for competitors of SmartSource for one year after his separation from employment.

March moved up in the company quickly. He advanced to branch sales manager in 2007. He was then promoted to regional sales manager in 2008. March was promoted again in 2010 to regional general manager and one more time in 2012 to regional sales manager. With each promotion, March’s job responsibilities and compensation changed. His final position at SmartSource was significantly different from his first in terms of scope, duties, and pay.

March was fired in October 2012 and joined a direct competitor a month later. SmartSource filed an action against March seeking to enforce the non-compete agreement. The court refused to enforce it, relying on the material changes doctrine. March had signed the non-compete when he started working for SmartSource as an account executive. He was then promoted all the way up to regional sales manager. Conceivably, he might not have been willing to sign a new agreement in connection with any one of his promotions. The court refused to enforce the agreement in this case because March’s duties and compensation had materially changed while he worked at SmartSource.

 

Case #2: Intepros Inc. v. Athy (Mass. Super. May 5, 2013)

In a similar case, Paul Athy was hired as a branch manager for Intepros, an IT staffing and services company, and signed a non-compete agreement at the outset of his employment. Athy climbed the company ladder all the way up to the chief operating officer position. Intepros did not ask Athy to sign a new agreement in connection with any of his promotions.

Athy left the company in 2012, saying he wanted to coach his son’s football team and possibly create his own company to assist recent college graduates in finding jobs. Athy was not true to his word, and instead he started an IT staffing business similar to Intepros, and brought on a major client whom he had solicited while working for his former employer. Intepros sued, claiming Athy had breached his non-compete agreement. Again, the court refused to enforce the agreement under the material changes doctrine. According to the court, Athy’s employment relationship had changed “dramatically” after he signed the original non-compete agreement because his pay and authority had increased substantially with each promotion.

Case # 3: A.R.S. Services Inc. v. Morse (Mass. Super. Apr. 5, 2013)

This case has similar facts to the two discussed above. Daniel Morse went to work for a competitor after leaving A.R.S. Services. When A.R.S. tried to enforce a non-compete agreement, Morse argued it was unenforceable because he had experienced a significant demotion while working for A.R.S. However, this case had an added wrinkle.

The noncompete stated that it was “valid notwithstanding any change in [Morse’s] duties, responsibilities, position or title with [ARS].” In other words, the agreement clearly said that it was enforceable even if Morse’s job duties changed. The court relied on this language in ruling that the non-compete was enforceable. This case demonstrates that suitable language in the non-compete may avoid the material-changes dilemma.

 

Bottom Line

The lesson from these cases is clear. Employers need to make sure employees sign new and updated non-compete agreements when there are major changes in their duties and responsibilities. If you need assistance revising or enforcing a non-compete agreement, contact experienced labor and employment counsel for assistance.

 

John Gannon is an attorney at the management-side labor and employment firm Skoler, Abbott & Presser, P.C.; (413) 737-4753; [email protected]; www.linkedin.com/in/johngannonesq.

The Loss Column

By
Law Sections
Some Practical Tips for Protecting Your Business from Fraud

Dawn McDonald

Dawn McDonald

It’s difficult to read a newspaper or watch a televison news report these days without seeing reports of consumer fraud and warnings about how to prevent it.

But oftentimes, businesses are the victims of fraud. Indeed, the instances of fraud against businesses have increased both in the number of occurrences and in the amount of money being lost.

The types of fraud vary from accounting scams perpetrated internally by employees to fraudulent returns from customers and data theft by outsiders. Businesses have less protection than consumers, and in some cases can be held liable for business fraud schemes or third-party data breaches.

To understand and prevent the many types of fraud to which your business may be vulnerable, you should first understand the different sources of these crimes. Most professionals agree that the sources of business fraud, ranked in the order of cost and frequency, are:

• Officers and employees. Small businesses tend to be more informal in nature, with fewer employees, which can result in a higher level of trust and a relaxed sense of oversight.

• Customers and clients. Customers can be notorious for trying to commit fraud against businesses by writing bad checks, using stolen credit cards, returning items not purchased, or filing fraudulent injury or liability claims.

• Vendors and contractors. Businesses can be the target of overcharging, overbilling, kickbacks, or failure to perform contracted work or services by unscrupulous contractors.

• Third-party attacks. A growing number of fraud attacks are being perpetrated by electronic means, including hacking, phishing (acquiring user names, passwords, or credit-card information), and identity theft.

Because fraud against your business can seriously impact the bottom line, it is important to set up and follow procedures to verify adherence to anti-fraud policies. Effective internal controls that create a system of checks and balances are some of the best fraud deterrents.

One of the most important steps a business can take is to create a system of awareness throughout the organization that makes it clear that the organization is watching for fraud and that, if caught, those involved will be prosecuted.

Methods for detecting and deterring fraud in your business include:

• Surprise internal and external audits. Many organizations have an internal audit department, but small businesses cannot always afford that luxury and need to work with their accountant to provide this level of control.

• Dividing responsibilities of accounting functions. Do not allow the person generating a purchase order to approve payment. Separate the function of check signing from the person who reconciles the bank statement.

• Employee tips and reporting. Develop an anonymous way for employees to report suspected fraud and work practices that could lead to fraud. Businesses that institute anonymous employee reporting detect fraud earlier and significantly limit financial losses.

Implementing a fraud-prevention plan requires time and commitment, but to minimize and manage risk, businesses are better off if they build in deterrents, establish good controls, and provide consistent oversight.

 

Dawn McDonald is a partner with Cooley, Shrair P.C., focusing her practice on assisting clients in the areas of commercial litigation, domestic-relations law, and labor and employment law; (413)735-8045; [email protected]

Delay of Game

By
Law Sections
What the Changes in Obamacare Implementation Mean to Employers

ROSEMARY J. NEVINS

Rosemary J. Nevins

Not surprisingly, given the number of transitional and safe harbors included in the interpretive regulations related to the Affordable Care Act, a.k.a. ‘Obamacare,’ the most recent change is that involving the implementation of the ‘play-or-pay’ provisions applicable to large employers, which were to have taken effect Jan. 1, 2014.

The change provides for a one-year delay in the implementation of the employer-shared responsibility (ESR) provisions of the law.

 

Why the Delay?

According to White House business liaison Valerie Jarrett, “business owners expressed concerns about the complexity of the law’s reporting requirements,” and “businesses needed more time to get things right.” Apparently, the administration took heed of the many and varied concerns expressed by employers subject to the play-or-pay provisions and will use the one-year delay period to revamp and simplify the reporting process, and will convene employers, insurers, and experts to propose a smarter system, which, hopefully, will result in a more streamlined, workable system for large employers.

 

What Portions of the ACA Were Delayed?

• The ESR provisions. Under these provisions, large employers (those with 50 or more full-time employees, including full-time-equivalent employees) who choose not to offer health-insurance coverage to their full-time employees, or offer coverage that fails to provide a minimum level of coverage and/or is not ‘affordable,’ are subject to an ESR tax if even one of those employees qualifies for and purchases coverage on the state or federal exchange.

— Former deadline: this ESR provision was to be effective Jan. 1, 2014.

— New deadline: the ESR effective date is apparently Jan. 1, 2015.

• The reporting requirements. The ACA includes reporting requirements for insurers, self-insuring employers, and other entities of parties that provide health coverage. It also requires certain information from employers regarding health-insurance coverage offered to its employees.

— Former deadline: reporting was scheduled to begin in 2015 for coverage provided on on or after Jan. 1, 2014.

— New deadline: reporting is now apparently scheduled to begin in 2016 for coverage provided on or after Jan. 1, 2015.

What should employers take away from this reprieve? They will benefit from both the time extension and the potential revamping and simplifying of the originally imposed requirements under the employer-shared provisions of the law. The additional time will provide large employers the opportunity to:

• Get their written plan documentation and safe-harbor measurement rules in order;

• Organize and comply with employee-notice requirements;

• Develop operational implementation policies and procedures;

• Develop administrative procedures that will allow for seamless reporting processes;

• Consider the pros and cons of using existing health-coverage plans, get new ones, or determine whether it is more cost-effective to simply pay the regulatory tax (play or pay); and

• Decide if the company will hire an outside ACA-implementation specialist, designate the responsibility to an existing employee, or hire a full-time employee to be the ACA implementation point person.

Large employers should keep in mind that the delay in implementing the play-or-pay mandate also applies to the collection of otherwise applicable fines.

 

What Should Employers Do?

Since the revamping and simplification of the provisions will hopefully be less complicated than the existing ones, it would be wise for large employers to pay particular attention to notifications and information regarding the new changes as soon as they become effective.

 

Rosemary J. Nevins, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, SOMWBA-certified, boutique, management-side labor and employment law firm; (413) 586-2288; [email protected].

You Finally Got Paid

By
Features Law Sections
But That’s Certainly Not the End of the Story

L. Alexandra Hogan

L. Alexandra Hogan

When your business finally receives payment of that long-overdue receivable, is that the end of the story? Not always, as recently learned by nearly 40 entities previously doing business with Northern Berkshire Healthcare Inc. or its affiliates.

Two years ago, Northern Berkshire Healthcare, a nonprofit healthcare corporation in Berkshire County, and its four affiliated entities (collectively Northern Berkshire) filed for Chapter 11 bankruptcy protection. On June 10, the trustee in Northern Berkshire’s bankruptcy instituted almost 40 lawsuits in the bankruptcy court against entities that did business with the company because, simply put, those entities got paid prior to the bankruptcy filing.

Section 547(b) of the Bankruptcy Code authorizes a Chapter 11 debtor or trustee to recover ‘preferential transfers.’ These are certain payments made to creditors of the bankrupt company 90 days prior to the bankruptcy filing or made one year prior thereto if to an insider (e.g. an officer, director or affiliated entity.) In order to make a successful claim, the debtor or trustee must prove that the payment was made to the creditor on old debt while the debtor was insolvent, during the specified time period, and that the creditor received more than it would have if the case been filed under Chapter 7 of the Bankruptcy Code, as opposed to Chapter 11.

The prospect of a creditor losing its long-awaited payment appears fundamentally unfair. The social policy behind this law is actually to treat the bankrupt company’s creditors equally. In other words, the law should not permit the company to preferentially choose to pay one creditor over another. Money recovered under this law will be fairly distributed to all creditors under the scheme provided by the Bankruptcy Code. And, as with any cause of action, there are defenses — the contemporaneous-exchange defense, the ordinary-course-of-business defense, and new-value defense, to name a few.

A transfer is not preferential if the creditor and soon-to-be bankrupt company intended and, in fact, made a substantially contemporaneous exchange of new goods or services for the payment in question. Cash on delivery and prepayment does not constitute a preferential transfer. In addition, if payment was made on a debt incurred in the ordinary course of business or the financial affairs of the parties, or according to ordinary business terms, the transaction is not preferential.

Some factors the court may consider in its analysis of this defense include the prior course of dealings between the parties and the amount, timing, and circumstances surrounding the payment. Under the new-value defense, the practical result is that the preference amount is reduced by the amount of new value provided by the creditor following the payment in question. For example, the soon-to-be bankrupt company makes a payment to the creditor of $5,000 on June 1 for goods delivered 30 days prior. Subsequently, on June 15, the creditor delivers another $2,000 worth of goods before the company files Chapter 11 on June 30. The preference amount would rightfully be reduced to $3,000.

This summary of the law is intended to provide a rudimentary understanding of the concepts at play. It goes without saying that any creditor faced with a preference lawsuit should immediately seek the advice of experienced counsel who understands the ins and outs of complex bankruptcy law.

 

L. Alexandra (Alex) Hogan is an associate with the Springfield-based form Shatz, Schwartz and Fentin, P.C., and concentrates her practice primarily in business, litigation, and bankruptcy law; (413) 737-1131.

Trials and Tribulations

By
Law Sections
New WNE Law Dean Says Schools Must Adjust to a Changed Climate

Eric Gouvin

Eric Gouvin says the consensus among those in legal academia is that the nation’s law schools have been “making too many lawyers for too long.”

Eric Gouvin was asked to comment on the challenges moving forward for all law schools, but especially the one at Western New England University (WNE), which he now serves as dean.

But to do so properly, he said he first needed to discuss the recent past and touch on some trends and statistics that define a changed landscape, one that came about due to many factors that he summed up by saying, “we’ve been making too many lawyers for too long.”

The ‘we’ in this case is the nation’s 201 American Bar Assoc.-accredited law schools, said Gouvin, who took the helm at WNE Law on July 1 following a short search in which he was the only real candidate (more on that later). He said these institutions readily accepted large numbers of students until quite recently, and considered such an action a responsible reply to then-long-standing laws of supply and demand when it came to the legal profession.

But those laws were changing through the first decade of this century, he went on, with a profound adjustment coming after the economy turned south in dramatic fashion just over five years ago. Over the past 10 years, and especially the past five, increasing numbers of law-school graduates have encountered difficulty finding work in their chosen profession, and this development has led to swift and profound changes in the numbers of people applying to law schools — and the numbers accepted — as would-be candidates increasingly question the return on investment in a juris doctor degree.

At WNE, for example, the school was accepting roughly 150 individuals into its day (full-time) program each year until recently, said Gouvin, noting that the number for this fall will be around 90, 40% fewer than that previous benchmark. This decline (reflective of what’s happening nationally) brings fiscal challenges for the school, prompts a host of questions about what could — or will — happen next, and even invites speculation about for how long there will still be 201 ABA-accredited law schools.

How all this came about is the subject of a compelling, if somewhat controversial, book called Failing Law Schools, authored by Brian Tamanaha, a law professor, former law-school dean, and legal theorist who admits he did some of the things he now criticizes. In a nutshell, Tamanaha contends that, in the wake of the Great Recession and its significant impact on graduates and, subsequently, law school applications, there is now solid evidence to support what many had believed for some time — that law schools, many of them desperate for high rankings in U.S. News & World Report, were luring applicants to their campuses with false promises of employment and high salaries, leaving them in considerable debt and, overall, creating “a systemic mismatch between graduates and jobs.”

Gouvin has read the book, as most in legal academia have, and doesn’t necessarily disagree with some of its main arguments — or its broad assessment of what law schools must do now.

In the current climate, he said, law schools in general, and his in particular, must do something about that mismatch by focusing on making fewer lawyers (until the market dictates otherwise), and lawyers better prepared to succeed in the marketplace.

“Law schools, in general, have not done a great job of preparing their graduates to enter the profession,” he explained. “They learn a lot of law, and that’s handy, because lawyers should know the law. But there’s so much more to being a lawyer than knowing the law.

“We want to have a graduating class that’s matched more closely to the realistic prospects for employment,” he went on, “but also a class that is graduating with the tools necessary to practice law.”

Meanwhile, in response to the fiscal challenges presented by declining enrollment, the school will implement strategies to hone or create what Gouvin called “degrees that people who won’t practice law might find useful.”

Elaborating, he said that WNE already has in place some master of law degrees (LLMs), including a popular offering in estate planning and elder law, and another in closely held businesses. These are designed for practicing lawyers looking to gain expertise in those areas, he said, adding that the school is looking to build on these offerings with new master of jurisprudence degrees. Now in the planning stages, they would be designed for professionals in non-law areas who could benefit from knowing some law.

For this issue and its focus on law, BusinessWest talked at length with the new dean at WNE Law about his strategic plan for the future and how to position the school for success in what are clearly changing times.

 

Making His Case

In 2001, the last time Western New England went about conducting a search for a law-school dean, Gouvin, who joined the institution’s faculty in 1991, chaired the committee that eventually chose Arthur Gaudio, then with the University of Wyoming School of Law.

This time, Gouvin made a committee unnecessary.

Retracing the events of the past several months, he said that, by late this past winter, he was being recruited by several law schools searching for deans. He eventually became a semi-finalist for the post at the University of New Mexico and one of three candidates invited for a final interview at Northern Kentucky University. He came away from that session thinking he had cinched a new professional mailing address.

“I thought it went so well that they were going to offer me the job on the way to the airport,” he recalled with a laugh.

That didn’t happen, and while NKU was still mulling its options, faculty members at WNE, wary of losing Gouvin, were talking to Gaudio about accelerating his announced intentions to join them in the classroom.

This set in motion a chain of events — including interviews and a formal presentation to administrators at WNE — that had Gouvin canceling further out-of-town interviews and eventually moving his many books, including Failing Law Schools and several biographies of Henry Ford, and an impressive collection of 1975 Boston Red Sox memorabilia, down the hall instead of halfway across the country.

As he talked with BusinessWest while still in the process of moving into his new office, he said there are a number of items on his to-do list. The first is introducing, or re-introducing, himself to the law school’s many constituencies — students, faculty, alums, and community partners — in his new capacity, which he likened to being the CEO of a company.

“Anything that someone who runs an organization is responsible for — from personnel to finance to keeping the lights on and the doors open — that’s all on my desk,” he explained. “I’m responsible for making all the pieces come together — alumni functions, career services, admissions, compliance, the academic piece, and all the other moving parts.

“When you’re sitting in the dean’s seat, you have a different perspective on how everything is or should be, as opposed to when you’re looking at it from a faculty member’s point of view,” he continued. “You begin to see the bigger picture and how it all has to fit together.”

There are several other matters at hand, he said, including annual discussions about classes and potential additions, and the honing of programs, such as the university’s Center for Innovation and Entrepreneurship, which he led prior to becoming dean.

But the most pressing matter, obviously, is crafting a comprehensive response to the dramatically altered landscape he described, an assignment facing the leaders of virtually every law school in the country, he said, stressing, again, that this is a nationwide phenomenon.

The severity of the situation is driven home by statistics showing that, in 2004, there were 100,000 applications to those 201 law schools, and during this most recent admissions cycle, the number was roughly half that — 54,000, with only speculation about when and even if that figure will start trending upward.

The reasons for this precipitous decline are many, and they come back to ROI, say industry analysts, noting that, in recent years, college students and those in many professions have become increasingly skeptical about whether a law degree is a ticket to success (a dramatic change in outlook from 40 or even 20 years ago), especially when many graduates are towing huge amounts of debt as they leave the commencement stage.

The situation resulted mostly from what observers have called ‘overproduction,’ or too much supply, of lawyers. And this became a vicious cycle at many schools. Desperate for high rankings in U.S. News & World Report, which were determined in large part by per-pupil spending, Tamanaha charges, many law schools greatly increased tuition and continued to accept large numbers of students, putting graduates heavier into debt and injecting them into a job market they couldn’t crack.

Thus, changing current perceptions about a JD is among the many challenges facing law schools, said Gouvin, adding that this can come about only with direct evidence that the employment landscape is changing, and for WNE, this means enabling more graduates to thrive in the job market.

 

Giving Testimony

In this altered environment, law schools must change and adapt, and for many this will be a tall order, said Gouvin, who believes WNE is better positioned to handle that assignment than many others, primarily because it has already started the process, and has historically been at or ahead of the curve when it comes to preparing graduates for the workplace.

Part of the equation is simply limiting enrollment, he noted.

“Finding jobs for 90 people is a lot easier than finding jobs for 150,” he explained, adding that, if he’s right in this thinking, both the graduating students and the law school will benefit. “Law schools are going to be judged by how well they’re placing their students, and that’s why we have to make sure we’re doing as much as we can to support our students.”

Eventually, the job market will improve and demand for a law degree will increase, he went on, citing factors that include everything from the rising U.S. population, which will likely create the need for more legal services and professionals who can provide them, to the simple fact that many of those who joined the profession when it was exploding in the early and mid-’70s, will soon be retiring.

In the meantime, though, law schools must contend with the present challenge of making graduates better able to put their law degree to effective use.

“I want to make us even more focused on what we’ve always done,” Gouvin told BusinessWest, “and that’s prepare students to enter the practice of law, mostly at small to medium-sized firms in small to medium-sized cities in the Northeast.

“I think we can do better at making students practice-ready — a lot of law schools don’t even try,” he continued. “And they’re only now starting to come around to it.”

One key to making graduates more prepared for the workplace is experiential learning opportunities, which WNE provides in a number of ways, said Gouvin, adding that more than 75% of graduates take advantage of these opportunities, and he wants to push that number higher.

Programs include internships, externships, and clinics, he said, adding that the school has the strategic advantage of being the only law school in Western Mass. that gives its students solid opportunities to work with area judges at all levels of the judicial system, from district to federal.

Meanwhile, there are several clinics, or programs that give students the opportunity to work with area residents and businesses under the guidance of legal professionals and professors. The current roster includes clinics in small business, housing, real estate, international human rights, and other areas.

“We do take seriously the idea that students ought to know what lawyers do and why they do it,” he said, “and we’re going to make even more changes to enforce that message.”

While working to improve the job prospects of students, WNE Law and its new dean must also devise strategies for coping with the sharp reduction in tuition revenue that comes when incoming classes are 40% smaller than they were only five years ago.

