Department of Finance and New LLC Disclosure Rules Luxury RE Market Good or Bad?

5 Reasons Why the New LLC Disclosure Rules Stink BY LAUREN ELKIES SCHRAM JULY 29, 2015, 11:15 A.M. New York City’s Department of Finance has introduced new disclosure requirements for shell companies buying real estate to bring greater transparency to the market, particularly at the luxury end. The tax form changes were implemented on May 18 to help the city identify residents who evade paying city income taxes by claiming their primary residence lies elsewhere. The New York Times said there are 89,000 condominium and co-op units that are owned by non-residents, which are classified as people who don’t dwell in their homes for more than 183 days. The revised rules require multiple member limited liability companies and partnerships to reveal the names of every member or general partner involved in a real estate transaction, rather than just one. As a result, the city would purportedly learn the real identities of property owners, from celebrities to developers. So far, so good. But while the city may be looking to bust those guilty of tax avoidance, a number of attorneys CO spoke with said that the new rules fall far short of the intended goal and could have negative unintended consequences. Here are five reasons why the new rules are defective. 1. They won’t work. “They’re flawed because if the goal is to find the beneficial owners of the real estate—getting to the individual level—they don’t do that,” said Martha Flanders, a corporate partner at Dorf & Nelson. The reason, she said, is that the city will learn the legal owner of a property, but not the real owner as people will be able to own an LLC through other nontransparent entities. “There will be another level of enterprise,” she added. At the über-high end of the market, the buyers “will find a way around” the rules, noted Terrence Oved of Oved & Oved, such as by using straw buyers. Perhaps most importantly, the LLC is a “pass-through entity,” whereby the profits and losses are passed through the business to the members of the LLC, who report the information on their personal tax returns. If the members are not reporting their share of the profits and losses, then how will the new disclosure policy change their behavior? Mr. Oved asked. “It’s not because it’s not showing, it’s because they’re not reporting it,” Mr. Oved added. Jay Neveloff, a partner at Kramer Levin Naftalis & Frankel, suggested an alternative approach—to “require LLCs to confirm if it owns an apartment and if so require an explanation as to how it’s used. If the answers so dictate, the city can require more information.” 2. Say goodbye to privacy. According to the Times, the LLC members’ identities will not be made public. (The DOF spokeswoman didn’t respond to CO’s requests for comment.) Even so, “We should not be dissuading buyers from purchasing New York real estate by requiring them to reveal their identities,” said Adam Leitman Bailey of the eponymous firm. “It is also un-American to have Big Brother watching over who lives in our city.” 3. Real estate sales could dwindle. The new rules could discourage investment by foreigners who fear more government oversight from their home country. Also, the disclosure policy could stymie closings because buyers don’t know about the requirements and when they learn of them, they will be turned off, Mr. Neveloff said. Investors could opt to spend their real estate dollars outside of New York City to avoid the rules—and more than 50 percent of New York condominium sales above $5 million last year were to LLCs, according to the Times. “Some wealthy clients will buy in New Jersey before submitting their identities to the government,” Mr. Bailey said. “This is one more way the mayor is working to chip away at the booming economy Mayor [Michael] Bloomberg left him with. This law could dissuade the wealthy from buying and spending money in New York.” 4. The rules punish the masses for the fault of a few. “It was about a few bad actors,” said Mr. Neveloff of why the city introduced the new rules. “It has to be such a small fraction of folks who are avoiding paying taxes.” Mr. Oved noted that in general, the use of LLCs for legitimate purposes far outweighs the use of LLCs for illegitimate purposes. “While the intent of the regulation is laudable, the net effect will have a disproportionate impact upon legitimate users as opposed to the illegitimate ones,” Mr. Oved said. 5. The data could get leaked or be used for other purposes. Several attorneys CO spoke to said they feared that the information could make its way into the wrong hands. “I don’t know what the city’s real motive is,” Mr. Neveloff said. “Maybe they want a database of people who invest in real estate.” He said the DOF system could be “hacked or cross-filed because there’s some master plan to find some small percentage of cheats.” Ms. Flanders said there is a concern that DOF could end up sharing the information with other agencies. Also, if someone filed a Freedom of Information Law request to gain access to the records, would the DOF disclose the buyers’ names? Mr. Oved wondered.

