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MEDIATION – IT CAN WORK UNDER THE RIGHT CIRCUMSTANCES

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By: Chaim J. Jaffe, Esq.

Often times, clients ask why the litigation process is so lengthy. The answer is not always a simple one. The time-frame within which an action is judicially resolved is a function of the court’s caseload, the complexity of the matter being litigated and the lawyers’ schedules. There are, however, avenues available to litigants in certain circumstances that will allow them to resolve their disputes quicker and, in many cases, more economically. The two most recognized methods of alternative dispute resolution (“ADR”) are mediation and arbitration. This article will focus on the mediation process.

In many instances, parties to an agreement can contractually agree to submit any dispute that may arise to one or more forms of ADR. Parties’ whose claims are not controlled by a contract can similarly agree to utilize the ADR process prior to or subsequent to the commencement of a formal court litigated matter. Finally, there are circumstances under which a judge presiding over a court litigated matter can “order” the parties to participate in the ADR process.

Mediation is usually the first step in the ADR process, although parties can agree to skip this option and proceed directly to arbitration. Parties who agree to submit their dispute to mediation will agree who the neutral mediator will be. This individual can be an attorney whom counsel for the litigants believes is best qualified to impartially provide an opinion as to the merits of the underlying dispute. In many written contracts, the parties will agree to select the mediator from one of several nationally respected mediation companies.

Procedurally, the mediation process is relatively straight forward. Once the parties agree on a neutral mediator, the parties will enter into a written mediation agreement with the mediator. In addition to the parties usually agreeing to equally bear the mediator’s fee, the parties will be required to agree to, among other things, the confidentiality of the proceeding, that nothing disclosed during the mediation sessions will be used at trial (if the mediation process is unsuccessful) and that the mediator cannot be called by either party as a witness if the dispute proceeds to a court supervised process.

Prior to the commencement of the mediation session, both parties will usually be required to provide the mediator with a confidential written mediation statement, the length of which depends on the complexity of the matter and the mediator’s instructions. This pre-hearing submission will usually include a description of the parties, the underlying facts and circumstances of the dispute, the legal issues involved, the parties’ respective strengths and weaknesses, the resolution of specific issues by the mediator that the parties believe would be beneficial in resolving the entire dispute and a history of any previous settlement efforts undertaken by the parties.

The mediation session can be held wherever the parties agree. Sometimes it can be held at the mediator’s office or at the office of the attorney for one of the litigants. It is not uncommon at the beginning of a mediation session for the mediator to gather the parties in the same room for purposes of reviewing the “ground rules” and for allowing each party to make some opening remarks. At the conclusion of this “joint session”, the mediator will separate the parties into different rooms. The mediator will then conference separately with each party. The amount of time that the mediator conferences with each party can vary and can often be lengthy. It is not uncommon for parties to wonder why the mediator is spending so much time conferencing with the opposing side. It is during these private conferences that the mediator “goes to work”. The mediator, needing to be very good listener, will allow the participants to tell their “side of the story”. The mediator will provide the litigants with his/her view of the case, including an opinion as to the legal issues involved and the monetary value of the claim being asserted, where money damages are involved. This process continues until (a) the conclusion of the agreed upon time for the mediation session, (b) the parties have reached a resolution, or (c) the mediator and the parties agree that a resolution cannot be achieved.

It is important to emphasize that without express permission from a party, the mediator will not share what was discussed during the private conference with the opposing side. The participants to the mediation need to feel comfortable discussing the matter openly and freely with the mediator. Simply stated, each individual in mediation needs to gain the mediator’s trust and vice versa. Once that trust is established, the hope is that the parties will be more amenable to looking at their dispute from a different perspective.

What makes mediation an attractive alternative to the court system is that the process is not binding. The parties are free to accept or reject the mediator’s recommendation. In some written agreements, mediation might be a required precursor to proceeding to a binding arbitration process. Where no written agreement controls the dispute, the parties are free to proceed with commencing a formal court action or can agree to submit their claim to binding arbitration.

Mediation can be a very productive ADR mechanism, the results of which depend on the effectiveness of the selected mediator and the parties’ willingness and desire to resolve their dispute quicker and more economically.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

The Importance of Estate Planning

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By: Scott M. Ceurvels, Esq.

New York was recently ranked the worst state to die in without a Will in a study published by Caring.com. The Caring.com 2023 Estate Planning Study considered factors pertaining to the probate process, guardianship, taxes and various other aspects of estate distribution to establish this ranking, all of which is described more fully and can be read at the link above.

As the 2023 Estate Planning Study points out, and various other sources corroborate, it is estimated that only one-third (1/3) of Americans have a Will in place overall. That number further declines among certain demographics, with less than one-fourth (1/4) of Black and Hispanic Americans having a Will. There are numerous reasons why so many Americans have not executed a Will of their own, from the number or value of assets one does (or doesn’t) have to being “too young” or even assumptions surrounding what happens “automatically” upon one’s death without a Will, just to name a few.

Regardless of the reason, the fact remains that well over half of Americans don’t have a Will in effect and, upon their death, will be reliant on State law to direct how their assets are distributed. Although not covered directly in the studies referenced above, another aspect of estate planning that is frequently addressed in conjunction with Wills are financial and health care planning documents that can be utilized to put some of the most sensitive and personal decisions in the hands of a trusted family member or friend in the event of a serious injury or illness that results in your incapacity.

What Happens if I Die in New York Without a Will?

Generally speaking, if you die without a Will in New York, any assets held in your individual name (“Probate Assets”) will be distributed in accordance with the State intestacy laws. This excludes assets that pass by beneficiary designation and certain jointly-owned property (“Non-Probate Assets”).

In New York, the State intestacy law provides that:

  • If you are survived by a spouse and no children/grandchildren/etc., all of your Probate Assets will be inherited by your surviving spouse.
  • If you are survived by a spouse and children/grandchildren/etc., the first $50,000 of Probate Assets will be inherited by your surviving spouse, and half of any remaining assets will go to your surviving spouse and the other half to your surviving children, grandchildren, etc.
  • If you are not survived by a spouse but are survived by children/grandchildren/etc., all of your Probate Assets will be inherited by such children/grandchildren/etc.
  • If you are not survived by a spouse or children, all of your Probate Assets will instead be inherited by your surviving parent(s).
  • If you are not survived by either of your parents, then your Probate Assets will be inherited by any surviving siblings of yours, and so on.

While there are a number of tax, asset protection, business succession and other more complex considerations that often drive estate planning, it is equally as important for the simple reason of ensuring that trusted individuals of your choice are designated to make your healthcare and financial decisions in the event you are unable to do so and that your assets are inherited in accordance with your wishes upon your death.

If you do not have a Will or other estate planning documents in place, or have not updated or reviewed your estate planning documents recently, please contact Scott Ceurvels or the attorney at our firm with whom you work.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

Does Your Business Have a Buy-Sell Agreement?

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By: Daniel J. Fetter, Esq.

In the context of a closely held business (be it a partnership, limited liability company or corporation), a Buy-Sell Agreement is highly recommended to address what happens to an owner’s business interest upon the occurrence of certain “trigger events”, which typically include a partner’s death, disability, voluntary or involuntary termination of relationship and retirement.

A Buy-Sell Agreement is often compared to a prenuptial agreement between business partners.   First, as with a prenuptial agreement, which sets forth each spouse’s rights and obligations in the event one spouse wants to leave the marriage, a Buy-Sell Agreement sets forth each owner’s rights and obligations (and the entity’s rights and obligations) if an owner voluntarily or involuntarily leaves the business.  Second, business partners should enter into a Buy-Sell Agreement prior to starting the business venture.

Some of the main objectives of the Buy-Sell Agreement include: (1) designating a buyer or buyers that are authorized to purchase an owner’s interest upon the owner’s death, disability, termination, retirement, etc.; (2) protecting the owner or his/her estate from being locked into an interest in a closely held business; (3) providing a source of funds with which to pay estate taxes or to generate income for the terminated owner or his/her family; (4) preserving control of the business with the remaining owners; (5) precluding owners from selling their business interest to third-parties without the consent of the other owners; and (6) providing a value for the purposes of estate taxes.

A Buy-Sell Agreement may also contain post-termination prohibitions against competing with the business, soliciting customers and employees and against using the proprietary information of the business.

A “handshake” understanding between business partners welcomes uncertainty and potential conflicts among family members and co-owners. Accordingly, having a type of legally enforceable, written agreement in place in the form of a Buy-Sell Agreement establishes the necessary transition plan in a much more certain and less conflict prone manner. Once in place, Buy-Sell Agreements should be periodically reviewed and updated as the situations of both the business and its owners change over time.

Buy-Sell Agreements must be considered in conjunction with not only a business owner’s business plan, but also that individual’s overall financial and estate plan to ensure advantageous tax treatment, creditor protection and other benefits.

If your business does not have a Buy-Sell Agreement in place, or has one that has not been reviewed recently, please contact Daniel Fetter or the attorney at our firm with whom you work.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

BUSINESS LAW: BANNING NON-COMPETITION AGREEMENTS IN NEW YORK

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By: Daniel J. Fetter, Esq.

A bill currently sits on Governor Hochul’s desk which would amend the New York Labor Law and ban nearly all non-competition agreements for workers in New York State.

What is a non-competition agreement?

An agreement (or clause contained in an agreement) between an employer and a “covered individual” that prohibits such covered individual from obtaining employment after the conclusion of the employment relationship with the employer.

Who is a “covered individual”?

Any person performing work or services for the employer.  This would apply to both employees and independent contractors.

Does this law invalidate existing non-competition agreements?

No.  The law will be effective 30-days after it is signed by governor Hochul and applies to non-competition agreements entered into or modified on or after such effective date

Is there an exception for sale of business?

There is no “sale of business” exception that would allow owners who sell their business to agree to refrain from competing with the buyer – common practice in the world of sales and acquisitions.  Notably, the California law which bans non-compete agreements includes such an exception.  Does the bill’s silence on this issue mean that a business owner in New York can sell his/her business and immediately start a competing company?  Not exactly.  Based on the definition of “covered individual” (who this bill is aimed to protect), it does not appear that the legislative intent was to protect business owners selling their business.  It’s not difficult to believe that this will be the subject of future litigation.

Are non-disclosure and non-solicitation agreements also banned?

The bill carves out exceptions for non-disclosure agreements that prohibit disclosure of trade secrets or confidential and proprietary client information, as well non-solicitation agreements with respect to clients of the employer that the covered individual learned about during his/her employment, provided that such agreements do not otherwise restrict competition.

What remedies are available to employees?

A worker subject to a non-competition agreement can bring a private cause of action against the employer.  Such action must be brought within two (2) years of the later of: (1) when the non-competition agreement was signed; (2) when the covered individual learns of the non-compete agreement; (3) when the employment or contractual relationship is terminated; or (4) when the employer takes steps to enforce the non-compete agreement.

The court can void the non-compete agreement and order all appropriate relief, including enjoining the conduct of the employer; ordering payment of liquidated damages (not more than $10,000) and awarding lost compensation, damages, reasonable attorneys’ fees and costs.

For further information, reach out to your usual firm contact or contact the firm at (315) 471-8111.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

The Corporate Transparency Act Reporting Requirement

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The Corporate Transparency Act:

Beneficial Ownership Information Reporting Requirement

Effective January 1, 2024

By: Scott M. Ceurvels, Esq.

Beginning on January 1, 2024, new rules implementing the Corporate Transparency Act (“CTA”) will take effect, imposing obligations on many small businesses nationwide to report beneficial ownership information to the federal government.  The link below provides information pertaining to the key details and frequently asked questions regarding these obligations, including:

 

  • Who is Required to Report?
  • What has to be Reported?
  • When is the Deadline?
  • Who are the “Beneficial Owners?”
  • Where do I Report?
  • What if I Don’t Report?
  • Why is this Required?
  • What’s Next?

 

For the answers to these questions and how we can assist you with compliance, see:   CTA Reporting Requirements

For further information regarding your particular circumstances, or if you need assistance with compliance, reach out to your accountant or contact us at (315) 471-8111.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

Selling Your Business – Be Mindful of Deal Structure and Purchase Price Allocation to Keep More Money in Your Pocket

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By: Daniel J. Fetter, Esq.

You accepted an offer to sell your business.  The buyer has proposed to purchase your company’s assets.  You are thrilled with the value the buyer has placed on the business and don’t pay attention to the transaction structure, i.e., asset vs. stock.  As the closing approaches, you begin to discuss how the purchase price will be allocated among those assets sold and suddenly you realize the purchase price was deceiving.

Deal Structure: Asset vs. Stock Sales.

For tax (and non-tax) reasons buyers typically prefer an asset purchase while sellers prefer to sell their stock in the target company.

Asset Sale.

The purchase price allocation is the process in which the buyer and seller assign a value to the assets to be sold.  This determines: (1) seller’s income tax liability; (2) buyer’s tax basis in the acquired assets; and (3) how quick the buyer can depreciate or amortize those assets to recognize future income tax savings.  Generally speaking, what is good for the seller is bad for the buyer, and vice versa.

Seller’s gain on the sale of assets will result in a combination of capital gains tax rates (up to 20% federal) and ordinary income tax rates (up to 37% federal).  In order to keep the tax bill low, seller will prefer to allocate more of the purchase price to goodwill and other intangible property taxed at the lower capital gains rate, which subjects buyer to a 15-year amortization period.

Buyer will prefer to allocate the purchase price among those assets which can be depreciated in the short-term (e.g., vehicles and equipment), which subjects seller to ordinary income tax rates.

An asset sale is the more common deal structure, and if the buyer insists on purchasing assets over stock, then seller may have leverage to negotiate an increased purchase price to account for the higher tax bill.

Stock Sale.

If selling stock of the target company only, no purchase price allocation is needed.  Seller’s gain on the sale of stock is taxed at the capital gains tax rate.  Buyer loses the ability to step up the tax basis in the acquired assets and assumes the target company’s depreciation history.  If the company’s assets are fully depreciated, buyer receives no future tax savings.

Be mindful of the deal structure and do not wait until the 11th hour to negotiate the purchase price allocation.

 

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

New York State Changes to Executive Law for Notary Publics

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By: Christopher J. Babiarz, Esq.

Effective January 31st, 2023, New York State has implemented new changes to the rules and regulations concerning Notary Publics which imposes additional important requirements on all notaries whether they are performing traditional notary services, or electronic notary services.

The most significant new change is the requirement that all types of notaries keep a journal documenting all notarial acts performed for a period of ten years.  The journal must track the following required pieces of information:

  1. The date and time the notarial service was performed; and
  2. The name and address of the principal (individual whose signature is being notarized); and
  3. The number and type of notarial service performed; and
  4. The type of credential used to verify the identity of the principal; and
  5. The verification procedure used to confirm the principal’s identity.

In addition to the five above categories, notaries performing electronic notarization must also document:

  1. Identification of the communication technology, certification authority, and verification providers used; and
  2. An actual audio and video recording of the act.

While these requirements apply to all notaries performing all types of notarial services, real property transactions are especially vulnerable to fraud, and the notary public is the first line of defense in preventing such crimes.  Fraud involving notaries typically occurs in one of two ways, and diligently adhering to the above-described process significantly helps to eliminate both.