“That’s a real challenge — tuition is a huge driver,” said Gouvin, noting that, after scholarships and other forms of direct aid are subtracted, most students are paying roughly $25,000 to attend the school.

Cutbacks to faculty have been minimal because of a few recent retirements, he said, but long-term, the school needs to replace at least some of the lost revenue, and one strategy is to create more and better programs that will attract those who don’t intend to practice law but can benefit from some of the skills imparted on those who do.

Those aforementioned master of jurisprudence degrees are another emerging trend, he noted, adding that several law schools, such as the one at Drake University in Iowa, have added such programs, and more are exploring similar options.

WNE is in the early developmental stages of such programs, said Gouvin, who was reluctant to offer details but did say they represent opportunities for the law school to broaden its student base.

“There are a number of professionals in non-law areas, such as insurance, financial planning, and accounting, who need to know quite a bit of law, but they’re not going to practice law,” he noted. “We’re exploring options to provide something of value to these individuals.”

 

Final Arguments

Looking ahead, Gouvin said the questions hanging over every law school in the country concerns when the situation regarding supply and demand will improve, and to what degree.

“Demand was artificially depressed during the downturn — this was a period of unprecedented economic disaster. As the economy improves, I think we’re going to find what we always find when the economy improves — that we’re going to need more attorneys.”

Until that time comes, though, law schools must be diligent, creative, and ever more focused on helping graduates succeed.

And the new dean at WNE believes the school is certainly up for that challenge.

 

George O’Brien can be reached at [email protected]

‘Pretty Good Justice’

By
Ponsor’s first novel
Law Sections
Federal Judge Michael Ponsor Reflects on an Eventful Career

Judge Michael Ponsor

Judge Michael Ponsor

When Michael Ponsor was 8 years old, he wrote to Harvard Law School and said he wanted to enroll.
The registrar actually wrote him back, saying he looked forward to entertaining his application someday. As it turned out, that prediction wasn’t too far off; Ponsor actually attended Harvard as an undergraduate and then went to Yale Law School. That’s still a remarkably prescient career plan for a second-grader.
“I’m not sure why,” he told BusinessWest, trying to explain his early attraction to law. “I think, like most kids, I had a strong interest in what was fair and what wasn’t fair, and I had a vague sense that’s what the law was about. And I think I was right — that is what the law is about, trying to do what’s fair.”
Ponsor did more than parlay his childhood dream into a law career; he eventually ascended to the federal bench, and has served as a district judge in the U.S. District Court in Springfield for almost 20 years.
In a broad, candid conversation with BusinessWest at the twilight of his career, Ponsor — who began his career in criminal defense — kept coming back to that notion of giving everyone a fair shake.
“The goal is to give both sides a truly fair trial, and that is not easy,” he said, comparing his philosophy to Ralph’s Pretty Good Grocery in Garrison Keillor’s A Prairie Home Companion, with its motto, “if you can’t get it here, you can probably get along without it.”
“I feel like I could put a sign out on the courthouse: ‘Ponsor’s Pretty Good Justice,’” he said in a bit of self-effacement. “I feel like pretty good justice is pretty darn hard, and human beings have struggled in the 10,000 years of recorded history to develop systems that deliver pretty good justice.
“I don’t have any illusions that I’m perfect; I think it’s important to be proud of our system of justice but also honest about its limitations,” he continued. “If anything, I would like people to remember me as a good, fair judge. I would like prosecutors and defense attorneys to remember me that way, people representing corporations and people suing corporations. That’s the most important thing.”
As a lengthy search for Ponsor’s successor continues — he announced his intention to semi-retire in 2010 (more on that later) — he sat down with BusinessWest to discuss his long journey in law, one bookended by a precocious child’s letter to Harvard and the novel he wrote nearly 60 years later.

Something Different
That work of fiction, published just last week, is called The Hanging Judge and deals with a drive-by shooting in Holyoke that evolves into a federal case.
“Like many first novels, it’s somewhat autobiographical in content; it’s about a judge who sits in Springfield,” he explained. And he hopes it won’t be the only novel in what may become an intriguing second career; he’s already at work on a follow-up.
But his first love has always been the law.

Ponsor’s first novel

Ponsor’s first novel — he hopes it isn’t the last — was published at the end of April.

Ponsor, a native Chicagoan whose family moved to Minnesota during his childhood, didn’t establish Massachusetts roots until attending Harvard. During those years, he fed a sense of adventure and a desire to do something different by spending a year in Kenya, teaching at a training institute in Nairobi.
“It was an exciting place,” he said. “When I arrived in 1967, Kenya was only three years post-independence. There was such an extraordinary sense of hope. It would be like coming to the U.S. in 1800. I had a terrific year there, but I also saw a lot of poverty, and I had a chance to get to know a culture different from mine.”
After Harvard, he spent two years in England on a Rhodes scholarship before returning to New England to study law at Yale — during which time he developed an interest in mental-health law and joined a project to provide legal aid to patients at the state mental hospital in Middletown, Conn. “The legal rights of people who are labeled with mental disabilities has always been an area of interest for me,” he explained.
After law school, Ponsor clerked in Boston for federal judge Joseph Tauro for a year, then took a job with a small firm in the city, focusing exclusively on criminal defense.
“I wanted to be Perry Mason,” he said with a laugh, but then I decided I wanted to be Atticus Finch [the lawyer in To Kill a Mockingbird] and move to a smaller environment.” So, two years later, he began working at a firm in Amherst, blending his criminal-defense activity with other types of civil litigation and domestic work.
Soon after, in 1979, Frank Freedman, who was then the federal district judge in Springfield, tapped him to be a court monitor for a consent decree involving Northampton State Hospital.
“A lawsuit had been brought on behalf of patients, and the heart of the lawsuit was that there were many people institutionalized who could do just as well or better in the community, in smaller settings,” Ponsor explained. “The state of Massachusetts agreed, and the remedy was the creation of a community-based mental-health system.”
The plan was to move people from Northampton State Hospital to community facilities — residential centers, day programs, and other facilities — and Ponsor was charged with overseeing those transitions.
“That was very interesting work, and there was a nice mesh there; I had a real interest in that area of the law,” he said of the mental-health emphasis. “There were difficulties, and some bumps in the road with that process, but on the whole it was a good development, and a much more humane approach to dealing with people with mental disabilities.”

Donning the Robe
In 1984, Ponsor underwent his own transition, when he was appointed to the district court in Springfield as a magistrate judge — essentially the lowest echelon among federal judges.
Magistrate judges, he explained, oversee civil litigation but not criminal cases, although they do handle the preliminary phases of criminal work, such as conditions for prisoner release.
“Those decisions have to be made quickly, and sometimes you don’t have a lot of information,” he said, recalling the very first decision he had to make as a judge. “I was just getting used to wearing a robe and having people stand up when I walked in the courtroom. It was a new criminal case, and the question was, should the defendant be detained or released back to his home?
“There were very good arguments on both sides,” he continued, “and I remember thinking, ‘in about a minute now, the lawyers are going to stop talking, everyone’s going to look at me, and I have to make a decision, and I have no idea what that decision is going to be.’ The family was sitting in the courtroom, and the agents waiting to take him away were in the courtroom; there were strong feelings on both sides. The emotions were like a rollercoaster ready to go over the top, and I had to make the best decision I could under the circumstances.”
Notably, Ponsor doesn’t recall what that decision was; it’s the emotion of the moment that has stuck with him — the gut-churning realization that he had moved from arguing before a judge for a certain decision to having to make that decision himself, and that the calls he made would affect people’s lives in very real ways. That’s a responsibility, he said, that he’s taken seriously ever since.
“Even though you might have an inclination of what you’re going to do, it’s cheating to decide early; you have to come into the courtroom with an open mind and give both sides a chance to persuade you,” he said. “That relatively small bail decision was a kind of window into what I would be doing for the next 30 years.”
One of his most important cases as a magistrate judge involved the closure of the York Street Jail and the construction of the Hampden County Correctional Center in Ludlow, he explained. “The York Street facility was horribly overcrowded, and there had been litigation pending for some time which was coming to a head, and the litigants consented to have the case handled by me.”
Ponsor made the decision to cap the population of the York Street Jail, which posed a serious conundrum because the Ludlow facility hadn’t been completed, and there were more people being sent to jail than could be accommodated. “That created a difficult and, to some, extent, frightening situation. People were getting out of jail early,” he recalled, while other criminals whom judges wanted to send to jail were being set free.
“I remember being quite concerned that some prisoners would be released early and do some terrible thing, and the community would be very offended and upset at what went on. By good luck, that never happened,” he continued. But it stands as an example of issuing a difficult ruling under the limitations of reality — not always a clear-cut call. “We had to work with both sides and make a firm decision and be sure it was complied with.”

Senior Status
After a decade as a magistrate judge, Ponsor was nominated by U.S. Sen. Ted Kennedy — and eventually confirmed — to succeed Freedman as the federal district judge in Springfield.
“At that point, I began doing more criminal work,” Ponsor said. He pointed to two developments in particular — one a specific case, the other an overarching trend — that have especially impacted him.
The case was the first death-penalty action in Massachusetts in more than 50 years, the five-month trial in 2000 and 2001 of Kristen Gilbert, who was accused of murdering several patients at the Veterans Affairs Medical Center in Northampton. She was found guilty, but avoided the death penalty.
“I felt a particularly heavy responsibility in that case to ensure that both the government and the defense got a fair trial,” Ponsor said. “Ms. Gilbert had done terrible things, and the families of the victims were heartbroken and looking to the legal system to provide a process for weighing her guilt or innocence. At the time, the consequences of the trial were pretty stark, and it was important that the defense got a fair trial. In the end, I’m satisfied that both sides got a fair trial. She’s serving life without parole in the federal Bureau of Prisons.”
The trend he cited was the movement toward mandatory minimum sentences for criminal convictions — in cases involving drugs, guns, and other matters — which started to gain steam during the 1990s.
“There were times when I felt the sentences were too harsh,” Ponsor said. “There is very little more painful for a judge than having to impose a sentence he knows is unjust and excessive, but, unfortunately, I was put in the position of having to impose sentences I didn’t agree with fairly regularly.
“That was part of the job, and I respected the role of Congress in determining these sentences and making sure judges imposed them,” he continued, “but during this time, we saw the prison population expand hugely, to where the U.S. is now, by far, the biggest jailer of its people of any country in the world. I think that’s excessive. There have to be better ways to deter crime and protect the public, but also bring people back into the mainstream and turn them into productive citizens, instead of just warehousing people.”
Ponsor said he’s been able to do some creative things in sentencing — and he wishes judges had a freer hand to dispense justice with the right blend of firmness, compassion, and case-specific context — but says his hands were tied far too often. “The criminal-justice system, not just in federal court but in the states as well, has meted out a number of excessive sentences, and that’s very disturbing. And I have a sense that’s something people are rethinking now.”

Winding Down
In 2010, Ponsor wrote to President Obama and told him he planned to take ‘senior status’ in August 2011 when he turned 65, a precursor to stepping back and ceding his seat to a new federal judge. But the wheels of justice turn slowly in the U.S. Senate, where the politics of federal judgeships can delay confirmations for years. That’s the case now; after one nomination was rescinded last year, U.S. Sens. Elizabeth Warren and Mo Cowan are interviewing candidates for a new nomination.
The delay has made Ponsor more anxious to get on with partial retirement; originally ambivalent about stepping back, he’s now ready to begin the next phase of his life — which will include more traveling and other leisure activities with his wife, as well as more writing — with no regrets.
“There are a lot of really good attorneys in Western Mass. who can do this job and do it well,” he said. “Once my successor is appointed, I’ll probably cut back to about a 25% load. I still love the work, but I want to spend more time writing fiction. My whole life, I’ve had a deep interest in writing.”
Meanwhile, by taking senior status, he has been able to cut back to about 80% of his former load. That means he’s shuttling more cases to Boston while being more selective about the work he accepts. For instance, “I have decided to take no more child-pornography cases,” he noted. “The images you’re forced to look at as a judge in these cases are so appalling and so sickening … I’ve been compelled to do it enough.”
But the positives of being a federal judge far outweigh the negatives, Ponsor said, and have included triumphant moments such as the 2009 completion of a new District Court building on State Street.
“That’s one of the things that I’m proudest of in my 29 years here,” he said. “The court facility on Main Street was totally inadequate, so, in the late 1990s, we began the process of building a new courthourse.”
More than 90 architects submitted ideas; Ponsor was on the team of five who chose the design — by Moshe Safdie — from among those entries, and he participated in the project development and site selection. A sketch of the courthouse, drawn by Safdie seven years before it was actually completed, hangs in Ponsor’s office.
“For many years, I came here at least once a week to walk around the courthouse as it went up,” he said. “When it began to take shape and I saw how beautiful the two trees are in front, I was so excited. It’s an efficient, well-designed, beautiful facility. I love this building, and I hope the people of Western Mass. love it too.”

Another Day
No matter how slowly the succession process plays out in Washington, Ponsor has no plans to leave his post before a new appointment is made; doing so would shift his entire caseload to judges in Worcester and Boston, which he believes is unfair to them while shortchanging the citizens of Western Mass.
“I am so deeply fond of Western Mass. and its people,” he told BusinessWest. “I don’t want to abandon them until someone is here to do the job.”
And that, Garrison Keillor might say, is a pretty good attitude.

Joseph Bednar can be reached at [email protected]

A Logical Extension

By
John Shea, right, consulting here with Brad Martin
Law Sections
Morrison Mahoney Adds Estate-planning Attorney to Its Roster

John Shea, right, consulting here with Brad Martin

John Shea, right, consulting here with Brad Martin, brings another specialty to Morrison Mahoney LLP.

When the Springfield office of Morrison Mahoney LLP added business-law specialist Brad Martin Jr. in 2006, the firm, which focused on litigation, and especially medical-malpractice defense and other work involving the healthcare industry, took a step closer to providing what partner Dennis Anti called “one-stop shopping.”
Elaborating, Anti said that the addition of Martin enabled the firm to assist clients not only with medical-malpractice cases, but also with myriad business issues, ranging from corporate filings to the addition of a shareholder within a physician group; from employment-law matters to regulatory issues.
But there was still one more big step the firm needed to take if it was to effectively serve all the needs of its clients, said Anti, citing the broad realm of estate planning and asset protection, which are critical matters for physicians.
And that gap was closed with the recent addition of John Shea, who concentrates his work in estate planning, wills, durable powers of attorney, healthcare proxies, revocable and irrevocable trusts, and related services.
“This is a logical extension for us — asset protection is very important for people in the medical field, and estate planning is important for everyone,” said Anti. “We’ve always had to outsource this to other firms because we haven’t had the expertise to do it.”
And much of that outsourcing went to Shea, who has spent the bulk of his career in private practice, with offices on Yarmouth on Cape Cod. He told BusinessWest that, while his arrival at Morrison Mahoney brings benefits for the firm, it should help him build his book of business as well.
“The resources and the reach of the firm are obvious advantages for me,” he said, citing its many locations and a wide service area. “The firm has a very large client base that we can pull [estate-planning] work from.”
Retracing the steps that led to the firm’s latest addition, Anti explained that, as the frequency of requests for asset-protection and estate-planning services increased, discussions about expanding the staff and bringing such work in house intensified. And there have been many inquiries about such services, he noted.
“Many of these come from younger physicians who have never been sued before,” he explained, referring to medical-malpractice cases that come to the firm. “After we discuss the case, the first question they ask me is, ‘how can I protect my assets going forward?’ This has been a huge wake-up call for many of these physicians.
“And for years, we would tell them, ‘yes, there is a way to protect your assets and develop an estate plan,’ which is a good idea anyway, irrespective of whether there’s been a medical-malpractice claim,” he went on. “But until now, we’ve had to outsource that work.”
He related the specific story of an individual who was sued for medical malpractice as a resident. “She called me and said, ‘I know this happened to me as a resident, and I’m sure it’s going to happen to me again — that’s what the statistics regarding my specialty tell me — and I have a young family, and I want to be set up now.”
When asked about what the addition of Shea means for the firm, which has more than 160 attorneys in nine offices, Martin said it obviously brings the practice much closer to that one-stop shopping designation — divorce is essentially the only service it doesn’t provide, and it has no intention of entering that realm — that many clients are looking for.
“Many of the physician groups like the fact that it’s all contained in one firm,” he said. “And it’s especially attractive to people just launching a new business; one firm can handle all the aspects of them getting started.”
Meanwhile, this most recent addition gives the firm direct access to a growth area laden with potential.
Indeed, in addition to younger professionals in healthcare realizing the importance of estate planning and asset protection, there are many older physicians now approaching retirement who have not fully addressed matters concerning their estate, said Martin.
“People would be surprised at the number of individuals who don’t have anything,” he noted, “or don’t have anything close to what they really need.”
To capitalize on this potential, the firm intends to be, in a word, proactive about this latest addition to its suite of services, as well as the full package it offers, Anti told BusinessWest.
Elaborating, Anti said that many young professionals in the healthcare field will wait until something happens — like that first medical-malpractice suit against them — to realize the importance of asset protection and estate planning. The firm will be more outspoken about not waiting for such incidents, he went on.
“We have a lot of young professionals as clients — new doctors, for instance — who are just starting out and are really focused on doing a great job and building their practice,” he said. “It is critical that we help them protect their current assets, as well as future earnings, through proper estate planning. It might not be on their radar screen, but we intend to be proactive with them.”

— George O’Brien

A Primer on the ESOP

By
Law Sections
Why the Employee Stock Ownership Plan May Be a Sound Alternative

By Steven J. Schwartz, Esq. and David K. Webber, Esq.
When evaluating the various alternatives for an exit strategy, a business owner should consider a sale to an employee stock ownership plan (ESOP). In order to determine whether an ESOP is the best strategy, it is necessary to become familiar with its elements.
An ESOP is a qualified defined-contribution retirement plan established under §§ 401(a), 409 and 4975 of the Internal Revenue Code. Unlike other qualified plans, an ESOP is designed primarily to invest in shares of a closely held corporation, referred to in the code as ‘employer securities.’ The sponsor company may transfer the shares of common stock as a qualified contribution, or the ESOP may purchase shares from shareholders or the sponsor company. In a ‘leveraged’ ESOP, the company takes out a bank loan to fund the purchase, then lends the funds to the ESOP to finance the purchase of shares. A 100% sale of shares to an ESOP may require a series of smaller transfers because 100% bank financing is unlikely.
The selling  shareholder may receive cash as partial or complete consideration for the shares. In the alternative, or in addition to cash, the selling shareholder may self-finance a portion by accepting a note as partial payment. As the note is paid off in installments, the plan trustee transfers shares to each of the employees’ accounts, eventually vesting all the stock in employee accounts in accordance with the terms of the plan.

How It Works
The ESOP sale transaction has several moving parts. The following example illustrates a hypothetical leveraged ESOP transaction.
Assume Frank started a widget company 20 years ago, and now owns all 30,000 shares of Optimistic Manufacturing Inc. The company is doing well. It has 30 employees and a fair market value of $10 million. Frank is also the sole officer and director of the company. Key employees manage the day‑to‑day operations of the company and are qualified to run the company without the current shareholder.
Frank is 60 years old and wants to provide liquidity to benefit his family. He wants to protect his employees and to continue working for the indefinite future. He realizes that a strategic purchaser will likely pay more and pose less risk to him than a sale to an ESOP. He will accept installment payments in order to make a 100% sale of his shares.
The success of the ESOP transaction will depend on the employees’ ability to carry on the company without Frank. It is not uncommon for a business owner to do all the planning for an ESOP with a resulting decision not to proceed, because of the inability of the management team to convince Frank and the company’s bank that they can successfully manage the business.
For the purposes of this hypothetical, assume the company’s bank agrees to partially finance the transaction and lends the company $6 million on a six-year note. Frank accepts a promissory note for the remaining $4 million of the purchase price. The bank loan is secured by the assets of the company. Frank receives a junior lien on the assets.
The company receives the bank funds and lends the proceeds to the ESOP on the same terms. The ESOP uses the entire bank-loan proceeds to buy 18,000 shares (60%) of the company’s shares from Frank. In addition, the ESOP issues a $4 million, six-year promissory note directly to Frank in exchange for the other 12,000 shares (40%). This makes the ESOP the sole owner of the company. The company guarantees the obligation due Frank and secures it with the company’s assets.
Each year for six years, the company makes a tax-deductible contribution from earnings to the ESOP, which the ESOP uses to repay the notes to the company and to Frank. The company then pays the bank loan. During this time, the ESOP holds the shares in a trust ‘suspense account’ and releases them for allocation to participant accounts as the debt is repaid. In this six-year example, approximately one-sixth of the shares (5,000 shares) will be released to the accounts of the employee participants each year.
The ESOP is overseen by trustees. Frank may serve as a trustee.  Frank may retain his position as president of the company. Each employee votes the shares that have been allocated to them, and the trustee votes the remaining unallocated shares.
There will be three sets of documents required to complete the transaction: the sale documents (purchase-and-sale agreement, consents, etc.), the bank loan documents, and the ESOP plan documents. Approval will be needed from the Internal Revenue Service. In addition, the parties will usually need to employ a qualified appraiser and a third-party administrator to ensure that the ESOP plan complies with ERISA requirements. The agenda may be a bit long, but that should not be a reason not to consider an ESOP, because a sale to a third party may require as extensive an agenda.

