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Client Q & A

Answers to common client questions.
Posted: December 22, 2015

Client Q&A: It looks like I am being sued, but I am not sure the lawsuit has been properly commenced.

It looks like I am being sued, but I am not sure the lawsuit has been properly commenced.


By Bradley J. Nash

The first step in commencing a lawsuit in New York is filing a summons and complaint in Court. But before the case really starts, the plaintiff must deliver the summons and complaint to the defendant through one of several methods permitted by statute, known as “service of process.” The court does not have jurisdiction over the defendant – and the defendant therefore has no obligation to respond to the complaint – until the summons and complaint are properly served. Once service is complete, the defendant generally has twenty days to answer the complaint.

The purpose of service is to give the defendant notice of the lawsuit and an opportunity to defend against the claims. But not every form of notice is sufficient – there are specific rules that must be followed. Whether a lawsuit has properly been commenced against you depends on whether those rules have been followed.

The basic rules for serving individual defendants and business entities are described below.

Service of Process on an Individual

1. Personal Service. The first way to serve an individual defendant is so-called “personal service,” in which a process server hands the summons and complaint to the defendant in person. This is the most straightforward method of service, but sometimes it can be difficult to accomplish. The process server might show up at the defendant’s home or business address, only to find that the person is not there. Thus, other methods are available.

2. Substitute Service. The first alternative to personal service is “substitute service,” in which the summons and complaint are personally delivered to a person of “suitable age and discretion” at the defendant’s residence or place of business, and a copy of the papers is also mailed to the defendant’s last known residence or actual place of business. The two steps for substitute service (delivery and mailing) can be done in any order, but must be completed within twenty days of each other. Moreover, the mailing must conform to certain requirements that are designed to protect the defendant’s privacy – the envelope must have the legend “personal and confidential” and must not indicate on the outside that the communication is from an attorney or concerns a lawsuit against the person who is being served.

3. Nail and Mail. In certain cases, where personal service or traditional substitute service cannot be accomplished, a method of service called “nail and mail” may be permitted in which the summons and complaint are affixed to the door of the defendant’s residence or place of business and subsequently mailed (subject to the same mailing requirements described above).

Where the substitute service or “nail and mail” method is used, the process server must within 20 days file an affidavit of service with the Court attesting to the time, place and manner of service. Service is not deemed complete, and the defendant’s time to answer the complaint does not begin to run, until 10 days after the affidavit is filed.

Service of Process on Business Entities

Different rules apply for performing service of process on business entities.

1. Corporations. A corporation may be served by personal service on an officer, director, “managing or general agent” (i.e., any person of responsibility at the corporation’s office) or “cashier or assistant cashier” (i.e., a person with responsibility for the corporation’s funds – not someone who stands behind a cash register).

2. Partnerships. A general partnership may be served by personal service on any of the partners, or by personal service on a “managing or general agent” of the partnership, or a person in charge of the partnership’s office and mailing the summons and complaint to a partner at his last known residence or the place of business of the partnership, followed by filing an affidavit of service, as described above. The nail and mail method can also be used at the partnership’s place of business.

3. Limited Liability Companies. An LLC can served by personal service on a manager.

Many business entities appoint a registered agent for service of process. Business entities may also be served through the secretary of state in the state of incorporation, or in a state where they are licensed to do business.

Alternative Service

1. Personal Service by Mail. To save the expense of hiring a process server, a plaintiff can mail a copy of the summons and complaint to the person or entity to be served by first class mail together with a copy of a statement acknowledging service and a return envelope, with postage pre-paid. The defendant then has 30 days to sign and return the acknowledgment. The defendant is not obligated to do so, but if the acknowledgement is not signed, subsequent costs to serve the defendant (i.e., process server fees) are shifted to the defendant.

2. Other Methods. Where service cannot be accomplished through any of the methods described above, the Court can, in certain circumstances, authorize an alternative form of service, such as by email or through publication in a newspaper.

What Happens If The Defendant Is Not Properly Served?

The rules for service of process are technical, and failure to comply strictly with those rules can deprive the court of jurisdiction to hear the plaintiff’s case. In state court, the plaintiff has 120 days from filing to effect service. Under recent rule amendments, a shorter 90-day time period applies to cases in federal court. If the summons and complaint are not timely served, the lawsuit is subject to dismissal without prejudice, meaning that the plaintiff can ordinarily re-file and start the process over again. Sometimes, this is nothing more than an inconvenience for the plaintiff. However, if the statute of limitations runs out before the complaint is re-filed and service is properly made, it will be too late for the plaintiff to re-file the complaint, so the failure to complete timely service can be a fatal defect.

