e- NEWSLETTER

October/November 2007

Jessica M. Kirsch
Editor-in-Chief

jkirsch@lavellelaw.com

Corporate Law

KEEPING YOUR SERIES LLC A TRUE SERIES…
By James D. Voigt

    Most of you receiving this newsletter already know what a Limited Liability Company is, or an LLC. In short, the owners of the company are protected from the debts and liabilities of the company. The Series LLC takes that concept a step further. John Smith owns three apartment buildings, and someone slips and falls in Building A. If all three buildings are owned by the same company, the injured party could pursue the assets of all three buildings. The solution until recently has been to own each building under an entirely different company. But this is expensive.

    Illinois law now allows you to form one “main LLC”, but to title each building under its own “series LLC”. If someone slips in Building A, they cannot pursue the assets of Building B or C. And this is achieved at a substantially lower cost than forming three fully independent companies. The concept works the same for anything for which compartmentalized liability might be a benefit, like multiple pieces of heavy equipment.

    Once the decision is made to create a series LLC, it is important to properly maintain each series as a separate entity. In short, you are asking the world to treat each Series LLC separately, so it makes sense that you should treat them separately as well. You should also give notice to your creditors that they are to be treated separately. There are several things you must do you maintain that all-important separation.

    Sign contracts and documents correctly. Your signature block should read, “APPROVED, John Smith Building A Series LLC”, with your title under the signature line reading, “John Smith, as Manager of the John Smith Building A Series LLC.” Imagine your opponent having to argue in court that he thought you were signing personally, or on behalf of the main LLC. It would be a difficult argument to make.
Use the proper stationary. When sending a letter to anyone regarding Building A, use letterhead that references the John Smith Building A Series LLC. Similarly, use business cards with the series name. Yes, this means carrying three separate sets of letterhead cards. But the protection this simple measure provides is well worth the extra effort.

    Maintain separate bank accounts for each series. It is critically important that the assets of each series be kept totally separate from one another. This means that it is essential that separate bank accounts be maintained for each series. If money is moved from one series to another, document the transaction as a loan by using a proper promissory note with a reasonable interest rate.

    Do not delay in transferring title into the series LLC. Imagine if John Smith never went the extra step to transfer title of Building A into the proper series LLC. When the lawsuit arrives, the plaintiff will be able to go after the assets of the main LLC, or whichever entity or person in which that building is titled. You would be surprised how often this critical step is overlooked or delayed until it is too late.
 

    If you think that a series LLC might be right for you, please give us a call to discuss your situation. We can help you decide whether a Series LLC is the right choice, and give you a full understanding of the costs involved. We look forward to working with you to ensure that the acts of your company do not create personal liability for you, your partners, and your officers. Give us a call today to find out the other ways we can be of service to your small business.

    If you have any questions regarding this article please feel free to contact Jim Voigt at jdvoigt@lavellelaw.com.

Family Law

HOW TO ENFORCE YOUR CHILD CUSTODY AGREEMENT
By Julie M. Dombrosky

    It is very common for parents to have problems enforcing their custody agreements after the orders are entered. The big problem with enforcement is that these agreements deal primarily with behavior. The parties have to know what their agreements say, and then they have to police each other. If someone is not doing what he or she is supposed to do.

    But custody agreements are important. And they should be enforced. Their purpose is to protect the child and to serve the child’s best interests. This is largely by way of stating rules the parties are required to follow so that excessive bickering between them does not seep into the daily lives of the child.

    Sometimes both parents are vigilant about following their agreement to a “t”, and this can result in smooth sailing and filters down to benefit the child. However, sometimes the parties wing it for years without really knowing what the agreement says and without knowing exactly what their obligations and rights are. Moreover, of course, many times, one party knows exactly what the agreement says and the other party acts as if the agreement does not exist. This is trouble. Problems piles up.

    The first major problem is that the custody agreements cover a large range of issues, including visitation arrangements (regular visitation and vacation and holiday arrangements), decision-making responsibility for a broad range of issues in the child’s life (school, religion, medical care), notice requirements (report cards, parent-teacher conferences, extracurricular activities, changes of address), as well as the expected behavior of the parties (speaking positively about the other parent, no excessive use of alcohol).

    The second major problem with enforcement is the fact that the only recourse for the parties is to go back into court and pay more legal fees. The fear of perpetual litigation and frustration usually results in no action being taken. The parties deal with the problems on their own, coping as best they can, hoping that they can avoid negatively impacting the child. This is OK. Problem solving as issues arise is what parents do, whether they live together or not. But if the problems can’t be resolved, some kind of action should be taken. The parties should not feel sheepish about looking for a solution - “Well, I’ve let it go this long...”