Tax Ramifications
In structuring the transaction, there will be tax ramifications to consider. At the time of the transaction, the parties will need to decide whether the company will be a C-corporation or an S-corporation. If it will be a C‑corporation, the seller may reinvest the proceeds tax-free in qualified investments, including corporate bonds and common and preferred stock. In order for the seller to receive a tax-free investment, the ESOP must be the owner of 30% of the shares of the company. In addition, for a C‑corporation, the company will be able to contribute up to 25% of qualified employees’ compensation to the ESOP plan, plus the amount of interest the ESOP paid on the loan.
S‑corporations pose special difficulties, because ordinarily a trust such as an ESOP cannot own shares in an S‑corporation. The above-described tax benefits are not available for S‑corporations. However, if the plan is the sole shareholder of an S‑corporation, there will be no federal income tax on the earnings. If sales are less than $6 million, there will be no Massachusetts tax. If annual sales exceed $6 million, the company will be required to pay Massachusetts corporate excise tax.
Valuation of the company is very important. There may be discount issues for the stock transfers with respect to sales of minority interests. Transforming the shares of a C‑corporation into preferred shares with a dividend rate can enhance their value. (S‑corporations can only have one class of stock, so preferred shares are not an option). The company will need a professional appraisal of the stock value each year. Despite the complexity of an ESOP, it has unique advantages that must be considered by a business owner who is considering an exit strategy.  Unlike any other form of exit plan, it offers a realistic, tax-advantaged means for employees to purchase a company.
ESOPs are appropriate only under specific circumstances. The company must be a corporation, not an LLC or partnership; it must have earnings sufficient to support the ESOP debt payments; and the seller may need to be willing to accept a lower payment than one offered by a strategic purchaser, and usually an installment sale to permit the company to pay in cash for the shares over time, rather than simply walking away as might happen with a third-party sale.
Most importantly, it is critical to have smart, experienced employees to form the new management team.

Attorney Steven J. Schwartz, a shareholder with Shatz, Schwartz and Fentin, P.C., concentrates his practice in the areas of family-business planning, mergers and acquisitions, corporate law, and estate planning. Schwartz’s practice involves representation of principals in family-business planning (including exit planning for business owners), representation of individuals and corporations in the purchase and sale of business enterprises, strategic planning for the future of clients’ businesses, and providing advice as to alternatives in financing through loans and venture capital; (413) 737-1131. Attorney David K. Webber is an associate at Shatz, Schwartz and Fentin, P.C., and practices in the areas of business transactions, estate and succession planning, taxation, and nonprofits. Webber was appointed a note editor by Western New England Law Review; (413) 737-1131.

The Ins and Outs of LLCs

By
Law Sections
A Well-drafted Operating Agreement Is Critical for Success

Michael Simolo

Michael Simolo

Limited Liability Companies (LLCs) have in many cases become the preferred choice of entity for passive income investments, particularly rental real estate. In addition, LLCs are a valuable tool for facilitating family ownership of valuable property, such as vacation homes.  While LLCs are often not the best choice for operating entities, there are exceptions, and LLCs can and do serve this role.
In short, LLCs are an increasingly popular alternative to the traditional corporate structure, and there are many reasons for this, as this article will explain.
First, it is helpful to first consider why LLCs continue to increase in popularity among business owners and holders of income producing real estate. There are several reasons, but here are the three most prominent:
• First, LLCs offer their owners liability protection. In fact, in many states, LLCs with multiple owners offer greater liability protection than corporations due to additional protections against the creditors of co-owners;
• Second, LLCs permit significantly greater flexibility than corporations in structuring the financial arrangements and rights of owners; and
• Third, LLCs can serve as a ‘pass-through’ entity for tax purposes without the need to qualify for so-called S corporation status. (S corporations incur no tax at the corporate level, with all income being taxed to the shareholders.)
The default rule is that LLCs are taxed as partnerships, meaning that income taxes are applied only at the partner level. In keeping with the general flexibility of LLCs, however, an LLC may elect to be taxed as a corporation, including as an S corporation (the taxation of which differs siginficantly from partnerships, nothwithstanding that both are pass-through entities). Such an election may be preferable if the LLC is an operating entity.
These benefits may be unavailable if the LLC’s governing document — the operating agreement — fails to properly address the numerous issues that can arise with any ongoing business. The operating agreement, while similar in some ways to the bylaws of a corporation, is an agreement among the owners that allows for nearly unlimited flexibility in the governance of the LLC. As a result, operating agreements should always be narrowly tailored to address the unique characteristics of each business.
In particular, the operating agreement should be used to address issues that are not covered by the applicable state’s LLC statute, or to override provisions in the LLC statute that are inconsistent with the owners’ objectives. For example, the Massachusetts LLC statute provides owners with the right to resign from the LLC upon six months notice and have their interest bought out by the LLC at fair value (i.e., not discounted). For obvious reasons, owners may wish to override this provision through an operating agreement.
Crafting such an agreement requires both detailed knowledge of the underlying LLC statute for the state in which the LLC is formed and a thorough understanding of the intentions and concerns of the LLC’s owners. For these reasons, use of a form LLC operating agreement can often do more harm than good.
Here is a partial list of 11 common issues that should be addressed in virtually all operating agreements:
1. Under which state’s law should the LLC be formed?
2. How many classes of ownership interests will the LLC have? Will different classes of owners have different rights (i.e. voting) and preferences (i.e. return of capital)? Does the underlying state LLC statute allow for different classes of ownership?
3. Who will manage the day-to-day affairs of the LLC? Which decisions will be made by the manager, and which will be put to a vote of the owners?
4. What types of fiduciary obligations will the owners and managers have to each other? Under what circumstances will managers and/or owners have a right to sue the LLC (i.e. derivative action) or the other owners or managers?
5. Upon what terms (if any) will owners be required to contribute additional capital to the LLC?
6. Upon what terms (if any) will owners be entitled to be paid back their contributions to the LLC?
7. How will the LLC’s profits, losses, and cash flow be allocated to the owners?
8. How will distributions be allocated among the owners? Under what circumstances will the LLC be required to make distributions to owners (i.e. to pay income taxes on LLC income, liquidation, etc.)?
9. Will owners be permitted to transfer their ownership interests? If so, to whom?  What happens if an owner dies?
10. Will the LLC and/or other owners have the right to redeem or purchase the owner’s interest prior to such transfer?  If so, how will the purchase price of the owner’s interest be determined?
11. How will the entity be taxed (i.e. sole proprietorship, partnership, subchapter S-corporation, etc.)? Note that the validity of certain tax elections may hinge on a properly drafted operating agreement being in place. This is particularly true if the LLC desires S-corporation tax status.
More complicated arrangements may require additional terms, such as non-compete clauses, indemnification provisions, ‘tag-along’ and ‘drag-along’ rights, call-and-put options, and others.
A look at these issues reveals that the flexibility offered by LLCs is the proverbial double-edged sword. On one hand, the entity can be structured in virtually any manner to address its purpose and the goals of its owners. On the other, reliance on the LLC statute — or, perhaps worse, a form operating agreement improperly tailored to the entity it governs — can result in significant consequences, including the premature liquidation of the entity or an ownership interest being seized by a co-owner’s creditors.
A well-drafted operating agreement can eliminate these risks and prevent disputes among owners from leading to litigation.

Michael Simolo is an attorney with the law firm Robinson Donovan, P.C., specializing in estate planning, estate and trust administration, business law, and fiduciary litigation; (413) 732-2301. Nicholas P. Lata, Esq. assisted in drafting this article.

Employers Take Heed

By
Law Sections
Like the Iceman, Jan. 1, 2014 — a Big Day for Obamacare — Cometh

ROSEMARY J. NEVINS

Rosemary J. Nevins

By now, employers have more likely than not been inundated with reminders that, come Jan. 1, 2014, the shared-responsibility provisions,” a/k/a the ‘play or pay mandate’ under the Patient Protection Affordable Care Act, a/k/a ‘Obamacare,’ go into effect for applicable large employers.
The law defines ‘applicable large employers’ as those employers who have employed 50 or more full-time employees (employees who on average work at least 30 hours per week during a month, or 130 hours per month) during the preceding calendar year, which means this year (2013).
While the number of full-time employees may be readily calculated by many employers, the determination of employer status is somewhat more complicated for those employers who, for example, employ several part-time employees (whose aggregate number of hours worked may render them ‘full-time equivalents’) or are part of a controlled group as defined under the Internal Revenue Code and, as a result, may cross the line between being considered a small employer and being classified as an applicable large employer. That determination is germane to determining whether the above mandate applies to them.
Equally important for applicable large employers is the need to decide whether they want to play or pay, and understanding the implications and results of such decisions. Because the law has been implemented prior to the publication of final-rule notices by the federal agencies responsible for overseeing the implementation of the law (e.g., the IRS), employers are reminded that they may rely on the interim regulations for the year 2014 for guidance. Those regulations are complicated and include transitional as well as ‘safe-harbor’ provisions.
Employers need to be aware of which penalties apply and, more importantly, how to assess the cost of such penalties to determine whether it is less expensive to offer coverage as defined by the law or pay the penalties.
Adherence to the law also necessitates employers to review existing employer-sponsored health plans to determine whether they comply with the law’s affordability and minimum-value requirements, should employers decide to play. In addition, self-funded plans, multi-employer plans, and grandfathered plans are among the types of coverage plans employers need to review to determine if and whether the law requires any changes to those plans.
Finally, an employer who decides to play and use some of the applicable safe harbors relative to determining and treating employee status with regard to ongoing, new non-variable-hour, variable-hour, and seasonal employees, along with issues such as breaks in service, should be preparing now not only with regard to training, but also by consulting with those whose services are relevant to various portions of the act, such as healthcare issuers and/or providers, counsel, accountants, etc.
Royal LLP is conducting two practical workshops on June 6 and June 13 designed to provide employers with an interactive, step-by-step analysis of Obamacare, including what employers must be doing now to obtain coverage under the safe-harbor provisions and to prepare for the mandates. For more information about the workshops, contact Ann-Marie Marcil at [email protected].

Rosemary J. Nevins, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, SOMWBA-certified, boutique, management-side labor and employment law firm; (413) 586-2288; [email protected]

Manage and Minimize Risk

By
Law Sections
That’s the Basic Mission When Weighing Business Exit Strategies

Michael Gove

Michael Gove

When starting a business venture, owners of a closely held business entity (i.e., shareholders, partners, members, etc.) do not usually think about what will need to occur when dissolving the business, or when one owner decides (or is forced) to step away from the business.
But if not properly planned for, sudden changes like these may put the business at risk or threaten the value of the owners’ interests in the entity. As you think about planning for inevitable changes in ownership, here are some things to keep in mind.

Control Your Emotions
Many small-business owners find the thought of no longer owning, operating, or being a part of their business hard to comprehend. Requiring an inordinate amount of time, commitment, and personal attention, a small business can envelop the identity of its owners, and thinking about losing that identity can be difficult.
Sometimes, when owners work closely together on their business, grievances or complaints can arise, making it even more difficult to think about fairly splitting up their interest in the business. Nonetheless, it’s important to put these emotions aside so that you and your co-owners can be clear about what each of you expect if you were to leave, involuntarily or not.

Start a Discussion Now
The dissolution of a business can be a potentially emotional time, which is a good reason to have this discussion now. Another good reason is that an owner could become disabled or otherwise unable to continue work at any time. Making these decisions when there is no crisis, and there are no immediate consequences to each choice, allows the parties to look at the business — and its operation, management, assets, and liabilities — dispassionately.
This will make it easier for each owner to evaluate and discuss his or her needs, or to agree on the value of (or method of valuing) business assets, in case their situation changes and dissolution becomes necessary.

Discuss Your Plan with Advisors
After you have an initial discussion with your co-owners, contact your business advisors, including your accountant, insurance agent, and attorney, so they can help you find the most effective way to reach your goals.
You may need to determine the valuation of business assets, put in place insurance or disability policies to help fund the planned actions, or draft buy-back or buy-sell agreements to ensure that the business interest can be transferred with a minimum of disturbance.

Put Your Agreement Into Writing
Once you have settled on a plan for dissolution, have it written up by your attorney and incorporated within your business records. This will ensure that the plan is accessible and clear whenever it may be needed. Intend to review the plan every three to five years to ensure that it continues to reflect the needs of the business and each owner.

Michael S. Gove is an attorney with Cooley, Shrair P.C. focusing his practice on assisting clients in the areas of corporate/business, banking, and bankruptcy law; (413) 735-8037; [email protected]

Legal Practice

By
Paula Zimmer and Harris Freeman
Law Sections
Law Students and Graduates Gain Valuable Experience as Clerks

Kevin Maltby

Kevin Maltby says clerkships offer educational experiences that law students don’t necessarily get in the classroom.

“There’s a reason,” Kevin Maltby said, “that it’s called the practice of law.”

He was referring specifically to the role of clerk — specifically, law students or recent law-school graduates who work for a short time, typically one or two years, in a law firm or court system to gain valuable career experience. Or, as he put it, practice.

“I think clerking is one of the best opportunities students can have, in terms of learning by actually being in the law practice,” said Maltby, an associate with Bacon Wilson, P.C. who helps oversee the firm’s efforts to bring in clerks each year. Typically the firm hires four individuals each spring for a one-year clerkship; they come from many different schools, but the current crop are all students at Western New England College School of Law.

“They are excellent students, excellent writers, great researchers,” he told BusinessWest, “and we get to use those skills in exchange for teaching them and exposing them to things they might not be exposed to in law school.”

Jared Olinski agrees. A 2011 graduate of WNEU, he is on his second clerkship; after working for a year at the Connecticut Appellate Court, he’s now clerking in the U.S. District Court in Springfield.

“I think it’s kind of a prestigious thing to have on your résumé,” he said. “You’re getting great experience but also seeing the inside of the court system, seeing how the judges make their decisions, meeting lawyers, possibly making some connections … so I think it’s very beneficial for a recent law graduate.”

In many ways, the advantages of clerking haven’t changed much over the years. Sandy Dibble, partner at Bulkley Richardson in Springfield, graduated from Suffolk University Law School in 1974. Around that time, he worked as a summer clerk both at a Boston law firm and at the Massachusetts Supreme Judicial Court for respected judge Francis Quirico; he also served unpaid stints with the consumer protection division of the Massachusetts Attorney General’s office and with a legal-aid clinic outside Boston.

“All those positions, including the volunteer positions, help you learn and expose you to people who have a lot of experience, so you see how they do things,” Dibble said. “If it’s a law firm, you see how law firms operate; if it’s the judicial system, you see how the court operates. And you get evaluated all the time. You’re in an environment where people function at a very high level, and expectations are high.”

Dibble noted that the word ‘clerk’ covers a lot of territory, including the full-time workers who perform the administrative tasks of a court system; that’s a different class of law professional altogether. As for young, temporary clerks, Dibble explained, they fall into two categories: those who work during the school year, and summer clerks.

“Our firm may be different from some others, but we don’t hire a lot of clerks during the school year,” he said. “We have, and sometimes do — usually somebody who can do a lot of things, or somebody who has a particular skill set we need.

“Summer clerks tend to be more of a formalized thing,” he continued. “I was a summer clerk at a big law firm in Boston a long time ago, and a lot of lawyers here worked as summer clerks in law school. That’s usually a pretty desirable position. Most firms use the law-clerk program as a kind of extended interviewing process on both sides.”

In addition to the obvious connections and career opportunities the experience can open up, Maltby said, the clerks at Bacon Wilson are constantly learning, from the time they arrive, in ways they can’t from the vantage point of a classroom desk.

“Whether in a law firm or clerking for the court system or for the DA’s office, they’re learning from day one to practice law,” he explained. “They’re getting some good experience here, and there are other things they learn as well about the practice in terms of client relationships, as we sometimes bring them on client meetings and so forth.”

For this issue’s focus on law, BusinessWest explores the world of law clerks, discovering in the process that, while practice doesn’t make perfect, it can often make for better career opportunities in what has become a very tight market for today’s law-school graduates.

 

Different Worlds

Olinski said his two very different judicial clerkships have provided him with a wide range of experiences. On the appellate level, “in Connecticut, almost all cases have an automatic right of appeal; if the losing party chooses, it can appeal to the appellate court, which then has to take the case. The parties submit a brief and the reason why they think the trial court got it wrong.”

Here, he explained, the clerks often work with judges to research cases, write internal memos, and, depending on the judge, perhaps help produce decisions. “It’s very substantive work, very fulfilling.

“It’s different dealing on the trial level,” Olinksi said of his current role in Springfield. “You’ll deal with all types of cases, and it’s kind of rare that cases go to trial, so you’re usually dealing with pre-trial stuff — like if one of the parties is trying to get the case dismissed before trial for whatever reason. Or you may research, do some writing, and help the judge prepare for trial.”

When Nancy Frankel Pelletier attended law school in the early 1980s, she chose George Washington University “because it was one of the only schools in the country that had a clinical program that allowed law students to gain real-life experience while in law school,” she explained. “It was a pretty unusual situation back then.”

Now, many schools have clinical programs, said Frankel Pelletier, an attorney with Robinson Donovan in Springfield. “As a result of changes in the law over the past five to seven years, law schools have been expanding in terms of programs for clerkships, programs that are now called externship programs.”

She said there are significant pros and cons for law firms that employ clerks. “The upside, obviously, is that it provides you someone to work for you, but the downside is that taking somebody brand new in and training them takes an enormous amount of work.”

She cited Northeastern University’s program that places students in law firms full-time for a full semester. “We had one, who was outstanding. You spend time educating them and training them, but they are working under the auspices of an American Bar Assoc. program, and they have to meet certain criteria. These programs can be pretty flexible — anywhere from working a few hours a week to the extensive Northeastern model.”

At Bacon Wilson, Maltby said, clerks are able to “pick from the whole buffet” when it comes to the experience they gain.

“They provide litigation support, which means helping the litigation department with legal research and writing, helping prepare discovery materials,” he explained. “On the corporate side of things, they assist in transactions, maybe shooting over to a governmental agency or to the register of deeds to look things up. In family law or probate practice, there are a lot of documents we may need help with, and they’ll witness signings, and sometimes they come to court to get some experience in that regard.

“Or they’ll do research for us in conjunction with our own legal research,” Maltby continued. “We have them do the initial legal research and then work with them, a lot like a mentor-mentee relationship. For me personally, I have them give it their best shot and come back to me and show me what they’ve done, and I work with them on what I would like to see on the final product.”

Frankel Pelletier said clerkship can result in a hire afterward, in which case it operates as a sort of temp-to-perm work experience. “We have the opportunity to see the person at work and make a determination whether it’s the right fit from both perspectives.”

Even clerks who move on to other opportunities have a leg up, which is critical in today’s tight job market; only 55% of the class of 2011 at American law schools landed a job within nine months of graduation.

Those who have clerked, however, “can say they’ve had an opportunity to work,” she noted. “Having real-world work experience obviously puts a student in a much different category than a student who has not had that experience.”

 

Tough Competition

Naturally, that tight job market has also made clerkship opportunities far more competitive.

“The legal market has not been very kind for recent graduates,” Olinski said. “I think, even before this downturn, clerkships were very competitive, and they’re even more so now. Generally judges want someone who has done very well in law school, someone who has done law review, top of the class. Some people send applications across the country, especially for the federal courts, which are even more competitive.

Paula Zimmer and Harris Freeman

Paula Zimmer and Harris Freeman say a lack of funding at the state trial-court level has curtailed clerking opportunities, in turn slowing down the work of the courts.

Paula Zimmer, assistant dean and director of Law Career Services at WNEU School of Law, said clerkships are becoming increasingly popular for a variety of reasons. “People love clerking because it puts all their legal education into play — the research, the writing, the first-hand look at courts and what it’s like to practice law.

“It’s a great opportunity, but a competitive opportunity as well,” she continued. “There are always more people interested in clerking than there are clerks. We have a judicial clerkships committee comprised of faculty, and we keep all kinds of materials on clerkships and deadlines, and we send recommendations.”

