The Elements for the Claim of Alter Ego (Piercing the Corporate Veil)

In Nevada, the elements for a claim of alter ego or piercing the corporate veil are:

  1. Corporation must be influenced and governed by the person asserted to be its alter ego;
  2. There must be a unity of interest and ownership such that the corporation and person are inseparable from another;
  3. Facts are such that adherence to the corporate fiction of a separate entity under the circumstances would sanction a fraud or promote injustice;
  4. There is no litmus test for determining when the corporate fiction should be disregarded (there are as many as 14 factors that courts may consider, including undercapitalization, comingling of funds, failure to observe corporate formalities, loans to or from the corporation without sufficient consideration, and generally treating the assets of the corporation as the assets of the person); and
  5. A showing that recognizing separate corporate existence, would bring about an inequitable result is sufficient for the claim to lie.

Brown v. Kinross Gold U.S.A., Inc., 531 F. Supp. 2d 1234 (D. Nev. 2008); In re Nat’l Audit Defense Network, 367 B.R. 207 (Bankr. D. Nev. 2007); LFC Mktg. Grp. v. Loomis, 116 Nev. 896, 8 P.3d 841 (2000); Polaris Indus. Corp. v. Kaplan, 103 Nev. 598, 601-02, 747 P.2d 884, 887 (1987); Ecklund v. Nevada Wholesale Lumber Co., 93 Nev. 196, 197, 562 P.2d 479, 479-80 (1977) (quoting McCleary Cattle Co. v. Sewell, 73 Nev. 279, 282, 317 P.2d 957, 959 (1957)); accord Lorenz v. Beltio, Ltd., 114 Nev. 795, 807, 963 P.2d 488, 496 (1998). “Each of these requirements must be present before the alter ego doctrine can be applied.” N. Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 520-21, 471 P.2d 240, 243 (1970) (emphasis added). The party asserting the alter ego theory and attempting to pierce the corporate veil bears the burden of proving each of these elements by a preponderance of the evidence. LFC Mktg. Grp. v. Loomis, 8 P.3d 841, 846 (Nev. 2000).

The Nevada Supreme Court has held that, though generally “[t]he corporate cloak is not lightly thrown aside,” nevertheless there are some situations in which blind “adherence to the fiction of a separate entity [of the corporation] [would] sanction a fraud or promote injustice.” Baer v. Amos J. Walker, Inc., 85 Nev. 219, 220, 452 P.2d 916, 916 (1969). The court has therefore carved out an exception to the general rule of faithfully respecting the corporate form and corporate independence, i.e., the so-called “alter ego” exception, by which the corporate veil can be pierced.  Id.  The Supreme Court of Nevada, in the matter of McCleary Cattle Co. v. Sewell, adopted a three prong test for ignoring the separate existence of a corporation in determining “alter ego liability.” McCleary, 73 Nev. 279 at 282, 317 P.2d 957 (1957). This test has since been codified in by Nevada Statute, NRS 78.747:

  1. Except as otherwise provided by specific statute, no stockholder, director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the stockholder, director or officer acts as the alter ego of the corporation.
  2. A stockholder, director or officer acts as the alter ego of a corporation if:

(a)       The corporation is influenced and governed by the stockholder, director or officer;

(b)       There is such unity of interest and ownership that the corporation and the stockholder, director or officer are inseparable from each other; and

(c)       Adherence to the corporate fiction of a separate entity would sanction fraud or promote a manifest injustice.

NRS 78.747(l)-(2). The elements of an alter ego claim must be proven by a preponderance of the evidence.  Truck Ins. Exch. v. Palmer J. Swanson. Inc., 124 629, 635, 189 P.3d 656, 660 (2008).

In determining whether there is such unity of interest and ownership that the corporation and the stockholder, director or officer are inseparable from each other, courts will consider whether there was:

  1. Majority ownership and pervasive control of the affairs of the corporation. McCleary Cattle Co. v. C.A. Sewell, 73 Nev. 279, 281, 317 P.2d 957, 959 (1957) overruled on other grounds by Callie v. Bowling, 123 Nev. 181, 160 P.3d 878 (2007)(holding that an order adding president as a party to domesticated foreign judgment violated president’s due process rights)); Carson Meadows Inc. v. Pease, 91 Nev. 187, 191,533 P.2d 458, 460-61 (1975); Ecklund v. Nevada Wholesale Lumber Co., 93 Nev. 196, 197-99, 562 P.2d 479, 479-81 (1977); Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  2. Thin capitalization. Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  3. Nonobservance of corporate formalities or absence of corporate records. Ecklund v. Nevada Wholesale Lumber Co., 93 Nev. 196, 197-99, 562 P.2d 479, 479-81 (1977); Roland v. Lepire, 99 Nev. 308, 316-18, 662 P.2d 1332, 1337-38 (1983) (no alter ego because of lack of fraud/injustice); Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  4. No payment of dividends. Roland v. Lepire, 99 Nev. 308, 316-18, 662 P.2d 1332, 1337-38 (1983) (no alter ego because of lack of fraud/injustice).
  5. Nonfunctioning of officers and directors. SEC v. Elmas Trading Corp., 620 F. Supp 231, 233-34 (D. Nev. 1985); DeWitt Truck Brokers. Inc. v. W. Ray Flemming Fruit Co., 540 F. 2d 681, 686-87 (4th Cir. 1976); Nat’l. Elevator Indus. Pension Health Benefit and Educ. Funds v. Lutvk, 332 F.3d 188, 194 (3rd Cir. 2003); Hildreth v. Tidewater Equip. Co., Inc., 378 Md. 724, 735-736, 838 A.2d 1204, 1210 (Md. 2003); Yankee Microwave, Inc. v. Petricca Commc’n Sys., Inc., 53 Mass. App. Ct. 497, 521, 760 N.E.2d 739, 758 (Mass. App. Ct. 2002); Pepsi-Cola Metro Bottling Co. v. Checkers. Inc., 754 F.2d 10, 14-16 (1st Cir.1985); 1 W. FLETCHER, CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 41.30 at 430 (rev. vol. 1983) (cited by Wilcor Constr. and Dev. Corp. v. Hemphill, 872 F.2d 432 (9th Cir. 1989)).
  6. Insolvency of the corporation at the time of the litigated transaction; Roland v. Lepire, 99 Nev. 308, 316-18, 662 P.2d 1332, 1337-38 (1983) (no alter ego because of lack of fraud/injustice).
  7. Siphoning of corporate funds or intermingling of corporate and personal funds by the dominant shareholder(s). Carson Meadows, Inc. v. Pease, 91 Nev. 187, 191,533 P.2d 458, 460-61 (1975) Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  8. Use of the corporation in promoting fraud. Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  9. The authorized diversion of an entity’s funds;
  10. Ownership of the entity by one person or one family. Roland v. Lepire, 99 Nev. 308, 316-18, 662 P.2d 1332, 1337-38 (1983)(no alter ego because of lack of fraud/injustice); Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  11. The use of the same address for the individual and entity. Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).
  12. Employment of the same attorneys and employees.
  13. Formation or use of the entity to transfer to it the existing liability of another person or entity.
  14. The failure to maintain arm’s length relationship between related entities. McCleary Cattle Co. v. C.A. Sewell, 73 Nev. 279, 317 P.2d 957 (1957) (overruled on other grounds by Callie v. Bowling, 123 Nev. 181, 160 P.3d 878 (2007)(holding that an order adding president as a party to domesticated foreign judgment violated president’s due process rights)); Arlington Med. Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 522-23, 471 P.2d 240, 244-45, n.3 (1970).

It is not necessary that the plaintiff prove actual fraud in order to recover against a corporate alter ego. It is enough if the recognition of the two entities as separate would result [in an injustice. In determining whether adherence to the corporate fiction of a separate corporate entity would sanction a fraud or promote an injustice, courts consider whether: (1) the facts are such that adherence to the fiction of a separate corporate entity would sanction a fraud or promote an injustice; (2) the family of controlling officers benefits from the controlling officer’s/entity’s actions; (3) the plaintiff will be able to recover damages against the corporate defendant or whether the corporate defendant is insolvent; because the entity cannot pay, will support the finding of injustice; and (4) the corporate entity was undercapitalized. Finally, alter ego recovery has been granted specifically because the corporation obtained a loan, did not use the loan for its specified purpose, and was unable to repay the loan.  See In re Erdman, 236 B.R. 904 (Bankr. N.D. 1999).

Elements for the Civil Claim of Aiding and Abetting a Tort

In Nevada, the elements for a claim of civil aiding and abetting the commission of a tort are:

  1. A primary tortfeasor committed a tort against a plaintiff;
  2. The defendant knew that the primary tortfeasor’s conduct was a breach of duty
  3. Defendant intentionally and substantially assists or encourages another’s conduct in breaching a duty to a third person;
  4. The duty to a third person is actually breached; and
  5. Causation and damages.