    The best thing you can do is be familiar with your agreement and work to make sure it is followed as you go along. When the other parent is not following the custody agreement, try this course of action:

    (1) Express the concern in writing. Be specific. Go back to your custody order and state the exact language of the provision that is being violated. Ask the other party for his or her cooperation. Remember the old adage that you catch more bees with honey... Make clear that you both want what is best for your child.

    (2) If the problem is not resolved, contact a professional mediator who deals with family matters. Illinois does not certify mediators. This is good (there are many mediators out there to choose from) and bad (you don’t always know what you’re getting). Use the phone book as a last resort – first try to get a referral from a friend or from an attorney. Therapists and psychiatrists are also a potential source of a reliable referral. You can also find a mediator in your area by going to a mediator referral service. Try www.mediationcouncilofillinois.org.

    (3) If attempts at dialog and mediation do not solve the problem, seek counsel. How you decide to proceed depends on the seriousness of the problem. Your lawyer may repeat the first two steps by sending a letter and then suggesting mediation. The problem may need immediate resolution, so an emergency motion or a contempt petition can be filed.

    Keep in mind that human dynamics drive issues related to custody. If you start right in with letters from attorneys and the threat of filing a contempt petition, some people will go on the defensive immediately, keep up the bad behavior, and you are in for a long haul. On the other hand, some individuals do not respond to anything less than legal action. From your extensive experience with the other parent, you are the best judge of how that person is likely to react (you will not always be right), so go with your gut in devising a game plan with your lawyer. If you need to file a contempt petition, depending on the severity of the issue and its impact on the child, the court will usually order the parties to mediation as a first step. If you have already taken that step, you have saved yourself some time and money and can proceed directly with your petition. Sometimes getting a petition on file forces the parties to talk and attempt to get on the same page.

    The most important thing is the well-being of the child. This should drive the decisions you make when it comes to enforcing your custody agreement.

    If you have any questions about this article or any other issue related to divorce, custody, support and other family law matters, please feel free to contact jdombrosky@lavellelaw.com.

Home Healthcare

MEDICARE STRIKES BACK AT HOME HEALTH AGENCIES
By Theodore M. McGinn

            The Centers for Medicare/Medicaid Services (“CMS”) have made an announcement in what they are calling a “demonstration project” in an effort to snuff out home healthcare fraud.  The project is initially aimed at the cities of Houston or Los Angeles.  However, what is commonly been initiated a project often turns into a more extensive, possibly ongoing obligation.  Apparently, the CMS have noticed increase billing in certain areas.  The agency is now concerned about unlawful billing.

            The fraud being targeted is the act of certain agencies preying upon older patients.  Certain patients are having their Medicare numbers billed for services not provided and otherwise defrauding the Medicare system. 

            CMS is attempting to prevent this fraud by requiring agencies in the Los Angeles and Houston area to resubmit their provider applications.  Only certain agencies at this time will receive notice to reapply.  An agency that receives a notice but does not reapply within 60 days will have their Medicare billing privileges suspended.  Another requirement of this project addresses providers who have failed to report a change of ownership or change of address/  Such agencies may have their billing privileges also provoked.  Any agency that has an owner, partner, director, or managing employee with a felony in the last 10 years will have their billing privileges revoked.  Any agency that no longer meets every one of the provider enrollment requirements will have their billing privileges revoked.  Finally, any agency that underwent a change of ownership will have to undergo a new state survey.

            CMS will constantly be attempting to prevent any fraud on the Medicare system.  Accordingly, it is critical that home healthcare agencies continue to maintain their application, records, and be position to respond to any change in regulations.  If you are not in such position, your agency may be scrambling in a response to a request for information from the Center of Medicare/Medicaid Services. 

            If you have any questions regarding this article, please contact Ted McGinn at tmcginn@lavellelaw.com.

Estate Planning

IS THE IMPOSSIBLE POSSIBLE?
By Kerry M. Lavelle

    Under the current law, the federal estate tax will be eliminated for the year 2010. Yes, you read correctly, there will be no federal estate tax in year 2010. This has caused a litany of jokes about “pulling the plug” on loved ones on December 31, 2010, in order to avoid estate tax.

