News (All)

New Treasury Efforts to Fight Money Laundering Through New York Real Estate

Posted: January 25th, 2016

Tags: , ,

To combat the scourge of money laundering from transnational criminal syndicates, the United States Treasury has issued new Geographic Targeting Orders (“GTOs”) to Manhattan and Miami Dade County requiring title insurance companies to reveal beneficial owners of entities purchasing real estate for cash.

GTOs are directives with limited duration issued by the Secretary of Treasury through the Financial Crimes Enforcement Network (“FINCEN”) and are authorized under the Bank Secrecy Act (31 USC 5326).  After passage of the Patriot Act, TROs, by definition, last for 180 days.

The January 13, 2016 announcement from FINCEN specifies that this GTO will begin March 1, 2016 and expire on August 27, 2016.  The stated goals further FINCEN’s risk-based approach to identifying cash real estate transactions used to launder illicit funds.  What concerns the Treasury is the elevated risk when real estate is purchased in an all cash deal.  FINCEN Director Jennifer Shasky Calvery said, “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering.  But cash purchases present a more complex gap that we seek to address.”[1] The purchaser might be a Russian crime syndicate that sets up a Singapore Trust, which in turn owns a Panamanian Shell Company.  Experts claim that using shell companies in this fashion makes it relatively easy to launder money.  After holding the real estate for a year or so, the original purchaser may sell it and realize clean profits.

By requiring title insurance companies to identify the true beneficial owner of these purchases, the Treasury hopes to identify whether the actual purchaser of expensive real estate for cash is an individual or entity believed to be involved in criminal activity.  Critics question whether domestic title insurance companies have the investigatory resources to truly identify the beneficial owners of these international shell companies.  However, the American Land Title Association has pledged its cooperation and assistance.

The GTOs will be directed at specific title insurance companies, and FINCEN stresses that the GTOs ndo ot emply any derogatory findings against these companies.  Instead, FINCEN sees title insurers as valuable players in the efforts to combat money laundering in expensive real estate transactions.

Companies with questions about compliance with these GTOs should contact us for assistance.  We have extensive experience with money laundering investigations, and with providing liaison assistance with applicable law enforcement organizations charged with preventing money laundering.

[1] https://www.fincen.gov/news_room/nr/pdf/20160113.pdf

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

I Need An Estate Plan – Part One

Posted: January 22nd, 2016

By: Martin Glass, Esq. email

Tags: ,

Well, it’s a new year and everyone has made their New Year resolutions.  Hopefully one of those resolutions is to do an estate plan.  Unfortunately, historically the percentage of resolutions that are actually carried out is fairly low.  This is a resolution that I hope everyone keeps.

Just so I’m clear, I’m talking about a full estate plan, not just a Last Will and Testament.  A basic estate plan typically consists of four documents.  One of those is the Will, but there are others commonly known as Advance Directives.  That is because they have power in advance of death, i.e., while you are still alive.  They are a Power of Attorney, a Health Care Proxy, and a Living Will.

I’d like to start with the Health Care Proxy in this month’s article and deal with the others in subsequent months.  However, please note that, I am not advocating that you should wait until I complete the series to see an estate planning attorney and do your plan.

The Health Care Proxy and Living Will are also sometimes referred to as Advance Health Care Directives.   They are legal documents in which you state who can make your medical decisions and your preferences with regard to your medical treatment in the event that you are unable to make your own decisions.

Make no mistake, so long as you are competent, you will continue to make your own medical decisions.  In New York, that even includes refusing any medical treatment, even if that decision may hasten your death.  The problems arise when you are not competent to make your own medical decisions.

That’s where the Health Care Proxy comes in.  You name someone who will ‘stand in your shoes’ and make those decisions for you.  This document will allow the agent to make typical, daily medical decisions, such as changes to your medications or to perform (or not perform) medical procedures.  The difficulty on the part of the agent is that he or she should be deciding based on what you would have wanted if you were making the decision, not what they would want.  Not always an easy thing for a spouse or child.