See 74 Am. Jur. 2d Torts § 61(2013); K. Las Vegas, Ltd. P’ship v. Simon Prop. Grp., Inc., 460 F. Supp. 2d 1246 (D. Nev. 2006); Dow Chem. Co. v. Mahlum, 114 Nev. 1468, 970 P.2d 98, 113 (1998) (citing in re Temporomandibular Joint (TMJ) Implants Prods. Liab. Litig., 113 F.3d 1484, 1495 (8th Cir. 1997)) overruled in part on other grounds by GES, Inc. v. Corbitt, 117 Nev. 265, 21 P.3d 11 (2001); Halberstam v. Welch, 705 F.2d 472, 477 (D.C. Cir. 1983).

 

See elements for other claims at the Nevada Law Library

Elements for the Claim of Accord & Satisfaction

In Nevada, the elements for an accord and satisfaction are:

  1. A person against whom a claim is asserted and who has a bona fide dispute over an unliquidated amount;
  2. Proves a good faith tender of an instrument to the claimant in full settlement of the entire disputed amount;
  3. An understanding by the creditor of the transaction as such, and acceptance of the payment. (There must be a meeting of the minds with regard to a resolution of the claim); and
  4. The claim is discharged.

NRS 104.3311; Pierce Lathing Co. v. ISEC, Inc., 114 Nev. 291, 956 P.2d 93 (1998); Walden v. Backus, 81 Nev. 634 (1965) (“Accord” is an agreement whereby one of the parties undertakes to give or perform, and the others to accept, in satisfaction of a claim, liquidated or in dispute, and arising either from contract or from tort, something other than or different from what s/he is, or considers himself/herself, entitled to); Mountain Shadows v. Kopsho, 92 Nev. 599 (1976).

 

See elements for other claims at the Nevada Law Library

Elements of the Remedy of an Accounting

In Nevada, the elements required to allow a remedy of an accounting are:

  1. A fiduciary relationship exists between plaintiff and defendant;
  2. The relationship between plaintiff and defendant is founded in trust and confidence; and
  3. Defendant has a duty to render an accounting to plaintiff to determine damages resulting from any misallocation of funds.

NRS 78; G. K. Las Vegas, Ltd. P’ship v. Simon Prop. Grp., Inc., 460 F. Supp. 2d 1246 (D. Nev. 2006); Foley v. Mowbray, 109 Nev. 116 (1993); In re Maxim Integrated Prod., Inc., Deriv. Lit., 574 F. Supp. 2d 1046 (N.D. Cal. 2008)(citing Carlson v. Hallinan, 925 A.2d 506, 538 n. 211-12 (Del. Ch. 2006)). 1 Am. Jur. 2d Accounts & Accounting § 55.

 

See elements for other claims at the Nevada Law Library

Claim for Abuse of Process

In Nevada, the elements for a claim of abuse of process are:

  1. Filing of a lawsuit made with ulterior purpose other than to resolving a dispute;
  2. Willful act in use the use of legal process (subsequent to the filing of the suit) not proper in the regular conduct of the proceeding; and
  3. Damages as a direct result of abuse.

LaMantia v. Redisi, 118 Nev. 27, 30, 38 P.3d 877, 897 (2002); Dutt v. Kremp, 111 Nev. 567, 894 P.2d 354, 360 (Nev. 1995) overruled on other grounds by LaMantia v. Redisi, 118 Nev. 27, 30, 38 P.3d 877, 897 (2002)); Laxalt v. McClatchy, 622 F.Supp. 737, 751 (1985) (citing Bull v. McCuskey, 96 Nev. 706, 709, 615 P.2d 957, 960 (1980); Nevada Credit Rating Bureau, Inc. v. Williams, 88 Nev. 601 (1972); 1 Am. Jur. 2d Abuse of Process.

 

See elements for other claims at the Nevada Law Library

When Should a Business Owner Consider Disability Insurance?

What is Disability Insurance?

Disability insurance attempts to insure you against any injury, sickness or illness which would prevent you from earning an income. It is designed to replace up to 66% of your gross income on a tax-free basis should you become disabled. It covers both long term and short term disabilities. Don’t think you need disability insurance?

Consider these sobering statistics:

  • Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire. Source: Social Security Administration, Fact Sheet March 18, 2011;
  • Over 36 million Americans are classified as disabled; about 12% of the total population. More than 50% of disabled Americans are in their working years, from 18-64. Source: U.S. Census Bureau;
  • 8.3 million Disabled wage earners, over 5% of U.S. workers, were receiving Social Security Disability (SSDI) benefits at the conclusion of March 2011. Source: Social Security Administration, Disabled Worker Beneficiary Statistics, www.ssa.gov; and
  • In December 2010, there were over 2.5 million disabled workers in their 20s, 30s, and 40s receiving SSDI benefits. Source: Social Security Administration, Disabled Worker Beneficiary Statistics,www.ssa.gov . Please consider whether you need disability insurance on yourself or a loved one today.

