The post Co-Counsel appeared first on Alexson Law.

A recent California case, Curci Investments, LLC (Curci LLC”) v. Baldwin (“B”) (August 10, 2017 GO52764) illustrates the issue of “reverse piercing”.  In this case, Curci obtained a multi-million dollar judgement against B, then tried to join B’s LLC as a judgment debtor to satisfy the judgement.  The California trial court denied the motion of joinder.  The fact are briefly stated as follows.  B formed JPBI, A Delaware LLC (“JPBI”)  to hold personal investments and cash balances (for him and his spouse.)   B  owned 99% of the membership interests and his wife held 1% of the membership interests of the Baldwin personal LLC. B was the manager and CEO of JPBI.  About 2 years later (on or about 2009), B, individually borrowed $5.5 million from Curci LLC’s predecessor- in- interest. . The loan was memorialized in a promissory note executed by Baldwin and the managing member of Curci’s predecessor (the “Curci note)”. In the Curci note, Baldwin agreed to pay back the principal amount of the loan, with interest, by January 2009. Curci was assigned the lender’s interest in the Curci note shortly after it was executed. One month after executing the Curci note, Baldwin settled eight family trusts to provide for his grandchildren during and after their college years (the family trusts). Not long after the family trusts were settled, JPBI loaned a total of approximately $42.6 million (the family notes) to three general partnerships (the family partnerships) formed by Baldwin for estate planning purposes. Because the partners of the family partnerships are various combinations of the family trusts, certain of Baldwin’s children signed the family notes in their capacity as trustees. Baldwin signed the family notes in his capacity as manager of JPBI. Each family note indicated the principal amount of the loan was to be repaid by July 2015. Although all the family notes are in favor of JPBI, Baldwin and his wife list them as “Notes Receivable” on their personal financial statements.

When the Curci note was due and payable, B did not make the payments required under the terms of the note.    Curci LLC, filed suit, against B for $7.2 million including, prejudgment interest and attorney’s fees and costs in 2012.  By 2014, B had not paid the judgement, so the court granted charging orders against other B entities including JPBI.  So the monetary distributions that were to go to B would go to Curcu LLC.

During the time of the outstanding note, JPBI had paid about $178 million to B and his spouse, so Curci LLC then filed a motion in 2015 to add JPBI as a judgement debtor.  Please note that B argued that Postal Instant Press (162 Cal App 4^th 1510), was applicable based upon the holding that third part creditors cannot reach corporate assets to satisfy a personal judgement.  In the Posta case, the entity at issue was a corporation.  However, the court in this case held that the Postal holding was limited to corporations and this entity was a limited liability company.  The court also reasoned that B and his spouse were not “innocent” parties. Most importantly the court reasoned that the entity structure was different, with different statutory requirements and that creditor have different options against a limited liability company.

What we learn from this case, is the analysis for “the pierce the corporate veil doctrine” will be similar when looking at these entity structures but could come out with a different result.    In this case, it appears the promissory note could have been structured to include the proper parties, or, the creditor could have taken collateral to secure the note.    My goal with the entrepreneurial client is to be sure the proper entity structuring is done at the early growth stage, for issues, including but not limited to, liability protection.  For example, if my client operates under a license (such as a real estate broker), a limited liability structure may not be available, depending upon the jurisdiction.  Therefore, there are also many legal and business to address in the emerging growth states.

Save

The post What Is Reverse Veil Piercing In California appeared first on Alexson Law.

My firm specializes in transactions, regulations, strategic alliances and mixed collateral loan transactions in the real estate and financial services industries. We are positioned in a unique space in that my many years in big firm law and my expertise in complex mixed collateral transactions, mergers and acquisitions, private funds, fintech  and bank regulation allow us to provide consulting services and training  in-house for commercial and real estate lenders.

As a result of the 2016 election, there has been renewed interest in the Dodd-Frank Law and other laws regulating  banks and mortgage lenders.   Additionally,  private real estate funds organized under Regulation D are increasingly concerned about the requirements and changes affecting the prospectus disclosures.

The Consumer Financial Protection Bureau (“CFPB”), created under Dodd-Frank to protect consumers has been very active and we are now beginning to see cases where the power of the Agency, through its structure, is being litigated.  Dodd-Frank was intended to primarily protect consumers against certain residential lending practices, but some of the rules have already reached  the commercial real estate market, as the Credit Risk Retention Rule that went into effect, Dec. 24, 2016  also applies to securitization of commercial real estate loans.

Sponsors in the CMBS market are concerned about compliance with this rule.  Since the FDIC has seen a sharp drop in de novo bank applications, a new advisory handbook is now going through a comment period.  The OCC, has now decided that it will grant limited charters to fintech companies.  We do not know yet what the requirements will be and what compliance rules and procedures must be put into effect for each new entity.

We are also working with financial institutions, to provide education and training for the commercial, middle market and real estate lenders.  Although some lenders use certain form loan documents, the loan processors need to understand the documents, changes in the law must be updated into these documents and the lenders must learn to negotiate the loan documents, amendments and workouts to reduce the risk of lender liability claims by borrowers and guarantors.   Corporate training in a lender’s core business reduces risk and litigation costs  to the financial institution.

We consult with investment advisory firms and structure private real estate funds under Regulation D.  Our role can be that of consultant or strategic partner to in-house or outside counsel, accounting firms and investment advisors.   We work with real estate brokers, marketplace lenders,  community banks and finance lenders to create value between different lending platforms,  in compliance with state and federal law.   There are a number of new cases, one most recently in Ca. which address the structure of a strategic alliance between a marketplace and traditional lender.    We will be consulting with our clients on the new FDIC requirements to own and operate an FDIC insured financial institution and  the new OCC limited charters for fintech.  Our consulting and training will be essential to reducing costs and risk to your fund, institution, advisory or brokerage firm.

Save

Save

Save

Save

Save

Save

Save

Save

The post AlexsonLaw Services. How We Help You To Reduce Costs And Legal Risk appeared first on Alexson Law.

My recent presentation for Lambda Alpha.

We discussed the PHH Corp. et. al. vs CFPB  case which was decided Oct. 11,
2016 by the US court of Appeals for the DC Circuit.  PHH argued that the authorizing legislation for the CFPB creates an unconstitutional independent agency officer  not subject to review by any branch of government.

The reason: The CFPB is run by a single director rather than a multi-member commission.  The director is appointed for a term of years and can only be removed for cause.  Since funding comes from the Federal Reserve, Congress does not have budgetary power.  PHH also raised the issue of statutory interpretation as there is no statutory definition of the anti-kickback provisions of RESPA.

Also, the Dodd-Frank provisions on unfair and deceptive practices are not adequately defined.  The CFPB has appealed this case.  We also had a discussion about the Dodd-Frank provisions that are applicable to commercial real estate loan and pools.

The post PHH Corp. et. al. vs CFPB appeared first on Alexson Law.

The post Husky Int’l Electronics v. Ritz appeared first on Alexson Law.

The post The Credit Risk Retention Rule appeared first on Alexson Law.