Conclusion


Our firm has a great deal of experience helping defendants in civil litigation navigate the process. If you learn that a complaint has been filed against you or your business, we would be happy to assist you in determining whether you have been properly served and mounting an appropriate defense.

Posted: November 30, 2015

Client Q&A: I am a shareholder in a family-owned business. I think that CEO of the company has been taking advantage of us. Besides firing her, is there anything we can do?

By John M. Lundin

Shareholders own the corporation, but the directors and the officers they employ run it. Making sure that corporate officers act in the best interests of the shareholders, who own the company, rather than themselves, is one of the fundamental problems of corporate law.

Fiduciary Duties

A corporate officer has a fiduciary duty to the corporation and must put the corporation’s interests ahead of her own. There is a wealth of court decisions and scholarly literature examining the scope of that duty. Briefly, corporate officers have:

A duty of loyalty: They must act in the corporation’s best interest. In particular, they cannot put their own interests ahead of the corporation’s. Thus, for example, they cannot make corporate decisions for their own benefit rather than that of the corporation. Nor can they take advantage of a business opportunity personally when the opportunity would benefit the corporation. And, of course, they cannot use or take corporate assets as their own.

A duty of care: While there are different formulations of this rule, basically, a corporate officer must care for the corporation’s business and property with the same care and diligence as if it were her own. However, corporate officers are—in general—protected by the business judgment rule, which means that when there is no evidence that the officer has a personal interest in a decision (for example, she would personally profit by it), and provided that the officer took steps to inform herself of the facts and acted in good faith, a court will give great deference to her decisions.

What Can You Do?

The directors can discharge an officer who is harming the corporation. And, if the corporate officer has harmed the company, the company can sue her.

But what about you, a shareholder? Other than pressuring the directors to act (or replacing them), what can you do?

Derivative Actions

In certain circumstances, a shareholder can bring a lawsuit on behalf of the corporation against the corporation’s officers or directors for harm they have caused to the corporation. This is called a derivative action.

The rules for derivative actions vary based on the state in which the corporation was formed, but normally, before you bring a derivative action, you have to show that (1) you made a demand on the board of directors that they act or (2) you should be excused from making the demand for just cause, such as where the directors are implicated in the wrongdoing, so you would be asking the board to sue itself. Typically, if you make a demand on the board and it decides not to take the action you demanded, you could be liable for the corporation’s legal expenses if you persist in the suit.

If you go forward with the lawsuit, it is generally like any other lawsuit, except that you would be litigating a claim on behalf of the corporation, not yourself. This is an important distinction, because the claim is the corporation’s and the recovery goes to the corporation, not directly to you.

If the recovery goes to the corporation, not you, why should you take the time and expense to bring a derivative action? The short answer is that sometimes this is the only way you can protect your interests as a shareholder. And, if you are successful, the corporation might be ordered to pay your legal fees, so it may end up not costing you anything.

Conclusion

The decision on what to do when you think a corporation’s management is not acting in the corporation’s best interest involves many issues. And there are several ways of addressing this situation, including a derivative action, which is sometimes is the only way a shareholder can protect her interest in a corporation. We have extensive experience in counselling clients on this decision. We would be happy to help you if you believe that an officer of a corporation you own is taking advantage of the corporation.

Posted: November 16, 2015

Client Q&A: Responding to a Subpoena in a Criminal Matter

Responding to a Subpoena in a Criminal Matter

By Michael A. Battle

In Law enforcement has asked me for information about my business. What should I do?, Schlam Stone & Dolan partner Michael A. Battle explained the first steps you should take when contacted by law enforcement. This post discusses the next step, responding to a government subpoena.

Now that you have retained counsel and had an opportunity to review the subpoena with her, you and your counsel must now determine a strategy for responding. Normally, a subpoena that is directed to a business seeks documents–both paper and electronic; often large numbers of them. If your lawyer decides not to ask a court to quash all or part of the subpoena (that is, to limit its scope), the strategy for putting together the production will require a number of steps.

Locating the Evidence and Ensuring its Preservation

The first step is for you and your counsel to identify and locate the evidence sought by the subpoena. Remember that the evidence could be at your offices, but it also could be elsewhere, including at your home, in storage, or with your accountant or other advisor.

The search usually begins with someone from your Information Technology Department because these days, most records are electronic. Even before beginning the search, your counsel will instruct you and your employees to preserve all relevant evidence and to make sure that any information technology protocols for the automatic deletion of evidence are turned off. This is because any destruction occurring after you learn of the subpoena can lead to serious problems, including possible criminal charges.

Selecting a Vendor to Process The Production

To search and produce all the evidence called for in the subpoena may involve engaging vendors to review the evidence and prepare it for production. Many companies provide these services. They understand the nature of these productions and the care which must be taken in performing them. This process can be time consuming and expensive.