Because of this, it is imperative that you discuss your health care preferences with your agent.  I am not necessarily talking about end of life decisions but other things that may come up.  For instance, do you have any problems with having blood transfusions or are you against any type of radiation treatment?  Do you prefer to minimize or maximize any pain medications?  Are there any doctors or facilities that you do not want to go to or have treat you?  These preferences can also be written directly on the document so all the agents can know about them.

Although you can only name one agent at a time, there can be a pecking order for a number of agents.  To go from one to the next the standard is “unable, unwilling or unavailable.”  Generally speaking, that means if the doctor or hospital is not able to locate and contact the first one on the list, they will move to the next person.  That person doesn’t have to be incompetent or dead.  It often depends on how time critical the decision is as to how fast they move to the next person.

Also, typically on the Health Care Proxy document is a place for you to indicate that you want to be an organ or skin donor.  Not checking this off does not preclude your agent from making that decision but, again, it is an indication of your desires.

This document should be kept in a safe place but readily available to the agent if the need arises.  A safety deposit box at a bank is therefore not the best place for this.  You may even want the agent to have the original or at least a copy.  A doctor or hospital will usually accept a copy but may ask to see the original at some point in time, depending on the severity of the decisions that need to be made.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

The GAO Finds That the EPA Violated Propaganda and Lobbying Provisions Through Its Use of Social Media

Posted: January 22nd, 2016

Tags:

Social media’s ubiquitous presence in the lives of many Americans has transformed the way government communicates and interacts with the citizenry.  Nearly every politician, from the President of the United States to mayors of America’s smallest towns, has a Twitter account.  Governments increasingly rely on social media to engage the public, providing information on emergency response and disaster relief to government services and events.  A recent report from the U.S. Government Accountability Office (“GAO”), however, considers when the federal government’s use of social media constitutes impermissible public advocacy in support of an agency’s legislative agenda.  The report raises interesting questions regarding what constitutes government “propaganda” or lobbying efforts in the Internet age.

On December 14, 2015, in response to a request from Senator James M. Inhofe, Chairman of the Senate Committee on Environment and Public Works, the GAO issued a report finding that the Environmental Protection Agency (“EPA”) violated propaganda and anti-lobbying provisions of federal appropriations laws through its use of social media in association with the EPA’s efforts to define “Waters of the United States” under the Clean Water Act (“CWA”).

Federal appropriations bills passed by Congress and signed into law by the President fund the government, including the EPA, and contain any number of restrictions on how those funds may be spent.  Section 718 of the Financial Services and General Government Appropriations Act, for instance, prohibits any appropriation from being used directly or indirectly for “publicity or propaganda purposes” not authorized by Congress.  Section 715 of the Act prohibits indirect or “grassroots” lobbying in support of, or in opposition to, pending legislation.  Section 715 is violated where there is evidence of a clear appeal by an agency to the public to contact Congress.

In March 2014, the EPA released a proposed rule broadening the definition of waters protected under the CWA.  The rule, more popularly referred to as the “Waters of the U.S.” or “WOTUS” rule, expanded the definition to include, among other things, tributaries, adjacent waters, territorial seas, and interstate waters.  The EPA used social media platforms in connection with the WOTUS rulemaking to, by its own admission, clarify issues concerning the proposed rule, explain the benefits of the proposed rule, engage the public, and correct what it viewed as misinformation regarding the rule.  Although the GAO found that certain social media initiatives were lawful, it concluded that the EPA violated federal propaganda and lobbying provisions in two instances.

First, in September 2014, the EPA used Thunderclap, a new “crowd speaking” tool that allows a single message to be shared across multiple social media platforms.   The GAO focused on the fact that the EPA’s Thunderclap message did not identify the Agency as its author.  As the GAO noted, the “critical element of covert propaganda is the agency’s concealment from the target audience of its role in creating the material.”  While the EPA’s authorship was apparent to anyone who chose to follow the EPA’s Thunderclap campaign page, the technology’s force multiplier effect disseminates the message to the followers’ entire social media network.  To that network of contacts, it appeared that their Facebook friend, for instance, independently shared their support for the EPA’s initiative.  The EPA’s message is estimated to have reached upwards of 1.8 million people.

