FIRE! (FIRREA) – U.S. Government Holds BoA Liable for Fraud Under “Seldom Used” Law

A federal jury on found Bank of America liable under FIRREA for a fraud the government said its Countrywide unit orchestrated, originating shoddy home loans in a process called “Hustle” that were then sold to Fannie Mae and Freddie Mac.

The  story is reported in Reuters: http://www.insurancejournal.com/news/national/2013/10/29/309529.htm

 

 the Financial Institution Reform, Recovery and Enforcement Act “FIRREA” was enacted during the savings and loan insolvency crisis to enable the FDIC and the Resolution Trust Company (RTC) to efficiently and expeditiously wind up the affairs of hundreds of failed financial institutions. See Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C.Cir.1995).
The story  notes that FIRREA had been used before by the Dept of Justice -but this was the first time it was taken to a jury trial.
“Wednesday’s verdict, which faulted the bank for making bad home loans and passing them to Fannie Mae and Freddie Mac, was the first test of FIRREA that went all the way through trial. The use of the law could transform the Justice Department’s relationship with Wall Street.”

Man Creates Incomplete $200 Million Estate Plan and Dies Before Signing – Son Files Lawsuit

This post came out from the American Bar Association’s Journal.  Concerning Henry Faison, a North Carolina Real estate developer.  You can See the Article here:   http://www.abajournal.com/news/article/man_implements_200m_estate_plan_but_dies_before_signing_will_heirs_file_unj/

 

Also see the original article in the Charlotte Observer: http://www.charlotteobserver.com/2013/10/22/4405189/sons-of-late-developer-henry-faison.html#.UmrbSvmko8N

 

It appears he engaged a law firm to set up a charitable foundation (named after his dog) to minimize estate taxes on approx $200 million in assets. The money was apparently originally to go to his Company.

 

Before he could sign off on his new estate plan, he suddenly died,

 

The result?

His sons and estate are suing Faison’s company for Unjust Enrichment – claiming that the approx $200 Million should have gone to the foundation.

 

The legal issues are novel: what is required in order to create a Will?

 

In Michigan, pursuant to Mich. Comp. Laws Ann. § 700.2502

 a will is valid only if it is all of the following:
(a) In writing.
(b) Signed by the testator or in the testator’s name by some other individual in the testator’s conscious presence and by the testator’s direction.
(c) Signed by at least 2 individuals, each of whom signed within a reasonable time after he or she witnessed either the signing of the will as described in subdivision (b) or the testator’s acknowledgment of that signature or acknowledgment of the will.
(2) A will that does not comply with subsection (1) is valid as a holographic will, whether or not witnessed, if it is dated, and if the testator’s signature and the document’s material portions are in the testator’s handwriting.
If this case were to have occurred in Michigan, it would create a similar problem: the statute was not complied with, but there was other evidence that the deceased intended to create a will.
This is why the sons are arguing “equity” – they are recognizing that, legally, they do not comply with the requirements to create a will, but in the interest of fairness, this Court should simply not allow the Company to benefit from the $200 Million.
Lesson:
If anything, this case highlights the importance of putting your agreements in writing, whether it is your estate plan, or business succession plan. People are prone to postponing these things, since they aren’t generally fun things to think about – death, change…etc… but as this story highlights – they are very necessary.
Email: Jeshua@dwlawpc.com

 

 

Michigan Law Update: Senate Bill 626 – Marijuana Not a Crime?

 

An interesting Bill has been proposed in the State Senate – it would decriminalize possession of  1 oz or less of Marijuana,

See the Bill Text here: http://www.legislature.mi.gov/documents/2013-2014/billintroduced/Senate/pdf/2013-SIB-0626.pdf. It was referred to the Senate Judiciary Committee on October 16th.

 

According to the Bill, an individual found in possession of less than an ounce of Marijuana will only be subject to a Civil Infraction – which amounts to a $25 ticket.

 

The practical effect:

                        It’s probably going to cost you more if your parking meter runs out in downtown Grand Rapids than for getting stopped by a police officer with an ounce of marijuana on you. 

Although I do note, that for repeat infractions, the penalties steepen – to $50 – $100.