The most obvious way that fraud is committed is when someone tries to get a document notarized and they are not the principal that they are claiming to be.  This type of circumstance can present itself a few different ways, such as by presenting a forged document that has already been signed outside the presence of a notary, and the individual is now seeking to have it notarized after the fact.  Or in a similar situation, the fraudster could be trying to get you to notarize a document without presenting a valid form of identification with a signature to compare to.

By routinely following a patterned behavior whenever you notarize a document you can avoid being implicated in this type of fraud entirely.  The requirements of the journal set forth core pieces of information that will eliminate many types of fraud just by carefully collecting this information in a methodical way.  While there are different credentials and/or personal knowledge which can be used to comply with item 4 in the journal list above, the gold standard would be a government issued photo ID or driver’s license.  If an individual is asking you to notarize without providing this particular document, that should trigger a red flag in your mind, and cause you to take a pause and re-evaluate the circumstance to make sure you are being compliant with the requirements above.  A notary may always refuse to provide a notarization service if they are not satisfied with the proof of identity, or if there is concern that the principal lacks capacity to execute a record, or if the notary suspects it is done so under duress.

The second type of fraud is less preventable on the part of the notary, but the impacts and inconveniences are also able to be greatly diminished by diligent journal keeping.  This type of fraud occurs when someone forges your notary stamp/seal using publicly available records.  In this scenario, your seal may be used to complete documents for recording with the county clerk that you will have never seen before, let alone have been in the same room as the person claiming to be the principal.  It is in this circumstance that being able to point to a meticulously kept journal that adheres to a consistent process will enable you to prove that you were not involved in the fraudulent notarization process and help you clear your name more efficiently than any other preventative measure.

In addition to the above described journal keeping requirements, New York has also clarified the current rules concerning electronic notarization.  Previously during the height of the pandemic, notaries were able to provide services via programs such as Zoom and Skype, this program was known as Remote Ink Notarization.  Although this program has since been removed, New York is seeking to replace it with Electronic Notarization.  The key difference between these two programs is that electronic notarization requires the use of specialized commercial software which allows the notary to perform identity proofing and credential analysis.  Although New York has not provided significant guidance on recommended programs to use for this purpose, we can anticipate that many reputable companies such as title companies will begin to rollout New York compliant programs that provide the above services, and allow for the recordation and storage of audio and video. Until and unless this program and software is in place, the important takeaway is that no notaries should be providing services through programs such as Skype or Zoom in New York without such additional software features. Electronic notarization is an additional program on top of traditional notarization, and must be applied for separately.

Whether you are performing an electronic notarization or a traditional notarization, the requirement to keep a journal is mandatory.  While the imposition of additional requirements on Notary Publics in New York may seem frustrating, they are truly designed in a way to protect the integrity of the notary service, and it also serves as an important safeguard to protect the individual notary as well from those seeking to commit fraud.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

What Business Owners Should Know About The Corporate Transparency Act

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ATTENTION ALL BUSINESS OWNERS

 New Federal Information Reporting Requirements to be Imposed on Privately-Held Companies and Their Owners by the U.S. Department of Treasury

By: Scott M. Ceurvels, Esq.

Effective January 1, 2024, corporations, limited liability companies and similar entities (which are not publicly-traded companies) must file detailed information concerning the entity and its owners with the U.S. Department of Treasury. Significant penalties will be imposed on entities and owners for noncompliance with this new reporting requirement.

These obligations arise from the National Defense Authorization Act for Fiscal Year 2021, in which Congress enacted the Corporate Transparency Act (“CTA”) as a component of the Anti-Money Laundering Act of 2020. This article provides a summary of the CTA, the reporting requirements it creates and the penalties that could be imposed in the event of noncompliance.

Purpose. The CTA is intended serve a variety of purposes, from improving national security and anti-money laundering standards to gathering information about entities within the United States with “hidden owners” and setting a clear and universal standard for incorporation practices.

Reporting Obligation. The primary mechanism by which the CTA seeks to achieve these purposes is the establishment of a national registry of beneficial owners of certain entities, referred to as “reporting companies”, which will be required to file with the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury, reports identifying the company’s beneficial owners and information about company applicants. The contents of these reports will be discussed in more detail below.

Reporting Companies. The CTA defines a “reporting company” as any corporation, limited liability company, or other similar entity that is created by filing a document with the Secretary of State or similar office in any state, territory, federally recognized Indian Tribe, or under the laws of a foreign country and registered to do business in the United States.

Beneficial Owners. The CTA defines a “beneficial owner” as an individual who, directly or indirectly:

  • Exercises substantial control over the entity; or
  • Owns or controls not less than 25 percent equity in the entity.

The CTA also excludes certain individuals from the definition of beneficial ownership, including:

  • a minor child (as long as the child’s parent’s or guardian’s information is reported);
  • a person acting as an agent on behalf of another;
  • a person whose control over the company derives from employment, not ownership;
  • a person whose only interest in the company is through a right of inheritance; or
  • a creditor of the company (unless they qualify as a “beneficial owner”)

Company Applicants. The “company applicant” is either:

  • The person who directly files the document that creates the entity for domestic reporting companies, or the document that first registers the entity to do business in the U.S. if the entity is a foreign reporting company; or
  • The person who is primarily responsible for directing or controlling the filing of the relevant document, described above, by another person.

Reporting Requirements. In each report to FinCEN, a reporting company is required to provide the following information for each beneficial owner of the entity:

  • Beneficial owner’s full legal name;
  • Date of birth;
  • Current residential address; and
  • A unique identifying number from an acceptable identification document (driver’s license, passport, etc.).

Company applicants will also be required to provide this information, but may provide a business street address rather than a residential address. However, company applicants will only be required to provide this information for entities formed on or after January 1, 2024.

Additionally, certain “company information” is required in the report, including the reporting companies’:

  • Full legal name;
  • Any trade name;
  • Current address of the principal place of business;
  • Jurisdiction of formation; and
  • Internal Revenue Taxpayer Identification Number (TIN) (including an Employer Identification Number) of the reporting company.

Exceptions. The CTA contains a number of exceptions for entities exempt from reporting, including certain regulated industries which already require similar beneficial ownership information reporting, publicly traded companies, certain investment companies, nonprofits and government entities.

There is also a significant exception that applies to “large operating companies” which meet the following conditions and are therefore exempt from the reporting requirement:

  • Employs more than 20 employees;
  • Filed in the previous tax year a tax return demonstrating more than $5 million in gross receipts or sales; and
  • Has an operating presence at a physical office within the United States.

Effective Date. The date that initial reports to FinCEN are due depends on whether the reporting company is an existing entity or a newly formed one. The final rule implementing the CTA will go into effect on January 1, 2024. Reporting companies in existence prior to this date will have one year, until January 1, 2025, to file their initial reports with FinCEN. Reporting companies created on or after January 1, 2024 will have 30 days after receiving notice of their creation or registration to file their initial reports with FinCEN.

Following the filing of a reporting company’s initial report, any changes to the information included in previous filings – except for changes with respect to the company applicant(s) – must be reported within 30 days of such change.

Penalties. Providing false information or failing to report complete information to FinCEN can result in fines of $500 per day up to a maximum civil penalty of $10,000 and imprisonment for up to two years. The CTA does contain a safe harbor from liability for the submission of inaccurate information if the person who submitted the report voluntarily corrects the report within 90 days.

For further information regarding your particular circumstances, or if you need assistance with compliance, reach out to your accountant or contact us at (315) 471-8111.

This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

Working Group Supporting NY Farmers

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Jeff Fetter has been appointed to a Task Force in the support of New York farmers.   “The emphasis will be on administrative actions that can be taken by the Governor and state agencies to provide an immediate and timely response to important issues around supporting and expanding food production in New York.”

Read the complete story at:  Hochul Supports NY Farmers

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