Second, the EPA’s blog associated with WOTUS linked to various third-party advocacy organizations.  The pages to which the EPA linked contained calls for action, encouraging and enabling visitors to contact members of Congress regarding WOTUS-related legislation.  According to the GAO, this violated Section 715’s prohibition against grass-roots lobbying.

The EPA ultimately finalized and published the regulation on June 29, 2015, but cannot currently enforce the rule after the U.S. Court of Appeals for the Sixth Circuit issued a temporary stay.  Dozens of states and business lobbies have brought suit, arguing that the rule represents federal overreach.  The EPA, the Army Corps of Engineers, and the White House maintain that the rule is necessary to protect vulnerable waterways and drinking water.  President Obama has promised to veto any legislation overturning the definition.

The GAO report will likely not impact the pending litigation, nor will it prevent the WOTUS rule from taking effect.  The GAO report, however, does highlight how technology impacts the way in which the Executive and Legislative branches of our government interact with one another and the public, and where one draws the line between advocacy and propaganda in the Internet age.

Fifty years ago, federal agencies could not communicate their position on legislation to the American people with a few clicks of a computer mouse.  Why did the EPA’s actions here cross the line?   It is common practice for a President to spend weeks “stumping” across the country for the policies objectives and legislative proposals contained in his State of the Union address.  Even treating the Presidential bully-pulpit as sui generis and exempted from the grass-roots lobbying restrictions, organizations cannot necessarily control social media campaigns, which, once released, cannot be controlled in the same way as traditional messaging or advocacy.  The answer may turn on the agency’s intent: for instance, whether the agency purposefully used Thunderclap to disguise the source of the message.  We should not be surprised if future appropriations bills may more specifically define how agencies can and cannot use social media.

As was previously reported in the New York Times, the GAO’s finding is rare but not completely without precedent.  During the George W. Bush administration, for instance, the GAO concluded that the Department of Education had violated the law in 2005 when it hired a public relations firm to covertly promote the No Child Left Behind Act.  Federal agencies will need to pay closer attention to how they use social media in connection with pending legislation.  To the extent that state and local governments have similar restrictions, those agencies and instrumentalities must also take warning.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

Things Every Architect Should Know About Copyrights

Posted: January 22nd, 2016

Tags:

Some people say that imitation is the greatest form of flattery.  However, with an architectural work, imitation could result in copyright infringement.  This article briefly outlines some things architects should be aware of in order to protect and enforce their copyright, and avoid copyright disputes.

It is well established that both architectural drawings and completed architectural works are entitled to protection under the Copyright Act.  According to the Copyright Act, the definition of an “architectural work” is “the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings.  The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features.”  17 U.S.C. §101.

Only the copyright owner has exclusive rights to reproduce and prepare derivative works based upon the copyrighted work.  As such, it is important to make sure that the copyright is preserved in order to avoid disputes and the copyright is appropriately enforced.

  • First and foremost, be clear on who the “owner” of the Copyright is. Generally, if an architect is employed by an architectural firm, all works produced by the architect will be considered a “work for hire” and the copyright ownership belongs to the architectural firm, unless the architect is an independent contractor – in which case, the copyright ownership remains with the architect.  For avoidance of doubt, a written employment or independent contractor agreement should be executed between the architect and their firms.
  • Make sure a copyright notice is placed on plans and drawings. Although the “©” copyright notice is not necessary for copyright protection and to assert a copyright infringement lawsuit, having a copyright notice puts others on notice of your copyright and may deter others from making any unauthorized copy.  It is also important for architects to assume that all architectural works are protected regardless of whether or not there is a copyright notice.
  • Register copyrights with the Copyright Office to obtain all the benefits afforded by the Copyright Act. Although an architect does not need register a work to obtain copyright protection, registration provides benefits, such as statutory damages and evidence of validity.  Owners of registered copyrights may be able to receive statutory damages up to $150,000 per infringement, attorneys’ fees and court courts from the infringer, and it does not require the copyright owner to prove actual damages suffered.  Registering with the Copyright Office is a simple and inexpensive procedure that should be a part of an architect’s business practice.  Registration also constitutes prima facie evidence of the validity of the copyright ownership and of the facts stated in the certificate, which aids in enforcement.
  • Constructing a substantially similar building without permission may infringe upon another person’s copyright. The test for copyright infringement varies with each court, but generally, the “ordinary observer test” is used – whether a regular lay observer would conclude that the alleged copy was actually copied from the copyrighted work.  Under this standard, the copyright owner does not need to show an intent to copy or even actual copying, only that there was access and the buildings are substantially similar.

Copyright infringement of architectural woks is an interesting area of law with many difficult issues and gray areas.  In order to better protect, enforce and avoid certain disputes that may arise with copyright of architectural works, architects should be proactive in their practice and take steps to secure their valuable assets.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

Attempt to Have Attorney Disqualified Denied by the Court in Corporate Valuation Case

Posted: January 22nd, 2016

What happens when an attorney represents a corporate entity in the formation of that entity and then represents one of the shareholders in a corporate dissolution proceeding?  Should the attorney be disqualified because of the knowledge he/she obtained while forming the corporation?  Will that attorney be considered a necessary witness?  The Commercial Division in Suffolk County recently ruled on these issues deciding that, at least in this instance, the attorney should not be disqualified and would not be a witness.

In Altungeyik v. Ayknat, et al. (J. Pines), Plaintiff shareholder commenced a shareholder’s derivative action/dissolution proceeding against the other shareholder of the corporation and the corporation.  The matter proceeded to trial for the sole purpose of determining the value of the corporation – Euro Planet, Inc. (“Euro Planet”).  Once the matter had been set for trial, Plaintiff obtained new counsel who then sought to have Defendant’s counsel, Walter Drobenko, Esq., (“Drobenko”) disqualified on a number of grounds, specifically: (a) Drobenko previously represented the Plaintiff in the preparation of the shareholder’s agreement for Euro Planet; (b) Drobenko previously represented the Plaintiff in the preparation of a pre-nuptial agreement and an immigration application; and (c) Plaintiff and Drobenko negotiated to be partners in a new restaurant venture together.  Plaintiff claimed that Drobenko obtained personal and private information about Plaintiff while representing him and that the Drobenko would be a necessary witness in determining the value of Euro Planet because he drafted the shareholder’s agreement and determined the value of the shares.

In opposition to the disqualification motion, Drobenko stated that he only represented Euro Planet, not the Plaintiff or Defendant when the corporation was formed.  Additionally, although he acknowledged assisting the Plaintiff with a pre-nuptial agreement and immigration application, he argued that neither of those matters are substantially similar to the determining the valuation of Euro Planet. He also stated that he never discussed partnering with the Plaintiff in the purchase of a restaurant.  Drobenko further argued that he had no personal knowledge of the value of Euro Planet and would not be a necessary witness.  Lastly, Drobenko argued that Plaintiff’s disqualification motion was untimely because it was made after the commencement of trial.

In its decision, the Court noted that the party seeking to disqualify an attorney carries a heavy burden because every party has the right to be represented “by counsel of its own choosing” which is “a valued right which should not be abridged absent a clear showing that disqualification is warranted.”  Mediaceja v. Davidov, 119 A.D.3d 911 (2d Dep’t 2014).  To obtain disqualification of an adversary’s attorney, the moving party must prove: “(1) the existence of a prior attorney-client relationship between the moving party and opposing counsel, (2) that the matters involved in both representations are substantially related, and (3) that the interests of the present client and former client are materially adverse.”  Tekni-Plex, Inc. v. Meyer & Landis, 89 N.Y.2d 123, 131 (1996).  Rule 1.18(c) of the Rules of Professional Conduct also prohibits a lawyer from representing “a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in that matter.”

Ultimately, the Court here decided that Drobenko should not be disqualified from representing the Defendant.  With respect to his prior representation of Euro Planet in the formation of the corporation, the Court noted that the Second Department has rejected Plaintiff’s exact argument and that Drobenko should not be disqualified in a valuation proceeding simply because of his prior representation.  The Court also noted that Plaintiff failed to show that Drobenko’s prior representation of the corporation concerned any confidential information regarding the value of the corporation.

The Court also held that Drobenko’s prior representation of Plaintiff with a pre-nuptial agreement and immigration application, as well as discussions about partnering in the purchase of a restaurant (if it was true), had no relation to the corporate valuation of Euro Planet. The Court also took issue with Plaintiff waiting as long as he did to make the disqualification motion which delayed the trial of what was intended to be an expedited matter.  Lastly, the Court found that Drobenko’s testimony would not be necessary as a witness because there was no evidence that he had any first-hand knowledge of the value of Euro Planet.

It is important to note that a Court’s analysis of whether to disqualify a particular adversary’s attorney will be a very fact-specific inquiry.  However, it appears, based on this decision at least, that the Courts are not going to disqualify an attorney unless the moving party can truly show that the matter is substantially related to prior representation and that the attorney learned information that could be harmful to the prior client.  Here, the Court agreed with Drobenko that he only represented the corporation, not the individual shareholders, when he assisted with the formation of the company and he is neither a witness nor should he be disqualified based upon such representation.

Successor Liability in Asset Purchases under New York Law

Posted: January 22nd, 2016

Tags:

When buying or selling a business, potential successor liability of the buyer is a primary concern.  Successor Liability means liability that the Buyer of a business’s assets may have for the acts or liabilities of the Seller of those assets.

General Rule in New York:  The Buyer of a business’s assets does not assume and is not liable for the Seller’s liabilities unless otherwise expressly stated in the purchase and sale agreement.[1]

This is a primary reason that sales and acquisitions of businesses are often structured as asset sales.[2] However, New York law contains four exceptions to that general rule.

 The Four Exceptions that Create Successor Liability under New York Law are[3]:

1.       The Buyer expressly or impliedly assumes the Seller’s liabilities,

2.       The Buyer is a mere continuation of the Seller (there was a de facto merger),

3.       The Buyer continues essentially the same operations or product line of the Seller, or

4.       The sale was an attempt to fraudulently evade creditors or escape obligations.

Successor liability can also occur pursuant to certain federal statutes:

  • Employee Retirement Income and Security Act (ERISA),
  • Family and Medical Leave Act (FMLA), and
  • Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA).

Exception #1.  Buyer’s Express or Implied assumption of Seller’s Liabilities:

This exception requires that either the asset purchase agreement explicitly states that the Buyer will assume some or all of the Seller’s liabilities, or that the Buyer engage in some conduct that implies that it intended to pay the Seller’s debts or otherwise assume its liabilities.[4]  Express language in the asset purchase agreement stating that Buyer will not be responsible for Seller’s liabilities, and requiring that Seller indemnify Buyer for pre-closing liabilities, can indicate that there was no express or implied assumption of Seller’s liabilities.[5]

Exceptions #2 & #3.  De Facto Merger and Mere Continuation Exceptions:

Under New York Law, successor liability is most commonly litigated under the “de facto merger” exception.  In general, “the de facto merger doctrine creates successor liability when the transaction between the purchasing and selling companies is in substance, if not in form, a merger.” [6]

 A court is more likely to find successor liability under de facto merger doctrine when:[7]

1.       the owners of the Seller continue to be the owners of the Buyer (this is a necessary element of de facto merger),[8]

2.       the Seller discontinued its operations or dissolved soon after the asset sale occurred,

3.       the Buyer assumed the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and

4.       there is substantial continuity of the Seller’s management personnel, physical location, assets and general business operation.