Zimmer, like Olinski, noted that the intensity of competition for clerkships varies depending on the venue. For instance,  “it’s very, very competitive to get one at the federal level, at the state supreme court level, even at the state appellate level. It’s still competitive to get into the superior trial-court level, but the trial-court level tends to be open to a broader range of good students.

“Clerkship is a really good credential for someone after law school; it adds a certain prestige to someone’s résumé,” she added. “It’s particularly helpful, especially in this environment, to make connections at law firms and with judges. Often judges will serve as a recommendation for you, and it helps you when transitioning into the workforce.”

She noted, however, that not every qualified student wants to do a clerkship. “Some people have a job at a firm and are offered a clerkship, but they’d just as soon go to work. Most large firms will defer your offer — they’ll say, ‘come to us in a year,’ and they’ll often give a bonus to make up for the fact that a clerkship pays less than a large firm’s salary.”

Still, Zimmer said, “because there are fewer jobs, more people are applying to clerkships at every level of law school. One of our sweet spots has been at the appellate-court level.”

Harris Freeman, a professor of Legal Research and Writing at WNEU Law School — and a former clerk at the federal district-court level — told BusinessWest that a persistent lack of state funding has curtailed the number of clerkships at the trial-court level, although the appellate level and federal courts don’t have the same problem.

The result, he and Zimmer noted, is not only a decrease in opportunities for students, but a slowing of judicial proceedings, which affects businesses as well as individuals seeking redress in the courts.

In law firms, Dibble noted, whether hiring school-year or summer clerks, practices are looking for top students, as well as those with at least a couple of school years under their belts. “There are a couple of reasons for that: one, they know more, they’re older and a little more mature; and also, it’s closer to the time when they’ll decide what they’re going to do.”

If the firm is using a clerkship to gauge whether an individual will be invited back for a job, he added, “it’s a lot easier for everyone to think about that when they’re only a year away from graduation.”

 

Options Open

Maltby is pleased with the two-way benefits of clerkships. “I would like to think when these students move on to their next job, they’re very well-qualified and prepared to handle a variety of different things.”

At the same time, the experience of clerking can help someone figure out what to do. They might say, ‘you know, I really don’t want to do litigation; I want to do transactional work.’ They’re seeing options and talking to lawyers in the firm and coming to an understanding of what they’d like to do, and that’s good.”

Frankel Pelletier agreed. “Sometimes they grow up wanting to be a trial lawyer, then they see what we do and say, ‘no, I don’t want to do that at all.’ You don’t get that kind of experience in law school, seeing exactly what it’s like. This affords you that opportunity.”

Dibble values his time clerking in the 1970s, but said the experience can vary for a student or graduate depending on the firm or judge.

“These kinds of positions are sought after by law students for the experience, the contacts, the possibilities,” he said. “Some judges are known for spending a lot of time with law clerks, helping them advance and supporting them, and others are a little more standoffish about it.”

As for Olinksi, his experiences have been overwhelmingly positive, and have helped him keep his options open. He is interested in litigation and has considered career paths in private practice, appeals, government work, even nonprofit practice.

“So it’s good for someone like me to see so many different areas of the law, not really getting focused on one or specializing in one,” he told BusinessWest. “Clerking is great if you haven’t picked which area you want to be in.”

And that’s true no matter how much law practice you need.

 

Joseph Bednar can be reached at [email protected]

FMLA Leave to Care for Adult Children

By
Law Sections
Department of Labor Issues New Guidance on Area of Confusion

Karina L. Schrengohst

Karina L. Schrengohst

The Family Medical Leave Act (FMLA) presents many challenges for employers because of its complexities. And one area of confusion employers have faced arises in the context of requests for leave to care for adult children.

Generally, the FMLA entitles an eligible employee to take up to 12 weeks of unpaid, job-protected leave during a 12-month period to care for a son or daughter with a serious health condition who is under the age of 18. Once an employee’s son or daughter turns 18, a parent is entitled to take FMLA leave only if the adult son or daughter (1) has a mental or physical disability as defined by the Americans with Disabilities Act (ADA); (2) is incapable of self-care due to that disability; (3) has a serious health condition; and (4) is in need of care due to the serious health condition.

One issue employers have struggled with is whether the disability had to occur before the child turned 18 years of age. Recent guidance issued by the Department of Labor’s (DOL) Wage and Hour Division answers this question.

On Jan. 14, the Wage and Hour Division issued a new Administrator’s Interpretation (No. 2013-1) that clarifies the definition of “son or daughter” under the FMLA, and addresses whether an employee is entitled to FMLA leave to care for an adult child who does not become incapable of self-care because of a disability until after the child turns 18. DOL guidance clarifies that whether an adult child’s disability arises before or after the child turns 18 is not relevant in determining a parent’s entitlement to FMLA leave. Therefore, an otherwise eligible employee is entitled to take leave under the FMLA to care for an adult child with a serious health condition who is incapable of self-care because of a disability regardless of when the disability commenced.

This means that employers should focus on the adult child’s condition at the time of the requested leave when determining eligibility for FMLA leave.

The administrator’s interpretation also demonstrates how the significantly expanded definition of ‘disability’ under the Americans with Disability Act Amendments Act of 2008 (ADAAA) has impacted the FMLA.

The DOL has historically adopted the ADA’s definition of disability for purposes of defining a son or daughter 18 years of age or older. And the DOL notes, pursuant to the clear language of the ADAAA and the EEOC’s position, that the definition of disability “should be construed in favor of broad coverage” and “should not demand extensive analysis.”

Therefore, when the ADAAA broadened the definition of disability, it similarly broadened the scope of this definition under the FMLA. Thus, the number of adult children falling under the FMLA’s definition of son or daughter has increased, which enables more parents to take FMLA-protected leave to care for an adult child who is incapable of self-care because of a disability.

As an illustration, the administrator’s interpretation provides the following scenario: An employee requests leave under the FMLA after his or her 37-year old daughter is injured in a car accident. The daughter suffers a shattered pelvis in the accident, which substantially limits her in a number of major life activities (i.e., walking, standing, sitting, etc.). As a result of this injury, the daughter is hospitalized for two weeks and under the ongoing care of a healthcare provider. Although she is expected to recover, she will be substantially limited in walking for six months. If the daughter needs assistance with three or more daily living activities, such as bathing, dressing, and maintaining a residence, she will qualify as an adult child under the FMLA because she is incapable of self-care due to a disability.

The daughter’s shattered pelvis would also be a serious health condition under the FMLA, and her parent would be entitled to take FMLA-protected leave to provide care for her immediately and throughout the time that she continues to be incapable of self-care because of the disability.

In addition, the DOL guidance addresses an employee’s request for FMLA leave to care for an adult child who has been injured during military service.  Under the military-caregiver provision of the FMLA, an otherwise eligible employee may take up to 26 weeks of leave in a single 12-month period to care for an adult son or daughter injured in the line of duty. The administrator’s interpretation notes that the service member’s injury may last longer than a single 12-month period. Thus, the DOL clarifies that the service member’s parent, if otherwise eligible, would be entitled to take 12 weeks of FMLA leave in subsequent years for the purpose of providing care to an adult child.

As an illustration, the administrator’s interpretation provides the following scenario. A father has exhausted his 26 weeks of military-caregiver leave to care for his 20-year old son, a returning service member who sustained extensive burn injuries to his arms and torso. In the next FMLA leave year, the father seeks leave from his employer to care for his son as he undergoes and recovers from additional surgeries and skin-graft procedures.

The father will be entitled to take up to 12 weeks of FMLA-protected leave to care for his son because his son’s burn injuries, which substantially limit his ability to perform manual tasks, constitute a disability under the ADA — the son is incapable of self-care due to a disability (i.e., he needs active assistance or supervision in bathing, dressing, and eating), the son’s burn injuries are a serious health condition because they require continuing treatment by a healthcare provider, and the father is needed to care for the son.

Employers should review the way they determine FMLA eligibility to account for this recent guidance. In addition, supervisors and managers should be trained to ensure they are prepared to handle requests for leave in light of this new interpretation. Further, when faced with requests for leave to care for an adult child, employers will have to make a case-by-case determination of whether the adult child qualifies as a son or daughter under the FMLA and the employee qualifies for leave under the FMLA.

 

Karina L. Schrengohst, Esq., an attorney at Royal LLP, a boutique, management-side-only labor and employment law firm, specializes exclusively in management-side labor and employment-law litigation and preventative practices to avoid litigation. Royal LLP is SOMWBA-certified as a woman-owned business with the Mass. Supplier Diversity Office (formerly known as the State Office of Minority and Women’s Business Assistance); (413) 586-2288; [email protected]

 

The Upside-down Education

By
L. Alexandra Hogan
Law Sections
Is Bankruptcy an Alternative for Relief from Student Loans?

L. Alexandra Hogan

L. Alexandra Hogan

A college education should increase a person’s earning capacity over a lifetime.  Unfortunately, many graduates are finding that the value of their education is outweighed by heavy student-loan debt. This may be the reason that the delinquency rate on student loans has surpassed that of other types of consumer loans, such as credit cards and car loans.

The New York Fed reports that student-loan debt has exceeded $956 billion and estimates that 21% of these loans are in default.

Financial blows caused by events like loss of employment, medical issues, or divorce are catalysts for personal bankruptcy filings. Bankruptcy is meant to give a fresh start to honest debtors by providing a mechanism of relief from most types of debt, such as credit cards, personal loans, medical bills, and foreclosure deficiencies. Although it is not impossible to discharge student loans in bankruptcy, it is difficult to do, and just recently got even harder. Although seemingly harsh, this law is meant to protect the solvency of the educational-loan system and to prevent people from abusing the system by receiving a free education.

Relief from student-loan debt is not generally available in bankruptcy, unless failure to discharge the debt would lead to an “undue hardship” on the debtor, under §523(a)(8) of the Bankruptcy Code. Courts use different tests to determine what constitutes an undue hardship. In Massachusetts, bankruptcy courts generally evaluate undue hardship on a case-by-case basis by considering (1) a debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and their dependents’ reasonable necessary living expenses; and (3) any other relevant facts and circumstances.

Some examples of debtors’ circumstances that led to findings of undue hardship include the following: student loans exacerbated by the debtor’s mental illness; the debtors reaching their maximum earning capacity in worthwhile, but low-paying, teaching jobs; the debtor being homeless and unemployed; the debtor being unable to complete her doctorate degree program and suffering from depression; and the debtor suffering from a variety of medical illnesses, making employment almost impossible. The takeaway is that circumstances must be dire to obtain relief.

A recent court case closed a loophole in the law, making discharge even more unlikely. Typically, a general unsecured loan like a line of credit is dischargeable in bankruptcy. The case of In re Belforte, decided on Oct. 1, 2012 in the U.S. Bankruptcy Court for the District of Massachusetts, Eastern Division, held that the debtor’s line of credit could not be discharged. The debtor made a handwritten note seeking an increase in her line of credit to pay for her children’s tuition and expenses. Liberty Bay Credit Union increased and rewrote the debtor’s line of credit under a new unsecured loan agreement — not through Liberty Bay’s educational-lending program.

Liberty Bay neither inquired from the debtor what the loan would be used for, nor did it exercise oversight as to how the debtor utilized the loan proceeds, as a traditional student lender would. Notwithstanding this, the court construed the bankruptcy statute broadly and ruled that, since the loan was used for an ‘educational benefit,’ it was not dischargeable. Under this ruling, it is now clear that an individual with a regular personal loan used for an educational benefit must establish undue hardship as well.

Those with unusually difficult situations should consult with a bankruptcy attorney to determine whether their circumstances would qualify as an undue hardship. But otherwise, where does this leave the average person struggling with high student-loan debt and low or non-existent income?

Avoid the potentially harsh consequences of defaulting on student loans, including wage garnishment, tarnished credit, and offset tax refunds. There are options to avoid defaulting on federal student loans. Deferment, forbearance, and repayment plans may be available. The U.S. Department of Education has announced a new option that may greatly benefit newer graduates, called “Pay as You Earn.”

This plan may apply to those with partial financial hardship who have certain types of federal direct student loans. Under this plan, 10% of a person’s annual discretionary income is paid, and after 20 years of participation, the loan is forgiven. To learn more about Pay as You Earn, visit www.studentaid.ed.gov.

L. Alexandra (Alex) Hogan is an associate with the Springfield-based form Shatz, Schwartz and Fentin, P.C., and concentrates her practice primarily in business, litigation, and bankruptcy law; (413) 737-1131.

 

Staying In for Recess

By
Law Sections
Ruling on Appointments Creates More Controversy at NLRB

Tim Murphy

Tim Murphy

Staying In for RecessPresident Obama violated the constitution when he made three recess appointments to the National Labor Relations Board (NLRB) on Jan. 4, 2012, according to the U.S. Court of Appeals for the District of Columbia in a decision issued on Jan. 25.

Because the three recess appointments were invalid, the NLRB lacked the requisite three-member quorum when it rendered the Noel Canning decision. Although the D.C. Circuit ruling governs only this one case, its decision throws hundreds of NLRB decisions made since Jan. 4 into uncertainty.

 

Background

The NLRB is the five-member panel that enforces federal labor law and the National Labor Relations Act. The president appoints NLRB members to staggered terms generally subject to Senate confirmation in accordance with the Constitution. Traditionally, the NLRB consists of three members from the president’s political party and two from the other. Since President Obama took office, the NLRB has been on the front lines of the partisan war to control federal labor policy. With several of the president’s nominees too controversial to earn sufficient Senate support to overcome a filibuster, the nominations suffered long delays and were effectively blocked by objecting senators.

To counter that, Obama sought to make appointments to the NLRB while the Senate was in recess, a power contained in the Constitution. In the early history of our country, Congress was often in recess for six to nine months a year. Though recess appointments were little used until after World War II, they did enable presidents to staff executive-branch vacancies during periods when the Senate was not in session and, thus, could not exercise its ‘advise and consent’ power over presidential appointments.

On Jan. 4, 2012, the Senate was away for the holidays and conducting no business. The Senate remained in ‘pro forma’ session (gaveled in and out every few days) because it had not been formally adjourned into an official recess. This was a strategy designed to block the president from making recess appointments. He was undeterred. But the Senate strategy proved effective, according to the D.C. Circuit.

The constitution’s recess appointments clause provides that “the president shall have power to fill up all vacancies that may happen during the recess of the Senate by granting commissions which shall expire at the end of their next session.” Pursuant to that clause, Obama made three appointments on Jan. 4, one day after the Second Session of the 112th Congress began. However, the D.C. Circuit interpreted the recess appointments clause to permit only ‘intersession’ appointments (those made between distinct sessions of the Senate) and not ‘intrasession’ appointments made during recesses in the midst of a session.

Next, analyzing the language “vacancies that may happen during the recess,” the D.C. Circuit found that the clause limits the president’s intersession-recess appointment power to filling vacancies that first arise during the recess in which they are filled, which was not the case here. Thus, recess appointments are unconstitutional unless made to fill vacancies that arose while the Senate was in recess. If it stands, this particular ruling could virtually eliminate a president’s ability to make recess appointments.

The court’s ruling rejects presidential practice of both parties dating back many years, and raises questions about how a president’s inability to fill vacancies could impact government functioning in an age of partisan gridlock in Washington, D.C.

The NLRB disagrees with the decision and intends to continue issuing decisions (while its presumptive appeal is pending). Right now, the NLRB has only three members, as one resigned, and the other’s term expired. Of the three remaining members, two are recess appointees involved in the Noel Canning case. Only Chairman Pierce was confirmed by the Senate.

 

The Bottom Line

It seems inevitable that the U.S. Supreme Court will ultimately decide these issues, especially because there are numerous similar appeals pending in circuit courts of appeals around the country.

In the meantime, the NLRB will likely remain a lightning rod of controversy. Republicans and business groups will continue to oppose the perceived pro-labor decisions and initiatives of the current NLRB at every turn. It would appear that they believe a non-functioning NLRB is preferable to a functioning one.

This is surely not the last word on recess appointments.

 

Timothy F. Murphy is a partner in the Springfield labor and employment law firm Skoler, Abbott & Presser, P.C., which represents employers exclusively and specializes in helping employers understand their obligations under state and federal employment law; (413) 737-4753; [email protected]

Face to Face

By
Carla Newton
Law Sections
Divorce Mediation Growing in Popularity

Bruce Clarkin (seated, with Michael Frazee and Kathleen Townsend)

Bruce Clarkin (seated, with Michael Frazee and Kathleen Townsend) says mediation empowers a divorcing couple in ways litigation cannot.

Michael Frazee has a pithy way of explaining the benefits of divorce mediation.

“When two people divorce, they live in the problem,” he said. “In mediation, they live in the solution.”

If that’s true, then more divorcing couples than ever are living in the solution, turning not to a judge to hammer out their finances and parental rights, but to an impartial, certified mediator, who guides the couple, through face-to-face conversations, to a negotiated settlement of their issues.

“There’s an old saying that one way a judge evaluates the success of a divorce is if both clients are equally unhappy,” said Bruce Clarkin, founder of Divorce Mediation Group in Springfield, where he partners with fellow attorneys Frazee and Kathleen Townsend.

“Our perspective in mediation is just the opposite,” Clarkin told BusinessWest. “We’re not looking for unhappy clients; we’re looking for our clients to put together a functional arrangement that meets their needs and the needs of their kids. It’s a totally different perspective.”

It’s important to remember, he said, that divorce isn’t just the end of something, but a beginning for at least two  — and often more — individuals. “We’re helping people transition to the next phase of their lives in such a way that they’re meeting their goals.”

In 1990, the first year Clarkin began offering this innovative service, he had just two or three cases. “The concept just clanged off people’s consciousness,” he said. “It was such a foreign concept. When the phone rang, it was an act of God.”

It turns out Divorce Mediation Group was ahead of its time; over the past 22 years, awareness of the mediation model has grown, and academic programs in the field have become entrenched at law schools.

“In the beginning lawyers were resistant to the idea; they potentially saw us as competitors for the same consumer expenditure,” he said. “But as the idea became appealing to consumers, they encouraged their lawyers to be open to it as well — and give the bar credit; they’ve become increasingly open to mediation as a way to help people resolve cases.”

Attorney Carla Newton knows that well; divorce mediation — alternative dispute resolution in general, actually — is a significant part of her family-law work at Robinson Donovan in Springfield. She said mediation carries a number of benefits over traditional litigated divorce.

Carla Newton

Carla Newton says the benefits of divorce mediation range from control to privacy to cost.

“The parties have more control over the calendar of the mediation process,” Newton said, “so if they want to try to get things resolved in a way that accommodates their personal, family, or business needs, they can do that much more easily through mediation.

“Second,” she continued, “there’s a substantial issue of privacy, and in many cases you’re dealing with families that have either personal issues surrounding the divorce or personal financial issues, or just a general desire to not have to stand in front of a courtroom of 20 to 30 people and talk about their income or assets or other personal details. In mediation, you can deal with all those issues, but they’re not played out in a public venue.”

Finally, Newton said, mediation almost always costs less than a traditional divorce, again due partly to the fact that the splitting couple can plan it according to their own schedule and not that of the court or the opposing party. “You have much more control over how much time you want to spend in mediation, and that helps people better manage the cost of going through a marriage dissolution — which can be pretty substantial.”

In fact, Clarkin said, the cost is also typically well under half that of a traditional proceeding. “And in terms of timing, you can do a divorce mediation in a couple of months, although sometimes they’ll take longer for various reasons. It’s hard to do a litigated divorce in less than a year.”

For these reasons and others, he said, “you can see why it’s appealing to a lot of people. For the most part, people’s first instinct remains to get a lawyer, but increasingly, we’re seeing their first impulse being to go to a mediator.”

 

Impaired State

One reason mediation is appealing, Clarkin said, is that the anger and alienation common to divorcing couples is often exacerbated by the contentious nature of a court fight.

“When you’re in a divorce, you’re in an impaired state; common emotions are fear, anger, and pain,” he said. “And when they’re in that state of mind, people don’t make the best decisions. Often, they’re emotionally driven, and they’re thinking, ‘I need to protect myself.’

“But what people have learned,” he continued, “is that part of our job as mediators is to create this very safe environment where they can be heard and have their needs recognized, and they can come up with a resolution that makes sense.”

And one of the ways where mediation beats slugging it out before a judge, he added, is that the couple can begin implementing parts of that resolution right away — selling a house, for instance — instead of freezing finances until the end of legal proceedings.

“To a large extent, divorce is a huge planning opportunity,” Clarkin said. “And it’s not unique or terribly complex: where is each parent going to live? Where are the kids going to live? How will the couple support themselves and divide their property? Mediation helps people answer these questions in a common-sense, intelligent way. We’re trying to help people make proper decisions about their lives, decisions that are quality — and enduring.”

Those decisions are often complicated, Frazee said, by the fact that the stagnant economy has increasingly forced couples to live together while going through a divorce, and often their mortgage payments aren’t up to date, or the house is underwater because of depressed market values.