 

This is far removed from the current possession offense which is a misdemeanor conviction.

 

I am sure there are a number of policy rationales for presenting this Bill, one comes to mind, possibly a way for law enforcement to avoid enforcement problems with the Michigan Medical Marihuana Act.
Regardless, the Bill will undoubtedly make for interesting discussions.

 

 

email: Jeshua@dwlawpc.com

ph: (616) 454-3883

http://www.dwlawpc.com

 

 

DOJ is Up and Running – AG Holder Welcomes Back Employees

The Department of Justice Website (up and running again) posted Attorney General Eric Holder’s welcome back to the federal employees who were temporarily laid off due to the government shutdown.

See the DOJ’s website here:

http://www.justice.gov/iso/opa/ag/speeches/2013/ag-speech-131017.html

 

See the Memo Sent from AG’s office here:

http://www.justice.gov/employees/ag-message-10172013.pdf

 

I am sure we all hope that as we near January 15th our Federal Government employees won’t be facing the same anxieties and hardships they have been dealing with during the shutdown.

 

 

email: Jeshua@dwlawpc.com

Phone: (616) 454-3883

Website: www.dwlawpc.com

Business Contracts: Should your Business Contract Include an Arbitration Clause?

A construction client of mine found itself faced with a lawsuit.

However, its Contract specifically provided that any dispute would be settled by binding arbitration.

Good, idea, or not?

It depends.

Generally, there are real benefits to arbitration, the two big benefits are related to cost and time.  Arbitration is typically much more cost-effective than litigation, and arbitration is typically handled much quicker as well.

However, arbitration clauses should be carefully drafted to contemplate each’s unique business. What might work for a nationwide manufacturer might not be the best for a local residential construction company.

 

some considerations….

 

 

1. Where is the Other Party located?

For a client who engages in business over state lines, an arbitration clause might not be effective if you are trying to quickly collect a debt that is owed to you.  Instead, you  might want a “Jurisdiction and Venue Selection Clause”

This clause would include language indicating that no matter where the dispute occurred, the contract will be interpreted under Michigan law, and the parties agree that any dispute shall only be resolved in _______ County (Typically,  Kent County, Michigan, for my clients.) Therefore, if your contract contains a jurisdiction and forum selection clause, and you are owed money by a company in Florida, you would not need to retain a Florida attorney to try and collect.

Other considerations, generally are:

2. Is the Arbitration Agreement between the company and consumers? If so, companies need to be aware of consumer protection rights, and AAA rules regarding dispute resolutions with consumers.

The AAA has ruled that any company that wants to incorporate their services in its arbitration contract must follow their policies:

“The American Arbitration Association’s policy on consumer arbitration is guided by the state of existing law, as well as its obligation to act in an impartial manner. The Association supports the principles of the Consumer Due Process Protocol…All cases involving a consumer where the claim is under $10,000 will be administered under the Consumer Rules and the fee schedule for those rules, without regard to the rules or fees that may be incorporated in the arbitration clause.” See, Consumer Due Process Protocol: http://ftc.gov/os/comments/debtcollectroundtable1/542930-00017.pdf

3. If the Arbitration Agreement involves a Construction industry, make sure the arbitration clause does not negate your ability to record a claim of lien with the register of deeds.

– as a side note, if the construction agreement is a residential construction agreement with the owner of the home, make sure the Agreement contains the specific language as required by the Michigan Construction Lien Act, MCL 570.1118.

A CASE WHERE THE ARBITRATION CLAUSE DID NOT PROMOTE EITHER: PROMPT RESOLUTION OR COST-SAVINGS.

A recent unpublished Michigan Court of Appeals Case demonstrates some of the complexities of arbitration clauses, and how, in practice, the value of an arbitration clause does not always work the way it should. See  Namari v. Subway Real Estate Corp., 308384, 2013 WL 5450283 (Mich. Ct. App. Oct. 1, 2013).

I. Facts of the Subway Franchise Agreement Disputes

This case involved a franchisee dispute over Subway restaurants.

Plaintiff: Namari.

Defendants: Subway Real Estate Corporation (SREC), and Doctor’s Associates Inc, (DAI).