Smart business owners will partially fund their buy/sell agreements through disability insurance and will carry disability insurance on key employees to benefit the business. Even if you have a policy through your employer, you should consider an additional policy so that your family does not have to worry about income if you become disabled for even a short period of time.

 

Checklist:  When You Are Considering Buying a Business

So, you are thinking of buying a business?  What types of documentation or information should you be seeking from the seller before you agree on a price, sign documents, or pay any money?  This list will get you started:

  1. Seller entity information
    2.         Documents necessary to discover the seller’s full financial Information
    3.         Physical Assets of the seller
    4.         Real Estate (owned and leased)
    5.         Intellectual Property owned by the seller or to which the seller has rights
    6.         Employee contracts and employee benefits owed
    7.         Licenses and permits held by the seller
    8.         Environmental due diligence
    9.         Taxes (including verification) owed
    10.       Material contracts with the seller’s customers and suppliers
    11.       Customer information
    12.       Currently pending or threatened litigation
    13.       Insurance coverage

Buy/Sell Agreements – A Business Valuation Perspective

Buy/Sell Agreements – A Business Valuation Perspective
Buy/Sell Agreements – A Business Valuation Perspective

By: Guest Blogger Donald R. Parker, CFA, AVA |  Gryphon Valuation Consultants, Inc.

Buy/Sell Agreements provide a blueprint for the transfer of business interests, allowing business owners to control and protect their investment and the integrity of the ownership structure.  

These agreements address certain “triggering events” such as the death, divorce or departure of business owners and should be a part of every business planning process.  A well-constructed Buy/Sell Agreement serves five crucial functions:

  • Creates a ready-made market for a company’s shares or membership interests upon the occurrence of well-defined triggering events or under very specific transfer scenarios;
  • Defines a price (value) at which the shares or membership interests will be transferred and the construct of the transaction;
  • Ensures that any transaction is funded in a predefined manner;
  • Imposes transfer restrictions that protect the integrity of the ownership structure; and
  • Allows for succession and estate planning needs while mitigating possible conflicts.

Continue reading Buy/Sell Agreements – A Business Valuation Perspective

California Passes Online “Eraser Law” for Minors. Will the Nation Follow?

A new law in California, effective January 1, 2015, requires online websites and mobile app companies to permit a minor to remove content posted by a minor.  The new law, Bus & P C §§22580–22582, allows minors who are registered users of the website or app to either remove the content themselves or to request the removal by the app or website operator. Continue reading California Passes Online “Eraser Law” for Minors. Will the Nation Follow?

Warning about WARN:  Did You Know that Certain Employers Cannot Legally Lay Off Their Employees?

Certain employers cannot lay off employees without giving advance notice or paying them for a period of time.

In 1989, the government enacted WARN – the Worker Adjustment and Retraining Notification Act.  WARN protects workers by requiring employers to provide sixty days advance notice of certain mass layoffs. In general, employers are subject to WARN if they have a 100 or more employees, not counting employees who have worked less than six months in the last twelve months, and not counting employees who work an average of less than twenty hours a week.

An employer subject to WARN must give sixty days’ advance notice if an employee site will be shut down and the shutdown will result in employment loss for fifty or more employees during any thirty-day period.  This is commonly known as a “plant closing”, although it does not merely apply to manufacturing sites.

Alternatively, an employer subject to WARN must give notice if there is to be a “mass layoff” which will result in an employment loss at the employment site during any thirty-day period for 500 or more employees or a lay off 50 to 499 employees if the number to be laid off makes up at least 33% of the employer’s active workforce.

In either case, employees who have worked less than six months in the last twelve months or employees who work less than twenty hours a week do not count in determining whether an employer is subject to WARN.

WARN also applies in the case of a sale of a business.  However, there is an additional twist.  Not only is the seller responsible for providing notice of the “plant closing” or “mass layoff”, but if the buyer of the business would anticipate a “plant closing” or “mass layoff”, such buyer must also give the sixty-day notice.  As an alternative to giving sixty days notice, if a company is subject to WARN, the employer can pay the laid-off employees for those sixty days.

 

By Guest Blogger Mary Drury, Esq.