Consultation With the Government

As soon as counsel has determined the volume of the information available, she will discuss it with the government and propose a schedule for production. The production likely will be rolling because of the volume of work involved. Thus, any earlier extensions to produce typically will be continued. Counsel will work closely with you so the production proceeds smoothly.

Additional Requests

As time goes on, the Government will learn more about that which they are investigating. This may lead to additional subpoenas for information. Additional subpoenas may also identify individuals, including your employees, that the government wants to interview. The same advice of not meeting with the government without the benefit of counsel applies. The government wanting to interview your employees also raises the issue of who will be counsel for your employees. Often, your employees will need their own lawyer, separate from your company’s lawyer.

Conclusion

Collecting and producing evidence to the government can be expensive and time-consuming. But usually, it is unavoidable. The best you can do is engage counsel to guide you through the process in a way that is both economically efficient but that meets your legal obligations under the subpoena. This is an area in which we have extensive experience. If you need to produce evidence in response to a government subpoena, we can advise you.

Posted: November 2, 2015

Client Q&A: Law enforcement has asked me for information about my business. What should I do?

Law enforcement has asked me for information about my business. What should I do?

By Michael A. Battle

You have just received a subpoena from the Government commanding the production of documents or other information. Or perhaps you have been contacted directly by someone from the FBI, the US Attorney’s Office, the State Attorney General’s office or a District Attorney asking you to appear in person for a meeting. What should you do?

Get an Attorney

Receiving a subpoena can be daunting. If your business receives a subpoena or other request for information from law enforcement, the first thing you should do is contact your business’s highest ranking legal representative, if it has one, to assist in retaining a criminal defense attorney. If you are an individual or your business does not have an in-house lawyer, you should should similarly engage the services of a criminal defense attorney as soon as possible. Time is of the essence because most subpoenas state a deadline by which the recipient must comply.

Now That We Have An Attorney, What Happens Next?

The first thing counsel will do is to contact the government to determine who is in charge of the investigation or proceeding. This is done in part to make sure that all future contact from the government should take place through your counsel.

The next order of business will be to determine what the government’s interest is in you or your business. Counsel will likely seek an extension of time to respond, both so they can familiarize themselves with the case and to ensure timely compliance with the subpoena. Attorneys for the government will generally grant such requests at an early stage.

Counsel will work with you to respond to the subpoena and, if necessary,to challenge any aspects of the subpoena that overreach.

What Bucket Are You In?

Counsel will next try to learn as much as he or she can about where the client fits within the government’s particular interest. Specifically, the question is where you fall within one of three “buckets,” which is a standard term used to describe the government’s interest as part of a criminal investigation. These buckets are identified as target, subject, and witness.

If the government has identified you as a target, this usually means that the government believes that you are directly involved with the criminal activity that is being investigated. If the government has identified you as a subject, this usually means that the government believes that you may have some involvement or knowledge of the criminal activity being investigated and, although it is not certain of that involvement, the government is seeking to learn more through the development of evidence.

Finally, if the government has identified you as a witness, this indicates that the government has determined that you are not a target or a subject, but may nevertheless have knowledge or information about the criminal activity that is being investigated, and importantly, may be of assistance to the government. This, of course, is the best category for any client to find themselves. More often than not, when the government has determined that a client is a witness, the government already has vetted the client’s involvement and, having identified the client as a witness (and barring the development of contrary evidence), this categorization should not change.

In all three of the buckets described above, if counsel determines that you should meet with the government, counsel will typically do so by obtaining the protections afforded by a written agreement between you, your counsel, and the government’s attorney, which is commonly referred to as a “Proffer Agreement.” Entering into a Proffer Agreement with the government, which requires the client to appear and make a statement (either directly or through counsel), is a very nuanced practice that requires delicate navigation between providing the information requested without making incriminating statements that can be used against you later.

Conclusion

Later posts will elaborate on how your counsel will help put together the information requested in the subpoena, and/or set up a meeting with the government’s attorneys.

The key message of this post is the importance of getting counsel involved early. Regardless of whether you are a target, subject or only a witness, you should seek counsel’s advice.

Posted: October 20, 2015

Client Q&A: I am the beneficiary of a trust, and I’m afraid the Trustee is taking advantage of me. What can I do about it?

I am the beneficiary of a trust, and I’m afraid the Trustee is taking advantage of me. What can I do about it?

By Niall D. O’Murchadha

Disputes between trustees and beneficiaries are sadly common, and have been happening since trusts were first invented thousands of years ago.

