e- NEWSLETTER

October/November 2006

Jessica M. Kirsch
Editor-in-Chief

    The hottest topic in retail stores is the "living wage ordinance" recently vetoed by Mayor Daley in the City of Chicago.

The "living wage ordinance" was a big box ordinance designed, purportedly, to protect wages and force large wealthy retailers to pay workers a "living wage." The more cynical approach to this ordinance is that it is a type of economic protectionism to protect smaller, local businesses in the Chicago market. A more practical view of the ordinance is that it was intended to accomplish both.

    Big box retail stores, like Walmart and Home Depot, have come to symbolize suburban "sprawl" in the United States and its attendant problems: the decline of city shopping centers, additional pollution, traffic congestion, and strains on infrastructure. As states, counties, and municipalities struggle to contain growth without endangering economic development, many have seized so-called "size capping" ordinances to limit the "proliferation and size of large retail stores." In general, state and local government land use regulations raise a few major constitutional problems, but one clear reason for enacting size cap ordinances is the protection of existing local businesses against competition primarily from out of state businesses.

    Taking a constitutional attack on these ordinances, you would view the dormant commerce clause doctrine of the U.S. Constitution as prohibiting state and local governments from discriminating against out of state businesses. Depending on the way the ordinance was drafted, such ordinance could be held to violate the commerce clause, and, it properly drafted, state and local planners could avoid expensive constitutional challenges to those ordinances.

    Remember that comprehensive smart growth programs enacted by municipalities are complex and expensive methods of controlling growth. To be effective, such programs need to be implemented region wide and even then, the desired results are not guaranteed. Size cap ordinances are quick fixes. Unlike smart growth, size cap ordinances are simple, inexpensive, and effective in preventing the establishment of large retailers.

    Although many legitimate reasons exist to control sprawl and even to regulate big box retailers, a commonly expressed argument in favor of size cap ordinances is not legitimate; that villages and municipalities need to protect local merchants against competition from large retails whose size and buying power give them a competitive advantage over local retailers.

Most, if not all, big box retailers come from outside the state, city or county, so this protectionist impulse renders these ordinances vulnerable to a commerce clause challenge. In some cases, the anti-competitive purpose appears in the ordinance itself, usually in its preamble, statement of purpose, or the like, and in other cases, evidence of intent to protect local merchants is expressed by members of the city council, county commission, or local planning board who proposed the measure.

    Courts have consistently held that laws enacted with the purpose of discriminating against interstate commerce or economic factors are invalid. The courts will also look at the ordinances that are facially neutral but have discriminatory effects. Such ordinances are just as constitutionally invalid as ordinances evidencing the presence of discriminatory purpose.

    To avoid the constitutional challenges on the size cap ordinances, municipalities must follow a pattern of rules such as: (1) do not overtly regulate to protect local businesses; (2) tie the regulations to legitimate purposes such as environmental, infrastructure matters, even aesthetic concerns are all permissible ends of land use planning; and (3) regulations of big box stores should be targeted towards negative effects of the big box stores not the stores themselves.

    Lastly, be able to defend choices made in the ordinance. Governmental units should be able to defend the choices they have made. For example, the size at which retail stores are capped should vary greatly – if they are truly trying to regulate an end other than protecting local businesses.

    Our local "living wage ordinance" is just the beginning of a larger trend towards regulating big box retailers.

If you have any questions in this matter, please do not hesitate to contact me at klavelle@lavellelaw.com for further information.

    Operating any business, whether it is a start up operation, or an ongoing concern, capital is always an issue for a business owner. The nature of your business operations may be such that cash flows fluctuate from month to month. Notwithstanding such fluctuations, the business will still have regular expenses for payroll, rent, and other overhead costs. Furthermore, there may be a business opportunity that could lead to greater profits in the future if only you had the funds to invest in such opportunity. Regardless of the need, finding business capital is a critical factor in the success or failure of any business.

The options for Business Capital range from drawing funds out of your own home equity, to borrowing money from friends and/or family, utilizing a small business administration or other financial institution, all the way to a venture capital investor. Each of these capital sources have its own pros and cons that should be considered when determining the best capital source for your business.

    Loans from the Small Business Administration ("SBA") have become easier to obtain recently. The SBA offers a variety of financing for small businesses. The assistance is typically in the form of a loan guarantee, where the SBA would guarantee a loan made by private lenders. In order to qualify for a loan, the applicant must be able to demonstrate repayment ability from the cash flows of the business. In addition, collateral and owner equity contribution to the business are important considerations. Anyone interested in a SBA loan guarantee should contact a local lender and discuss a proposal with one of their loan officers. When discussing such loan, it is important that you have a detailed business plan, financial statements, a description of collateral available to secure the loan, and management resumes for those involved in the operation of the business.

    Another potential source of funds would be an angel investor or venture capitalist. Such individuals or parties are sophisticated, private investors, often a retired executive or business owner, interested in investing in a business that could eventually go public. There are various groups of investors throughout the country looking for small businesses with an exciting idea and/or charismatic leader.

