New York

What is the Business Judgment Rule?

by Fred Abramson on March 13, 2013 · 0 comments

There is no shortage of  examples of corporate wrongdoing. Officers and directors have been using the business judgment rule as an excuse for corporate malfeasance since the stone age. The defense is used in complex cases, such as mortgage backed securities indiscretions, to the relatively mundane where officers are accused of purchasing New York Knicks season tickets out of the corporate till for personal use.

New York Knicks logo

The business judgment rule, which began as a minor exception, is now so strong a winning argument that the only fun left is trying to prove that it  does not cover absolutely all forms of corporate stealing. 🙂

WHAT IS THE BUSINESS JUDGEMENT RULE? 

If you are an officer or director  of a corporation then you are responsible for managing and directing the business and affairs of the corporation. The larger the business, the more challenging the issues the officers face. Should your fashion tech start-up expand and open up a store? What if the lease is in a building that your family owns and the terms are unfavorable for the company?

If you own a business and have partners and shareholders, you don’t want to be scared that you will be subject to an expensive lawsuit if things don’t work out. However, if the officers and directors are acting against for personal gain and against the interest of the other shareholders, who should be to blame?

The courts have given large leeway to the decisions the directors and officers must make.

Under the business judgment rule, the officers and directors of a corporation are immune from liability to the corporation for losses incurred in corporate transactions within their authority, so long as the transactions are made in good faith and with reasonable skill and prudence.

When lawsuits focusing on the businesses judgement rule are commenced, they are usually highly fact driven and subjective. Was the CEO acting in good faith or did she have dual allegiance? In the example regarding the fashion tech start-up, the issue regarding dual allegiance is relevant but you may not win on that alone.

If you are an office or director and there comes an issue where your business judgement may be called into question, I would suggest that you disclose any potential conflicts up front. Open communication and fostering a business environment based on trust is the best preventive medicine.

The Law Office of Frederic R. Abramson represents business in New York. If you have questions about corporate governance and the business judgement rule, feel free to call me at 212-233-0666. 

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Cyber insurance: Because the costs of investigating and responding to cyber attacks can be staggering for small firms, some companies are turning to cyber liability insurance. If your business stores data in the cloud, I would certainly look into purchasing. FYI, my friend Chad Ezkanazy over at Morstan General Agency Insurance can help you out.

Texas Bill to Allow Service of Process Via Facebook. Bradley Shir, an attorney based in Washington, DC. reports that Texas recently introduced a bill that would allow for service of process via FacebookTexas House Bill 1989 if enacted would make the Lone Star State the first in the United States to allow for service of process via social media as an alternative means of service. No word if New York plans to allow service of process by Facebook anytime soon.

To Place Graduates, the New York Times reports that Law Schools Are Opening Firms. It is hard to believe that it has come to this. We all know that law schools have been running a scam for decades. With relatively low overhead law schools are a cash cow. They charge more and more each year yet their expenses remain stable. Unlike medical schools, law schools don’t have to pay for expensive lab equipment.

Law schools are now getting into the law firm business and it really is not very helpful. They just add another layer of competition. Since they are able to fund their “firm” through high tuition, they have no profit incentive. They could sell services at a loss. This could have the net effect of killing law firms that could have hired these graduates later. It could drive the cost of law firm salaries down.

I am already seeing the effect of this. The Brooklyn Tech meetup is currently hosted at Brooklyn Law School. A couple of months ago I attended the event. Their legal clinic was giving legal services to start-ups for free. Yes, it is a decent deal for entrepreneurs. Free advice from a law student with help from a professor. Yet, if I were able to nab one of these start-ups, I would be hire these law students and actually pay them for their work. This model simply doesn’t make economic sense for attorneys.

What do you think of Law Schools opening law firms? Is it a good idea to bring legal costs down, or will it further damage the legal industry?

The Law Office of Frederic R. Abramson represents businesses and individuals in New York. If you have a legal question, feel free to contact me at 212-233-0666

 

 

 

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Running an online business can have a variety of hidden legal dangers.  When you decide to create a website and open an online business, you are setting shop to the world. Your customers can be anywhere.

Recently, one of my clients opened a vintage jewelry shop online.  Her office is based in Manhattan. A customer residing in California purchased an antique engagement ring from her site. The customer claimed that the ring was not authentic and started a lawsuit in California.  Does the California court have lawsuit jurisdiction of the case?

There is no foolproof way of avoiding being subject to the jurisdiction of a foreign court in a lawsuit. However, there a number of ways that you can minimize the risk of being sued in another state:

  • Draft a Terms of Use and Privacy Agreement.  On your website, you need two agreements, a Terms of Use and Privacy Agreement.  You need to have two clauses drafted within these agreements: a forum selection and a choice of law. I drafted a forum selection clause for my client stating that jurisdiction is in the County of New York, State of New York. The choice of law was New York.
  • Draft a specific contract with each customer.  If possible, draft a contract tailored to the services provided for each customer. When negotiating, you may be able to also obtain pertinent information about the customer, such as if they have an office in New York State. If your customer provides a contract to you, make sure that you review the forum selection clause and choice of law.
  • Be aware of where you do business. If you do significant business in another state, the court in foreign jurisdiction may rule that you have enough minimum contacts so that you can be subject to a lawsuit in that state.
  • Choose a Country.  On your website, you should have users pick a country where they reside. If they reside in a country that you may suspect fraud and are unaware of the court system, such as Nigeria, simply do no allow customers to purchase your goods or services from there.
The Law Office of Frederic R. Abramson represents online businesses in New York. If you have a question regarding lawsuit jurisdiction in New York, call me at 212-233-0666.
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Creating Bylaws for Your New York Corporation

by Zachary Nathanson on June 1, 2011 · 0 comments

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How can I set internal rules within my company to help resolve disputes in the future? The answer is your next step in forming your corporation or start-up. After creating your articles of incorporation, you must now create bylaws. Bylaws are contained within a single written document and dictate the operating standards and procedures of your business entity. They are your way to set internal guidelines and procedures for your new company.

The standards set out in your bylaws will follow through the life of your business entity determining what it can do. You are not required to file bylaws with the Secretary of State in New York, but you must keep a copy of them at your principal place of business. Typical bylaws will contain the following:

  • Documenting your identifying information, such as: the name of your organization and where your office(s) are located
  • The number of corporate officers and directors: you should include the members of your organization including your board of directors and the range or specific number of those directors.
  • The election of your board of directors and how they will function.
  • Committees: the specific roles of any special committees including formation, how their appointed, and their duties.
  • The shares and stock classes that the corporation can issue.
  • Information concerning director and shareholder meeting protocol, the extent to the liability arising out of the performance of their duties, conflicts of interest, and corporate record keeping.
  • Specific procedure in amending bylaws and articles of incorporation.

Bylaws cover far more specific topics than the Articles of Incorporation including the corporation’s organization and structure. They are what give your company direction. What difficulties are you finding when creating your LLC’s or corporation’s bylaws?

The Law Office of Frederic R. Abramson represents start-ups in New York. If you have any questions regarding bylaws feel free to contact our office at 212-233-0666

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New York Lawyers Required to Verify Foreclosure Papers

by Fred Abramson on October 21, 2010 · 2 comments

News that mortgage service providers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public outcry.  Robo-signers verified the truth of foreclosure documents without even reading them. This issue is serious because some homeowners are being denied their due process rights governing private property. Imagine a bank, incorrectly tried to foreclose on your property. Insane! Some lenders, such as JP Morgan Chase  temporarily halted foreclosures to review paperwork.

In an effort to combat this potential huge problem, the New York Law Journal reports that the New York State court system yesterday directed lawyers for lenders to file an affirmation that they have taken reasonable steps to verify the accuracy of papers they file to support residential foreclosures. Here is a copy of the suggested attorney affirmation.

Plaintiff’s attorneys now must verify:

(a) they have personally reviewed plaintiff’s (banks) documents and records relating to this case;

(b) has reviewed the Summons and Complaint, and all other papers filed in this matter in support of foreclosure; and

(c) has confirmed both the factual accuracy of these court filings and the accuracy of the notarizations contained therein. This portion is an effort to combat “robo-signers.”

New York Lawyers are already under an obligation to certify that the documents are accurate. Somehow, the court hopes that this extra verification will hold lawyers extra accountable.

I doubt that this will do anything to halt the tide of foreclosures based on messy paperwork.   For example, I don’t believe that a judge will sanction a lawyer based on paperwork that an attorney handles on a per diem basis.  These lawyers only know about the case the day of the court appearance and are only trying to make a buck.  It is up to the client to provide the proper paperwork. It is the client, not the lawyer, who should be held accountable.

What do you think of the new foreclosure verification affirmation?  Do you think it will help stop foreclosures based on shoddy paperwork?

If you have a question regarding foreclosures in New York, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.

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“Art,” Linchpin, Seth Godin and the Law

April 14, 2010

This post has nothing to do with the law. It’s about art. I am not talking about art in the traditional sense, like Jackson Pollack or Pablo Picasso. I am talking about the art that you bring to your work and to your life.
In our economy, you are no longer guaranteed lifetime employment. The publishing […]

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New York Tech Community Looks to Repeal LLC Publication Law

April 7, 2010

Crain’s New York Business reports that members of the group of New York Tech Meetup are working to repeal the law that requires companies to pay a publication fee to form a New York Limited Liability Company (LLC).
Publication fees range from $1000 to over $2000 and are a burden on many start-ups. The rates depend […]

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Wage Garnishment: The Hidden Danger of Credit Card Default

April 5, 2010

The New York Times reports today that more struggling borrowers are facing wage garnishment than ever before. Because many credit card borrowers decide not to defend their case in court, creditors can win big judgments in court.
I recently wrote an article outlining what you should legally do if your wages have been garnished. You should […]

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Wage Garnishment: What should you do?

March 24, 2010

 
Wage Garnishment is a very powerful tool for either the government (most commonly the IRS), a company or an individual to collect money damages.  If you are a plaintiff in a civil action, if you obtain a judgment you may be able to have the sheriff garnish the wages of the person you are suing.
If […]

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