 

Why Should I Consider Umbrella Insurance?

What is an Umbrella Insurance Policy?

“Umbrella” or “excess coverage” insurance is an extension of your home and auto insurance policies. Most often, an insurer will only provide umbrella coverage if both your home and autos are insured with that company. The policy kicks in after all of your homeowner or auto policy coverage has been exhausted. In other words, it protects you against those truly extraordinary losses for which you are at fault and for which your home or auto coverage are simply not enough. Continue reading Why Should I Consider Umbrella Insurance?

Protecting Confidentiality in the Sale of Your Business

An asset purchase agreement crossed my desk recently with a provision that allowed the buyer to post a notice on the door that there was a pending transfer of the business.   Also included in buyer’s proposed purchase agreement was a provision obligating seller to maintain all customers, vendors, and employees against that threat that the buyer could terminate the contract.

Upon review, it appeared that the buyer was setting the seller up to force the seller out of business so that buyer did not actually have to pay any money to eliminate its competitor. It is critically important that confidentiality be maintained during the pendency of the transaction.  There are many ways to do this: Continue reading Protecting Confidentiality in the Sale of Your Business

A Little Legal Humor:  Cross Examination

A defense attorney was cross-examining a police officer during a felony trial. It went like this . . .

Q:   Officer, did you see my client fleeing the scene?

A:   No sir, but I subsequently observed a person matching the description of the offender running several blocks away.

Q:   Officer, who provided this description?

A:   The officer who responded to the scene.

Q:   A fellow officer provided the description of this so-called offender . . . Do you trust your fellow officers?

A:   Yes sir, with my life.

Q:   With your life? Let me ask you this then officer, do you have a room where you change your clothes in preparation for your daily duties?

A:   Yes sir, we do.

Q:   And do you have a locker in that room?

A:   Yes sir, I do.

Q:   And do you have a lock on your locker?

A:   Yes sir.

Q:   Now why is it officer, if you trust your fellow officers with your life, that you find it necessary to lock your locker in a room you share with those same officers?

A:   You see sir, we share the building with the entire court complex, and sometimes lawyers have been known to walk through that room.

With that, the courtroom erupted in laughter, and a prompt recess was called. The officer on the stand has been nominated for this year’s best comeback line and we think he’ll win.

The Danger of the Agreement to Agree Contract

Many of you have read our popular Seven Deadly Business Sins outline. One of those sins is the incomplete contract (which admittedly happens unintentionally through vague or forgotten terms).   Perhaps even worse than the incomplete contract is the agreement-to-agree contract.

What is an Agreement to Agree Contract?

An agree-to-agree contract is one where the parties agree to determine a business or legal term later.  From a legal standpoint, certain contracts must be in writing (and are not binding if they are not documented in writing).  Examples include agreements concerning real estate, agreements to answer for the debts of another, etc.   This concept under English common law was known as the Statute of Frauds.  In Nevada, it can be found in NRS Chapter 111.

Also from a legal standpoint, certain key terms must be pre-agreed, most notably, price, to be enforced.  Most often a court will enforce a contract that has a mechanism for determining price, such as an appraisal, but absent such a process, the contract will most likely not be deemed enforceable.

From a practical perspective, a key point in drafting all of the terms of an agreement is to be clear about each party’s obligations so that the deal goes smoothly.  If points are left to be discussed and determined later, even well-meaning parties can honorably disagree.

The fate of disagreements under the agree-to-agree contract is typically litigation, unless the contract addresses what happens when negotiations go awry.   An example might be authority granted to a specific person to determine a specific term.    My opinion is that the challenge of determining that person and process is greater than just agreeing now on the particular agree-to-agree term.

By Guest Blogger Mary J. Drury, Esq.

Nevada Law Controls Mortgage And Escrow Professionals

Diagnosis: Predatory Lending

Much has been said and written about abuses in the Mortgage and Escrow industries here in Nevada and elsewhere.  In an effort to police these professionals, Nevada’s legislature passed laws governing their actions.  This article summarizes these changes in Nevada law.

Punishments

Any person who engages in the escrow, mortgage broker agent, or mortgage banker businesses without a license does so at his own peril.  Nevada law requires that any contract with an unlicensed person in those businesses may be voided.  In other words, the person dealing with the unlicensed mortgage agent may unwind the contract such that the law will place the parties in the position they would have been in had they never had the contract.