On January 27, 2003, Plaintiff, Namari and Abraham Nunu entered into franchise agreements with DAI1 to operate 14 Subway restaurants in the Detroit area and SREC entered into subleases with the franchisees.
                                  a.  the Arbitration Clause
The franchise agreements contained an arbitration clause that provided in relevant part as follows:
The parties will arbitrate any Dispute the parties do not settle under the discussion and mediation procedures above and any Dispute which this Agreement provides will be submitted directly to arbitration except as provided in this Agreement.
The franchise agreements also contained termination clauses that allowed DAI to terminate the agreements for cause and “without prejudice to any of [DAI’s] rights or remedies provided under this Agreement….”
In 2004, shortly after signing the agreements, Nunu sued plaintiff.
DAI participated in the litigation and, according to plaintiff, ultimately the stores were split between the two parties with Nunu’s name being removed from the stores.
On November 16, 2007, DAI terminated plaintiff’s franchise agreements. Thereafter, according to plaintiff, DAI sued plaintiff and Nunu in Wayne Circuit Court.
In the meantime, it appears that while DAI was involved in a dispute with plaintiff and Nunu, on September 8, 2009, SREC terminated plaintiff’s subleases for his former Subway franchise locations. SREC then sued plaintiff in the 36th District Court to recover possession of the premises and for damages relating to the subleases.

– confusing, isn’t it?

On December 2, 2009, the parties were in court and verbally agreed to submit “ALL of their respective issues, disputes, and causes of action to arbitration” by entering an agreement to arbitrate on the record in the 36th District Court.
So now, just to clarify, there are two arbitration agreements at issue in this case:
                1.  a “written agreement to arbitrate” contained in the Franchise Agreement, and
                 2.  an oral agreement to arbitrate, contained on the record, in Court.

The 36th District Court adjourned the case “for arbitration” on December 2, 2009.
Almost two years later, Defendants demanded arbitration, for unpaid rents and other damages allegedly owned from the Subway leases.
Plaintiff demanded that instead of a single-arbitrator, that the arbitration would be performed by a 3-member panel of arbitrators.  Defendants objected.
So Plaintiff sued Defendants in Circuit Court.

“The parties filed numerous motions, briefs, and other pleadings in the lower court” (which directly translates into “very expensive”).

Defendants argued – the Franchise Arbitration Agreement called for a single arbitrator.
Plaintiff argued – the Franchise Agreement was terminated, the only arbitration agreement is the oral arbitration agreement, and it didn’t call for a single arbitrator.
After much more arguments and hearings (again, expensive) The trial court eventually entered an order finding:
1. that arbitration would proceed to a single arbitrator, and
2. DAI’s franchise agreements were terminated and unenforceable against plaintiff, and that “the 36th District Court agreement to arbitrate shall be the only legally operative and controlling agreement during the arbitration proceedings.”
Defendants appealed – arguing that whether or not the Franchise Agreement was enforceable against Plaintiff was an issue to be arbitrated, not decided by the Court.
So the question was: When is an issue in dispute subject to an arbitration clause, and when isn’t it?
II. Law – Whether an Arbitration Clause Applies To a Specific Issue in Dispute
“When deciding whether the parties agreed to arbitrate a certain matter, courts should ordinarily apply basic state-law principles that govern the formation of contracts.” Amtower v. William C. Roney & Co., 232 Mich.App 226, 234; 590 NW2d 580 (1998) (citations omitted).
“The cardinal rule in the interpretation of contracts is to ascertain the intention of the parties. Where the language of a contract is clear and unambiguous, the intent of the parties will be ascertained according to its plain sense and meaning.” Id. (emphasis, citations, and quotations omitted).
To ascertain the arbitrability of an issue, a court applies the “Fromm Test” where it must consider:
[1] whether there is an arbitration provision in the parties’ contract,
[2] whether the disputed issue is arguably within the arbitration clause, and
[3] whether the dispute is expressly exempt from arbitration by the terms of the contract.
The court should resolve all conflicts in favor of arbitration. [Fromm v. Meemic Ins. Co., 264 Mich.App 302, 305–306; 690 NW2d 528 (2004).]

