Contributing editor Thomas E. Geu (South Dakota) and co-author James B. Dean have a new article, The New Uniform Limited Cooperative Association Act: A Capital Idea For Principled Self-Help Value Added Firms, Community-Based Economic Development, And Low-Profit Joint Ventures, 44 Real Prop. Tr. & Est. L.J. 55 (2009).
Gary Rosin
In Curbing the License To Steal: A Discussion of English Law and Possible reforms for the Durable Power of Attorney, 44 Real Prop. Tr. & Est. L.J. 31(2009), Amy Jo Conroy compares durable powers of attorney under the Uniform Power of Attorney Act with lasting powers of attorney under England’s Mental Capacity Act (2005).
In the United States, the durable power of attorney is a commonly used instrument, but cases of financial exploitation are increasingly finding their way into the courts. Horror stories of exploitation litter the case reporters, and many more likely go unreported. While the durable power is a useful instrument, its use is too powerful to be left to the unfettered discretion of an agent.
* * *
States must take action to protect their vulnerable citizens. A first step is to require that all durable powers follow a statutory form. Second, all durable powers should be registered to be effective. A third step is to require notice to be given to family members, similar to notice requirements in a guardianship proceeding. Lastly, legislators must increase court or governmental oversight by providing automatic inquiry jurisdiction so that if abuse is suspected, the initiation of guardianship proceedings is not the only solution. These safeguards will reduce the simplicity of the durable power, but that is an acceptable sacrifice to better protect our country’s vulnerable senior citizens.
44 Real Prop. Tr. & Est. L.J. at 53.
Gary Rosin
Family limited partnerships (FLPs) have become a staple of estate-tax planning. Wendy C. Gerzog (Baltimore) has an article, Miller: Effective FLP Line Drawing, 124 Tax Notes 1273 (Sept. 21, 2009) (SSRN), that discusses a recent Tax Court opinion, Estate of Miller v. Commissioner, T.C. Memo. 2009-119. Among other things, the opinion in Miller discusses when FLPs will be considered to have a non-tax purpose.
Gary Rosin
Larry E. Ribstein (Illinois) has posted a working paper on SSRN, The Death of Big Law, in he argues that “the basic business model of the large U.S. law firm is failing and needs fundamental restructuring.” Ribstein suggests possible changes to law-firm structure and ethics rules governing lawyers.
The first change that he suggests is that law firms “must own a core of durable, firm-specific property”. By that, Ribstein means firm ownership of professional goodwill (client relationships), and non-competition agreements to protect it. No more portable practices. To quote from “Sixteen Tons,” popularized by Tennesee Ernie Ford, but written by Merle Travis:
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
Gary Rosin
Mary F. Radford (Georgia State) has a cautionary article about lawyers representing families and family limited partnerships, Ethical Challenges in Representing Families in Family Limited Partnerships, in 35 American College of Trust and Estate Counsel Journal 2 (2009) (SSRN)
Gary Rosin
Modesty probably prevents him from posting this himself, but Contributing Editor Bradley T. Borden (Washburn) has an article, Taxing Shared Economies of Scale,forthcoming in the Baylor Law Review (Vol. 61) (SSRN).
The IRS and courts have concluded that sharing economies of scale satisfies the joint-profit-motive test and that arrangements with a joint-profit motive are tax partnerships. Relying on technical analysis and economic theory, this Article argues, however, that if parties integrate resources without integrating all relevant parts of the production process, they often should not come within the definition of tax partnership.
Gary Rosin
Robert Flannigan (Saskatchewan), has an article, The Legal Status of the Joint Venture, 46 Alberta L. Rev. 713 (2009) (SSRN), that criticizes the use of the term “joint ventures” in opinions (elegantly referred to as the “judicial lexicon”) and the mistaken impression by courts that a joint venture is a”a distinct legal form”.
Gary Rosin
Heather M. Field (UC-Hastings) argues in Checking in on “Check-the-Box,” 42 Loy. L.A. L. Rev. 451 (2009) that
… the check-the-box election … lacks a coherent set of limitations…. …the policy weaknesses … of the check-the-box regulations stem fundamentally from the existence of a multi-regime system for taxing businesses.
It’s not just the “multi-regime system.” Partnership taxation is built on an extreme aggregate view of partnerships that was not true in 1954 (or before) and still isn’t true. Even under the UPA’s tenancy-in-partnership, partners have no meaning individual rights in, or access to, partnership property. Partnership property is dedicated to partnership purposes; all an individual partner has is the right to distributions (if, as and when approved by the partners). RUPA-based partnership statutes now vest title to partnership property in the entity, and not the partners.
It’s hard to ensure economic substance in partnership allocations when the partnership tax regime itself has no economic substance. Well, apart from the tax regime itself.
Now, if I were the Tax Czar, I’d like to see
That level would the field, both as between entities, and as between debt and equity.
Hat-tip to Paul Caron (Tax Prof blog).
Gary Rosin
Earlier, I noted the decision in In re Ravitz v. Gerard Furst and Marjorie Ravitz, DPM, P.C., 2009 NY Slip Op 06437 (N.Y. App. Div. Sept. 8, 2009), in which one shareholder of a professional corporation sought to have the court determine the value of the corporation’s two offices, and to take that into account in distributing the assets of the corporation in the course of liquidation. Part of the rationale for refusing the relief sought was the Court’s two-sentence conclusion that goodwill can only be an asset of the corporation when the shareholders so agree. Slip Op., at 2. The basis for that holding can only be gleaned from a four-case string cite.