    However, in exchange for no estate tax in the year 2010, the income tax basis “step up” for most property included in the decedents taxable estate is also eliminated for that year. Instead, the decedent’s basis will carry over to those who succeed to the property, subject to special rules. Although many, if not most estate planners see the chance of zero estate tax with carry over basis for one year as extremely unlikely and perhaps, even less likely than permanently repealed, it maybe that year 2010 will be known as the one year without estate tax.

    Notwithstanding the likeliness of the zero federal estate tax year, it seems appropriate to think about the possibilities for planning now. We have certain clients, such as those with “negative basis property” which should be warned about the prospects of a carry over basis, and also some planning may be necessary for the carry over basis issue for many married clients who just might die in 2010 with a surviving spouse.

    First, start to consider what the marital deduction formula will cause in the documents when there is no federal estate tax in affect when someone dies. If there is no federal estate tax, how will the executor be guided into funding the “family trust” in your estate planning documents or the “marital deduction trust”?

    The concept makes no sense because there will no longer be a taxable estate. Alternatively, what is the minimum marital deduction necessary to reduce the federal estate tax to zero when there is no marital deduction or federal estate tax. Again, the concept makes no sense if there is no marital deduction.

    Even if there is no dispute among surviving family members, the IRS may not agree. The IRS will have an interest in the outcome in at least two ways. First, it is likely that the exemption share would pass into a trust, and the income earned thereon will not necessary be taxed to the surviving spouse or to the other family members. If the property passes to the surviving spouse (or to a marital deduction trust) the income will be taxed to the surviving spouse. Secondly, the IRS will have a keen interest in the surviving spouse receiving more because the survivor will likely die in a later year when there is an estate tax. Certainly, some practitioners will contend that whatever the result is, it can be resolved post death, by a disclaimer.

    The next big issue is the loss of the “carry over basis” for persons dying in 2010. Under the current IRC §1022, the basis of assets acquired from a decedent will not equal their estate tax values for any year that no federal estate tax is in effect. During that time, the descendant’s basis will “carry over” to those who succeed to the property on the decedent’s death. There are exceptions and special rules. Under one of those, the executor may allocate up to 1.3 million dollars to increase the basis of the assets up to their fair market value.

    For example, assume a decedent owns a parcel of real estate worth $5 million on her death for which her basis is $800,000. Under IRC §1022, the decedent’s $800,000 basis will remain the basis in the real estate when she dies. The executor may increase the basis to the land to $2.1 million by allocating the entire $1.3 million basis increase to that asset. However, because the executor is a fiduciary under the descendants will, and has no direct authority or responsibility for non-probate assets, it may be that a beneficiary under the will would contend that the executor must allocate, to the extent possible, the $1.3 million basis increase to probate assets. In that event, the beneficiary will also undoubtedly contend that an executor who allocates basis to property outside the probate estate, without specific authorization, would be subject to removal, surcharge, or damages.

    Hence, it may be best to provide an expression in the client’s will that the executor may allocate part or all of the $1.3 million basis increase allowed under IRC §1022 to any asset or assets in the decedent’s gross estate including those passing outside of the will.

    Nonetheless, issues involving election to use spouse or basis increases, transferring money to the surviving spouse through a marital trust, or a “QTIP” and structuring marital bequests will be highly discussed estate planning issues between now and year 2010 or we will see a significant legislative change.

    Although most would probably place the chances at less than 50% that the year 2010 will bring a repeal of federal estate tax and its companion, carry over basis, it is far from impossible. Married clients need to decide how much should pass to a marital deduction trust and how much, if any, should pass to the surviving spouse. Although, from an overall perspective, it seems appropriate to minimize what the survivor inherits if there is no estate tax.

    If you have any questions on your current estate planning documents do not hesitate to contact Kerry Lavelle at klavelle@lavellelaw.com to begin an estate plan review.

Litigation

ATTORNEY FEES - CAN YOU MAKE YOUR OPPONENT PAY THEM?
By Matthew J. Sheahin

    In Illinois, litigants generally are responsible for payment of their own attorney fees. Therefore, in most cases, a Plaintiff pays its own attorney to initiate the lawsuit and the Defendant pays its own attorney to defend itself against the lawsuit. Each party continues to pay its own attorneys fees, whether or not it wins or loses the case. However, attorney fees can be recovered by the prevailing party in litigation if that party successfully proves that the opposing party breached a contract or agreement which specifically provides that attorney fees are recoverable by the prevailing party. Alternatively, if you prove that the Defendant violated a specific statue, which forms the basis for your litigation, and that statute allows for the recovery of attorney fees, you can petition the Court to have the Defendant pay your attorney fees.