Here, the Appeals Court overruled the Circuit Court – finding that the issue of whether the Franchise Agreement was enforceable was to be decided by the arbitrator.

The Court of Appeals did agree with the Circuit Court that the Oral Arbitration Agreement to arbitrate all disputes was the only arbitration agreement in effect.
III. Lesson: Arbitration Clauses are useful tools, but should be uniquely tailored depending upon the type of business.  Also, in practice, invoking arbitration clauses sometimes does not have the intended effect – saving money and time.
Questions? Feel free to contact me.
Jeshua@dwlawpc.com
(616) 454-3882

The Justice System and Government Shutdown

I was in Federal District Court last week. The talk of government shutdown permeated the courthouse- from the Court officers screening me through the security, to the judge on the bench.

Later that week I called into the U.S. Attorney’s Office in GR- no answer. I get Into the voicemail of a U.S. Attorney for the Civil Division and I hear a detailed message how he is out of work due to the government shutdown (now how do I get a federal lien released from some real estate!?)

I noticed a link for the shutdown contingency plan- see attached link. http://www.justice.gov/jmd/publications/doj-contingency-plan.pdf

After reviewing the plan, I am glad that the DOJ is still running to protect “human life and property.”

I guess my release of lien will need to wait.

Real Property Law Update: Proposed Michigan Bills – “Adverse Possession” and “Landlord Rights”

Two House Bills have been introduced  affecting real property in Michigan – House Bill 5057 revising the adverse possession statutes and House Bill 5069 which revises the unlawful interference with a possessory interest statute (MCL 600.2918) and provides landlords additional rights to remove a wrongful trespasser.

 

 

HB 5057 “Slight Revisions” To Adverse Possession Statutes

 

This House Bill appears to slightly revise several Michigan statutes related to claims of adverse possession.

The proposed revisions affect the statute of limitations period for recovering real estate, MCL 600.5801, governmental immunity from the adverse possession statutes, MCL 600.5822, and certain presumptions regarding possession of land, but don’t seem to create any new substantive provisions, MCL 600.5867.

The only substantive proposed addition is regarding the statute of limitations, it provides that the statute of limitations period does not apply to a person if an adverse party is asserting a claim to the property based upon adverse possession.

The Proposed Bill was read and referred to the Judiciary committee.  See the Text: http://www.legislature.mi.gov/documents/2013-2014/billintroduced/House/pdf/2013-HIB-5057.pdf

 

 

HB 5069 “Trespasser Exception” to the Possessory Rights of a Tenant

 

This Bill was just introduced today and affects the Summary Proceeding Act – particularly it carves out an exception to MCL 500.2918 (defines unlawful intereference with possessory Interests of tenants). Any landlord who has gone through the process of evicting a tenant knows that, in the residential leasing context, there are heightened duties of landlords, and heightened rights of tenants.  Tenants have the right not to have their possessory interest in the property interfered with, without the proper court procedure being complied with (Summary Proceeding Action in District Court).

 

Traditionally, this right would also apply to a wrongful trespasser who occupies premises. A wrongful trespasser has a possessory interest in the property (by virtue of the fact they are squatting on the property) and if a landlord did not go through the proper procedures to evict that wrongful trespasser, the landlord could be subject to damages, including attorney fees.  This Bill would carve out an exception and allow landlords to peaceably remove trespassers, without filing a lawsuit.

 

The actual carve out language is:

If Tenant took possession of the premises by means of a forcible entry, holds possession of the premises by force after a peaceable entry, or came into possession of the premises by trespass…

 

See the text: http://www.legislature.mi.gov/documents/2013-2014/billintroduced/House/pdf/2013-HIB-5069.pdf

 

 

 

 

Questions? Email or call me.

Jeshua@dwlawpc.com

(616) 454-3883

http://www.dwlawpc.com

Real Estate Litigation: The Extraordinary Remedy of an Injunction

I was recently in court over a real estate dispute between two neighbors – My client’s  neighbor had blockaded off my client’s access to his Property.  There was a dispute over who owned the property at issue – see my article regarding adverse possession: https://jeshualaukalegalnews.wordpress.com/2013/06/26/squatters-rights-how-easy-is-it-to-acquire-property-by-adverse-possession/

 

My client posed a fundamental question to me:  How do we proceed?