Particularly in painful situations like these, he noted, the speed of mediation helps a divorcing couple move efficiently into their new lives at a time when finances must be dealt with quickly. “It’s very important how a couple transitions from one house to two, and to consider how that affects everyone, especially the children.”

That said, mediation isn’t for everyone, Newton noted. For instance, “generally, you should probably screen out mediation in a case where there had been any kind of abuse issue.”

Even absent such traumas, mediation isn’t always the best path. “When acting as a mediator, you need to evaluate, when the parties first meet with you, whether or not they have the ability to communicate appropriately in mediation,” she said. If not, “it’s not going to accomplish anything, and their objectives aren’t going to be realized.”

Still, Clarkin said, divorcing couples don’t have to come to the table with any particular level of warmth or even civility — as long as they’re serious about working toward an agreement.

“It’s a misconception that the only people who can be successful in mediation are people with a low conflict level,” Clarkin said. “I find that mediation can work for people with a low, moderate, or high conflict level, provided there is a desire to succeed and a willingness to participate in the process. My experience is working with couples who can’t agree. My sense is that my job begins when each person says ‘no.’”

And a couple doesn’t have to show up with a great deal of trust in each other, he added, calling the very concept of trust “overrated” in any divorce proceeding.

“Everyone has a level of mistrust. Everyone’s been hurt, violated, or degraded in some way. Everyone we work with has a reduced trust threshold,” he explained. “At the same time, each of these people has a capacity to agree. They have a history that includes both agreement and disagreement. Our job is to find the ability in them to agree. The trust comes along with that. We’re not asking people to trust each other, but we do ask them to take small steps toward agreement — and then keep their word.”

 

Let’s Talk

By all accounts, attorneys who specialize in mediation are hearing their phones ringing more often these days.

“Certainly, more people are doing mediation than in the past,” Newton said, adding that all divorce attorneys are now instructed to advise their clients about the option of mediation.

“It’s on the mind of every attorney who does domestic work: should this case go to mediation? Is that the best route for this family in terms of finances and other issues involved? Will this be the best opportunity for a prompt resolution? The courts want us to be mindful of utilizing mediation where that’s appropriate.”

Another wrinkle in the mediation trend is what Newton called “attorney-assisted mediation.” Simply put, the divorcing couple attends mediation sessions accompanied by their own attorneys. “Sometimes that’s appropriate when you have a case with complex financial issues, or where one party might not otherwise participate in mediation because they feel they’re not as well-equipped to advocate for themselves as their spouse might be.”

Whatever the case, Frazee said, there’s an element of satisfaction in mediation work that can be tough to come by amid an ugly courtroom divorce.

“It’s extremely gratifying when you know you’ve put people on the path to agreement, while also laying the groundwork for parenting and cooperating with each other,” Frazee said, noting that there’s an element of anxiety in letting a third party make critical decisions about parental rights and finances.

“In litigation, they are giving their authority to their attorney and the court system — authority over their finances, authority over their children. In mediation, they retain that authority.”

Clarkin characterized mediation as empowering, and litigation as disempowering. “After all, who knows your kids any better than you?”

While divorce is usually sad on some level, Frazee said the mediation process itself often brings a little healing, or at least understanding.

“Many times, even if they’ve lived under the same roof with three children, the mom will turn to the dad and say, ‘I never knew you felt that way.’ In the dissolution of their relationship, they hadn’t discussed these issues; they went to their separate rooms and stewed about it.

“Mediation is not therapy, but there are therapeutic aspects to it,” he continued. “They’re finally sitting down in a room together, in a safe environment, and even in the midst of a very difficult time, they’re able to discuss these things with each other.”

It’s gratifying, he told BusinessWest, to get two people started on the road to better communication and better parenting, adding that divorces increasingly involve children under age 10, and both parents typically want to stay involved in their children’s lives and plan for a healthy future.

“They’re laying the groundwork for when they become teenagers — college and the financial planning that has to go on,” Frazee said. “They want these things to remain as intact as possible, so we work with the divorcing couple to make sure that happens.”

To put it another way, Clarkin noted, “sometimes mediation can be so mellow, it can replicate times in their marriage when things were good. That’s amazing to me.”

To an increasing number of soon-to-be-exes, it certainly beats being equally unhappy.

 

Joseph Bednar can be reached at [email protected]

Do Well by Doing Good

By
Law Sections
Reduce Your Income Taxes Without the Help of Congress

Ann I. Weber, Esq.

Ann I. Weber, Esq.

Everybody knows what income is, right? It’s what you get in your paycheck, and it’s what you don’t get from your CDs, and you pay tax on it like everyone else. But sometimes income (and the tax you have to pay on it) can sneak up on you when you least expect it, like when you sell something that wasn’t worth as much when you bought it.

When that happens, it can be expensive because you have to pay all of the tax on the gain from the sale in the year of sale.

Even though you will pay at capital-gain rates which are relatively low (maximum 15% under current law and a fiscal-cliff rate of 23.8% in 2013) compared to the rates for ordinary income (maximum 36% this year and maybe 39.6% next), the capital-gains tax must be paid in one lump sum. To add insult to injury, if you are receiving Medicare, the taxable gain can also increase your Part B premium.

However, if you have charitable inclinations, you may be able to structure your gifts through a charitable trust or annuity and reduce your taxes significantly. Following are some examples.

 

Charitable Remainder Unitrust (CRUT)

Mrs. Gotrocks owns the stock her great-aunt Eunice gave her in 1990 when Auntie’s company was just starting out. Now it’s worth $100,000, but it was valued at zero at the time of the gift. If Mrs. G sells it this year, she will pay capital-gains tax of $15,000 this year and maybe $23,800 in 2013.

Instead, if she gives it to a 5% CRUT, the trust can sell the stock and pay no capital gain because the trust is a charitable entity. Mrs. G will receive 5% of the value of the trust each year for the rest of her life, and she will also receive a charitable deduction of $55,250 this year, which translates to a cash value of $19,388 in her pocket as a result of the deduction against her ordinary income.

Thus, in year one, she will receive $5,000 plus the $19,388 reduction in taxes. The next year, if the trust is worth more, her payment will be 5% of the increased value or, if less, 5% of the reduced value. But if the trust principal goes down significantly, so does her payment.

She will pay tax on what she receives each year over the lifetime of the trust at the rate based on the type of income generated. Because most of her annual payment will be from capital gain, she will pay at that rate on the bulk of each payment. At her death, the charity gets the remainder, and any accumulated capital gain remaining in the trust is never taxed.

As a result, Mrs. G will have (a) deferred capital-gains tax on the sale of her stock over her lifetime, (b) eliminated income tax on the remainder, (c) acquired a substantial deduction against her current income, (d) created a nice income stream for herself for her lifetime, (e) provided for an estate-tax deduction at her death of the amount remaining in the trust, and (f) created an eventual gift to the charity of her choice. That’s a nice deal all around.

 

Net Income Make-up Charitable Remainder Trust (NIMCRUT)

Suppose Mrs. G wants to be sure the trust principal is preserved and her payment stays relatively level. In a higher-interest-rate environment, she could have created a charitable annuity trust, but, because the current income rate assumed by the government is 1.2% and the minimum payout is 5% of the original gift to the trust, this type of trust is not economically viable and is prohibited by the IRS.

However, a NIMCRUT would provide Mrs. G with the greater of trust income (which can include certain realized capital gain) or 5% of the trust principal. If income is low one year and higher in a later year, the deficit can be ‘made up’ in the higher-income year. This can result in a relatively stable income stream for the rest of her life. In addition, she receives the same income-tax deduction and cash value as with a CRUT.

 

Charitable-gift Annuity

These annuities are offered by many charities and can be a cost-effective way of making a charitable gift and retaining an income stream for life. Mrs. G could donate her stock to a charity, which sells it and pays her a 5.4% annuity of $4,383 annually for her lifetime. This payment will be taxed primarily at capital-gain rates, and Mrs. G will get a $36,697 income-tax deduction with a tax benefit of $12,844. At her death, the charity gets whatever is left.

So, consider a charitable trust or annuity, and do well by doing good.

 

Ann I. Weber is a partner with the Springfield-based law firm Shatz, Schwartz and Fentin, P.C., and concentrates her practice in the areas of estate-tax planning, estate administration, probate, and elder law, and has a particular interest in creative estate planning for authors, artists, farmers, and landowners. She is a board member and past president of the Estate Planning Council of Hampden County Inc., and is a former (and founding) board member and current member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. She has recently been named one of the Top Fifty Women Lawyers in New England by Super Lawyer magazine. She is a frequent author and speaker on issues regarding estate planning.

Some ‘Chilling’ Developments

By
Law Sections
National Labor Relations Board Takes Aim at Employer Policies

John S. Gannon

John S. Gannon

Recently, the National Labor Relations Board (NLRB) has been attacking workplace policies that are common in both union and non-union workplace settings.

Previous BusinessWest articles have discussed the NLRB’s intrusion into social-media polices and at-will disclaimers. Unfortunately, more common employer practices are under siege, including internal workplace investigations and policies and rules that limit off-duty employee access to the workplace.

 

Non-union Employers Are Fair Game

Employers are often surprised to learn that the National Labor Relations Act (NLRA) applies in a non-union environment. The NLRA is considered by many to be a federal law that regulates only employer-union relations. However, you may be surprised to learn that the law covers a wide range of employer activities, both in companies that are unionized and in companies where there are no unions at all.

In particular, Section 7 of the NLRA protects the right of all non-supervisory employees to engage in “concerted activities” for the purpose of collective bargaining or other “mutual aid or protection.” This gives employees the right to come together to discuss any terms and condition of employment, including wages, benefits, or working conditions. Employer actions that impede or “chill” an employee’s exercise of these rights violate Section 7.

 

 

Discussion of Internal Investigations

Employers often initiate a workplace investigation when an employee brings a report or complaint of misconduct to management. The first step is to interview the complainant and employees who may have witnessed the allegedly inappropriate or unlawful conduct. Employers often discourage employees from discussing the substance of these interviews with others, particularly to protect the integrity of the investigation.

Employers that routinely require employees to keep investigative discussions confidential might need to alter their practices. The NLRB recently concluded that a blanket rule requiring employee confidentially during internal investigations violates Section 7. According to the board, requiring employees to keep quiet during investigations conflicts with their right to openly discuss their working conditions with co-workers. Although the board recognized that employers may have a legitimate interest in keeping investigative discussions under wraps, this does not outweigh their employees’ Section 7 rights to engage in concerted activities.

The NLRB did, however, outline circumstances that could justify a request for confidentiality by an employer. To lawfully implement — and justify — a confidentiality request, employers should determine at the outset of an investigation whether confidentiality is truly needed. To make this determination, employers must examine whether: (a) witnesses are in need of protection; (b) evidence is in danger of being destroyed; (c) testimony is in danger of being fabricated; or (d) there is a need to prevent a coverup. Satisfying this standard is no small task, and failure to properly consider these or other factors could result in an unfair-labor-practice charge.

Employers should consult with labor and employment counsel before asking employees to keep the substance of internal workplace investigations confidential.

 

Employee Off-duty Access

Employers frequently institute policies prohibiting off-duty employees from entering the workplace. These rules help ensure employee or customer safety and ease administrative burdens on supervisors. They also have particular importance during union-organizing drives. Off-duty rules help to keep off-duty employees who might support a union from disrupting the workplace during non-working hours.

For more than 35 years, the NLRB has considered off-duty employee access rules to be permissible, as long as the restriction (a) limits access solely to the interior of the facility; (b) is clearly disseminated to all employees; and (c) applies to off-duty access for all purposes, not just union activity. However, in another controversial decision from the NLRB, the board determined that an employer policy prohibiting off-duty employee access to the workplace was unlawful.

In that case, a hospital restricted hospital employees from entering the interior of the hospital except to visit a patient, receive medical care, or conduct “hospital-related business.” Employees were occasionally permitted to return to work to pick up a paycheck under the hospital-related-business exception, but other than that, they were typically disciplined for entering the facility for non-work purposes.

The board took issue with the hospital-related-business exception to the hospital’s off-duty rule. It ruled that this exception gave management too much discretion to permit or deny off-duty employees to enter the facility. Conceivably, it could be used to limit union-organizing activities, but permit other activity at the employer’s discretion. This violated the NLRA’s stance on off-duty access.

Notably, this ruling was consistent with a recent decision where the board concluded that a rule permitting off-duty access to attend employer-sponsored events, such as retirement parties and baby showers, but barring other access, violated the NLRA because it was an impermissible chilling of the employees’ Section 7 rights.

 

Bottom Line

By taking aim at workplace investigations, off-duty access rules, at-will statements, and social-media polices, the board is clearly seeking to regulate employer practices that go beyond the traditional unionized environment. Employers need to carefully evaluate existing practices to ensure compliance with NLRA.

If you have concerns about how these decisions could impact your workplace, you should contact experienced labor and employment counsel for assistance.

 

John Gannon is an associate at the management-side labor and employment firm Skoler, Abbott & Presser, P.C.; (413) 737-4753; [email protected]

The Massachusetts Benefit Corporation

By
Law Sections
A New Entity Has Been Created for Socially Responsible Businesses

Jeffrey Fialky

Jeffrey Fialky

While businesses continue to move forward through difficult and uncertain fiscal times, some companies have chosen to ensure that their growth and prosperity is directed not only toward the benefit of their stockholders and owners, but also toward the general public good.

For those companies, a new Massachusetts law that became effective earlier this month provides a new form of legal entity that permits companies to form as, or convert to, a ‘benefit corporation.’ This means that it has the purpose, in addition to pursuing the company’s underlying business, of creating a ‘general public benefit.’

The way a benefit corporation is formed, operated, and managed is similar to that of traditional for-profit corporations. In fact, the true distinction between the two is the concept of the benefit corporation focusing on the general public benefit, which the statute defines as “a material, positive impact on society and the environment, taken as a whole, as measured by a third-party standard, from the business and operations of a benefit corporation.”

The enabling legislation creating the new benefit-corporation entity was due in part to the work of B Lab, a Pennsylvania-based nonprofit whose mission is to “solve social and environmental problems.” Massachusetts was the 11th state to enact legislation permitting benefit corporations, and Pennsylvania has subsequently become the 12th.

A benefit corporation should not be confused with, and must be distinguished from, a nonprofit corporation. Nonprofit corporations are formed pursuant to a different section of Massachusetts law and permit the further application to the Internal Revenue Service for tax exemption. While there are many types and forms of nonprofit and charitable corporations, such entities generally exist either for the greater good of the general public or, in the case of membership-driven nonprofit organizations, such as trade organizations, chambers of commerce, and religious institutions, for the benefit of congregational and other members.

The primary distinction between nonprofit companies and benefit corporations is that, unlike benefit corporations, whose stockholders would still be entitled to pecuniary benefit from the success of the business, participants in nonprofit entities are prohibited by law from the ability to receive distributions of business profits. In addition, a benefit corporation would not be permitted to tax exemption at the state or federal level.

One of the most significant elements of the new business-corporation law pertains to the duty and standard of care to which corporate officers and directors are held. In a traditional corporation, officers and directors are held to the so-called ‘business-judgment rule,’ which holds such individuals liable for unfavorable business outcomes to the extent that such individuals did not act in good faith and as a reasonable person would have acted under those circumstances.

Through the new legislation, however, the scope of what can be considered by officers and directors in discharging their duties has been greatly expanded to include the public-benefit concept. In discharging their respective duties with respect to the benefit corporation, both officers and directors of the company would be obligated to consider not only the effects of their decisions upon shareholders of the corporation, but also:

• Employees and suppliers;

• Customers and clients as beneficiaries of the general public benefit of the corporation;

• Community and societal factors, including those of each community in which the business operates;

• The local, regional, and global environment, and

• The ability of the benefit corporation to accomplish its general public-benefit purpose.

Importantly, and unlike similar legislation in other jurisdictions, the statute specifically protects officers and directors from personal liability for monetary damages arising out of claims for the failure of the benefit corporation to pursue or create a general public benefit.

The practical effect of the expanding consideration of officers and directors is that they may not be subject to a stockholder derivative action as a result of taking actions that, while more costly to the business, would benefit the greater public.

For instance, a board of directors may elect to lease or purchase a more expensive facility in which to house the business, with such a decision having been based upon environmentally friendly and renewable-energy determinable factors, as opposed to pure utility and cost. Under such circumstances, stockholders would likely not prevail in a derivative action against the board.

However, while officers and directors have relief from liability for pursuing these general public benefits, the legislation nonetheless includes mechanisms to ensure that the corporation fulfills its obligations as a benefit corporation.

Specifically, benefit corporations may appoint an officer as a designated ‘benefit officer,’ and charge him or her with the duty to oversee the public benefits provided by the corporation, as well as to prepare an annual benefit report setting forth the company’s successes or challenges in pursuing its specific or general public benefits goals. Much like the annual report of a traditional corporation, the annual benefit report will be filed with the Secretary of the Commonwealth, in addition to being sent to stockholders and posted on the company’s website.

Parties, including shareholders, directors, and beneficial-interest owners who believe the company is not fulfilling its obligations in this regard, may initiate a benefit-enforcement proceeding as their sole remedy, but may neither bring an action against officers and directors nor claim damages for failure of the benefit corporation to pursue or create a general or specific public benefit.

Not only can new companies form as benefit corporations, but existing companies may also convert from their existing status to take advantage of the benefit-corporation status. Likewise, companies formed and operating as benefit corporations would nonetheless have the subsequent ability to terminate this status via an amendment to their bylaws.

If you think that a benefits corporation may suit your business, or if you have questions in this regard, it would be wise to consult your corporate attorney.

 

Jeffrey Fialky is a shareholder with the regional law firm Bacon Wilson, P.C, specializing in business, corporate, municipal, and real-estate law. A former assistant district attorney in Hampden County, Fialky joined the firm after a decade of holding senior attorney positions within some of the country’s most prominent telecommunications and cable-television companies, where he negotiated large-scale licensing, acquisition, and distribution agreements; (413) 781-0560; baconwilson.com/attorneys/fialky

Making Their Case

By
From left, Louis Moore, Tracie Kester, Cal Annino, Mark Draper, and Trant Campbell.
Law Sections
Annino Draper & Moore Charts a Growth Strategy

From left, Louis Moore, Tracie Kester, Cal Annino, Mark Draper, and Trant Campbell.

From left, Louis Moore, Tracie Kester, Cal Annino, Mark Draper, and Trant Campbell.

Cal Annino says most law firms, especially smaller boutique operations like his, don’t traditionally embrace those proverbial five-year operating plans.

“Things change much too quickly in this business for that,” he explained, referencing all that’s happened over the past half-decade to get his point across. But this doesn’t mean that firms can’t undertake strategic planning, he stressed repeatedly.

At Springfield-based Annino Draper & Moore, or ADM, as it’s called, the firm he started with Mark Draper and Louis Moore (former colleagues at the firm Ryan & White) in 1990, planning is a year-round assignment usually focused on the shorter term, said Annino. And often, track is laid at a year-end meeting of the minds, or planning session, in the firm’s conference room.

At the most recent one, last December, the partners decided to move ahead with everything from a larger and more visible satellite office in Westfield (it has another, similar facility in Northampton) to more extensive marketing, including a revamped and expanded Web site and an electronic newsletter, to a hard push into the realm of alternative dispute resolution, or ADR.

“We’ve jumped with two feet into the arbitration and mediation aspects of alternative dispute resolution,” said Annino, the firm’s managing partner, adding that the creation of the ADR Group was an aggressive step taken in response to ongoing trends toward greater use of ADR and thus less work in the courts, and the recognized need to fill voids in business in such areas as estate planning, family law, and others.

Draper is a certified arbitrator who has handled a number of cases, and others at the firm have taken mediation training, Annino noted, adding that ADR services could become a strong growth area for the firm moving forward, especially if marketed aggressively, which ADM intends to do.

“With the reputation that this firm has in the marketplace now, once we let people know that we’re in the mediation and arbitration business, this will be a good source of business for us,” he explained, adding that, with ADM’s expertise across many areas of the law, it could mediate or arbitrate a wide range of matters.

The past several months have been spent putting the ADR Group and other strategic initiatives into effect, said Annino, adding that these steps, coupled with the firm’s wide diversity of specialties — covering everything from construction law to estate planning; environmental law to general business law — has Annino Draper & Moore positioned for continued growth.

For this issue and its focus on business law, BusinessWest turns the spotlight on a two-decade-old firm that is shedding its comparatively low profile and taking intriguing steps in response to changes in the legal profession, as well as the local business community.

 

Firm Resolve

Tracing the history of the firm, Annino said it is one of several that were essentially spun off from Ryan White, which at one time had more than two dozen lawyers and was one of the largest firms in the area.

Lawyers in that firm were “compartmentalized” into certain practice groups, he continued, adding that, with their backgrounds in diverse areas, the three individuals with the names now over the door decided there was proper chemistry and synergy for a partnership.

The firm had a solid foundation in the form of clients that stayed with the three partners after they left Ryan & White, and continuously built on that foundation over the years.

“We’ve been able to grow because many of the clients who came with us when we left Ryan & White are still with us,” he continued. “We have very loyal clients, and, frankly, we do a great job for them. We do excellent work, and we’re responsive; that’s what a small firm has to do in order to compete.”

Trant Campbell, who specializes in everything from family law to dispute resolution, joined the firm in 2007, and the latest addition is Tracie Kester, Annino’s one-time assistant and paralegal, who earned her J.D. at Western New England Law School, became an associate at the firm soon thereafter, and was named partner earlier this year.

From the beginning, the firm’s success has been attributed to its diversity and ability to provide a wide range of services to specific clients.

Annino, the firm’s managing partner, focuses on corporate law, municipal and health care law, banking and finance, commercial and residential real estate, estate planning, and elder law, while Draper specializes in construction law and civil litigation. Moore’s areas of practice include environmental law, land-use issues, municipal law, insurance law, civil litigation, and dispute resolution, while Campbell focuses on family law and domestic relations, estate planning, business and corporate law, and dispute resolution, and Kester specializes in business and corporate law, commercial and residential real estate, estate planning and elder law, and civil litigation.

“The work I do in residential and commercial real estate works out well with Mark’s construction practice and Lou’s environmental practice,” said Kester, offering just one example of the synergies within the company and how the various specialties complement one another and improve the overall quality of service. “Any time I have a hint of an environmental problem with one of my real-estate deals, I go down to hall — I don’t pass ‘Go,’ don’t collect $200, and go straight to Lou’s office.”

There is similar synergy between estate-planning work and real estate, noted Campbell, adding that ADM can handle a full range of client needs, and often without having to go outside the firm for an expert.

“Clients’ legal needs don’t necessarily fall in one area,” he explained. “If there was an estate administration going on, there may be a piece of real estate involved, and there may be some environmental issues and some title issues. What I found when I came here was a willingness and a desire on the part of the other members of the firm to help us reach a solution; it’s a great level of comfort.”

Moore agreed. “We don’t do everything that the large firms do,” he said, “but the things we do, we do well and more cost-effectively than most other firms.

“It’s not unusual, especially in some more complex matters, when you’re dealing with a larger firm on the other side, to see them have two or three lawyers in a meeting or at a hearing,” he continued. “And maybe not in every instance, but many of them, clients are getting billed for that.”

The firm’s diversity and cost-effective service have served the company well during the recent — and in many ways still ongoing — economic downturn, he continued, adding that the firm, like most all others, struggled during the leanest of times, especially in hard-hit fields like construction, where most activity came to a grinding halt, but persevered without cutbacks or salary cuts because of its broad range of specialties.

 

Case in Point

Looking ahead, Annino said the business community, and society in general, are moving increasingly in the direction of ADR, and the firm is responding accordingly — and proactively — with its new ADR Group.

He noted that in addition to divorce and other areas where ADR has been used effectively for many years, there is vast potential for the firm to gain business in such areas as environmental law, construction law, and family law.

“When people find out that we’re doing environmental, family, and contract mediation and arbitration — and we really haven’t told them yet, but we’re starting to — I think we’re going to be very busy,” he said. “I see the family-mediation piece as one where there is growth potential — I’m not aware of it being done extensively now.

“You look at a case where the parents die and now there’s an issue with the estate,” he continued, offering an example of the type of work he anticipates. “You’ve got four children, and everyone is going to get a lawyer. If you’re well-thought-of as being able to mediate or arbitrate those types of issues, rather than fighting them out in the courtroom, that would seem like the perfect venue to resolve family disputes — privately, quietly, and less expensively.”

When asked how a firm, or a specific individual, gains a solid reputation in the realm of ADR, Draper said it does so by becoming known for both expertise and fairness, which can only be attained through time, experience, and thoughtful resolutions.

“The first thing you need to do is get the word out, which we’re trying to do,” he told BusinessWest, noting the use of the firm’s Web site and other vehicles to introduce the service. “Beyond that, it’s just like any aspect of a legal practice — if the parties in the mediation or arbitration perceive you to be fair, then I think you’ll get a good recommendation from the parties and the attorneys. On the other hand, if you’re perceived as being unfair or biased toward one party or the other, you’re not going to get a good recommendation from either side.

“If I see someone who has a bias as an arbitrator, I’m disinclined to use that person,” he continued, “because I’m not sure where the bias is going to fall next time. So it’s just like building any other kind of practice.”

While working to build its portfolio in ADR, the firm is making strides with many of the other strategic initiatives identified last December.

For example, the firm has relocated into larger quarters on Broad Street in Westfield, providing improved visibility. Annino and Kester (both Westfield residents) spend at least one day in a week in that city, which has recorded significant residential and business expansion in recent years and offers strong growth opportunities.

Meanwhile, the firm is moving ahead with plans to market itself more aggressively and become much more visible than it has been in the past.

Specific steps include the revamped Web site, which will, in addition to offering information about the firm, its lawyers, and their areas of expertise, provide visitors with information on timely issues of the day, as well as a new e-newsletter sent to hundreds of clients and prospective clients.

The first edition, which came out in June, chronicles the Westfield relocation, announces Kester’s new status as partner, introduces the new ADR services, and even offers a bit of commentary on the economy.

“We have definitely noticed an uptick in business and consumer confidence and a resulting demand for legal services,” it reads. “There is also new optimism in our clients. Much of our new work results from clients expanding business operations or taking advantage of new business opportunities. It is exciting to be part of this emerging vitality, and to see long-time clients optimistic again about the future for their families and businesses.”

 

Closing Argument

Whether this perceived uptick and rise in optimism translates into new growth opportunities for ADM remains to be seen. But it’s clear that the firm is taking solid steps to effectively position itself within a changing economic and legal landscape.

As Annino noted, five-year plans don’t generally work out in the legal industry. But firms still need to look down the road and anticipate where opportunities will be found and take proactive steps to capitalize on them.

And ADM has a firm resolve — both literally and figuratively — to do just that.

 

George O’Brien can be reached at [email protected]

Oh, Dear, College Is Here!

By
Law Sections
And How Can I Get My Ex to Help Cover These Expenses?

Melissa R. Gillis

Melissa R. Gillis

If you divorced your ex-spouse when your kids were young, it is possible that you did not consider the funding of your children’s college education in your support order. Now that they are on the brink of college, you may be looking ahead to that considerable financial hurdle and wondering how you will be able to pay for it, and how to ask your ex-spouse to contribute their fair share. You may also be wondering how college will affect existing child-support payments.

Separation agreements and divorce judgments often don’t make a specific provision for how children’s college education will be funded, what percentage of the total cost each parent will pay, and what happens to weekly child-support payments as a result, which is entirely distinguishable from college contributions.

Instead, what is most commonly seen is ‘blanket language.’ That’s the language in an agreement or order that says child support is to be paid until a child is deemed emancipated, and once each child reaches the age of college, both parents will attempt to discuss with each other how college will be paid. They also agree to discuss which college each child will attend, given their aptitudes and desires. Parents also have an understanding that they must exchange financial information and cooperate with their child’s financial-aid office. Unfortunately, such blanket language often leaves parents confused as to what the nexus should be between their weekly child-support order and each parent’s college-contribution percentage.

Reaching that perfect balance between a weekly support order and college contribution can be tricky at best. Most parents paying weekly child-support orders pursuant to the child-support guidelines can’t pay both and don’t feel that they should have to. If there have been some college funds or accounts set aside to assist paying parents, an agreement or order should dictate whether those accounts are to be utilized prior to either parent contributing out of pocket, or whether the funds within the accounts are actually a part of the contribution that a parent will be required to make.

In the case where there is no fund set aside, and a parent is now being asked to pay both a weekly support amount and contribute to college, the typical paying parent begins to feel as though their weekly support is more like alimony. They fear that they are being set up for exactly that: a request for alimony once child support is over, creating a never-ending stream of payments to a spouse they haven’t been married to for years.

The best time to discuss how to pay for college and how this affects a weekly support order is certainly not when the first tuition payment is due, but the September of that child’s senior year of high school. By then, you probably know whether your child is going to apply to a community college, a state university, Harvard (or its cost equivalent), or something in between. This gives you a feeling for what the tuition will be, whether financial aid is necessary, and how much input each parent will or wants to have in the college-selection process.

If there is a required mediation clause in the parties’ agreement or judgment, then arguably you and your ex-spouse can wait until your child’s actual acceptance is received from the institution. But be careful not to set your child’s expectations too high if you know there is simply no way to afford a $40,000-per-year tuition bill even with loans. Being practical, reasonable, and knowledgeable of the law is the key to successful negotiations in this regard.

If you and your ex-spouse can’t work out how much each should contribute, what should happen to weekly child-support payments, whether to use any college savings or investment accounts first or last, and whether to require your child to apply for student loans, scholarships, and grants without court intervention, a modification action should be filed about eight to 10 months prior to the child’s entrance to college to allow adequate time for financial discovery. During this period, you and your ex-spouse may reach resolution, but in the event that you cannot, there is enough time to have a trial on the merits and receive the judge’s decision.

The statute governing periodic payments of child support from one parent to another provides that, between the ages of 18 and 21, a court can award child support if a child principally resides with the custodial parent and is principally dependent upon them for support, without any requirement that a child be attending college. Between the ages of 21 and 23, a court can still award child support if a child continues to principally reside and be dependent upon the custodial parent, but they must be pursuing further education, not to exceed a bachelors’ degree.

Because there is no ‘bright-line’ rule for how judges must treat weekly support orders if a parent is also ordered to contribute to college, this opens up myriad possibilities and differing judicial decisions. It should also be noted that the actual child-support guidelines are merely discretionary and arguably do not apply after a child reaches the age of 18.

Often, practitioners will run the guidelines for children over the age of 18 anyway to give the judge a suggestion of what could be and to perform an analysis of what some combination of weekly support payments and direct college contribution would look like, in an attempt to figure out how much extra the paying parent should be asked to contribute.

That said, the resulting possibilities are endless. Some judges use the ‘1/3, 1/3, 1/3’ approach, making the parents and the child each responsible for contributing one-third of the total, whether by loans or cash equivalent. Other possibilities include:

• A straight contribution to college, only if the child will spend approximately equal time living with each parent when home from school, with termination of the weekly support order;

• An order of straight continued weekly child support to the custodial parent if the other parent doesn’t have much contact with the child;

• A combination of reduced weekly support and a percentage of college funding, depending on whether the child will live at home and the ability of a parent to pay; or even

• Both continued weekly payments plus a substantial college contribution.

The above options will all be dependent upon additional factors, including whether there are remaining non-college-age children still in the home, the non-custodial parent’s ability to pay, and the custodial parent’s inability to contribute.

Any way it’s looked at, the message is clear. Absent an agreement, and given the amount of judicial discretion present, it is imperative that a parent facing this battle have a skilled lawyer in their corner who can advocate all the intricacies in order to best suit the needs of the child without breaking the bank of one or both parents or causing an undue burden on one parent because the other refuses to provide an adequate financial contribution to their child’s higher education.

 

Melissa R. Gillis, Esq. is an attorney with Bacon Wilson, P.C. in the domestic, special education, and real estate departments; (413) 781-0560; baconwilson.com/attorneys/gillis

The TOUSA Tussle

By
Law Sections
Recent Decision Could Impact Financially Challenged Borrowers

James B. Sheils

James B. Sheils

A recent Court of Appeals decision interpreting the Bankruptcy Code may result in limiting the ability of struggling commercial borrowers to obtain replacement financing from a new lender.

TOUSA Inc. was the 13th-largest homebuilding business in the U.S., with operations in Florida and many other states. It incurred significant debt to expand its business, largely through acquisitions; one such purchase involved a Florida entity. While TOUSA had numerous subsidiaries, and those subsidiaries had guarantied other debt owed by TOUSA, the subsidiaries did not guaranty the debt incurred to the original lenders providing the Florida acquisition financing.

The economic downturn, especially affecting real estate, significantly impaired TOUSA’s business, including the Florida entity it had acquired. The original lenders who provided the acquisition financing brought suit; as part of a settlement, TOUSA borrowed in excess of $470 million from a group of new lenders, whose funds were used to pay the original lenders. As collateral for the rescue loan, the new lenders obtained guaranties from TOUSA’s subsidiaries, secured by the assets of those subsidiaries. Those assets constituted collateral which had not secured the original lenders’ financing.

Despite the new funding, TOUSA ultimately sought Chapter 11 protection. The security interests of the subsidiaries were challenged by the creditors’ committee as “fraudulent conveyances,” based upon a claim that the subsidiaries did not receive “reasonably equivalent value” in exchange for the liens granted to the new lenders. The subsidiaries had not received any loan proceeds, but the new lenders argued that the funding they provided allowed TOUSA, and as a result the subsidiaries, to continue in business, even if the business ultimately failed.

The Court of Appeals endorsed the original decision of the Bankruptcy Court that ‘fair consideration’ is a fact-based determination, and that the almost-certain costs of the new loan far outweighed any perceived benefits. An argument that the subsidiaries faced an existential threat absent the new loan was rejected; the court stated that not every transfer that decreases the risk of bankruptcy for a corporation can be justified. The decision almost certainly will result in increased caution by lenders where upstream guaranties are an integral component of the financing.

The loss of the liens securing the new lenders’ loans was not the only action addressed by the Court of Appeals. The Bankruptcy Court also required the original lenders to ‘disgorge’ (i.e. pay back) $403 million received from the new lenders. The disgorgement issue involved a discussion of Section 550 of the Bankruptcy Code, which deals with recovery of property if a ‘transfer’ is avoided, as was the case with TOUSA’s subsidiaries. Section 550 allows recovery of a transfer from the initial transferee or from an entity for whose benefit such a transfer was made. The original lenders had argued that, since the liens went to the new lenders, the original lenders were ‘subsequent transferees,’ not entities that benefited from the initial transfer. The Court of Appeals disagreed; the loan agreements with the new lenders required the loan proceeds to be paid over to the original lenders.

The case was remanded to the District Court for further action regarding damages; if the initial Bankruptcy Court decision is fully upheld, the unwinding of the refinancing will result in the disgorged funds to be first used to repay the transaction costs for the new loan, then the costs incurred by the creditors committee in bringing and prosecuting the challenge and any decline in the value of the collateral, all before any funds are returned to the new lenders.

The TOUSA decision could complicate the ability of financially challenged borrowers to stay out of Chapter 11 because it raises questions regarding the enforceability, in certain circumstances, of upstream guaranties and highlights risks to lenders who are paid off by a borrower. The benefit to the total enterprise can’t be assumed to provide sufficient consideration. It’s also likely to increase the scrutiny of debtors/trustees in connection with potential claims to include prior lenders who, it will be asserted, are included in the ‘for whose benefit’ language of Section 550 of the Bankruptcy Code.

It is possible that further appeals may be taken, or that the 11th Circuit Court of Appeals may decide to have the entire court consider the case (a so-called ‘en banc’ review), but for now, the tussle with TOUSA may have chilled the air a bit for lenders to distressed businesses.

 

Attorney James B. Sheils is a shareholder with Shatz, Schwartz and Fentin, P.C., and concentrates his practice in the areas of commercial finance law, creditors’ rights, banking law, and telecommunications siting matters; (413) 737-1131.

Obamacare Survives

By
Law Sections
So What Does That Mean for Massachusetts Employers?

John S. Gannon

John S. Gannon

In its most significant decision of the year, and arguably the last decade, the U.S. Supreme Court recently upheld most of the Patient Protection and Affordable Care Act (PPACA), the controversial health care legislation also known as ‘Obamacare.’

But a blessing from the Supreme Court only seemed to take the health care debate to more contentious levels as Republican politicians, including presidential hopeful Mitt Romney, have promised to repeal the law. Even so, businesses cannot wait for a ceasefire in Washington. Employers must forge ahead and continue efforts to implement the law as provisions pertaining to the employer-employee relationship become effective.

 

The Court’s Ruling

At the forefront of the dispute over the PPACA’s legality was a constitutional challenge to the so-called individual mandate, which requires individuals to carry health insurance or pay a penalty. Opponents argued that Congress overstepped its authority when it enacted this part of the law. The Supreme Court majority disagreed, concluding that the individual mandate is a valid exercise of Congressional power to tax. “Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness,” wrote Chief Justice John Roberts, author of the majority opinion.

Notably, the Supreme Court rejected the Obama administration’s principal argument in support of the individual mandate. Trying to avoid labeling the provision a tax, the government contended throughout that the mandate was a valid exercise of Congress’ power to regulate interstate commerce. That contention failed. “The individual mandate forces individuals into commerce precisely because they elected to refrain from commercial activity,” declared Roberts. “Such a law cannot be sustained under a clause authorizing Congress to regulate commerce.”

Massachusetts is viewed by many as the birthplace of the individual mandate. The state health care reform law includes a similar provision requiring residents of the Commonwealth to carry health insurance or pay a fine, although the formula for calculating the penalty is different from the method used under federal law.

 

Next Steps for Employers

Now that the uncertainty surrounding health care reform has been resolved, at least from a legal perspective, employers must be prepared to comply with significant provisions of the PPACA that kick in over the coming months. Starting this year, employer-sponsored group health plans will need to provide employees with a summary of benefits and coverage (SBC), which must include certain coverage details. Insurance carriers may provide the SBC notification for fully insured group plans, but plan administrators will have to provide the notification for self-funded plans.

The PPACA also requires employers to report the aggregate cost of employer-sponsored health coverage on Forms W-2. Employers that filed more than 250 Forms W-2 for tax year 2011 must ensure that the cost of coverage is reported next year. Smaller employers may be off the hook until 2014.

Beginning Jan. 1, 2013, the PPACA limits employee contributions to an FSA to $2,500 per year. The $2,500 FSA cap applies only to employee pre-tax contributions to a health care FSA, and does not affect employer contributions toward health care premiums, health savings accounts, health reimbursement arrangements, or other similar accounts.

Looking Ahead

In addition, savvy employers should begin planning to implement parts of the law set to take effect in 2014, including an employer mandate that penalizes businesses for failing to offer adequate health-insurance coverage.

The controversial employer mandate kicks in a little over a year from now. Starting in 2014, employers with more than 50 full-time employees must provide a minimum level of health-insurance coverage or pay a $2,000 penalty per full-time employee. As noted above, this concept is not entirely new to Massachusetts employers, many of which have been required to provide health insurance to employees since 2006, when the Commonwealth enacted its own version of health care reform. However, Massachusetts employers need to be aware that the penalty for failing to offer coverage is far greater under federal law.

The PPACA also requires that the coverage be ‘affordable’ and provide ‘minimum value.’ Coverage is considered affordable if the employee’s required contribution does not exceed 9.5% of household income. An employer provides a ‘minimum-value’ plan if the plan covers at least 60% of the participant’s covered expenses. If the coverage fails to meet these requirements, the employer may be subject to an excise tax of $3,000 if an employee declines to enroll in the plan.

 

PPACA Uncertainty

Calls to repeal the PPACA will echo throughout the 2012 electoral season. But rescinding the law is no small task. For starters, it will almost certainly take a makeover in the Oval Office. Until that day comes, employers need to be sure they are in compliance with the provisions of the PPACA that are set to go into effect this year and next. They also need start planning for the critical employer mandate set for 2014.

 

John Gannon is an associate in the Springfield labor and employment law firm of Skoler, Abbott & Presser, P.C., which represents employers exclusively and specializes in helping employers understand their obligations under state and federal employment law; (413) 737-4753; [email protected]

Naming Your Business

By
Law Sections
How to Successfully Manage and Minimize Risk

Michael Gove

Michael Gove

Choosing a business name that will identify your company’s products and services can be an important factor in your ultimate success. A great name is the first step in creating a great brand: it should be memorable and create appropriate mental pictures when heard.

But, while choosing a business name may seem easy, this assignment will require some research to ensure it does not lead to what could be costly problems later on.

If you already have an established sole proprietorship and are incorporating, your already-existing good name may lead you to conclude that you should just add ‘Inc.’  However, if you are starting from scratch, naming your business can be more complicated.

Start by brainstorming a list of potential business names. Think about related words or phrases and experiment with combinations of the words you have jotted down. Throw out those that just do not fit, prioritize those remaining, and review those with someone who can provide objective input.

In addition to the creativity involved in choosing a business name, though, there are three main considerations to keep in mind.

 

Is Your Proposed Name Available?

