July 01, 2009

Two Articles on Lawyers

I have not yet read these articles, but they caught my eye:

  1. Sande Buhai, Lawyers as Fiduciaries, 53 St. Louis U. L.J. 553 (2009); and

  2. Benjamin P. Cooper, The Lawyer’s Duty to Inform His client of His Own Malpractice, 61 Baylor L. Rev. 174 (2009).

posted by Gary Rosin

July 1, 2009 in Scholarship | Permalink | Comments (0) | TrackBack

May 08, 2009

AALS Call for Papers

The AALS Section on Agency, Partnerships. LLCs and Unincorporated Associations has issued a call for papers for the 2010 annual meeting of the AALS (2010 New Orleans) on the topic of "Vicarious, Individual and Limited Liability:  Responsibility for Wrongful Conduct and Unincorporated Firms".

Tort raise claims both theoretical and practical  questions when an individual tortfeasor is associated with an unincorporated firm.  Should the firm's organizational status shield the individual from liability, comparable to a shield against contract claims?  When does an individual's conduct constitute tortious conduct, especially when the individual works as part of a group?

And when, and to what extent, is the firm itself--or its owners--subject to liability?  The circumstances under which any firm--(whether or not incorporated--should be subject to vicarious liability are highly contested, most recently in the Exxon Valdez latigation before the United States Supreme Court.

More generally, should the law differentiate between unincorporated and incorporated firms and their owners in resolving such questions?

Drafts, abstracts or outlines should be submitted no later than September 1, 2009 to the Section's Chair, Deborah De Mott, demott@law.duke.edu,

     postd by Gary Rosin

May 8, 2009 in Scholarship | Permalink | Comments (0) | TrackBack

March 03, 2009

Statute of Frauds and UBE Agreements

Thomas E. Rutledge has posted on SSRN The Statute of Frauds and Partnership/Operating Agreements, J. Passthrough Entities 41 (November-December 2008), in which he discusses a recent holding by Vice Chancellor Lamb in Olsen v. Halverson, C.A. No. 1884-VCL (Del. Ch. Oct. 22, 2008) that the statue of frauds applies to LLC operating agreements. This despite Section 18-101(7) of the Delaware Limited Liability Company Act, includes "written, oral or implied" (emphasis added).

While we might disagree over the importance of signed writings to resolve disputes about the agreement of the parties, how in the world did an Operating Agreement for a hedge fund go unsigned?

posted by Gary Rosin

March 3, 2009 in Commentary, Scholarship | Permalink | Comments (0) | TrackBack

February 18, 2009

Reverse Piercing: A Single Member LLC Paradox

Carter G. Bishop (Suffolk) has posted on SSRN "Reverse Piercing: A Single Member LLC Paradox," an article forthcoming in the South Dakota Law Review.  Bishop's focus is on the rise of single member LLCs (SMLLCs) as an asset-protection vehicle, and the resulting difficulties of creditors of the single member under existing LLC law.  He suggests that, in lieu of "ad hoc equitable judicial remedies," id. at 6, the states should take the SMLLC off the table as an asset-protection vehicle:

every state would amend its SMLLC legislation to provide that upon the voluntary or involuntary transfer of the only economic interest in the SMLLC, the transferee will be admitted as a substituted member, with or without the consent of the only member.

Id. at 70.

On the Florida Asset Protection blog, Jonathan Alper notes that, in FTC v. Olmstead, the remedies of creditors of the sole member of an SMLLC are now before the Florida Supreme Court via a certified question. He has a recent post on the oral arguments in FTC v. Olmstead.

There also has been an interesting discussion of this on LNET-LLC.