As far as we know, trust law was first formalized in ancient Rome, and the “modern” common-law trust developed in medieval England. Trusts have in common that the trustee, not the beneficiaries, “owns” the property held in trust, but over time many different protections—both judge-created equitable rules (which go all the way back to the Middle Ages), and more recent statutes—have been put in place to prevent abuses. Because of this long history, what follows can only be an overview of a very complicated and sometimes inconsistent field of law.

Duties of a Trustee.

As a general matter a trustee owes a “duty of utmost loyalty and full disclosure” to beneficiaries. This standard requires a trustee to act only in the interests of the beneficiaries and to do everything reasonably possible to advance their interests with regard to the trust. These duties include the following:

  • The duty to take possession of the trust’s assets, and to pursue claims against third parties who may have misused assets intended for the trust. (This can arise if the trustee of a trust created by will suspects the executor of mismanaging funds, for example.) The trustee must also segregate trust assets, ensure they are maintained properly (in the case of valuable specific items like works of art, buildings, etc.) and defend lawsuits against the trust.
  • The duty to take only reasonable compensation for work performed. A trustee may not engage in self-dealing or benefit in any other way from his or her control over the trust. Self-dealing includes transactions with the trustee’s family members or other associates.
  • The duty to treat beneficiaries impartially. This can arise if the trust has more than one beneficiary with different needs or different future expectations, such as where one beneficiary has a much longer life expectation than another.
  • The duty not to delegate responsibility for the trust to others.
  • The duty to maintain accounts and respond to beneficiaries’ reasonable requests for information. The trust should have its own TIN and pay taxes as a separate entity.
  • The duty to manage investments pursuant to a prudent investor standard. (A fiduciary such as a bank or trust company is held to an even higher standard.) This rule can allow a trustee to disregard the directions of the trust’s creator if it appears to be in the beneficiary’s interest, such as by diversifying assets or changing the amount of distributions to protect the trust fund.

Remedies Against a Trustee.

Beneficiaries who suspect that a trustee has engaged in misconduct have a variety of possible remedies available to them. Actions at law—such as negligence in performance of duties—can almost never be brought against a trustee, but common-law equitable causes of action and statutory causes of action are more than adequate to fill the gap.

The initial remedy that can be pursued against a trustee is an action for an accounting—if the trustee has failed to make a satisfactory accounting of his or her management and disposal of trust assets or has not responded to reasonable demands for information, a beneficiary can bring an action to compel an accounting. This can provide information necessary to assert other causes of action.

Beneficiaries can also bring suit to remove a trustee from his or her position. In theory, this remedy can be obtained for any misconduct by the trustee, or even if hostility between the trustee and the beneficiaries impedes the functioning of the trust, but proof of some wrongdoing by the trustee is usually required—a strictly personal conflict is not enough to justify removal.

Trustees are also subject to actions for breach of fiduciary duty. This action can be brought to hold trustees liable for financial injuries to the trust arising from his breach of the duties set forth above. Beneficiaries can receive a number of different remedies, including return of misappropriated property to the trust, lost profits for the trust and even punitive damages for gross breaches of duty.

Finally, in many situations statutory remedies—such as payment of attorneys’ fees—can be available against a trustee in breach of his or her duty.

Other Issues Arising in Disputes with Trustees.

In New York, the statute of limitations against trustees is generally three years (for breach of fiduciary duty) but the statute of limitations is often tolled, or does not begin to run at all, while the trustee is in office. This means that a beneficiary can assert claims for wrongdoing that happened many years ago.

As well as proceeding against the trustee, beneficiaries may also be able to sue third parties who aided or abetted the trustee in his or her breach of fiduciary duty. This cause of action is often asserted against the trustee’s lawyers or financial advisers, as well as third parties who may have profited from the trustee’s self-dealing or other misconduct. If the trustee’s attorneys were paid by the trust, they can sometimes be sued for malpractice by the beneficiaries, on the theory that the beneficiaries are the “real” owners of the trust and hence were the attorney’s “real” clients.

In addition to the general duties of a testamentary trustee set forth above, there are many other kinds of trustees—corporate trustees, court-appointed trustees for incompetent persons, etc.—and many different kinds of trusts.

Conclusion.

Because of the complexity of trust law, and the many rules and provisions applicable to different kinds of trusts in different jurisdictions, it is very important for a beneficiary who has serious concerns about a trustee’s management or honesty to consult an experienced lawyer. Schlam Stone & Dolan has litigated many breach of fiduciary duty and other claims against trustees, and can provide more specific information about the law applicable to a particular dispute with a trustee.