The secretary of state has records of all active corporations, limited-liability companies, and limited partnerships. Remember, most states do not recognize differences from the use of the word ‘the’ nor in identifiers such as Inc., Co., or Ltd. This means that, if there is already a corporation named Pet Shoppe Inc., you will be prevented from using names such as The Pet Shoppe Inc., The Pet Shoppe Co., or The Pet Shoppe Ltd.

 

Will the Proposed Name Be Eligible for Trademark Protection?

Obtaining trademark protection helps to prevent another business from using a name that is likely to be confused with yours, which allows consumers to identify your product or service with you and the branding of your business. Conversely, you will want to confirm that you are not infringing on another corporation’s trademark. Receiving a cease-and-desist letter, or being sued for trademark infringement months after you open for business, can be a significant setback.

 

Is the Proposed Name Available as a Web Domain?

In this day and age, just about every business includes a Web site as part of their business advertising, and you should check to see if your proposed name is available as a domain.

While there is no magic formula, distinctive business names are clever and memorable and, when researched and protected correctly, will be there to remain consistent for years, which will help build trust, goodwill, and loyalty between you and your customers.

 

Michael S. Gove is an associate with the Springfield-based law firm Cooley, Shrair P.C. He focuses his practice on assisting clients in the areas of corporate/business, banking, and bankruptcy law; (413) 735-8037; [email protected]

Firm Footing

By
From left, Tony Dos Santos, Kimberly Davis Crear, and Jim Chadwell.
Law Sections
Crear, Chadwell & Dos Santos Charts an Ambitious Course

From left, Tony Dos Santos, Kimberly Davis Crear, and Jim Chadwell.

From left, Tony Dos Santos, Kimberly Davis Crear, and Jim Chadwell.

Tony Dos Santos remembers thinking — actually, the word he used was knowing — that it was definitely time for a career course change.
And as he talked about the thought process that led him to that conclusion that he needed to leave the larger-law-firm environment — in this case the Springfield-based firm Robinson Donovan — and find an opportunity to put his name over the door, he struggled somewhat in his efforts to describe it before eventually finding the terminology he was looking for.
“I just wanted to be in much greater control of my destiny,” he told BusinessWest. “I realized that being more of my own boss, being in a smaller place where there’s more flexibility and less structure, was what I was looking for at this stage in my career.”
Kimberly Davis Crear and Jim Chadwell could certainly relate.
They had come to the same basic conclusion about their careers several years earlier, and decided, separately, to leave Robinson Donovan and start their own firm. Crear did so in 2003, when she partnered with two former Robinson Donovan partners, and Chadwell joined that firm a few years later. He and Crear have remained together (the two other partners left to start their own venture), and built a solid reputation — and sizable portfolio of clients — in the realm of workers compensation defense work.
Late last year, the partners began talking with Dos Santos about broadening the base of their firm by adding his name to the letterhead and his expertise — commercial real estate and general business law — to the resume.
Those talks, which coincided with Crear and Chadwell’s need to find new quarters — their lease was up in space within the Fuller Block that will become the new home to WFCR — concluded that this was a good fit on many levels.
“We all knew each other, we’ve all worked together … we had a lot of history together,” said Dos Santos. “It’s helpful when you’re making a move to know the people you’re going to be working with and respect them.”
Chadwell agreed, and noted that the three lawyers, who have been referring clients to each other steadily for years, complement one another, and together offer a base of specialties that provides strong growth potential.
On April 1, the three partners and seven additional staff members settled into 3,500 square feet on the third floor of Monarch Place. And with the settling in period behind them, they’re focused on continued growth of their own practices and, in Dos Santos’ making that transition from lawyer to business co-owner.
For this issue and its focus on business law, BusinessWest talks with the three partners about where they eventually want to take this firm, but mostly about that notion of controlling not only their destiny — but that of their business venture.

Making Their Case
As she talked with BusinessWest about the feel of a small boutique firm and what she likes most about it, Crear pointed to the logo on her new business card.
The square image featuring three initials (‘C,’ ‘C,’ and ‘D’) as well as the ampersand, was selected after input from all three partners, who had an active role in the design process, which went fairly smoothly, she said, adding that such democracy — not to mention quick decision-making — doesn’t generally prevail at most large firms.
“I have a comfort level with this setting that I just didn’t have in a larger firm,” she explained, noting that over the past decade or so, she and Chadwell have become well versed in what both described as the “business side” of law — meaning everything from hiring personnel to handling a payroll to leasing a copier — and out of necessity.
Dos Santos, meanwhile, is still negotiating a learning curve.
“When you’re in a large firm, you don’t deal with any of the real day-to-day issues,” he said, referring to everything from IT matters to lease agreements, which he handled in this case. “You have either an executive committee or a professional executive who’s making all those decisions, and you’re just focused on practicing law; now, you’re more of a business person practicing law.”
While that transition process continues, the three partners are working to build the business they’ve formed. And for Crear and Chadwell, that means efforts to grow their already substantial portfolio in workers compensation defense work.
Both benefited substantially from the tutelage of former Robinson Donovan partner Jim Turtollotte, said Chadwell, describing him as the dean of the local workers comp defense bar, and have steadily expanded their client base over the years.
It now includes most all of the major workers comp providers, as well as self insured companies and groups, not only in Western Mass. but across the state as well.
And while such defense work generally involves the carriers, there is considerable employer involvement in such matters, said Crear, and thus the opportunity for referrals and a chance to do more and different types of work for those on the client list.
“I often have someone from the corporate piece of the company with me watching the workers comp claim,” she explained, “and as a result, we’ve been able to establish a number of relationships.”
And this is why Dos Santos is an important addition for the firm.
A partner at Robinson Donovan when he left that firm, Dos Santos specializes in all facets of commercial real estate, commercial finance, and general business law. He has significant experience representing developers, investors, and lenders regarding complex commercial real estate transactions, including acquisitions, dispositions, leasing, financing, zoning, and permitting, and recently has cultivated a niche involving affordable housing initiatives for formerly homeless veterans, including work with the nonprofit work Soldier On.
“They’re expanding exponentially, and I’ve done a lot for them,” he said of Soldier On, adding that one current project involves the former police training facility in Agawam, while another involves Veterans Administration property in Leeds.
When asked if there was anything approaching a five-year plan for the firm, Chadwell laughed and said, “we signed a five-year lease here — that’s our strategic plan.”
Elaborating, and turning more serious, he said the new venture, with its broader range of specialties, has solid growth potential. Where, when, and how that growth takes place is a function of how the three partners are able to expand their portfolios — possibly necessitating the need for more help — and whether there are logical additions to the roster of specialties that would bring more lawyers to the firm.
One possible avenue for growth is the broad realm of employment law, said Chadwell, adding that it would be a natural fit given the general business law work handled by Dos Santos and the workers comp defense services that he and Crear provide.
“I could see employment law being a tremendous fit going into the future with the nature our practices,” said Chadwell, noting that all three partners already refer out a considerable amount of work in that area. “And it’s an ever-growing practice area.”
The firm has the right of first refusal on some additional space on the third floor, said Chadwell, adding that it is hope — and expectation — that there will be need to exercise that right in the near future.

Final Arguments
As she gave a quick tour of the firm’s new offices, Crear noted that she swung a swift, mutually beneficial deal with Chadwell to take what would be considered the corner office. Dos Santos, meanwhile, got a consolation prize of sorts — the office closest to the conference room.
Such quick, easy decisions usually don’t happen at larger firms, where bureaucracy and rules often dictate such matters.
But they are part and parcel to life in a small boutique firm, where the principals are firmly in control of their destiny — and determined to make the most of that opportunity.

George O’Brien can be reached at [email protected]

Social Media Policies

By
ROSEMARY J. NEVINS
Law Sections
NLRB Rules Most Proposed Provisions Are Too Broad in Nature

ROSEMARY J. NEVINS

Rosemary J. Nevins

In their quest to protect company interests and private information, many employers have developed social media policies restricting the use of such media by their employees with regard to workplace matters.
Responding to the increasing number of challenges to such policies, the National Labor Relations Board (NLRB) has recently issued its third report involving its review of the social media policies of seven different companies. Upon completing its review, the board determined that several of the policy provisions involved in six of the seven cases were overbroad and therefore, unlawful under the National Labor Relations Act (NLRA). The seventh case involved a revision of that company’s social media policy, which the board deemed to be lawful under the act.
In its two earlier reports the board’s focus was on notifying employers that their social media policies should not be so all encompassing as to ban employee activity protected under federal labor law. The board cautioned that an overly broad policy could potentially violate Section 7 of the NLRA, which protects an employee’s Section 8(1)(1) right to engage in concerted activities for the purpose of mutual aid and protection. Interestingly enough, the board determined that this caveat applies to both union and non-union employers alike.
In determining the lawfulness of each policy’s provisions, the board first analyzed whether the policy, as written, would “reasonably tend to chill employees” in the exercise of their rights under the NLRA by specifically restricting those rights. Absent such an explicit restriction, the board then focused on the following considerations:
• Whether an employee would reasonably conclude that the policy does prohibit protected activities;
• Whether the employer adopted the policy in response to union activity; and
• Whether the employer has applied the policy in such a manner as to restrict protected activity.
Examples of Unlawful Provisions
Among the many provisions deemed to be unlawful as written in the policies reviewed are the following:
• A provision including a general condemnation of posting “offensive, demeaning, abusive or inappropriate remarks on-line.”
Reason: Such a provision is overly broad and might potentially restrict an employee’s protected right to criticize its employer’s treatment of employees.
• A provision requiring the employee to ensure that information shared about the company is completely accurate, not misleading, and non-public.
Reason: Such a provision would be reasonably interpreted to apply to discussions about a criticism of the employer’s treatment of its employees.
• A provision preventing an employee from commenting on any legal matters, including pending litigation or disputes.
Reason: Such a provision restricts employees from discussing the protected subject of potential claims against the employer.
• A provision instructing employees not to share confidential information with co-workers — for example, their rate of pay, work schedules, etc., among other topics unless those co-workers need the information to do their jobs.
Reason: Employees would construe such a provision as prohibiting them from discussing information regarding the terms and conditions of their employment.
• A provision to prohibit employee’s release of confidential guest, team member, or company information.
Reason: This provision would reasonably be interpreted as prohibiting employees from discussing and disclosing information regarding their own conditions of employment, as well as the conditions of employment of other employees.
• A provision threatening legal action, including criminal prosecution, in addition to corrective action up to and including termination, where an employee violates any portion of the employer’s policies regarding confidential information.
Reason: Since the rules were found to be unlawful, the reporting requirement was also unlawful.
• A provision that cautions employees not to post information about which they are uncertain and to resolve any doubts as to whether they should post that information by checking the designated personnel.
Reason: Any rule that requires employees to secure permission from an employer as a pre-condition to engaging in Section 7 activities violates the Act.
• A provision that cautions employees to treat everyone with respect by refraining from posting offensive, demeaning, abusive, or inappropriate remarks on-line and reminding them that they are expected to abide by the same standards of behavior in the workplace as well as in their social media communications.
Reason: The first part of this provision proscribes a broad spectrum of communications that would include protected criticism of the employer’s labor policies of treatment of employees. The remaining portion is ambiguous as to its application to Section 7.
Among other findings, the board posited that even a “savings clause” stating that the policy would not be construed and applied in a manner that improperly interferes with employees’ rights under the act will not pass muster.
Lawful provisions include those that are clearly written and limit their application to examples of specific illegal or unprotected conduct that would not reasonably be construed to be protected activity.
One example of such a provision is one proscribing “harassment, bullying, discrimination, or retaliation that is impermissible in the workplace, and to be impermissible between co-workers online, even if it is done after hours, from home or on home computers.”
Similarly, it would be lawful for an employer to proscribe employees from posting information online in the employer’s name or in a manner that could reasonably be attributed to the employer without written authorization from the designated company agent.
Err on the side of caution and carefully review your social media policies.

Rosemary J. Nevins, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, boutique, management-side labor and employment law firm; (413) 586-2288; [email protected].

Passing Thoughts

By
Law Sections
10 Things to Know About ‘Scary’ Retirement-plan Beneficiaries

Ann I. Weber, Esq.

Ann I. Weber, Esq.

The terrific thing about retirement plans (including individual retirement accounts) is that they grow income-tax free within the plan. The price of this benefit is that, upon distribution, income tax is assessed on the entire amount distributed. At the death of the plan participant, individual plan beneficiaries can stretch out the distributions over their life expectancy and defer income taxes until a distribution is actually received.
Minimum distributions (MRDs) are required over this period, and spouses have special rules applying to them, which allows them to add 10 years to the payout period. This works wonderfully for most beneficiaries because it allows income taxes to be paid over time with all taxes on the amount not distributed deferred.
However, this may not be such a great benefit if a minor, disabled individual, or otherwise scary person is named as a beneficiary of the plan, because the plan participant may not want such an individual to receive their distributions outright. Here are 10 things to think about if you have potential plan beneficiaries in this situation.

Minors. Many parents do not want their children to receive a large sum of money outright. In Massachusetts, the age of majority is 18, but many parents would tell you that maturity arrives much later.

Disabled Persons. For persons under a legal disability who are receiving public benefits such as Medicaid or Supplemental Security Income (SSI), any mandatory income payment will be considered countable income for purposes of any benefits to which they might otherwise have been entitled. The value of the entire plan will be considered a countable asset if the disabled person can access the plan proceeds on his or her own. As a result, an individual on Medicaid or SSI who is the named as a beneficiary of the plan could very likely lose his or her medical or supplemental assistance as a result. The retirement benefits would then be spent down to pay medical and other expenses until the disabled individual was impoverished and could reapply for benefits.

Otherwise scary persons. These may include, among others:

• Business owners. Many business owners have personally guaranteed business debts and do not want any retirement benefits they receive from their parents (or any other plan participant) to be subject to claims of their creditors.
• People who are or may be going through a divorce. Most plan participants do not want their retirement funds going to an ex-spouse.
• Technical adults. Many people do not mature at 18, and parents may be concerned that a child might not have the skills to handle a significant sum of money, leading to some unwise decisions.
• Individuals in risky occupations. Doctors, lawyers, and maybe even Indian chiefs may be concerned about possible malpractice or other claims of unknown amounts and, consequently, do not want to have the outright ownership as a plan beneficiary.
• Temporary situations. An individual may be in a precarious situation at the present time, but is likely to resolve it sometime in the future.

Conventional Trusts. Most conventional trusts are tricky to use as retirement-plan beneficiaries because retirement-plan benefits paid to a trust are subject to income tax in full upon receipt. Thus, if such a trust is named as a beneficiary of the plan, the plan benefits would ordinarily be distributed to the trust in full, and would be subject to income tax in the year of receipt.
When a Conventional Trust Is a Good Idea. Where the plan beneficiary is very young or under a legal disability and receiving needs-based public benefits such as Medicaid or SSI, the payment of tax might be an acceptable price to pay for the security of having the asset managed by a trustee and distributed to the beneficiary only at the trustee’s discretion.
When a Non-conventional Trust is Better. Special trusts blessed by the IRS can protect the undistributed portion of the plan benefits while allowing a trust beneficiary to receive minimum required distributions (MRDs) annually. They work well when the plan participant is concerned about naming the beneficiary outright.
‘See-through Trusts’ Great for Scary Beneficiaries. A see-through trust can be created by the plan participant and named as the beneficiary of the plan. At the death of the plan participant, the trustee receives from the plan and distributes to the trust beneficiary only the mandatory annual MRD. For scary beneficiaries, these trusts can be a home run, and the trustee can be empowered to reach the rest of the plan asset in its discretion.
Discretionary Trusts. Though not as clearly blessed by the IRS, it is also possible to name a trust with multiple beneficiaries as the named beneficiary of a retirement plan. The advantage here is that the trustee can decide how to apportion the MRD (and additional principal payments, if desired) among trust beneficiaries. The measuring life for the MRDs is the life expectancy of the oldest beneficiary. Note, however, that these trusts are more technical, and stricter rules apply regarding remainder beneficiaries.
Trustee Must Be an Independent Third Party. The beneficiary may not be named as a trustee because the discretionary ability to reach the principal of the trust may render all the plan assets subject to the claims of creditors, divorcing spouses, etc.
Trustee May Name the Beneficiary Trustee at a Later Date. In circumstances where the plan participant wishes to limit access to the plan for a limited period only, the trustee may be given the authority to name the plan beneficiary as successor trustee at a certain point or at the trustee’s discretion. This works well for individuals whose financial situation or level of maturity is likely to change for the better — for example, when an individual undergoing a divorce is no longer subject to claims of the spouse, or when a child reaches a certain age.
Although there are no perfect solutions in this situation, with a little pre-planning, retirement plans can be transferred to these special beneficiaries in an optimal fashion.

Attorney Ann I. Weber is an attorney with the Springfield-based firm Shatz, Schwartz and Fentin, P.C., and concentrates her practice in the areas of estate-tax planning, estate administration, probate, and elder law, and has a particular interest in creative estate planning for authors and artists, farmers, and landowners. She is a board member and past president of the Estate Planning Council of Hampden County Inc., and is a former (and founding) board member and current member of the Massachusetts chapter of the National Academy of Elder Law Attorneys. She is also a frequent author and speaker on issues regarding estate planning; (413) 737-1131.

Government Contractors Beware

By
Law Sections
Audits Regarding Equal Employment Opportunity Are on the Rise

Karina L. Schrengohst

Karina L. Schrengohst

As an employer, the last thing you want is to face an audit for compliance with equal-employment-opportunity laws unprepared. Although an audit may be unavoidable, there are steps you can take to safeguard yourself in the event an audit does occur.
This is especially important because the Office of Federal Contract Compliance Programs (OFCCP) has been conducting random audits to determine if federal contractors and subcontractors are in compliance with equal-employment opportunity laws.
One of the three equal-employment-opportunity laws that the OFCCP enforces is Executive Order 11246, which prohibits discrimination and requires affirmative action to ensure that women and minorities have an equal opportunity for employment. Under the regulations implementing Executive Order 11246, some federal contractors and subcontractors are required to develop and maintain a written affirmative-action plan. If you are a government contractor, you need to know whether you are subject to this requirement.
To determine if you need a written affirmative-action plan under Executive Order 11246, ask yourself: are you a non-construction (supply and service) contractor? Do you have 50 or more employees? Do you have government contracts of $50,000 or more? If you answered yes to these three questions, you must develop and maintain a written affirmative-action plan.
The objective of an affirmative action plan is to promote diversity in the workplace and ensure equal employment opportunity in the workforce. By analyzing current employment practices and the makeup of the workforce, employers can identify deficiencies in the utilization of women and minorities in their workforce. Once these deficiencies are identified, employers can create corrective policies and practices to achieve full utilization of women and minorities in their workforce.
Affirmative-action plans are complex to create and require specific elements.  The following is a general overview of some of the required elements as detailed by the OFCCP regulations.
• Contractors must construct an organizational profile of their workforce, which is a detailed depiction of the staffing patterns within the company. This profile helps identify areas where women and minorities are underrepresented or concentrated.
• Contractors must perform a job-group analysis, which involves combining job titles into groups based on similar duties, responsibilities, compensation, and promotional opportunities. This analysis is the first step in comparing the representation of women and minorities in the company’s workforce with the estimated availability of women and minorities qualified for employment.
• Contractors must perform a utilization analysis, which involves determining the percentage of women and minorities employed in each job group, determining the availability of women and minorities who have the skills required to perform the jobs within the job groups internally (promotable, transferable, and trainable employees within the company) and externally (in the relevant labor market), and comparing the percentage of women and minorities employed in each job group with those available internally and externally. There is underutilization if there are significantly fewer women and minorities employed in each job group than are available.
• If underutilization is identified in job groups, contractors must establish placement goals for correcting such underutilization, and such goals are used to measure progress toward achieving equal-employment opportunity.
• Contractors must designate a specific person responsible for implementation of their affirmative-action plan.
• Contractors must identify problem areas where impediments to equal-employment opportunity exist.
• Contractors must develop and execute action-oriented programs designed to eliminate identified problem areas.
• Contractors must periodically conduct internal audits to measure the effectiveness of their affirmative-action plan.
• Contractors must maintain documentation to demonstrate their compliance and make such documentation available to the OFCCP upon request.
An affirmative-action plan is only one component of OFCCP compliance. For example, there are compliance requirements related to equal-employment-opportunity notice posting and record-keeping responsibilities. Also, as noted earlier, the OFCCP enforces three equal-employment-opportunity laws. Besides Executive Order 11246, the OFCCP also enforces Section 503 of the Rehabilitation Act of 1973, which prohibits discrimination and requires affirmative action in the employment of qualified individuals with disabilities; and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, which prohibits discrimination against specified categories of veterans and requires affirmative action in the employment of such veterans.
Similarly, these laws require a written affirmative-action plan, but with some variation from the elements required under Executive Order 11246. Thus, based on the complexity and extensiveness of equal-employment-opportunity laws, government contractors should consult with their employment counsel to ensure OFCCP compliance.
Being proactive will prepare you to face an OFCCP audit. The way to do that is by developing, maintaining, and annually updating your written affirmative-action plan.