Hat tip to Paul Caron.

posted by Gary Rosin

February 18, 2009 in Commentary, LLC Cases, Scholarship | Permalink | Comments (1) | TrackBack

December 18, 2008

RULLCA 301, Apparent Agency & Decisional Authority

Thomas E. Rutledge (one of our contributing editors) and Thomas G. Frost have an article forthcoming in Business Lawyer on RULLCA 301, "RULLCA Section 301 - The Fortunate Consequences (and Continuing Questions) of Distinguishing Apparent Agency and Decisional Authority ."  The abstract is posted on SSRN.

posted by Gary Rosin

December 18, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

RULLCA Sec. 301, Apparent Agency & Decisional Authority

Thomas E. Rutledge (one of our contributing editors) and Steven G. Frost have an article forthcoming in Business Lawyer on RULLCA Sec. 301, "RULLCA Section 301 - The Fortunate Consequences (and Continuing Questions) of Distinguishing Apparent Agency and Decisional Authority." The abstract is posted on SSRN. 

December 18, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

December 04, 2008

Saving Subchapter K

Andrea Monroe (Temple) has an article, Saving Subchapter K:  Substance, Shattered Ceilings and Contributed Property, forthcoming in Brooklyn Law Review. The abstract is available on SSRN.

posted by Gary Rosin

December 4, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

October 14, 2008

Of Discounted Partnership Interests ...

Prof. Brant J. Hellwig (South Carolina) has  an article upcoming in the Virginia Tax Review, "Of Discounted Partnership Interests and Adequate Consideration."  The article discusses the current methodology that permits the use of family unincorporated business entities (UBEs) for estate tax avoidance--ahem, reduction.  The abstract and SSRN link are on TaxProf.

Adequacy of consideration is also relevant to the application of fraudulent transfer laws to transfers of property in exchange for ownership interests in UBEs.  The concept behind discounting is that economic interests without control rights are worth less than the value of the underlying property.  If that is true, the substitution of ownership interest for the property significantly reduces the value available to individual creditors. 

posted by Gary Rosin

October 14, 2008 in Commentary, Scholarship | Permalink | Comments (0) | TrackBack

October 11, 2008

Taxing Hot Asset Sales

Prof. Karen C. Burke's (San Diego) article, Taxing Hot Asset Sales, was published in 8 Fla. Tax Rev. 327 (2007).  Recently, this blog noted Prof. Burke's follow-up article, More on Collapsible Real Estate Partnerships.

Hat-tip to the TaxProf blog.

posted by Gary Rosin

October 11, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

October 08, 2008

Family Limited Partnerships

Walter Schwidetsky (Baltimore) has posted on SSRN the abstract of his article, Family Limited Partnerships:  The Beat Goes On, 60 TAX LAWYER 277 (2007).  Here's the abstract:

It is increasingly common for the older generation to form family limited liability entities (FLLEs), which are usually either limited partnerships or limited liability companies. The older generation then gifts the FLLE interests to the younger generation and/or leaves them to the younger generation as part of its estate. For estate or gift tax purposes, substantial valuation discounts are taken off what would be the proportional value of the underlying assets. These valuation discounts are commonly taken because the relevant FLLE interests lack control and are usually not as readily marketable as the underlying assets would have been. Discounts of 35% or greater are not unusual.

If unqualifiedly allowed, this technique would be an estate tax bonanza. With a bit of slight of hand, the value of an estate could be dramatically reduced with perhaps little change in the underlying beneficial ownership or use of the assets. Tax advisors and their clients love it. The Service does not. The Tax Court has taken a tough line, usually applying I.R.C. - 2036 to ignore the FLLE and include the assets contributed to the FLLE in the decedent's estate. The 3rd and 5th Circuits (and to a much lesser extent the 1st Circuit) have had something to say on the subject as well. They have not been particularly taxpayer-friendly either. The article discusses and analyzes the relevant case law and makes recommendations for reform.

posted by Gary Rosin

October 8, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

Fiduciary Mechanics

Robert Flannigan (Saskatchewan) has on SSRN an abstract for an article, "Fiduciary Mechanics," in Canadian Law & Employment Law Journal, Vol. 14.  Here's the abstract:

There is a stubborn confusion as to the scope of fiduciary accountability. That confusion may be relieved in part by examining the fiduciary aspects of the mechanic undertaking. Some might think it fanciful to regard mechanics as subject to fiduciary accountability. That, however, is only the sequelae of the existing confusion. Mechanics are engaged in limited access arrangements, and all such arrangements are regulated by fiduciary accountability. It does not matter that an arrangement may be of modest character, or may not involve subjective trust. Other employment and independent contractor arrangements further illustrate the nature of the opportunism mischief that fiduciary regulation is designed to control. Professors, lawyers, police officers and interior designers have fiduciary obligations to the extent of their limited access. That fuller appreciation of the nature of the fiduciary jurisdiction leads to rejection or reconstruction of a number of propositions that enjoy currency in the courts today.

posted by Gary Rosin

October 8, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

Business Lawyers as Enterprise Architects

George W. Dent (Case Western Reserve) has posted on SSRN an article upcoming in The Business Lawyer,  "Business Lawyers as Enterprise Architects."  Here's the abstract:

In 1984 Ronald Gilson published Value Creation by Business Lawyers: Legal Skills and Asset Pricing. It began: "What do business lawyers really do? Embarrassingly enough, at a time when lawyers are criticized with increasing frequency as nonproductive actors in the economy, there seems to be no coherent answer." He dismissed lawyers' own answer that "they 'protect' their clients, that they get their clients the 'best' deal." He also rejected the academic literature which offered a laundry list of roles the business lawyer plays: "a counselor, planner, drafter, negotiator, investigator, lobbyist, scapegoat, champion, and, most strikingly, even as a friend." Dissecting the corporate acquisition as his specimen, Gilson concluded that lawyers add value as "transaction cost engineers." In particular, lawyers bridge the parties' divergent expectations about returns on the asset to be transferred by drafting an earnout which makes the price contingent on its returns between the signing of the deal and the closing; and overcome lack of information (principally of the buyer) by arranging efficient production and verification of information. From these findings Gilson also recommended that legal education for business practice downgrade traditional subjects (like analysis of appellate cases and knowledge of relevant regulatory law) in favor of corporate finance and transaction cost economics.

In the succeeding 24 years Gilson and others refined his thesis, but no one fundamentally challenged it. This literature about what corporate lawyers do (the "received model") is too narrow. This article takes a wider and deeper perspective. Part I describes the received model. Part II exposes several problems with that model. Part III offers a fuller vision showing that business lawyers perform a greater range of activities using a larger set of skills than in the received model. Although these activities and skills are extremely varied, it is less accurate to say that business lawyers are transaction cost engineers than that they are enterprise architects. Part IV discusses the implications of this revised model for legal education. It argues that, although a knowledge of corporate finance and transaction cost economics is useful for some business lawyers, it is more important that they understand the obstacles to optimizing the performance of business entities and the contractual mechanisms available to overcome these obstacles. They also need specific behavioral skills, including how to negotiate when all parties are trying to build mutual trust and confidence.

posted by Gary Rosin

October 8, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

Collapsible Real Estate Partnerships

Karen C. Burke (San Diego) has posted on SSRN a working paper, entitled "More on Collapsible Real Estate Partnerships."  Here's the abstract:

The commentary explains the operation of the section 1(h)(6)(B) limitation on gain taxed at 25% when a partner's only capital gain for the year consists of unrecaptured section 1250 gain on sale of a partnership interest. As clarified by the preamble to the final regulations, the section 1(h)(6)(B) limitation should be irrelevant in this situation, so that the selling partner's entire unrecaptured section 1250 gain is taxed at 25% (rather than the 15% rate for residual capital gain). While the preamble should dispel any confusion concerning the proper operation of the section 1(h)(6)(B) limitation under existing law, the problem would not arise if the character of section 1231 gain were preserved under the look-through rules applicable to sales of partnership interests.

posted by Gary Rosin

October 8, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

September 04, 2008

Profits-Only Partnership Interests

     posted by Gary Rosin

Bradley T. Borden (Washburn) has posted this accepted paper on SSRN:

Profits-only partnership interests grant service-providing partners an interest in the profits of a partnership but not its capital. Such interests are a proverbial double-edged sword: they create economic arrangements needed in business, but provide opportunities for inequitable tax reductions. Business participants make economic decisions to use profits-only partnership interests to reduce agency costs and appropriable rents. The current law, however, empowers business participants to form partnerships that are equivalent to employment arrangements and use profits-only partnership interests to obtain long-term capital gains. Thus, with no economic consequences, they convert ordinary income (taxed at up to thirty-five percent) to long-term capital gain (taxed at fifteen percent). Commentators and lawmakers generally propose partnership disaggregation to eliminate the inequity. Partnership disaggregation changes the character of income (from capital gain to ordinary income) as it flows from the partnership to service-providing partners. It may enhance equity, but it ignores the nature of tax partnerships, threatens the partnership tax regime, and has other negative side effects. The Article suggests that partnership disregard is a better way to address the inequity profits-only partnership interests cause. Partnership disregard uses economic concepts to identify the policy-relevant differences between tax partnerships and disregarded arrangements, such as employment arrangements, leases, and loans. Partnership disregard distinguishes arrangements that should qualify for partnership tax treatment and those that should not. It eliminates inequity while preserving the integrity of partnership tax regime and other areas of the law.

Hat tip:  Paul Caron

September 4, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

Built-In Gain and Built-In Loss Property on Formation of a Partnership

     posted by Gary Rosin

Daniel L. Simmons (UC-Davis) has posted this accepted paper on SSRN:  Built-In Gain and Built-In Loss Property on Formation of a Partnership: An Exploration of the Grand Elegance of Partnership Capital Accounts:

This article is a primer on the issues faced by partners in dealing with the consequences of built-in gain or loss property contributed to a partnership. The article explores the tax consequences of almost every aspect of the partnership treatment of built-in gain and loss property.

The use of properly maintained capital accounts to answer tax allocation questions is a principal focus of the article. The first part of the article discusses basic principles of partnership taxation that provide for the formation of partnerships and allocation of partnership book and tax items. A thorough understanding of these fundamental principles is a prerequisite to discussing the problems of built-in gain and loss property. Part II considers the problems raised by contributions of built-in gain property. The analysis demonstrates that recent proposed Treasury regulations regarding contributed built-in gain or loss property and partnership mergers in some circumstances create mischief by failing to fully address deferred recognition. Part III looks at the complexity that is added by the existence of debt in the partnership. Part IV addresses special problems created by built-in loss property, including the issues raised by § 704(c)(1)(C), enacted in 2004. The analysis in this part demonstrates the need for analyzing partnership capital accounts in order to apply the basis limitation of § 704(c)(1)(C)(ii) in the context of its statutory purpose and suggests an interpretation of § 704(c)(1)(C)(ii) in conjunction with optional basis adjustments that produces proper allocations of loss. Part V considers partnership allocations that occur on the admission of a new partner to a partnership with built-in gain and built-in loss property.

Hat tip to Paul Caron.

September 4, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

August 25, 2008

Modes of Gap Filling: Good Faith and Fiduciary Duties Reconsidered

     posted by Gary Rosin

Mariana Pargendler, a J.S.D. candidate at Yale, has an interesting article just out:  Modes of Gap Filling: Good Faith and Fiduciary Duties Reconsidered, 82 Tulane l. Rev. 1315 (2008).  Here's the SSRN abstract:

This article offers a novel account of the doctrines of good faith and fiduciary duties under a functional perspective that reconciles the theoretical contributions of the law-and-economics scholarship with the actual application of the law. The traditional doctrinal statements on this matter assert that fiduciary duties impose high standards of behavior on the parties named fiduciaries, while the duty of good faith is highly context-specific and constantly escapes definition. Law-and-economics scholars argue that although good faith and fiduciary duties differ in the strength of the obligations imposed, a continuum exists between these different doctrines. In this view, both share the same nature as contract gap-fillers that help promote efficiency by providing the parties with the terms they would have contracted for in a world of zero transaction costs and unlimited foresight. This article adds to the conventional wisdom and demonstrates that good faith and fiduciary duties embody distinct gap-filling methods. While fiduciary duties are untailored defaults that supply the term that most parties in a certain fiduciary category would have wanted, the doctrine of good faith mandates the application of a tailored gap-filling method that fills in contractual gaps with the terms that the parties before the court would have contracted for. I show how the hidden tension between a tailored and an untailored gap-filling method sheds light on the outcome and the dissenting opinions of prominent fiduciary law cases. Finally, I argue that there is reason to believe that the existence of these different gap-filling methods represented by the doctrines of good faith and fiduciary duties is not only descriptively accurate, but also normatively desirable.