Staying Focused and Reviving Your Business Vision for 2014!

Staying Focused and reviving your Vision when business and profession seems at a standstill. The other day when an attorney told me "I'm only as good as my last case", it rang true for me. His practice area is criminal defense law, an area where in many cases a defendant has "no choice in the matter but to hire an attorney". As what is going on in the wider economy, so it goes if you are working independently doing contract work, running your own book of business and or running case files for other attorneys; if your clients cannot afford your services, you have to run a volume based business with an 80/20 rule model. The pressure and necessity to stay focused is ever increasing and critical. We are entering six years since the commencement of the dive of the financial markets and the beginning of the 2008 recession. The legal business is an unpredictable business on the civil side. If your client cannot afford your services and or if settlements are not reached and trials prolong, sustainability for attorneys and paralegals who work solo outside of a structured large client, corporate "revenue generating" legal business model, life can be filled with financial ups and downs. Sustaining one's practice in this regard therefore takes extreme focus, business savvy and yes luck. The first quarter of the year has been a whirlwind, living in the New York area and the East coast in general, the battle against the snow was futile, business slowed. Heading into the second quarter in a still very challenging economic market, retooling and revamping your legal business model may be a good idea in order to achieve desired results for 2014. Small law firms that don't run numbers and proactively and aggressively obtain cases, may find themselves in deeper waters, wondering why they cannot get ahead. As a paralegal that runs her own book of cases and business in business and commercial law, I know very well that a dependable, diligent and honest attorney team is an integral part of my business success. Diligently assessing cases, case viability, interviewing clients and assessing feasibility of outcomes and potential "collectability of claims" is also very important. Fortunately, with due diligence, a focused and smart marketing effort may yield the volume of business that is needed to weather the storm of the current economic climate. Stay focused, eliminate distractions, believe in yourself, every case is not a good case and every client is not a good client, build networks with people with like minds, professional work ethic, knowledge of the law and accountability. HAPPY HUNTING!