Posted: September 21, 2015

Client Q&A: I have to sue a foreign company, but don’t know where and how…

I have to sue a foreign company, but don’t know where and how…

By Vitali S. Rosenfeld

Just like in any business dealings, a relationship with a foreign counterparty may invite litigation. But international proceedings can bring more uncertainty, because there are more variables. Where do you sue: here (where you are), there (where they are), or somewhere else? Which law applies to what? And what procedural rules do you follow?

Forum Selection Clauses

In contract cases, some of these questions may be answered by so-called forum selection clauses, which prescribe litigation in a particular jurisdiction and sometimes a particular court (see our prior post on this topic), and choice of law clauses prescribing which law should be applied. But these clauses are not always mandatory, and sometimes they turn out to be too vague or otherwise unenforceable. Moreover, a clause applicable to some part of a dispute may not apply to its other aspects involving other parties, other transactions, and other agreements. In a nutshell, if a potentially applicable forum selection or choice of law clause exists, it should be carefully analyzed – but that is not the end of the analysis, just the beginning.

What Are Your Choices?

In deciding where to sue, the first step is to assess your options. Are you limited in your choice of forum by a contractual clause? Otherwise, which courts would have jurisdiction over the dispute and over the defendant? Quite often in international matters, there is more than one forum where jurisdiction exists. For instance, you can usually sue the defendant in his own country – but you may also be able to sue in New York or in a third country (or state) if the dispute is based on dealings that took place there or has some other substantial connection to that jurisdiction. In such situations, where to sue becomes a strategic choice involving several considerations.

First, the choice of forum will likely affect the choice of law applicable to the merits of the dispute. That does not mean, however, that a New York court will automatically apply New York substantive law, or a foreign court its own substantive law. Rather, each court will likely apply its own “choice of law” rules – a specific set of guidelines determining what law to apply in each particular type of case. These rules are different for different kinds of claims. For instance, breach of contract claims, tort claims, real property claims, and estate claims are all governed by different choice of law principles. As a result, it is quite common that a New York court may apply New York law to one claim or issue and foreign law to another claim or issue in the same case before it. A foreign court may do the same. So before deciding where to sue, it is critical to consider: (a) what choice of law rules will apply in each forum, (b) what rules of substantive law will these choice of law rules implicate, and (c) how this substantive law will affect the merits of your claims.

Second, the choice of forum will definitely affect the litigation procedure. New York courts normally apply their own rules to procedural matters regardless of what substantive law they are applying; many courts elsewhere do the same. Thus, the available procedural devices (including discovery, motions, evidentiary hearings, jury or bench trials, and appeals) as well as countless minor technicalities and the timing involved in every step of the case will likely be governed by the local procedural rules. Therefore, the relative advantages and disadvantages of such rules for your particular situation should be carefully considered.

Third, convenience is another important consideration. How practicable will it be to conduct the proceedings in each potential forum? Where are the necessary witnesses and will they be able to travel to that forum to testify – or will you be able to compel their appearance? Where and in what language are most relevant documents? Even if the court has jurisdiction, it may consider such questions and dismiss the case on a forum non conveniens motion if it decides that there is a more appropriate forum elsewhere to hear the dispute. But even if the court keeps the case, you need to consider whether it is a convenient forum for you and your evidence.

Fourth, you have to look ahead and consider potential judgment enforcement proceedings. If you win the case in New York, does the defendant have any assets here on which you can execute the judgment? If not, will you be able to get your New York judgment recognized and enforced in the defendant’s country (or in a third country where assets are located)? And if the latter is problematic, would it perhaps be better to sue there to begin with?

What Do You Do Once You Have Chosen a Forum?

Once you have decided where to sue, the local procedural rules would provide guidance on how to proceed. In New York, a civil action normally begins with filing the complaint. The summons and complaint then need to be duly served upon each defendant; this is usually referred to as service of process. Valid and timely service of process is a critical step in launching any proceeding; without it the court will have no jurisdiction over the defendant. With regard to local defendants, the methods of service are prescribed by the rules of the forum. The same methods, however, may be ineffective with regard to foreign defendants. Instead, service of process upon them is often governed by international treaties.

The Hague Convention

The most notable of such treaties is the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. American courts have made it clear that application of the Hague Convention is mandatory where a U.S. plaintiff is serving process on a defendant in another country that is a member of the Convention. Such members include Canada, Mexico, most European countries, and many countries in other parts of the world.

The main method of service contemplated by the Hague Convention is service through the “Central Authority” established by each member country. First, the plaintiff’s representative or judicial officer in the country of origin delivers the documents to the Central Authority of the destination country (which is usually a government ministry) accompanied by the requisite translations, forms and fees. Then, the Central Authority, through local officers and applying the local rules, serves the defendant. While the timing and efficiency of this process largely depends on the specific country of destination, the process usually takes months and is fraught with difficulties and delays.