The Commissioner of Mortgage Lending may also require “escrow agents, escrow agencies, mortgage brokers, mortgage agents, and mortgage bankers” to pay restitution to any person who has suffered an economic loss as a result of a violation of law by an escrow agent or agency.  The law authorizes a $50,000 administrative fine for persons engaging in the escrow business or the business of mortgage broker agent or banker without a license.  Further, a person who engages in any of these businesses is subject to a civil action for actual and consequential damages for harm caused, as well as for punitive damages and attorney fees.

Bonding Requirement

Mortgage brokers must now deposit a $50,000 bond naming as principals the mortgage broker and all mortgage agents employed by or associated with the mortgage broker for the principal office and an additional $25,000 for each additional office (not to exceed a total of $75,000).  Any person claiming against the bond may file civil action on the bond for damages within three years of the harmful act.  The bonding company may bring an action for interpleader against all claimants.  All claims against the bond will have equal priority and will be paid on a pro rata basis if the bond is insufficient to pay all claims.

New Fiduciary Duties

By statute, all those who are licensed as escrow agencies, escrow agents, mortgage brokers, mortgage agents, and mortgage bankers now have a fiduciary obligation to their clients.  This law does not impose a requirement to offer or obtain access to loan product or services for a client other than those that are offered at the time of the transaction.  The law defines the “fiduciary obligation” as “a duty of good faith and fair dealing,” including, without limitation, the duty to”: 1) act in the client’s best interest; 2) conduct only mortgage transactions which are suitable for the client’s needs; 3) disclose any financial business or professional interest the licensee has in conducting the transaction; 4) disclose any material fact that the person knows or should know may affect the client’s rights; 5) provide any accounting to the client which lists all money and property received from the client; 6) not accept or collect any fee rendered unless the fee was disclosed; and 7) exercise reasonable care in performing all other duties related to a mortgage transaction.

Nevada law prohibits the disbursement of money held in escrow accounts until deposits that are at least equal to the disbursements have been received.  It also prohibits disbursements on the same business day as the funds are deposited unless deposits are made in forms which allow for immediate withdrawal of money.

 

Talking About Foreclosure Law:  Protection for Tenants When the Landlord is in Foreclosure

Renters Become Victims of Foreclosures

Many innocent renters have been victimized by foreclosures in Nevada.  The scam goes like this:  A Borrower who intends to default on his mortgage payments moves out of the home and rents it to a Tenant, who pays the usual deposits and rent.  While Tenant is dutifully paying rent, Borrower/landlord pockets that money instead of passing it on to the lender.  Borrower did not, of course, inform the Tenant of the impending default or of the eventual foreclosure.  Once the house is foreclosed on, Tenant is suddenly faced with a new landlord who wants the Tenant out of the house and Tenant does not get credit for his deposits, etc. Continue reading Talking About Foreclosure Law:  Protection for Tenants When the Landlord is in Foreclosure

No More Deficiency Judgments in Nevada

What is a Deficiency Judgment?

Most homes in Nevada have loans against them for an amount greater than the actual market value of the home.  If a homeowner owes $200,000 and the property is sold at foreclosure for $100,000, there is a $100,000 deficiency owed by the borrower.  Nevada laws generally provide that the lender can sue the borrower or guarantor for this deficiency after the foreclosure and obtain a judgment against the borrower or guarantor for the same.  This is known as a deficiency judgment.  As of October 1, 2009, however, lenders who are a financial institution may not seek a deficiency judgment in some circumstances.

What is a “Financial Institution”?

A “financial institution” is defined in the new law in broad terms as applying to any entity required to be licensed or registered under state or federal law to loan money.  The definition specifically excludes credit unions from this definition, meaning that they are still free to seek deficiency judgments.   This law applies prospectively, meaning that it only applies to loans written and secured by real property after October 1, 2009.  Further, it only applies where: 1) the real property is a single-family dwelling and the debtor owns the real property; 2) the debtor used the loan to purchase the property; 3) the debtor occupied the property continuously after obtaining the loan; and 4) the debtor did not refinance the property after obtaining the loan from the judgment creditor.

Lenders are no longer able to sue the homeowner if the foreclosure sale does not yield enough money to cover the debt.  This is a significant development in Nevada law.  While its full effects are not known, this law will surely result in changes in how and whether financial institutions lend money for homes in Nevada.  Further, one may anticipate that credit unions may eventually have a market advantage over other financial institutions, as their risk will be less because of their ability to seek and obtain deficiency judgments.  Since the law does not have a sunset clause, this is not a temporary advantage, although in the current market, it is doubtfully much of an advantage at all.  To combat this advantage, other financial institutions are sure to find other ways to level the playing field, such as requiring personal guarantees from all borrowers.