Big Law's $1,000-Plus an Hour Club

Big Law's $1,000-Plus an Hour Club Article By VANESSA O'CONNELL Leading attorneys in the U.S. are asking as much as $1,250 an hour, significantly more than in previous years, taking advantage of big clients' willingness to pay top dollar for certain types of services. WSJ's Ashby Jones discusses how some of the nation's top attorneys are able to command huge fees despite the economy being weighed down by the recession. A few pioneers had raised their fees to more than $1,000 an hour about five years ago, at the peak of the economic boom. But after the recession hit, many of the rest of the industry's elite were hesitant, until recently, to charge more than $990 an hour. While companies have cut legal budgets and continue to push for hourly discounts and capped-fee deals with their law firms, many of them have shown they won't skimp on some kinds of legal advice, especially in high-stakes situations or when they think a star attorney might resolve their problem faster and more efficiently than a lesser-known talent. Harvey Miller, a bankruptcy partner at New York-based Weil, Gotshal & Manges, said his firm had an "artificial constraint" limiting top partners' hourly fee because "$1,000 an hour is a lot of money." It got rid of the cap after studying filings that showed other lawyers surpassing that barrier by about $50. See which attorneys had some of the highest-known hourly rates in 2010 and 2009. $1,000 an Hour: 'If You Can Get It, Get It' Today Mr. Miller and some other lawyers at Weil Gotshal ask as much as $1,045 an hour. "The underlying principle is if you can get it, get it," he said. "Not many attorneys can command four figures hourly, and I do have trouble swallowing that," said Thomas L. Sager, general counsel at chemical maker DuPont Co. Still, he added, DuPont pays more than $1,000 an hour to a "select few," particularly for mergers-and-acquisitions advice. Janine Dascenzo, associate general counsel of General Electric Co., GE -0.65% said that her company is willing to pay what it must when it needs a lawyer with "unique" expertise. "We'll keep paying them a lot of money, because they're worth that," she added. Industrywide, attorneys in finance-related practices such as M&A, bankruptcy law and taxes, tend to command a premium to their peers in other specialties. One of the priciest attorneys over the past year, according to court filings, has been Kirk A. Radke, whose specialty at Kirkland & Ellis LLP in New York is advising clients on leveraged buyouts and forming private-equity funds. As of early 2010, Mr. Radke, whose clients include private-equity firm Avista Capital Partners, had an hourly fee of $1,250. Mr. Radke and Kirkland & Ellis declined to comment, as did Avista Capital. [TOPRATESjp] Such rates are contributing to inflation across the $100 billion-a-year global corporate-law industry as the slow economic recovery has left many law firms struggling to finance the hefty pay packages they award their stars. Since most law partners bill roughly 2,000 hours, those asking $1,100 hourly will bring in $2.2 million, a few million short of the $3 million or $4 million in annual compensation star attorneys get at many big firms. To help fill the gap, the firms rely on the profit they often reap on the work of junior attorneys, or associates. Dozens of associates at a time can work on a single case, and some firms bill as much as $700 an hour for their time, according to Valeo Partners, a Washington consulting firm that maintains a database of hourly legal rates in fields such as litigation, corporate law and intellectual property. That strategy can fuel tensions with clients. "We are much less willing to pay an army of associates at the ever-increasing rate," said GE's Ms. Dascenzo. "Plenty of clients say to me, 'I don't have any problems with your rate,' " said William F. Nelson, a Washington-based tax partner at Bingham McCutchen, who commands $1,095 an hour, up from $1,065 last year. "But there is price pressure for associates, especially junior lawyers. A small but growing number of top lawyers are using other arrangements in place of hourly billing. David Boies, chairman of Boies, Schiller & Flexner and a prominent trial lawyer, charges $960 an hour, a spokeswoman for the firm said. But just a third of his time is devoted to matters that are billed hourly. More often his deals with clients involve alternatives such as pegging fees to his success, she said. More typically, big law firms' managing partners dictate hourly rates annually, often studying what their rivals charge, according to disclosures in their attorney-fee filings in corporate-bankruptcy cases, which provide a rare public peek at the industry. Such cases involve more than just bankruptcy lawyers; they frequently draw in a range of attorneys, including specialists in such areas as taxes, product liability and environmental and intellectual-property law. This year, top litigators at Morgan, Lewis & Bockius LLP, a Philadelphia-based firm, are asking as much as $1,200 an hour. A spokeswoman for the firm said "less than 1% of our partners are at rates of $1,000 or more." Gregory B. Craig, a former counsel to the Obama White House who joined Skadden, Arps, Slate, Meagher & Flom LLP a year ago as a Washington-based litigation partner, is asking $1,065 an hour, according to a court filing last month. Skadden Arps declined to comment. Mr. Craig didn't respond to a request for comment M&A lawyer John M. Reiss, from White & Case in New York, started billing $1,100 an hour last year. "Some clients do focus on the hourly rate, but in the end what really matters is their total cost and whether they got a fair price," said Mr. Reiss. In recent years, pressure from clients for discounts has made it increasingly difficult for law firms to increase their lawyers' fees across the board. Hourly rates for partners rose by an average 3% in 2009 and 2010, and 2.3% this year, compared with an 8% increase in 2008, according to Hildebrandt Baker Robbins. The average law-firm partner now asks $635 an hour and bills $575, the firm said. But a small group of attorneys in some specialties command significantly more. Nearly 2.9% of partners at a group of 24 large U.S. and British law firms asked for $1,000 an hour or more in U.S. cases last year, up from 1.5% in 2009, according to Valeo. London-based lawyers have tended to charge higher per-hour rates than their U.S.-based counterparts. However, London attorneys typically don't bill as many hours on a case as do U.S. attorneys, some lawyers say. "A thousand dollars an hour was a choke point for some clients," said Peter Zeughauser, a consultant to law firms. "I don't think there will be another significant psychological barrier until rates reach $2,000 an hour, which they will do, probably in five to seven years." Write to Vanessa O'Connell at vanessa.o'connell@wsj.com