So far, I've only glanced at parts of the article.  Given the topic, I'm sure I'll have something to say about it.

August 25, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

Pileggi on Delaware LLCs

     posted by Gary Rosin

Francis G.X. Pileggi (Delaware Corporate & Commercial Litigation blog) has co-authored a short article, Benefits of Being a Delaware Company and Recent Developments in the Governance of LLCs, in Vol. 2, No. 33 of the Bloomberg Law Reports (August 18, 2008).  The article has some statistics on Delaware corporations and UBEs.  More importantly, it reviews some of the new Delaware LLC cases.

Note:  At one point, Pileggi had a link to the article on his blog, but it seems to have disappeared.

Update:  A pdf of the article is on now Pileggi's website.  Click on the hot-link on the article's title, above, to find to the article.

August 25, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

August 10, 2008

Shareholder Oppression in Texas Close Corporations

     posted by Gary Rosin

UB's own Doug Moll (Houston) has posted to SSRN a paper forthcoming in the Houston Business and Tax law Journal, Shareholder Oppression in Texas Close Corporations: Majority Rule (Still) Isn't what it Used to Be.  Here's the abstract:

The doctrine of shareholder oppression protects the close corporation minority stockholder from the improper exercise of majority control. Although the Texas Supreme Court has not explicitly recognized the doctrine, appellate courts in Texas and in other jurisdictions have recognized and applied it in numerous decisions. Moreover, there is a statutory basis for the doctrine in Texas, as shareholders are given the right to petition for receivership, liquidation, or less harsh remedy on the grounds of oppressive conduct by "directors or those in control." Because the shareholder oppression doctrine potentially alters a number of fundamental legal principles, it is critically important to be familiar with the doctrine's operation in close corporation disputes.

The problems inherent in small businesses are the same, regardless of choice of form.

August 10, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

Checking In on "Check the Box"

Heather M. Field (Cl-Hastings) has posted to SSRN a working paper, Checking In on "Check the Box", on the "incoherence" of current entity-classification under the IRC.  Here's the abstract:

Eleven years ago, new regulations dramatically changed the manner in which the federal income tax system determines how business entities are taxed. These new explicitly elective "check-the-box" regulations for entity classification replaced a multi-factored corporate resemblance test and drew wide praise for their potential to increase simplicity and certainty, reduce costs, and enhance efficiency and equity. Now, with the benefit of hindsight and with data regarding entity classification elections made since 1997, this Article revisits the "check-the-box" regulations. This Article analyzes the application of the "check-the-box" regulations over the last eleven years and concludes that, while the "check-the-box" regulations represent an improvement over the prior entity classification rules, they fall short of their promise. This Article also examines the scope of the explicit "check-the-box" election itself and argues that the election lacks a coherent set of limitations, which undermines the provision of the explicit entity classification election at all. Ultimately, this Article concludes that the policy weaknesses revealed by a close examination of the "check-the-box" regulations stem fundamentally from the existence of a multi-regime system for taxing businesses, and hence, the "check-the-box" regulations expose a problem with the choices themselves, thus adding to the literature in favor of reforming the federal income tax's treatment of businesses.

August 10, 2008 in Scholarship | Permalink | Comments (0) | TrackBack

July 15, 2008

Call for Papers: AALS Section on Agency, Partnerships, LLCs ...

     posted by Gary Rosin

Larry Ribstein reminds us of the September 1, 2008 deadline for the Call for Papers for the 2009 AALS Annual Meeting by the Section on Agency, Partnerships, LLCs & UAs .  Details here and here.  I encourage submissions, particularly by junior law faculty.  There's a lot more room over here.

July 15, 2008 in Scholarship | Permalink | Comments (0) | TrackBack