 

 

Beware The Unforeseen Consequence Of A Failed “S” Corporate Election

 

This article is a story about an out-of-state friend and the poor advice and poor service she received from multiple CPAs.  The story is told with my friend’s permission with the hope others will heed the warning.  Be sure to tell your professional advisors (lawyer, accountant, insurance representative, financial advisor) all of your goals.

My friend (jet’s call her “Nancy”) CPA failed to timely file her “S” Election.  For those who do not know, an S Election is a tax election whereby an eligible entity with one class of stock and not more than 100 shareholders, among other requirements, can elect under Subchapter S of Chapter 1 of the Internal Revenue Code (Sections 1361 through 1379) tax treatment similar to that of partnerships, namely, that income passes through to the shareholders of the corporation and is not taxed at the corporate level. Continue reading Beware The Unforeseen Consequence Of A Failed “S” Corporate Election

How Do Creditors Collect on Their Judgments?

 

With the economic downturn, clients are increasingly asking specific questions about the rights and remedies of creditors.

As a caveat, this article is not intended to include everything that one might need to know about collecting against judgments.  These remedies can be affected by many other laws not discussed here, including but not limited to claims by creditors of preferential or fraudulent transfer, or bankruptcy.  The intent of this article is to explain some basic information about types of creditors and types of remedies available to judgment creditors. Continue reading How Do Creditors Collect on Their Judgments?

What is a Family Love Letter?

 

It is probably not what you are thinking.  Having recently experienced the stress of having to locate and make sense of the assets of two family members who died, I can tell you that having all of your vital information in one spot would be a great gift of love to your family.

A friend, Will Scarlett, introduced me to the Family Love Letter recently and I think it is a great resource.  The Family Love Letter guides you through the important information you need to leave for your loved ones.  Will says:

 “It provides a single place to record all of the legal, financial and personal information needed when a loved one’s life ends. By putting all these essentials in one place, you’ll be getting your house in order for those you love.”

Well said, Will.  Order your Family Love Letter today from Will

Why is a Legal Checkup Necessary?

Legal Checkup

I have spent most of my legal career as a business litigator; I litigate all kinds of business disputes, including contract disputes between businesses, business breakups between former friends or family members, trademark infringements, unfair competition, collections against businesses, piercing the corporate veil, and employment matters.  No matter the context, whenever there is a business on the other side of a lawsuit, as a litigator, it is my job to find that business’ weakness and attack it for my client’s advantage.  Many times those weaknesses are self made and have nothing to do with the dispute between the parties.  Most of the time when those weaknesses are exposed, it is both a surprise to the business owner and too late to remedy the problem.

So, when I advise my business clients, I try to find those same weaknesses in my client’s business and teach them why they are vulnerable.  Then, I help them to make those weaknesses into strengths.  We have taken our knowledge of how to attack businesses in litigation and developed a systematic approach to give an early warning to our clients if they are in jeopardy.  We evaluate risks to our business clients so that they can see their business from a bird’s eye view.  We show them their weaknesses and their strengths by evaluating seven areas of concern: 1) Personal Issues; 2) Business Formation and Corporate Governance Issues; 3) Contract Issues; 4) Employment Issues; 5) Intellectual Property Issues; 6) Finance Issues; and 7) Management Issues.

A Legal Checkup is an online survey.  It takes about 8-10 minutes on average to complete.  Once completed, I will schedule a no-obligation meeting with you to review the results.  Based on your answers, a powerful computer program will diagnose your legal health in each of the seven areas.  I will provide you with a written report detailing possible areas of weakness for your business, together with possible strategies for repairing your business.  Some of those strategies might be as simple as changing the way you keep your business records, while others will be more complicated.  Together, we will build a strategy with your other professional advisors (CPA, Insurance Agent, Financial Planner, Banker, and Business Coach) to help your business become as strong as it can be.

You Say Trusts AREN’T Just for Rich People Anymore?

You Say Trusts AREN'T Just for Rich People Anymore?
You Say Trusts AREN’T Just for Rich People Anymore?

What are the Advantages of Having a Trust?

The type of Trusts we are discussing here is not designed to secret your millions away in an account in the Grand Caymans to protect it from your creditors. We are talking about a Living Trust, which is an agreement under which you (acting as trustee) hold legal title to real or personal property for the benefit of another (beneficiary). In my opinion, every person who is over 18 years old and either has dependents or has real property should consider having an estate plan, including a Trust. Continue reading You Say Trusts AREN’T Just for Rich People Anymore?