 

We filed with the Court a request for a preliminary injunction – ordering the removal of the blockade from the Property.

 

I. Injunctions

 

Injunctions are special remedies – they are “equitable” versus “legal damages”.

 

The Michigan Supreme Court has held, that “[i]njunctive relief is an extraordinary remedy that issues only when justice requires, there is no adequate remedy at law, and there exists a real and imminent danger of irreparable injury.” Pontiac Fire Fighters Union Local 376 v. City of Pontiac, 482 Mich. 1, 8 (2008).

 

The party seeking injunctive relief has the burden of establishing that a preliminary injunction should be issued.

This is a high burden, since a party asking for an Injunction is asking the Court, in equity, to compel someone to do something.

 

 

A.  How Does a Court Consider Whether to Issue an Injunction?

The court takes into consideration a 4-part balancing test.” State Employees Ass’n v. Department of Mental Health, 421 Mich. 152, 157-158 (1984). Those elements are as follows:

  1. Plaintiff has a likelihood of success on the merits of his claims;
  2. Plaintiff will suffer irreparable injury if a preliminary injunction is not granted;
  3. Plaintiff has no adequate remedy at law; and
  4. Plaintiff will suffer greater injury from the denial of temporary injunctive relief than the opposing party will suffer from the granting of such relief. Id.

 

In my case, in order to get the court to agree to an injunction (until the ultimate case was decided at trial) I had to show the Court not only that my client had the stronger case, but also that there would be serious harm – irreparable harm, if the injunction wasn’t granted, AND that simply money damages wouldn’t properly compensate my client, AND that my client would suffer greater harm than his neighbor, if the injunction was denied.

 

Basically, the court weighs these elements “to balance the benefit of an injunction to plaintiff against the inconvenience and damage to defendant, and grant an injunction or award damages as seems most consistent with justice and equity under all the circumstances of the case” Wiggins v. City of Burton, 291 Mich. App. 532, 558-59, 805 N.W.2d 517, 534-35 (2011).

 

Keep in mind, an injunction does not solve the ultimate problem. It is a temporary solution, until an ultimate trial on the merits of the case – which could take months, depending on the Court’s docket. A

 

II. Lesson – Injunctions are hard to Win – Consider All Available Options Before Filing Suit

Sometimes a client is forced into a situation where filing for injunctive relief is the only logical next step, especially in circumstances where time is of the essence. However, it can be costly – with a very uncertain outcome.

Another possible solution is Mediation.

Many real estate disputes could benefit from mediation. Mediation make senses for many reasons, one is because Property disputes largely involve emotions, and personal indignation that could be much better addressed through a mediation (as opposed to an adversarial system like our Civil Courts).  It is much easier to advise a business owner to settle a lawsuit that amounts to not much more than a “business decisions” versus a property owner that feels personally antagonized by a neighbor.

 

 

Do you have an interesting business or real estate issue? I’d love to hear about it. Email or call me.

(616) 454-3883; Jeshua@dwlawpc.com

http://www.dwlawpc.com

 

 

 

 

 

 

 

 

Lesson Regarding Business Disputes: Be Pro-active. Avoiding The Problem Doesn’t Make It Go Away.

I met with a client today. My client is looking to sell his shares in his Company to the other owners.  His company is a closely held business with a few shareholders who make all the business decisions.

 

My client knew that he should have begun this process a long time ago.  He could see the warning signs, but the Company was doing so well that he tried to avoid the conflicts between the other shareholders (family members – which adds another relational layer to the business relationship).

 

It wasn’t until the business relationship had absolutely deteriorated and he was desperate to get out that he sought legal counsel.

 

Strategically speaking, this is probably one of the worst times to get out, yet it is most common.