The Convention, however, permits other procedures as well. The most widely used, and also the most controversial, is to “send judicial documents, by postal channels, directly to persons abroad,” as contemplated by Article 10(a) of the Convention. American courts, and even New York courts, are split on this provision: under one view, it provides for an alternative method of service of process; under another, it is only a supplementary method that does not obviate the need for going through the Central Authority to serve process at the beginning of the litigation. So which particular court you are in – even within New York – may affect the availability of this method of service. Another factor is the reservations and declarations filed by the specific member country in joining the Hague Convention: many countries have expressly renounced the use of Article 10(a) for service of process in their territory.

Sometimes service under the Hague Convention or another applicable treaty may prove to be an impossible endeavor due to the political situation or other complications in the foreign country. In such extreme situations, the court may have the power to order substitute service by other means, including mail, email or publication. These cases, however, remain an exception.

Conclusion

International litigation is complex, because the number of applicable laws and rules to be considered grows exponentially where numerous jurisdictions are involved. If you need to sue a foreign defendant – or if you find yourself to have become one, for that matter – be sure to consult competent counsel with international experience. Schlam Stone would be an excellent choice.

Posted: September 8, 2015

Client Q&A: A competitor just told a lie about me. Can I sue him?

A competitor just told a lie about me. Can I sue him?

By Erik S. Groothuis.

In the rough-and-tumble of the marketplace, competitors often say things about each other that are less than complimentary. When your competitor’s statements cross the line from providing truthful information (e.g., “we are the highest selling car dealership in New York”) or puffery (e.g., “our restaurant is the best—better than that place down the street’) to a defamatory statement (e.g., “ABC Carpet steals from its customers’), you may have a claim that can be brought in court.

What is Defamation?

A defamation claim requires a false statement, published without authorization to a third party, that is made with the required state of mind and causes injury by exposing the plaintiff to public contempt, ridicule, disgrace, or otherwise impugns character. A defamatory statement can be made orally (which is also known as slander) or in writing (also known as libel).

The defamatory statement must cause harm, which in the business context typically means an injury to reputation or loss of goodwill that causes the plaintiff to lose business or customers.

Defamation claims have a relatively short statute of limitations and must be brought within one year.

Required State of Mind.

The state of mind required for defamation depends both on who is doing the speaking, as well as the type of person or entity that is the target of the remark. The necessary state of mind ranges from statements that are made recklessly or negligently to purely malicious statements. It should be noted that in the defamation context, a statement made with “malice” does not have to be malicious in the ordinary sense, which is to say, spiteful. It can be made with “malice for the truth,” meaning without regard to whether the statement is accurate.

Defamation Plaintiffs.

Both natural persons and corporations and other entities may bring defamation claims. If the plaintiff is a public figure or has otherwise voluntarily put him, her, or itself into the spotlight on an issue of public concern, a higher level of intent, malice, is required to prove defamation. This is because people who have sought and achieved fame are considered less worthy of protection from defamatory remarks. By contrast, purely private individuals who have not sought to enter the public debate are considered more worthy of protection, and so a false remark that is made recklessly or negligently may suffice.

Defamation Defendants and Defenses.

Both natural persons as well as corporate entities can also be the subject of a defamation claim. Courts typically give more protection to newspaper publishers or other media defendants than they would to non-media defendants such as businesses or private individuals.

The most common defense to a defamation claim is of course truth, but it is by no means the only one. Statements that are purely matters of opinion are generally not considered actionable under defamation law; the statement, to be defamatory, must contain facts that are false. Other statements that are immune from defamation claims include statements made by public officials in their official capacities, and statements made in litigation or summarizing a party’s positions taken in litigation.

Conclusion.

Our firm has a great deal of experience in both prosecuting and defending defamation claims. We would be happy to discuss your options with you if you are considering filing a lawsuit.

Posted: August 27, 2015

Client Q&A: I was cheated by a big company. My loss was not big, but they probably cheated other people, too. How can we all get justice?

I was cheated by a big company. My loss was not big, but they probably cheated other people, too. How can we all get justice?

By Bradley J. Nash

In general, a plaintiff in a lawsuit can only assert claims for injuries that he suffered – and cannot assert claims on behalf of others. A class action is a special procedure that permits a plaintiff (if certain requirements discussed below are met) to assert a claim on his own behalf and also on behalf of a class of similarly situated persons who suffered the same injury. A class action is an especially useful device in situations where a defendant inflicts relatively small injuries on a large group of people. For example, a company might overcharge thousands of consumers by a small amount. The value of each individual claim might not justify the expense of a lawsuit, but when the claims are aggregated, the total damages may be large.