Karina L. Schrengohst, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, boutique, management-side labor- and employment-law firm; (413) 586-2288; [email protected]

Minimize and Manage Risk

By
Law Sections
Know Your Options When Incorporating Your Small Business

Michael Gove

Michael Gove

The majority of companies begin as modest businesses owned by a sole proprietor or partnership, and often it is not until the company has grown do owners consider incorporating the venture. Whether small or large, all businesses can benefit from incorporating, but the most basic reason for considering a change in the business structure boils down to managing potential risk.
Incorporation is the act of forming a new legal entity (business structure) that provides certain business, tax, and legal advantages to its owners. The separate legal entity can own property, pay taxes, sign binding contracts, and, most importantly, protect its principals from many types of liability.
When deciding to incorporate, the following advantages should be considered:
• Limitation of Liability: The main advantage to creating a business entity is the limitation of liability faced by principals of the business. If a business is run as a sole proprietorship, the business owner assumes all liability, but when the business is a separate legal entity, an individual principal’s or investor’s liability is limited to the amount he has invested. In contrast, as a sole proprietor, your personal assets can be seized to pay the debts of the business.
• Raising Money Can Be Easier: Business entities can borrow or incur debt and can sell shares, which can make it easier to obtain capital for your business to develop.
• Deductible Expenses: Business entities may be subject to advantageous rules for business expenses.
• Protection of Trade Names: While not conclusive, the registration of your business-entity name with the secretary of state will provide additional protection against another business with an identical or similar name.
• Additional Credibility: A business entity may have more credibility with potential clients.
• Continuation of the Business: A business entity may continue to exist even beyond the death of a principal.
There are a variety of business entities that a business owner may use, and each provides specific legal and tax advantages and disadvantages. These include:
• Sole Proprietor: A sole proprietorship describes a simple business structure that is owned by an individual. Many smaller businesses operate as sole proprietorships; however, as mentioned above, one of the major disadvantages of this structure is that the owner is personally responsible for all legal and financial liabilities. A business-related lawsuit or IRS tax audit can place the owner’s personal assets at risk of seizure. Further, all business income is taxed as personal earned income by the owner. Though an owner may choose to use a trade name (also known as a d/b/a), there is no legal separation of the owner from the business.
• General Partnership: A general partnership allows two or more parties to share in the liability and profits of a company. Those parties can be comprised of corporations, individuals, other partnerships, trusts, or any combination thereof. Advantages of a general partnership include its ease of establishment and its ability to use the financial and managerial strengths of all partners. The disadvantages of a general partnership include the unlimited liability faced by the partners for the legal and financial liabilities of the business; that liability caused or incurred by one partner leaves all partners vulnerable to seizure of business and sometimes personal assets; and that one partner is able to commit the partnership to obligations without approval from the other partners.
• Limited Partnership: The limited partnership (LP) business structure creates a separate legal entity that involves one or more general partners and one or more limited partners. The limited partners typically invest capital in the business and are limited in their liability proportional to the amount of capital they invest. The general partner controls the operation of the partnership and is personally liable for its obligations and debts. (A corporation is often placed in the general-partner position in order to absorb the liability.)
A majority vote of the voting partners, unless specified otherwise by a written agreement, can change who serves as general partner. When a limited partner is sued personally and a judgment is issued, that limited partner’s interest in the limited-partnership entity is protected from seizure, as are any assets held by the limited partnership. Because of this protection, the limited partnership can be effective in shielding assets from creditors.
• Limited-liability Partnership: A limited-liability partnership (LLP) is most often employed in professional practices such as law, accounting, and architecture. This type of separate legal entity allows for liability protection for all general partners, as well as management rights. In most cases, the limited-liability partnership provides for the same limited liability found in a corporation. For tax purposes, the limited-iability partnership is a flow-through entity like a partnership.
• Limited-liability Company: The limited-liability company (LLC) combines the limited-liability benefits of a corporation and the tax benefits of a sole proprietorship (though one can choose to have the LLC taxed as a corporation). In an LLC, the owners are referred to as members. When the LLC is sued, its status as a separate legal entity can protect the individual members from liability. When the members are sued personally, the LLC and its assets are protected from being seized by creditors of the members. Because of these benefits, a limited-liability company is a popular choice of business entity for a wide variety of objectives.
• Corporation: Depending on a number of factors, a corporation can choose to file taxes either as a C corporation (where taxes are paid by the corporation) or as an S corporation (where income is passed through to the owners and is taxed on them individually). A corporation can choose to be an S corporation if it has fewer than 100 shareholders and all shareholders are U.S. residents. As a C corporation, there is no limit on the number of shareholders; additionally, C corporations can deduct employee medical expenses and insurance costs.
Once you have created a business entity, you will also need to request a federal employee identification number (FEIN) from the IRS. With a FEIN, your business will be able to open a bank account. Maintaining the company’s bank account separate from other business or personal accounts is crucial to avoiding a determination that funds have been ‘co-mingled.’ Updates with the secretary of state will be required at least annually, and more often if changes are made. Depending on the type of work being conducted, additional licenses or certificates may be required from the state or municipality where your business operates.
Remember, your business is ever-growing and changing. It is always a good idea to seek the assistance of a responsible tax professional and a qualified business attorney who can offer practical answers to your questions.

Michael S. Gove is an associate with Springfield-based Cooley, Shrair, P.C.; (413) 735-8037; [email protected]

Paid Sick Time?

By
Law Sections
New Legislation Could Set the Stage for a New Policy in Massachusetts

John S. Gannon

John S. Gannon

Last year, Connecticut became the first state to pass legislation requiring employers to provide paid sick leave to employees. The law, which went into effect on Jan. 1, 2012, requires most employers with 50 or more employees to provide paid sick days to their service workers, i.e. employees who regularly deal with the public.
Similar pieces of legislation have made their way up Beacon Hill over the last few years, but none have garnered enough support to raise eyebrows. However, with the new Connecticut law gaining national attention, Massachusetts may be more likely than ever to pass paid-sick-leave legislation.

Earned Paid Sick Time
Last month, paid-sick-leave supporters introduced their latest version of the bill to the state Legislature. The bill, titled “An Act Establishing Earned Paid Sick Time,” tracks analogous legislation proposed in previous years.
The law would require all employers with more than 10 employees to provide a minimum of 56 hours of paid sick leave to their employees on an annual basis. Employers with six to 10 employees would be required to provide at least 40 hours of paid sick leave, and the smaller ‘mom and pops’ with fewer than six employees need only give 40 hours of unpaid sick time.
Employees would accrue one hour of paid leave for every 30 hours worked. They would also be entitled to carry over unused leave into their next year of employment. However, even if employees were able to carry over some unused sick leave, they would not be entitled to take more than their annual allotment during any given calendar year.

Define ‘Sick Time’
The proposed legislation would allow employees to use paid sick leave for a variety of reasons.  First, they could use it to care for their own physical or mental illness that requires that they either stay home or seek professional medical care. This would permit usage for everything from the common cold to serious health conditions requiring a stay in the hospital.
Employees would also be able to use paid leave to attend routine medical appointments for themselves or for their children, spouse, and parents. Paid leave could also be used to care for an ill family member. Finally, employees could use the leave to address psychological, physical, or legal effects of domestic violence.

Prove It
In the ’80s classic Ferris Bueller’s Day Off, Matthew Broderick is able to pull off a legendary sick-day scheme that begins with faking an illness. Will Massachusetts employees be able to follow in his footsteps?
The newest version of the legislation gives employers the right to request ‘reasonable documentation’ only when an employee is out for more than a day. This is more favorable to employers than earlier versions of the bill, which allowed a request for documentation only for absences of three days or greater. Still, it doesn’t take Ferris Bueller to realize that single-day trips to Fenway Park or the beach under the guise of an illness may go unnoticed.

Compliance
The good news is that employers who already provide paid sick leave under a PTO, vacation, or other leave policy will not need to change their policies if they already provide the requisite amount of leave and permit carryover as designed under the proposed legislation.
The current form of the bill would consider any such policy to be in compliance with the law.  However, the paid-leave policy must permit the employee to use time for the reasons listed above, and documentation requirements can be no more demanding than specified in the law.

Going Forward
Naturally, the legislation has drawn praise from workers’ rights groups and criticism from business advocates. Supporters of the proposed law argue that employees should not have to sacrifice their health for wages. They also claim that paid sick leave would reduce the spread of communicable diseases among coworkers and to business customers.
Opponents are quick to point out that these benefits come at a price. The National Federation of Independent Business (NFIB) estimates that mandatory paid leave will cost Massachusetts nearly 12,000 jobs over the next several years, with smaller businesses bearing the brunt of the losses.
Finally, it’s important to remember that mandatory paid sick leave is only proposed legislation in Massachusetts. The bill has several hurdles to leap before it could be fully voted on by the Legislature and put before the Governor for passage. Still, paid sick leave legislation is something to keep track of in 2012.

John Gannon is an associate with Skoler, Abbot & Presser, P.C. He received his juris doctor, cum laude, from Western New England University School of Law; (413) 737-4753; [email protected]

Firm Resolve

By
John Pucci, left, and Andrew Levchuk
Law Sections
Bulkley Richardson Stakes Out New Ground

John Pucci, left, and Andrew Levchuk

John Pucci, left, and Andrew Levchuk bring expertise to Bulkley Richardson in some key, growing niches of law.

John Pucci has amassed a considerable record in white-collar crime. No, not that kind of record.
Specifically, he prosecuted criminal cases for the government as chief of the U.S. Attorney’s Office in Springfield before moving into private practice as a partner at Fierst, Pucci & Kane in Northampton.
For Bulkley, Richardson and Gelinas, the Springfield-based law firm that brought him on board as a partner earlier this year, his experience on both sides of white-collar-crime and other specialties make him a valuable asset. As part of his role, he’ll handle federal tax-evasion cases, public-corruption claims, and cases involving companies and individuals under pharmaceutical investigation — but, this time, fighting for the defense.
“It’s an enormous advantage for a practitioner in the white-collar crime arena to have worked inside government, because you really get a feel for how and why cases are prosecuted, where the fault lines are in terms of evaluating the case, and how the bureaucracy works — and doesn’t work,” Pucci said.
“Dealing internally with the IRS and FBI is a bit of an art form which takes years to learn,” he added. “When you come to the defense side, you have an ingrained sense of how the government is evaluating the same documents you’re looking at for a client.”
Pucci’s not the only new attorney at Bulkley Richardson. He actually hired Andrew Levchuk at the U.S. Attorney’s Office 20 years ago, “and we find ourselves back here, together, in 2012 by virtue of a collection of circumstances that were surely unforeseeable when I hired him,” Pucci told BusinessWest.
Levchuk, who also joined the firm earlier this year, most recently worked for the U.S. Department of Justice, serving as deputy chief of the Human Rights and Special Prosecutions Section of the Criminal Division.
“I had spent part of my time in Washington as senior counsel at the computer crime and intellectual property section, and we worked on computer issues like data theft and data privacy, and also worked with international groups focused on those issues,” he told BusinessWest.
“That’s now a big issue here in Massachusetts and across the country,” he added. “Massachusetts has very strict data-privacy and data-protection regulations that apply not only to large institutions, but medium-sized businesses as well. In addition, these are very important concerns for health care clients.”
Pucci — who also brought to Bulkley Richardson his associate at Fierst, Pucci & Kane, Lizette Richards — is happy to be reunited with Levchuk. “By chance, we had a discussion, and Andy was interested in coming here.” Pucci said. “I told him he’d be a great addition, and at my suggestion, he came down to talk to the folks here, and here we are.”

Ahead of the Curve
Here they are, indeed — along with a diverse assemblage of fellow attorneys. As a law firm that traces its roots back to the 1920s and has grown to a roster of 45 lawyers with a wide diversity of specialties, Bulkley Richardson doesn’t want to stand pat, instead always considering what the current trends are in law, and trying to meet them, said Sandy Dibble, chair of the firm’s executive committee.
“Our size is incidental to what we are and what we can do,” he said, noting that it’s actually a relatively small firm when compared to some metropolitan and international firms.
The company expanded into Boston 10 years ago, an office that has thrived while focusing largely on representation of financial institutions. No one, Dibble said, could foresee the scope of the crisis that engulfed the financial-services industry in 2008.
“That turmoil has produced lots of litigation for banks. We represent mutual funds and most major banks. We rarely do foreclosures, but we do defend banks and other financial institutions when they’re sued,” he explained. “Banks like Sovereign, Bank of America, Citizens, JPMorgan Chase are big clients, and we do work for them in multiple states in New England through the Boston office. We have good lawyers out there, and it has been very successful.”
Bulkley Richardson has also seen plenty of growth in its health care specialty, particularly at a time when local and national health-insurance reform, and generally increasing compliance demands, require skilled legal aid.
“That’s a hugely active field from a legal perspective, with a tremendous amount of new legislation at the state and federal level, lots of new regulation, lots of new regulatory activity among the clients we represent,” Dibble said — among them Baystate Health and several other hospitals in Western Mass.
“We’re certainly not the only law firm representing these clients, but we do work with them in various areas of expertise,” he continued. “We do a lot of work involving government and how to structure organizations, how to manage them so they have a high level of compliance and ethical behavior. We also interact with the government agencies that supervise health care institutions.”
Among its other strengths, Dibble said, the firm handles plenty of litigation work and boasts a strong business and corporate practice, ranging from the purchase and sale of businesses and real estate to representing nonprofits and foundations in all facets of their operations; from drafting contracts for construction projects to that aforementioned advisory role for health care institutions.
Those efforts included handling financing for Baystate Medical Center’s $296 million expansion project. “That was a pretty challenging undertaking because we were putting it together right at the time the economy was collapsing,” he said. “So we were happy to be able to get that accomplished.”
The firm also represents many individual clients, including business owners and public figures; Bill and Camille Cosby are among the firm’s valued longtime clients, Dibble said.
Not every specialty thrives at any given time, he noted — for example, commercial real estate work has experienced an overall decline in the past few years. “Diversity is helpful to a firm, which is why we’ve made some significant additions, bringing in some additional resources in areas we weren’t as strong in.”

Keeping Secrets
Among those is corporate data security, one of Levchuk’s strong suits.
“Five years ago,” he said, “the big data-security issues involved large computer networks and hacking into banks of health care institutions, and by people seeking to obtain personal information which they could then use to steal identities, credit-card numbers, and so on.
“Now,” he continued, “that has evolved into data theft from a variety of other devices. We all walk around with handheld computers; that’s what smartphones are. Think about the data a smartphone contains. And from an employer’s perspective, think about the data that employees send and receive on smartphones, and you can see how security is now a major issue. Breaches can lead to serious civil liability — and occasionally criminal liability — so it’s important that companies have the right policies in place and get up to speed on these issues.”
For his part, Pucci said he’s built up a strong résumé of complex civil and complex criminal cases, but, having gotten to know Dibble and others at Bulkley Richardson, “I was desiring to make a change and get into a larger environment, a richer environment. I had a discussion that led to my decision to come here. There had not been a white-collar practice here for at least a decade, maybe never.
“This firm is an ideal place for us to settle into because it’s got a lot of rich history,” Pucci continued, as Levchuk nodded agreement. “It’s been here 80 years, which means it’s got a solidity to it and a sense of permanence. It’s got a lot of depth in its resources; just from among the lawyers who walk the hallways, you can get an answer to almost any question in any area, which is helpful.
“And on the service side,” he added, “we employ people who don’t exist in a smaller firm without our resources, and that allows you to lawyer instead of having to manage. Back in my old firm, as co-managing partner, I spent a lot of time managing issues and day-to-day problems, not practicing law. This is a great environment to practice law.”
That distinction is important, he said, for clients who, in many cases, are facing one of the more difficult situations in their life.
“It’s very important that we as lawyers keep in mind that our clients have a problem, and we should try to be problem-solvers,” Pucci said. “And the problem-solving process, working through the legal system, is a complex matter. Here, all our essential focus is on being a lawyer.”
But Dibble was quick to add that the firm’s attorneys are dedicated to helping people outside of work, too.
“We have a lot of people on the boards of dozens of organizations, people who volunteer their time, and we as a firm contribute financially to a lot of organizations,” he said. “That’s important to our culture. We want our people to recognize that we’re all part of a community — especially in a smaller city like this. That’s not to say that people in big cities don’t take part, but in a place like this, there aren’t so many people available to help out that you can skip it.”

Building a Case
With the Great Recession hopefully fading, Dibble said, Bulkley Richardson is hoping to build on a very strong 2011 — which followed a slightly-off 2010 — as it continues to diversify and grow.
“It’s a very competitive market out there; there are some very good firms in Western Mass. and some very good lawyers,” he said. “But the competition is not just local; there’s also a lot of competition from Boston and New York firms, national and international firms, who would like to do some of the work we do.”
And have been doing for more than 80 years.

Joseph Bednar can be reached at [email protected]

The Write Stuff

By
Michael Gove
Law Sections
Minimize and Manage Your Risk with Written Contracts

Michael Gove

Michael Gove

Written contracts. Too often, they are an overly formal, wordy, inconvenient intrusion into the tenuous relationship between a business and its customer, and they can be seen as making it more difficult for a business to function. But, much like how paying years of homeowners’ insurance makes sense if you have a house fire, using written contracts makes sense if you have a dispute.
A written contract is simply a documented agreement between two or more parties for the performance or lack of performance of some action. Written contracts will also usually include promises (covenants), representations, and warranties. Contracts can capture the details of all types of business transactions, from simple consumer purchases to billion-dollar corporate transactions. In transactions like real-estate or automotive purchases, parties can use written agreements to make, accept, or decline offers.
Written contracts can appear in many forms, from 100-page formal documents to the front and back of an invoice, or an acknowledgment of a proposal. When a contract is well-drafted, it will spell out the entire arrangement between the parties, keeping each party informed and tied to the terms of the agreement. For convenience, many businesses have standard contracts used with all their customers and clients. These are then tailored to specific jobs by filling in blank spaces or providing attachments. Some common elements of written contracts include the following:
• Scope of Work to be Performed. The most common aspect of a written contract is a description of the services or work that will be provided or performed. This will often include language regarding the duration of the contract, the materials or methods to be used, and the autonomy granted to those completing the work.
• Payment for the Work Performed. The other most common element of a written contract is a clause calling for some form of payment or benefit to the person or business providing the service. While often described in terms of money, payment can be made in many ways, including by providing services in return, undertaking other obligations, or making promises to take some future act. In fact, if an agreement does not have some benefit to both parties, it lacks ‘consideration’ and will be unenforceable.
• Warranties. These constitute a way for a party  to  guarantee its product or services and limit its liability. By drafting warranties so that they are specifically and narrowly tailored, or so that express exceptions to warranties are clearly and conspicuously stated, a business can effectively put its customers on notice as to their rights if the product or service is unsatisfactory.
• Remedies. Written contracts can be very helpful when the other party breaches its obligations.  Oftentimes there is language regarding remedies which the non-breaching party will be entitled to if there is a breach. While common and statutory law may contain remedies for specific situations, a written contract can spell out or include other remedies, including the forfeiture of deposits made, the applicability of legal proceedings, or alternative ways in which the breaching party can meet its obligations.
• Costs and Termination. By shifting the burden to customers, language regarding the ability of the business to charge interest on unpaid bills, or to include costs and fees related to the collection of past-due accounts, can help keep billing delinquencies in check. Written contracts will also contain provisions by which the parties can terminate the contract, though not always without penalty.
When developing a written contract, you should use clear language and define any terms which may be vague or subject to dispute. While it may lead to longer documents, you should also try to cover as many situations as are likely to arise.
Statutes and regulations specific to an industry may require additional terms or provisions in your written contract. For instance, contracts for home-improvement services must contain language regarding a homeowner’s right to cancel the contract within a certain period of time.  Because of this, you should always have an attorney draft or review any written contract you intend to use in your business. Additionally, when presented with a contract to sign, you should consider having an attorney review it to ensure it is legally binding, that the terms do not violate any statutes, and that the individuals signing for the other party are authorized to do so.
The thought of using or executing a written contract can be intimidating, but their ability to define the terms of an agreement allows a party to undertake their obligations with confidence that the other party will fulfill theirs.

Michael Gove is an associate with Cooley, Shrair P.C. focusing his practice on assisting clients in the areas of corporate/business, banking, and bankruptcy law; (413) 735-8037; [email protected]
Click here to find Cooley, Shrair P.C. on Facebook and LinkedIn