 

Exception #4.  Fraudulent Attempt to Evade Creditors:

Courts look to “badges of fraud” to determine whether a transfer was a fraudulent attempt to evade creditors.  These badges of fraud can include any of the following:[9]

  1. a close relationship among the parties to the transaction;
  1. a secret and hasty transfer not in the usual course of business;
  1. inadequacy of consideration;
  1. the transferor’s knowledge of the creditor’s claim and the transferor’s inability to pay it;
  1. the use of dummies or fictitious parties; and
  1. retention of control of the property by the transferor after the conveyance.

The most important factor in this analysis is whether the Seller retained control of the assets from which the creditors seek to recover.

As the factors above indicate, the contractual allocation of risk, control and consideration can be the difference in determining whether the Buyer is held responsible for the liabilities of the Seller.  At the early stages of a transaction, the parties should consider whether they intend for the Buyer to assume any liabilities of Seller, whether there will be substantial continuity of the Seller’s business and whether the proposed transaction may creditor or other third party with a claim for which there is no adequate remedy.  Due consideration of these factors is essential for the intended allocation of risk in the asset purchase agreement.

[1] Cargo Parker AG v. Albatrans, Inc., 352 F.3d 41 (2d Cir. 2003); Aguas Lenders Recovery Group v. Suez, 585 F.3d (2d Cir. 2009); In re New York City Asbestos Litig., 15 A.D.3d (1st Dep’t 2005)

[2] There are also significant tax differences to an asset sale which also factor heavily purchasing a business using an asset sale as opposed to a stock sale.

[3] Aguas Lenders Recovery Group v. Suez, 585 F.3d 686, 702 (2d Cir. 2009), citing Cargo Parker AG v. Albatrans, Inc., 352 F.3d 41, 45 (2d Cir. 2003)

[4] Danstan Props. v. Merex, 2011 WL 135843 at 3 (S.D.N.Y. 2011).

[5] Id.

[6] New York v. Nat’l. Serv. Indus., Inc., 460 F.3d 201, 205 (2d Cir. 2006).

[7] Martin Hilti Family Trust v. Knoedler Gallery, LLC, 2015 WL 5773895, 17 (S.D.N.Y. 2015).

[8] Barrack, Rodos & Bacine v. Ballon Stoll Bader & Nadler, P.C., 2008 U.S. Dist. LEXIS 22026, 17 (S.D.N.Y. 2008).

[9] ”Kaur v. Royal Arcadia Palace, Inc., 643 F.Supp.2d 276, 290 (E.D.N.Y.2007) (summary judgment) (citing Shelly v. Doe, 671 N.Y.S.2d 803, 806 (3d Dep’t 1998)).

 

 

 

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

January 28 – LOCATION CHANGE: CMM Exec Breakfast: What Customers Want: It’s Not What You Think!

Posted: December 18th, 2015

exec breakfast series 2016

January 28, 2016

PLEASE NOTE LOCATION CHANGE!

What Customers Want: It’s Not What You Think!
 Presented by Randi Busse

What do customers want? Here’s a hint: It’s not (just) price, quality, timing, taste or color – or any of those attributes of your product or service. It’s the experience you deliver. Guest speaker, Randi Busse, Founder and President of Workforce Development Group, Inc., a coaching and training organization that specializes in improving the customer experience, increasing customer retention, and maximizing revenue, will discuss how to:

  • Identify what your customers want and expect
  • Build a relationship
  • Walk in your customers’ shoes
  • Personalize your customer’s experience
  • Deliver the Wow! Factor

EVENT DETAILS:

8:30am – 9:00am
Arrival and Breakfast

9:00am – 9:45am
Presenting Speaker

9:45am – 10:00am
Q&A and Discussion

REGISTRATION: All events are FREE but registration is required. Complimentary breakfast will be served.

LOCATIONCourtyard Marriott in Ronkonkoma, located at 5000 Express Dr S, Ronkonkoma, NY 11779.