Six Ways Every Business Can Save Money on Attorney Fees

Six Ways Every Business Can Save Money on Attorney Fees
Six Ways Every Business Can Save Money on Attorney Fees

Abraham Lincoln, a man well known for his analytical skills, once said that “a lawyer’s time is his stock in trade.” As usual, Lincoln was correct; every time you contact an attorney, you can expect to be charged for the time the attorney takes to field your call, respond to your letter, or provide advice.

Therefore, a critical question for any person or entity relying upon an attorney is: how do you keep from giving your attorney a blank check? There are several key tips to follow when looking to save attorney fees. Continue reading Six Ways Every Business Can Save Money on Attorney Fees

NLRB General Counsel Explains His Anti-Franchise McDonald’s Opinion

By Guest Blogger Matthew Kreutzer

The National Labor Relations Board’s General Counsel, Richard Griffin, recently spoke to a group of law students at West Virginia University’s College of Law. During the discussion, which was recorded and is available here, Mr. Griffin offered the students some insight into his decision determining that McDonald’s USA, LLC is a “joint employer” of its franchisees’ employees.

Mr. Griffin’s view is that the standard that has long been applied by the NLRB to evaluate employment in the franchise relationship context is wrong because it does not focus heavily enough on the control that franchisors actually exert over franchisee employees in their day-to-day operations. Mr. Griffin believes that the level of control exerted by McDonald’s over the employees of its franchisees is significant enough to change the character of the relationship, making McDonald’s not only a franchisor, but also a “joint employer” of its franchisees’ employees.

In particular, during the talk Mr. Griffin focused on the computer and software systems that McDonald’s requires each of its franchisees to use. In this computer system, he says, McDonald’s is able to monitor all activities at each franchise location on a minute-by-minute basis and uses this data to direct its franchisees when to schedule their employees for work, and when to send their employees home. This control, which Mr. Griffin says is direct control over employee hours, is enough to make McDonald’s a “joint employer” of those employees.

Of course, the franchisor’s view is that the direction given by McDonald’s to its franchisees is only guidance, which is given to help the franchisee operate its business more efficiently.

The long term effect that General Counsel’s decision, which sent shockwaves around the franchise industry, will have on franchising is still unknown, but his comments during the WVU talk do offer a glimmer of hope to franchisors that they can avoid “joint employer” liability by not having McDonald’s level of involvement in day-to-day franchisee operations and employee scheduling.

As we move into 2015, most franchisors will be re-evaluating their franchise documents (including their Franchise Disclosure Documents and Franchise Agreements) as part of the annual update, registration, and renewal process. This is a good time to talk with counsel about ways that those documents can be amended to offer additional elements of protection against being found to be a “joint employer” of franchisees’ employees.

If you want to discuss how you may be able to improve your franchise documents to respond to these and other new threats heading into 2015, please feel free to contact me.

Nevada Contract Law: A Digest

NEVADA CONTRACT LAW

Editor’s note: This outline was last updated 2013.  Use with caution.

I.     CONTRACT REQUIREMENTS

     A.     Consideration

                Failure of Consideration

When a written contract is shown to be a sham, neither party is under an obligation to the other. See Schieve v. Warren, 87 Nev. 42, 482 P.2d 301 (1971).

Benefit conferred or detriment incurred in past is not adequate consideration for present bargain. See Clark County v. Bonanza No. 1, 96 Nev. 643, 615 P.2d 939 (1980). Continue reading Nevada Contract Law: A Digest

Punitive Damages in Nevada

The following abstract explores the law regarding punitive damages in Nevada.  This article was last updated in 2013.  Use with caution.

Introduction

Punitive damages are not designed to compensate a party, but are awarded for the sake of example and by way of punishing the defendant.  NRS 42.010(1).  By assessing the gravity of the injury, punitive damages serve as a vehicle for a community to express outrage or distaste for a defendant’s misconduct while warning others that such wrongdoing will not be tolerated.  Ace Truck v. Kahn, 103 Nev. 503, 506, 746 P.2d 132, 134 (1987).  Allowing punitive damages provides a benefit to society by punishing undesirable conduct that is not punishable by the criminal law.  Id.  Therefore, the party whose conduct was so outrageous as to merit punishment by means of punitive damages is obligated to bear the burden of paying the award, which effectuates the goals of punishment of and deterrence.  New Hampshire Ins. Co. v. Gruhn, 99 Nev. 771, 774, 670 P.2d 941, 943 (1983). Continue reading Punitive Damages in Nevada