Class actions are brought in a variety of contexts, including consumer fraud (such as the example above); securities fraud (on behalf of investors claiming injuries based on misstatements in a company’s financial statements); products liability (on behalf of consumers injured by a defective product); and employment law (on behalf of employees for wage and hour violations or discrimination).

To bring a class action, a number of requirements must be met. These are discussed below.

Named Plaintiffs With Standing

First, the action must be commenced by a named plaintiff (or plaintiffs) with legal standing to assert a claim against the defendant. That is, the named plaintiffs must have suffered an injury for which they can sue in their own name. The named plaintiffs’ claim must be connected to the injuries suffered by the unnamed class members.

Class Certification

In order for a lawsuit to proceed as a class action, the court must grant a motion to certify a class. The named plaintiffs bring such a motion at an early stage of the case.

Numerosity. The first element that must be established to certify a class is “numerosity” – i.e., that there are a sufficient number of class members that it would be “impractical” to join all of them as named plaintiffs in a regular lawsuit. Although there is no fixed standard as to how many class members are required, as a general rule courts will find the numerosity requirement satisfied if there are 40 or more members in the class.

Commonality. Second, the named plaintiffs must show that there are issues of law or fact that are common to the group. The claims of the class members need not be identical in every respect. But there must be some common questions that affect the class members generally. The commonality requirement will be satisfied if the class members were victims of the same fraudulent scheme, injured in a similar way by the same product, or signed the same standardized contract.

Typicality. The named plaintiffs must establish that their claims are “typical” of the claims asserted on behalf of the class. There must be a connection between the named plaintiffs’ claims and the questions of law or fact that are common to the class. Courts will generally find this requirement satisfied if the named plaintiffs’ claims arise from the same events and are based on the same legal theory as the class claims.

Adequacy of Representation. Finally, the named plaintiffs must establish that they can fairly and adequately represent the interests of the class. If the other elements have been established, adequacy of the representation is usually presumed, although the court may consider any conflicts of interest that may exist in a particular case, as well as the reputations of the named plaintiffs (also known as the “class representatives”), and their attorneys’ experience litigating class actions.

Notice to Class Members

If the court certifies a class, notice is sent to the class members by mail and also by publication in newspapers or the Internet. In most cases, membership in the class is automatic, although individual class members can choose to opt out if they wish to pursue an individual claim or for some other reason do not want to be a part of the class.

Distribution of Damages Payment or Settlement Proceeds

The court oversees the distribution of any recovery among the class members. If there is a settlement, it must be approved by the court. The court will also award a fee to the attorneys who represent the class, often based on a percentage of the recovery. The class representatives who serve as lead plaintiffs may be entitled, in the court’s discretion, to an additional “incentive award” to compensate them for their efforts on behalf of the class.

Conclusion

Our firm has experience both bringing and defending class action lawsuits. We would be happy to advise you on pursuing or defending such an action.

Posted: August 10, 2015

Client Q&A: The IRS is After Me. What Should I do?

The IRS is after me. What should I do?

By James C. Sherwood

The IRS contacts people in many ways, and for many reasons. Most of these contacts are routine inquiries; some are not. What follows are some considerations to help you understand the process. However, if the IRS contacts you, seek advice from a qualified tax attorney or accountant.

Is the IRS Really After Me?

Many people (including me) have recently received robocalls stating that the IRS is about to sue you, unless you call (and provide confidential data). These calls are phone fraud, a telephone version of phishing on the internet, and have nothing to do with the IRS. The IRS does not robocall and threaten. If you receive such a call, do not call back – ignore it.

How Does the IRS Contact Me?

Typically, the IRS makes initial contact by a letter in the mail, not email or social media. The IRS will write, for instance, if the income on your return doesn’t match your W-2s and 1099s in their data base; if they’ve found mathematical mistakes on your returns; if their account of your estimated tax or withholding tax payments doesn’t agree with yours; if they are going to send you a refund; if they have selected you for audit; or for a hundred other reasons. While an IRS contact is no reason to panic, do not ignore it.

If you ignore IRS letters, they will follow up with harsher letters or phone calls. Ignoring letters and live phone calls can make an easy matter worse. Check your records and your returns: if there is a substantial discrepancy, you should seek advice before responding to the IRS.

What Kind of Letter Should I Worry About?

Many people know or suspect that their tax returns have errors, some serious. Examples include (but are not limited to) unreported cash income, off-the-books employment, mixing personal and business expenses, overstating gifts to charity, false records created to support tax returns, etc. If the IRS sends an audit notice where these problems exist, or asks for returns you have not filed, these can be serious matters.

If you receive an IRS contact where a potentially serious problem exists, you should contact qualified criminal counsel for prompt advice before responding to the IRS.