The primary authority is Dawson v. White & Case,88 N.Y.2d 666, 672 N.E.2d 589 (1996), which does not stand for that propostion. In Dawson v. White & Case, an expelled partner of a law partnership sought to have goodwill included in determining the value of his interest in the partnership. The basis for the court’s holding was that the partners had, by express agreement, ande by prior practice, excluded goodwill as an asset of the partnership:
[N]ew White & Case partners never paid anything for goodwill; departing partners never received a payment for goodwill; and goodwill was not listed as an asset in the firm’s financial statements. * * * The White & Case partnership agreement contained the following provisions:
“It is expressly understood and agreed that no consideration has been or is to be paid for the Firm name or any good will of the partnership, as such items are deemed to be of no value” (art fourth [c]);
and
“The computation of the amount with which a Former Partner shall be charged or credited … shall exclude any value for the good will of the partnership or the Firm name, as such items are deemed to be of no value” (art sixth [d]).
88 N.Y. 2d at 672. The court expressly limited its holding:
We note that the holding in this case is based on the specific facts presented, and should not be construed as a prohibition against the valuation, in the appropriate case, of law firm goodwill. In addition, the existence of law firm goodwill has been recognized in conjunction with the recent promulgation of Code of Professional Responsibility DR 2-111 (A), which authorizes the sale of “a law practice, including good will,” by a “lawyer retiring from a private practice of law, [or] a law firm one or more members of which are retiring from the private practice of law with the firm.”
To the extent that dictum in [an earlier case] stands for the proposition that a professional business, as a matter of law, cannot have any goodwill apart from the goodwill of its constituent members, we note that this rationale has been rejected by this Court in a different context (see, Spaulding v Benenati, 57 NY2d 418, 422-424, [enforcing sale of dentistry practice goodwill]…) and has been superseded by the economic realities of the contemporary practice of law, illustrated by attorney advertising, internationalization of law firms, and other professional developments. In short, the ethical constraints against the sale of a law practice’s goodwill by a practicing attorney no longer warrant a blanket prohibition against the valuation of law firm goodwill when those ethical concerns are absent.
Id. at 672-73 (citations omitted) (emphasis added).
In Kaplan v Shachter & Co., 261 A.D.2d 440, 690 N.Y.S.2d 91 (1999), the Court did begin by noting the lack of an express agreement to make goodwill a partnership assets, but also noted facts supporting the trial court’s determination that good will was not a partnership asset:
Here, the partnership agreement did not specify that goodwill was a firm asset. Furthermore, insofar as no consideration was paid for goodwill on the admission of partners, no amounts had been paid or given on account of goodwill, and the firm’s financial statements did not reflect any goodwill, it is clear that the partners did not otherwise view goodwill as a firm asset.
261 A.D.2d at 440. In Saltzstein v Payne, Wood & Littlejohn, 292 A.D.2d 585, 740 N.Y.S.2d 95 (2002), the Court perfunctorily parroted the language in Kaplan.
The third Appellate Division case cited by the In re Ravitz Court, In re Leslie & Penny for Penny Preville, 303 A.D.2d 508, 757 N.Y.S.2d 302 (2003) stands for the opposite proposition than the conclusion in In re Ravitz. Penny Preville, Inc. engaged in the business of designing jewelry. Its initial shareholders were Penny Siskin (formerly Penny Preville). When a second shareholder was brought into the business, the parties entered into a Shareholder Agreement providing that, on dissolution of the corporation, the Siskins would have the exclusive right to the use of the trade name ‘Penny Preville.” 303 A.D.2d at 508-09. The Court rejected the claim by the Siskins that the Shareholder Agreement excluded the good will of the corporation, especially that asscoiated with the trade name, from ownership by the corporation:
We agree with the Supreme Court that this clause only gives the Siskins the exclusive right to use the trade name “Penny Preville” upon dissolution. The Agreement does not explicitly give the Siskins the right to the value of the Corporation’s goodwill associated with the trade name “Penny Preville,” nor does it except such goodwill or the trade name from the Corporation’s assets distributable upon dissolution. * * *
In adjudicating the rights of the parties under the Agreement, this Court may not read any additional provisions into that agreement. The Court, therefore, cannot accept the Siskins’ invitation to read into the Agreement an additional provision giving them continued ownership of the trade name or of its associated goodwill. Thus, the Siskins are entitled only to the exclusive rights of continued use of the name “Penny Preville” upon dissolution,but the value of the Corporation’s goodwill, including that associated with the trade name “Penny Preville,” … should be distributed along with its other assets upon dissolution.
Id. at 509 (emphasis added). While the action for judicial dissolution in that case was under Section 1104-a of the NY GCL (oppression), rather than under Section 1104 (deadlock), Section 1117, which incorporates Section 1005 (relied on in In re Ravitz), applies to all judicial dissolutions.
As noted by Peter A. Mahler (New York Business Divorce blog), most written agreements among professionals engaged in a joint practice expressly address the treatment of professional goodwill. Or at least, well-drafted agreements do.
Gary Rosin
Guardianships and Durable Powers of Attorney. Russell v. Chase Investment Services Corp. (OK 2009)
September 22nd, 2009In Russell v. Chase Investment Services Corp., 212 P.3d 1178, 2009 OK 22 (2009)(on certified question), the Oklahoma Supreme Court, held that, under Oklahoma law, the appointment of a guardian for the estate of a person does not terminate an earlier Durable Power of Attorney.
Section 1074.A of the Oklahoma version of the Uniform Durable Power of Attorney Act provided:
29 OK 22 at ¶12 (emphasis in original). The last sentence of Oklahoma Section 1074(b) differs from the bracketed last sentence of Section 108(b) the Uniform Act.
Unif. Durable Power of Att’y Act § 108(b) (emphasis added).
Gary Rosin
Tags: durable power of attorney, guardianship
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