It is one of the worst times to get out for several reasons:

  • The value of the business could have been hurt by the poor business relationship of owners (which in turn diminishes the value of his Company stock);
  • disgruntled owners are more prone to making mistakes/poor decisions that may violate their fiduciary duties that they owe to other shareholders and to the Company (when they are upset, they aren’t necessarily thinking about the best interest of those they angry with);
  • At this point in the business relationship, business disputes take on a personal nature (especially when family is involved) where emotions may run high and cloud each shareholder’s otherwise sound ability to make an amicable buy out – or at least to make a sound business decision. This point is particularly dangerous because a failure to reach a reasonable buy out  could result in litigation which is costly for all parties. For more on this point See: https://jeshualaukalegalnews.wordpress.com/2013/08/27/business-disputes-in-closely-held-companies-a-warning-why-business-partners-should-not-be-quick-to-file-lawsuits/

 

My point in all of this is simple:

 

Avoiding problems in close business relationships does not make the problem go away – it makes it worse!  

This isn’t rocket science, but it is a fact that often times  people wait to properly address important finance and business decisions when it is too late. It is why  many people don’t have estate plans (even lawyers!) However, that is another topic altogether.

 

I end with two simple takeaways for business owners in closely held companies:

 

1.  Be proactive to address shareholder disputes before they spiral out of control. 

Consult with an attorney about your rights/duties.

2. Be Sure that in your Frustration you don’t violate your Fiduciary Duties.

Corporate Shareholders, Partners, and Members in Limited Liability Companies all owe statutory duties to act in the best interest of the company, and for each business partner. See M.C.L.A. 450.1541a of the                   Business Corporation Act; MCL M.C.L.A. 449.21 Uniform Partnership Act; and MCL 450.4515 of the Michigan Limited Liability Company Act.

 

 

 

Do you have an interesting issue related to business or real estate? I’d love to hear about it.   

Email or call me. Email: Jeshua@dwlawpc.com / Ph: (616) 454-3883.
You can also visit my law firm’s website at http://www.dwlawpc.com.

 

TD Bank Assessed $37.5 M For Violations of Bank Secrecy Act

Scott Rothstein is serving a 50-year prison sentence for running a $1.2 billion scheme from Fort Lauderdale-based Rothstein Rosenfeldt Adler PA.

He sold wealthy investors stakes in what he said were payouts in confidential sexual-harassment and workplace-bias cases. The cases were fabricated. Back in July his law firm his liquidation was confirmed in a Chapter 11 Bankruptcy case. See article http://www.bloomberg.com/news/2013-07-18/ponzi-schemer-rothstein-s-law-firm-liquidation-confirmed.html

 

TD Bank was the unfortunate Bank where Scott Rothstein ran the money through his operation.  Suffice it to say, TD Bank is paying for not catching its mistakes beginning in 2008.

The Bank ultimately provided more than $600 million in restitution to investors impacted by Rothstein’s Ponzi scheme.  

Yesterday, the OCC announced a hefty penalty assessed against TD Bank for its failures which constitute violations of the Bank Secrecy Act. You can check out the Consent Order entered into by TD Bank here: http://www.occ.gov/static/enforcement-actions/ea2013-142.pdf

 

According to the OCC’s website:

“The OCC found that from April 2008 to September 2009, the Bank failed to file suspicious activity reports (SARs) on activity in accounts belonging to Rothstein Rosenfeldt Adler, P.A., the Ft. Lauderdale, Florida law, firm through which Scott Rothstein ran a $1.2 billion Ponzi scheme.”

“These failures by the bank resulted in violations of the OCC’s SAR regulation (12 C.F.R. § 21.11(c) and (d)), which requires banks to file SARs in 30 to 60 days, depending on the circumstances.”

 

Further, “[t]he failures to file SARs were significant and egregious for a number of reasons, including the number of alerts generated by these accounts and the volume and velocity of funds that flowed through them.

 The $37,500,000 civil money penalty reflects a number of factors, including:

  • the scope and duration of the violations and
  • the financial harm that resulted to the Bank.

The penalty will be paid to the U.S. Treasury.

The OCC is coordinating its action with the Financial Crimes Enforcement Network (FinCEN) and the Securities and Exchange Commission (SEC). FinCEN is ordering the Bank to pay a $37,500,000 penalty. The SEC is ordering the bank to pay an additional $15,000,000 penalty and to cease and desist from violating sections 17(a)(2) and (3) of the Securities Act of 1933.