Should I Call My Tax Preparer?

It depends. If you have a serious problem, the IRS will seek to identify the problem (for example, unreported income), and then to determine who was at fault: for example, did the taxpayer hide information from the preparer? Did the taxpayer tell the preparer about it, and the preparer missed it or said “It’s cash – don’t report it?” In either case, the preparer has a conflict of interest and you should certainly seek other representation.

Can I Have a Confidential Talk With My Accountant?

No. The IRS or a prosecutor can ask your accountant about all conversations with you, and she must answer unless she invokes the Fifth Amendment. Conversations with an attorney are generally protected by the attorney-client privilege.

Conclusion

If the IRS contacts you, seek advice from a qualified tax attorney or accountant. We are experienced in dealing with the IRS, including on criminal issues. We would be pleased to discuss the specifics of your situation with you.

Posted: July 27, 2015

Client Q&A: What’s a Ponzi scheme and how can I tell if I have gotten caught in one?

What’s a Ponzi scheme and how can I tell if I have gotten caught in one?

By John M. Lundin

A Ponzi scheme is a fraud where the victims entrust money to the perpetrator who, instead of investing the money, uses later investments to pay returns to earlier investors, keeping the rest of the money for itself. The scheme typically continues until the perpetrator cannot find enough new investors to pay off the earlier ones or it decides to disappear with the remaining money.

The name comes from Charles Ponzi, who operated such a scheme in the early 20th century. A famous modern-day perpetrator of a Ponzi scheme was Bernard Madoff, who is believed to have cheated investors out of tens of billions of dollars.

Sometimes, Ponzi schemes start off as legitimate businesses. The perpetrator may fail to earn the promised returns and then hide it, and start using new funds to pay promised returns to earlier investors so that it looks like it is achieving the promised returns. Other times, the perpetrator skims money from the investment pool for its personal use–to pay debts, support a lavish lifestyle, or to pay for a drug or gambling habit–with the intention of paying the money back. People sometimes start down this path thinking that they will make the money up later, but because they are spending new funds instead of investing them, they rarely succeed. Instead, they enter a spiral of needing a pipeline of new investors in order to pay off the earlier ones.

Other Ponzi schemes are frauds from their inception and the perpetrator never has any intention of doing anything other than cheat investors.

How Does it Work?

Ponzi schemes are so effective because they are hard to distinguish from legitimate investments. Imagine that the perpetrator gets five people to invest $100,000 each. After six months, it pays them a $20,000 dividend on their investment. This is a 40 percent annual return–a great investment! So each of the original five investors get a friend to invest $100,000. Now there are ten investors. After six more months, everyone gets another $20,000 dividend. What a great investment! Now each investor brings two friends in, each of whom invest $100,000. Another great six month dividend; and yet more investors come in. The problem is that the perpetrator is not investing any of the money. It used $100,000 of the $500,000 it took in from the first investors to pay the dividend, and got another five investors to come in. And it used just a fraction of their money to pay the next dividend. And on it goes, until one day the perpetrator simply vanishes with all the investors’ money and they are left to discover that there never were any investments.

How Can I Avoid Getting Caught in a Ponzi Scheme?

It can be hard to tell if something is a Ponzi scheme. Bernard Madoff cheated thousands of rich and highly sophisticated investors. There are ways to mitigate risk: for example, not investomg in private, unregulated, un-audited investments. But most such investments are legitimate and, for sophisticated investors, they present an opportunity to accept greater risk in hopes of greater returns.

One thing you can do is seek independent verification that the investments actually exist. A simple account statement or trade ticket does not suffice. Madoff had back office employees who created false trading records and account statements. Seek verification from an independent and legitimate auditor. And, when making investments, remember that if something is too good to be true, it probably is. Remember, however, that sophisticated fraudsters know this. We have seen Ponzi schemes where the hook for investors was not extraordinary returns, but rather good returns and a promise that the invested capital would not be at risk.

What Do I Do if I Discover That I Am the Victim of a Ponzi Scheme?

Get a lawyer. You need advice on what your legal options are, including whether law enforcement will be interested in investigating the scheme.

You need legal advice even if you manage to get your money out of the scheme before it collapses. As many of Madoff’s investors learned, because a Ponzi scheme works by fraudulently taking money from new investors to pay the earlier ones, courts may claw back profits paid to earlier investors on the theory that they did not earn a profit on their investment but rather they–completely innocently–received money belonging to the newer investors.

Conclusion

We are experienced in representing victims of Ponzi schemes. We have represented victims of the Madoff scheme and other domestic Ponzi schemes, as well as victims of international schemes. If you think you have been the victim of a Ponzi scheme, call us.