    Venture capitalists are parties looking to invest that could ultimately reach a large, national or worldwide market. With these types of capital sources, the business plan, financial statements, collateral, and management team are even more critical. The drawback with the venture capitalist and/or angel investor is that they may require an ownership interest in the entity to seek such investment. In addition, they are typically looking for a greater return than just interest on a loan.

    Business capital is a critical aspect of the success or failure of the business. However, there are sources available. All the various sources have various benefits and disadvantages that must be considered in the determining which is the best source. If you have any questions in this matter, please do not hesitate to contact me at tmcgninn@lavellelaw.com for further information.

    The "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005", will be one year old next month. The Bankruptcy Reform Act had created a dramatic run for the courthouse just prior to it taking effect last October 17^th. After a year of being in effect courts are still working to interpret the Act creating interesting cases on the exact meaning of the Act. Even with the "new" hurdles and uncertain interpretations bankruptcy can still be a very good vehicle to give debtors a "fresh start".

  The "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" seems to have changed the attitude toward those who are in debt. In the past consumers who filed bankruptcy were viewed as being in need of relief from the burden of debt, and were usually treated with empathy. The bankruptcy process reflected an attitude that Debtors deserved help from overreaching creditors or unfortunate circumstances. The Reform Act’s mandates can be viewed as discouraging a party from seeking relief.

    The "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" provisions increase the cost (to prohibit) filings. The Act after increasing filing fees requires pre-petition credit counseling and financial management courses to obtain a discharge. Further the additional documentation requirements on debt relief agencies (attorneys) has also led to an increase in professional fees charged for assisting a party to file for bankruptcy.

    The Act’s heavy reliance on economic formulas to determine if there can be a finding of abuse also burdens many individuals in need of financial relief. The means test of viewing a case severely eliminates the judicial discretion in reviewing a case to determine whether an abuse of the system has occurred. As such some interesting and unexpected results have occurred (i.e. high income couple with no rent or mortgage allowed housing expense per IRS standards incorporated into the Act). If you have any questions in this matter, please do not hesitate to contact me at thughes@lavellelaw.com for further information.

    Illinois law does not recognize same sex relationships, whether good or bad, that is a fact. Therefore, it is necessary for not only heterosexual couples, but more importantly same sex couples to take control of their assets and plan ahead by creating a will or a living trust in order to make sure that the appropriate people receive what you wish for them to receive. In Illinois, if a couple is married there is a presumption that upon the death of the first spouse, all the assets of the deceased spouse passes to the survivor. However, because Illinois does not recognize same sex civil unions, when one member of a same sex couple dies, their estate will not pass to their surviving partner unless the deceased partner had estate planning documents in place. In Illinois the law states that if an estate goes through probate, a same sex partner will not be afforded the same rights as a spouse to a heterosexual relationship. However, an Illinois attorney can provide valuable information that will help you create a living trust or a will so that your assets will be dispersed according to your wishes.

    One method of distributing one’s estate is through the execution of a will. However, the drawback to this distribution method is that a will can always be challenged, and a challenge is more likely if a deceased’s family was ignorant of, or disapproved of his or her same sex relationship. The charge that a surviving partner used ‘undue influence’ in the drawing up of a will is not uncommon, particularly, say many lawyers who practice in this area, when a testator has died of AIDS. Thus, it is all the more reason that a same sex couple’s estate planning attorney attest to the capacity of a same sex partner when creating a legal will.

Where the terms of a will is more likely to be challenged, it may be advantageous to provide bequests for a same sex partner outside of a will, such as in the beneficiary designation in an IRA account or on an insurance policy.

    Transferring property outside of a will through gifts and placing assets in joint tenancy can also secure an inheritance from court challenge, and have the added benefit of reducing the total estate tax to be paid on the deceased’s estate. Assets, which cannot be conveniently transferred in this manner, might be disposed of through the will of the same sex partner to his or her family.

Keep in mind, gifts between same sex couples will expose the recipient to tax on any capital gain of gifted property; the tax-free rollover of capital property applicable to spouses will not be available.

    Transferring your property to a revocable trust may be a more attractive alternative to executing a will because a revocable trust does not have to be entered with a court and the distribution of the deceased partner’s estate remains totally private. Of course, if a disgruntled family member finds out there is a trust and wishes to file a lawsuit against the trustee of the trust regarding the distribution of the trust, that is the family member’s right to do so, however, if there was no undue influence that can be proven regarding the deceased partner’s execution of the trust and the trustee has followed the distribution schedule in the revocable trust, the possibility of the family member winning the lawsuit is remote.

    Are you a member of a same sex couple? Do you have your estate planning documents in place to provide for your partner in the event one of you passes away unexpectedly? Do you know of an estate planning attorney who is sensitive to the issues you may face? If you have any questions in this matter, please do not hesitate to contact me at lschaaf@lavellelaw.com for further information.

For past e-newsletter articles of interest, please visit the Lavelle LAW, Ltd. website at:  http://www.lavellelaw.com/newsletters/newsletter.htm.