Courtroom Drama: Too Many Lawyers, Too Few Jobs

Courtroom Drama: Too Many Lawyers, Too Few Jobs Published: Thursday, 21 Mar 2013 | 12:01 PM ET By: Mark Koba | Senior Editor, CNBC READ FULL ARTICLE Tonya Constantine | Blend Images | Getty Images Becoming a lawyer seemed to be one of those career moves that could stand up to any type of economic setback. The jobs would always be there, as most people, it was assumed, would need a lawyer at some point in their lives—and a downturn in the economy would likely last no more than it took to graduate from law school. That's no longer the case. Because of the recession of 2007-2009 and a still-struggling economy, the legal profession is under severe stress. Besides not having enough positions for current lawyers, there are too many upcoming law school graduates and too few jobs to employ them. "We never saw it like this just a few years ago, but now I've seen it first hand," said Ron Lieberman, a matrimonial lawyer the in New Jersey firm of Adinolfi & Lieberman in southern New Jersey. "There are too many lawyers and too few jobs. We just hired someone, but we didn't look very hard, and she was doing volunteer work." He added: "I'm not sure it's going to get better any time soon." The legal profession, like many others, has been downsizing. It's boosting productivity of current staffers, rather than hiring new employees, analysts say, and anyone newly hired is likely to be doing so at half the salary than that of a new hire just four years ago. "The recession has really changed the dynamics of the legal profession," said Fred Cheever, the associate dean at Sturm College of Law at the University of Denver, who noted the school has had to cut its class size from 380 to 290 this past year. "Other schools are doing the same. It's a way to respond to the recession and the job market." There are nearly one million people employed as lawyers in the U.S., and the rate of unemployment for lawyers is just around three percent. That said, the legal job market has slowed dramatically. The U.S. will have a 7.3 percent loss in legal employment for 2013, according to Bright.com, a research group. The greatest loss of jobs will be in insurance defense attorneys, and in areas of employment and commercial real estate. Going forward, the Bureau of Labor Statistics projects nearly 74,000 jobs new lawyer jobs created in the U.S. over the next seven years. The growth is expected in areas including health law, intellectual property law, privacy law, and international law. But American law schools will graduate about 44,000 students each year during that time, and in doing the math, that means six new lawyers — not including older graduates — will be fighting it out for just one new job.

I've Filed a Mechanic's Lien and Still Have Not Been Paid NOW What?

You have filed a mechanic's lien against the debtor and or the company that you provided construction and or design related services to. You and or your accounts receivable department might have filed the lien directly and or hired one of the popular lien filing services available to do it for you. You may have an in house attorney and or you may have hired an outside attorney to file the lien and begin collection strategies. Great you filed the lien on your own and or used a lien filing service and six months later you still have not been paid. You hired an attorney if it is an affordable situation for your firm (many small businesses cannot afford high hourly rate attorneys, a negotiated fee with a contingency or payment plan preferable). You hired the attorney but the attorney knows very little about construction law, does not have support staff that knows about construction law and rarely picks up the phone to begin any type of negotiations with the debtor party. You are frustrated because you did not run an accurate credit profile on the company that you now have done business with and or with the sluggish economy you have taken the risk because you need the business. A few facts, the longer the lien sits the more challenging it may be to collect. When the lien has been filed it is important to immediately be proactive in understanding the debtors situation and to gage whether or not they will pay within a specific timeframe and or if you have to proceed with further legal action. Working with a general contractor that has money mismanagement issues and you did not know it, thus the general contractors have spent the funds for the project completion another uphill battle. My mechanic's lien has been Bonded now what? If you have to move forward with legal proceedings on your mechanic's lien, it is important to work with legal professionals who understand construction law period? If it is a pure debt and or business collection matter it is important to work with legal professionals who are proactive, pick up the phone, do their research on the debtor and find every practical way of getting you your money! Lu'na Hernandez

I've Filed a Mechanic's Lien and Still Have Not Been Paid NOW What?

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The 6th Circuit splits with 2nd and 9th, lowers bar for securities claims

The 6th Circuit splits with 2nd and 9th, lowers bar for securities claims 5/24/2013 (Reporting by Alison Frankel) Federal courts in Kentucky, Ohio, Tennessee and Michigan may soon be seeing an influx of securities class actions claiming strict liability under Section 11 of the Securities Act of 1933, thanks to a ruling Thursday by the 6th Circuit Court of Appeals in Indiana State District Council of Laborers v. Omnicare. Judge Guy Cole, writing for a panel that also included Judge Richard Griffin and U.S. District Judge James Gwin of Cleveland, found that shareholders asserting Section 11 claims for misrepresentations in offering documents need not show that defendants knew the statements to be false. "Under Section 11," Cole wrote, "if the defendant discloses information that includes a material misstatement, that is sufficient and a complaint may survive a motion to dismiss without pleading knowledge of falsity." The panel explicitly noted that its reasoning is at odds with the 9th Circuit's ruling in the 2009 case Rubke v. Capitol Bancorp and the 2nd Circuit's oft-cited 2011 decision in Fait v. Regions Financial. But the court said it is bound only by the U.S. Supreme Court and insisted that high court precedent in the 1991 case Virginia Bankshares v. Sandberg is consistent with its Omnicare holding. "In the instant case, the plaintiffs have pleaded objective falsity," Cole wrote. "The Virginia Bankshares court was not faced with and did not address whether a plaintiff must additionally plead knowledge of falsity in order to state a claim. It therefore does not impact our decision today." The Omnicare class action has quite a convoluted history. The case began in federal court in Kentucky as a securities fraud class action claiming that the pharmaceutical distributor deceived investors when it concealed its supposedly illegal kickback and false billing deals with pharma manufacturers. Shareholders later amended the complaint to include Section 11 claims based on disclosures in a 2005 public offering. The entire case was dismissed in 2007, but in 2009 the 6th Circuit revived and remanded the Section 11 claims, instructing the district court to determine whether they "sound in fraud" and must meet a heightened pleading standard. Plaintiffs' lawyers at Robbins Geller Rudman & Dowd considered asking the U.S. Supreme Court to review the issue of scienter for Section 11 claims that sound in fraud, but instead amended their Omnicare complaint in an attempt to strip out hints of fraud, focusing only on the falsity of so-called "soft statements" about Omnicare's legal compliance in the offering documents. The district court nevertheless said shareholders failed to meet the requisite standard of establishing that defendants knew the statements were false. In Thursday's ruling, the appeals court said such a showing is not necessary for Section 11 claims, which entail strict liability for offering documents that contain material misstatements. "No matter the framing, once a false statement has been made, a defendant's knowledge is not relevant to a strict liability claim," the panel said. Omnicare counsel Richard Reinthaler of Winston & Strawn told me he believes the 6th Circuit is flat wrong. The Supreme Court's precedent in Virginia Bankshares, he said, holds that shareholders must establish "objective falsity and subjective falsity.... The knowledge requirement is imbedded in the materiality element for soft statements." According to Reinthaler, "If every statement of opinion or belief is actionable without knowledge of falsity, it will open the floodgates" for Section 11 securities class actions. He said that Omnicare hasn't made a final decision about its next step but is leaning toward asking the entire 6th Circuit to review the panel's ruling en banc. Ultimately, of course, the Supreme Court may have to take up the issue to resolve the circuit split. I left a message for Eric Isaacson of Robbins Geller, who argued for shareholders at the 6th Circuit, but didn't immediately hear back. (Reporting by Alison Frankel)