    There are many statutes in Illinois that allow for the recovery of attorney fees. For example, if you prevail in a lawsuit brought to redress violations of the Consumer Fraud Act, you can recover your "reasonable and necessary" attorney fees incurred in connection with that action. However, you, as the owner of a business, do not want him to rely upon on whether or not your piece of litigation falls within the particular parameters of a specific statute in order to give yourself the ability to recover attorney fees. Instead, you should have all of your business agreements, whether they deal with vendors, customers, partners and associates etc., to provide for the recovery of attorney fees by the prevailing party should you be forced to litigate a dispute over that particular agreement. In this way you can protect yourself and give yourself immediate leverage in the litigation that you seek to file.

    For example, let us assume that you are suing on a customer to collect amounts owed on a simple service agreement which does not allow for the recovery of attorney fees. If that customer owes you $10,000.00, you can either (1) find a law firm that charges a contingency fee thereby paying the law firm 1/3 of what they recover and receiving only 2/3 of what is owed to you, or (2) you can hire a law firm on an hourly basis and hope that your attorney is able to recover the $10,000.00 in an expeditious manner at a low cost, which is highly unlikely in today's court system. Conversely, if you have a "prevailing party" provision in your contract regarding attorney fees, you can then pursue your reluctant customer on the service agreement for the full $10,000.00, knowing that it allows you to recover your attorney fees. You can use that as immediate leverage in any pre or post-litigation negotiation. You can point out to the customer that once you prevail in the lawsuit, you will recover the amount owed from that customer plus your fees. This is a very effective way of forcing reluctant parties to pay what they owe. If they know that you will have to pay your own fees, they may force to you litigate for months or years because they know it will buy them more time and they do not risk additional exposure.

    Check all of your agreements and if they do not contain "prevailing party" or "fee shifting" provisions regarding attorney's fees in the event of a dispute, contact our office so we can amend your agreements accordingly. Time is too short on a daily basis and you should concentrate on your business instead of having to spend time on figuring out how to pay your attorneys fees.

    If you have any questions regarding this article, please contact Matthew J. Sheahin at msheahin@lavellelaw.com.

Aviation

ARE OWNERS SAFE?
By Robert A. McKenzie

    Many aircraft owners hold title to their aircraft in their own name. As such, they leave themselves unprotected (beyond the extent of their insurance) if someone else is injured while piloting the aircraft. This can be especially troublesome for owners who choose to lease their aircraft to flight schools and/or flying clubs. Although the owner of the aircraft below did not end up with a judgment against it, this case should give aircraft owners cause to stop and consider their liability.

    On July 26, 2007, a jury in Volusia County, Florida awarded almost $54 Million Dollars to a student pilot and FAA Certified flight instructor for damages related to the July 24, 1999 crash of the two seat Cessna aircraft that they were flying. There were no fatalities, but both the student and instructor were injured. The National Transportation Safety Board (“NTSB”) later determined that the cause of the crash was a stuck exhaust valve.

    The student pilot and instructor brought suit against numerous defendants, including the owner of the aircraft, on March 28, 2001. The plaintiffs argued that, despite the NTSB findings, the cause of the accident was actually the failure of a defectively designed carburetor, produced by Precision Airmotive Corporation. The plaintiffs also alleged that the exhaust valve was defectively designed causing it to become stuck as a result of the carburetor failure. The jury agreed and allocated fault 70/30 to Precision Airmotive and Teledyne Continental, the engine manufacturer.

    The student pilot and flight instructor’s actual damages totaled more than $3 Million Dollars. But the bulk of the judgment was awarded as $50 Million Dollars for pain and suffering.

    Many owners mistakenly believe that their aircraft insurance will protect them, and their assets, if another pilot damages their plane. Although good quality insurance usually covers the actual damages, damages for pain and suffering often far exceed the limits of the coverage. In the case above, the replacement value of the aircraft, estimated at $17,500, was only .33% of the total damages. In fact, the aircraft was not destroyed; it was repaired and returned to service.

    Owners who wish to protect their assets should consider forming an entity, such as a Limited Liability Company, to own their aircraft. If you’d like further information on this topic, please call Robert McKenzie at (847) 705-7555 or email him at rmckenzie@Lavellelaw.com.

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

 

This newsletter is a publication of Lavelle Law, Ltd. We attempt to highlight and discuss areas of general legal interest that may lead to planning opportunities. Nothing contained in this Newsletter should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein.