Tuesday, December 15, 2009

Letters of Intent

When you are purchasing a business or a piece of commercial real estate, you will almost always start off with a Letter of Intent.

What is a Letter of Intent?

Such a letter sets out the basic economics of the transaction – what is being sold (assets or stock?) and for how much, payable when and how. Some other key terms are usually set out in simple terms -- e.g., assumption of liabilities or not, non-competes for key personnel, and a closing date. The Letter of Intent lets each side know that it is worth the time, energy and expense of doing “due diligence” and having a formal contract drafted.

Clients always rightly want to know if the Letter of Intent will be binding or not. The short answer is that for the most part, they will not be binding – for the simple reason that it is usually in the interest of both parties to check out (perform “due diligence”) the other side to make sure they can get what they want out of the deal before committing themselves legally to the transaction. So, there will usually be a provision that says that the Letter of Intent is not binding on either party until a formal contract is signed.

However, there are two areas that most Letters of Intent expressly provide are binding on the parties – and binding as soon as the Letter of Intent is signed. First is an agreement not to disclose the confidential information from the other party, and there is usually an extended definition of what is, and what is not, confidential. Second, there may be an agreement (usually by the Seller) to deal exclusively with the Buyer for some period of time. This is to allow time to reach an agreement without having the rug pulled out by the other side’s trolling for better deals with others.

There may also be circumstances where one or both sides may have good reason to make a Letter of Intent binding. This should not be done lightly, however, and the Letter of Intent may be written so as to provide an “escape clause” under certain conditions.

The most important things are to clearly state each side’s expectations and assumptions going into the deal and to make an intelligent and transparent choice regarding which terms, if any, of the Letter of Intent will be binding.

Tuesday, December 8, 2009

Money Laundering Laws Can Snare the Unsuspecting

When most people think about “money laundering” – the movement of illicit funds for the purpose of concealing the true source, ownership or use -- they naturally associate it with organized criminal syndicates like drug cartels, the Mafia, mobsters, or violent gangs. According to law enforcement,

"Through money laundering, the monetary proceeds derived from criminal activity are transformed into funds with an apparently legal source. Money laundering provides the fuel for drug dealers, terrorists, arms dealers and other criminals to operate and expand their enterprises. We know that criminals manipulate financial systems in the United States and abroad to further a wide range of illicit activities."

Yet, to an ever-increasing extent, ordinary tax-paying, crosswalk-crossing citizens find themselves among those caught in the net meant to snare these more traditional targets of federal criminal investigations.

Take the recent case of Gus and Greta Mueller (names, places, etc., have been changed). Gus worked for years as an IT specialist at a local hospital. With the help of their two adult sons, both patent attorneys, they recently purchased their dream home in Annandale. In order to make the deal work, they needed some extra money for the down payment. Unbeknown to Gus, Greta, a traditional stay-at-home mom, had been saving up portions of the “cookie money” that Gus gave her for household expenses each payday in a secret stash. After forty years, it added up to many thousands of dollars, just enough to make their dream home affordable.

Nice story, isn’t it? Well, it has a scary ending. When Greta told the mortgage broker about the extra cash, the broker advised Greta that if she deposited more than ten thousand dollars at one time, it would be reported to IRS and they would face extra scrutiny from the taxman. So, Greta only deposited $9,900 at a time. Big mistake, since Big Brother, in the form of a federal organized crime task force, was watching.

You see, in order to keep track of potential money laundering operations, the federal government requires banks and other financial institutions and commercial actors to report any transaction involving more than ten thousand dollars in cash or cash equivalents (e.g., cashier’s checks, money orders). And, to prevent mobsters from evading detection of large cash transactions by, say, breaking up $15,000 in cash into three segments and depositing each one in a different bank or branch office, the feds invented a type of money laundering crime called “structuring.”

Structuring is the illegal act of breaking up a larger transaction that would normally have to be recorded or reported into smaller transactions in order to avoid the recordkeeping or reporting requirements. The idea is that money launderers are familiar with the dollar thresholds that require recordkeeping and reporting. Therefore, in order to remain anonymous and avoid the detection of law enforcement agents, they will “structure” their transactions so that the recordkeeping or reporting requirements will not be triggered.

Bank employees are routinely warned to be on the lookout for structuring transactions that might be for the purpose of avoiding these federal recordkeeping or reporting requirements. If they spot activity that might constitute structuring, they are required to send a Suspicious Activity Report (SAR) to the feds. Here is the content of a typical banking notice regarding structuring:

"Likewise, it is illegal for you or your employees to assist anyone in structuring transactions in order to avoid recordkeeping or reporting requirements. For example, you may not tell or even imply to a customer that they can avoid providing information by conducting a smaller transaction. Some criminals may attempt to trick you or your employees into allowing them to structure transactions by splitting up transactions with several accomplices or by trying to 'con' you with a hard luck story. You need to be on the lookout for structuring so that you can prevent it from occurring."

So . . . Gus and Greta’s bank, noticing a series of deposits just under the ten thousand dollar threshold, sent a SAR about them to feds and the task force swooped in. Without any advance warning to Gus and Greta -- and absent the slightest evidence of any underlying criminal activity as the source of the funds – the task force obtained a seizure order from a federal magistrate and confiscated over twenty thousand dollars from Gus and Greta’s bank account. They then visited Gus at his workplace and interrogated him (and later Greta) about these suspicious transactions.

Fortunately, Gus and Greta had the sense and the resources to hire a lawyer with some experience in this area. Ultimately, no criminal charges were brought and much of the seized funds were eventually returned. But the task force got its pound of flesh, Gus and Greta had the scare of a lifetime, thousands of dollars in legal fees were expended, and a great deal of investigative time and effort – time and effort that could have been far better spent chasing actual money launderers with real illicit funds – was wasted treating Gus and Greta like gangsters.

Monday, November 30, 2009

‘Tis the Season…for Holiday Visitation

The holidays can be a difficult time of year for couples who have recently separated. Parents may be attempting to establish visitation for the holidays, and they may not have time to place a motion for visitation on the court’s docket. Here are a few suggestions for amicable resolution of holiday visitation.

1. A fairly common visitation schedule provides that one parent has the child for the entire winter break from school in odd-numbered years, and the other parent has the child for the entire winter break in even-numbered years. This approach typically factors in who will have visitation during the Thanksgiving holiday and the child’s spring break, and may not provide the best resolution for parents dealing with the pendency of Christmas break.

One approach, when discussing only winter break, is to divide the break in half, with one parent receiving visitation for the Christmas portion and the other parent receiving visitation for the half of the break containing New Year’s. Parents simply divide the child’s winter break equally.

A second potential solution, for parents who hope to both spend time with the child on Christmas, is to divide Christmas itself. One parent has visitation on Christmas Eve and a portion of Christmas morning, and the other parent has visitation for the remainder of Christmas morning until the following morning.

2. Think about geography when creating a schedule. Where do each of the parents and the child reside? Consider where extended family members one may plan on visiting live when determining the best way to arrange for the holidays. Factor in how much time the child is potentially going to spend traveling, how this travel will affect the child’s Christmas, and how many transitions the child may be subject to during the week.

3. Most important, remember that this is also your child’s holiday. As a parent, you already realize a marital separation is difficult on your kids. Consider your son or daughter’s needs first when creating a schedule. Do not include him in the discussions and do not ask him if he has a preference as to where to spend the holidays. Remember that these are decisions best made by adults and one is only placing stress on a child when attempting to include his input.

Monday, November 23, 2009

Parents: Your word is bond.

  If a supervising parent agrees to host her child’s friends, what legal duties or consequences arise? The Virginia Supreme Court recently heard argument in the tragic case of Kellermann v. McDonough, 679 S.E.2d 203, 2009 Va. LEXIS 79 (Record No. 081718) (2009).
In this case, Michael Kellermann agreed to let his 14-year-old daughter Jaimee visit her friend Becka McDonough in December 2004. When he dropped off his daughter with Becka's mom, Kellerman specifically instructed her not to let Jaimee be driven anywhere by inexperienced drivers. "No boys with cars," he emphasized. McDonough agreed to Kellermann's instruction and promised to take good care of his daughter.
          Later that day, Paula McDonough dropped off the girls at a local mall and movie complex. After the girls attended a movie, Becka called her mom and asked for permission to have her friend, Nate (who had a reputation for reckless behavior), drive them home. Mrs. McDonough agreed to let the girls ride with Nate. Jaimee reluctantly got into the car after fruitlessly searching for another ride home. Once in the car, Nate frightened Jaimee by driving erratically. She begged him to slow down. Jaimee texted her father stating that she feared for her life. A few moments later, Nate’s vehicle swerved out of control and hit a tree. Jaimee died of her injuries the next day.
          The administrator of Jaimee’s estate sued the McDonoughs alleging wrongful death. The lawsuit alleged that the McDonoughs had agreed to supervise Jaimee and had promised to enforce Mr. Kellermann’s “no cars with boys” instruction. The lawsuit further alleged that the McDonoughs breached their duty of reasonable and ordinary care by allowing Jaimee to ride with Nate. The trial court dismissed the lawsuit finding that the pleadings were insufficient to support a wrongful death claim. The Virginia Supreme Court reversed:

"We hold that when a parent relinquishes the supervision and care of a child to an adult who agrees to supervise and care for that child, the supervising adult must discharge that duty with reasonable care. However, such adult who agrees to supervise and care for a child upon the relinquishment of that care and supervision by the child's parent is not an insurer of the child's safety. Rather, the supervising adult must discharge his or her duties as a reasonably prudent person would under similar circumstances.
In this case, Kellermann pled sufficient facts that support the existence of this common law duty. As we have already stated, both Paula and Paul McDonough invited Jaimee to visit their family, and the McDonoughs knew Jaimee was a 14-year-old child. Kellermann alleged that Jaimee was in the care of the McDonoughs for approximately two days, that she was dependent upon their supervision and care, that they breached their duty to supervise and care for her, and that she died as a result of the McDonoughs' breaches of duty."

          The Virginia Supreme Court explained that it was grounding its parental liability ruling in common sense:

"If this Court were to agree with the McDonoughs, that they do not owe a duty in tort to supervise and care for a child whose parents have relinquished such supervision and control to them, such holding would yield absurd results. For example, an adult who agreed to supervise and care for a group of four-year-old children could permit the youngsters to play in a street at a dangerous and busy intersection, and yet that supervising adult would not be subject to tort liability for her negligent supervision and care. Additionally, under the McDonoughs' view of this case, an adult who agreed to baby-sit and care for a group of four-year-old boys in her home overnight could allow the boys to play with loaded pistols without being subject to any tort liability in the event one of the boys fired a pistol and killed another child."

          Equally important, the Virginia Supreme Court held that a claim could proceed against Paula McDonough on the separate theory that she had assumed an express duty to render services to Jaimee by accepting Michael Kellermanns’ conditions and by promising that she would “take good care of” Jaimee.
The case was sent back to the circuit court for trial. The Virginia Supreme Court has made clear that parents who agree to supervise other minors have a duty to provide reasonable care and supervision. If the supervising parent agrees to certain terms and conditions imposed by the drop-off parent (“No cars with boys”), that agreement can form the basis of a heightened duty. All parents should be aware of this – whether they host sleepovers, birthday parties, camping trips, or play-dates. Do not agree to abide by the rules of another family, unless you really intend to honor those rules.

Monday, November 16, 2009

A Bitter Homecoming

The return home of a wounded soldier is not always accompanied by scores of hugs and tears of joy at the airport. Many return home to domestic and financial problems which developed -- but of which they were completely unaware -- while they were overseas. When compounded by health issues such as traumatic brain injury (TBI), PTSD, or other injuries requiring frequent surgeries, long rehabilitation and psychological recovery, the results can be disastrous. Health care is covered, but legal assistance is not, and in many cases it is as sorely needed.

Long absences and the physical and emotional effects of serving in a war can destroy a couple, and in turn, a family. Spouses left behind are not always equipped to deal with the separation, fear and anxiety that deployments cause, and can find themselves even less prepared to deal with a severely injured husband or wife. When the injuries are not visible, but rather psychological, such as PTSD or the manifestations of a TBI, developing understanding and patience can be impossible for some. As a result, many soldiers return home to find that their marriages are falling apart. Trying to put your marriage back together while the doctors put you back together is not easy, and soon, a newly-returned veteran may find herself in need of legal advice as much as medical services. Unfortunately, the VA currently does not serve this need.

These clients’ situations are unique, even if the legal issues they are facing are not. For example, a diagnosis of PTSD can be the difference between a grant of joint custody and supervised visitation. This writer has seen the injuries suffered by a wounded veteran used against him in a custody battle in a shameless manner, and the bald-faced assertions and baseless arguments accepted unquestioned by the Court. In this case, a wife who became “estranged” from her service-member husband while he was in Afghanistan claimed that he “came back different,” citing PTSD. At first -- with no one truly championing the husband’s cause, and press coverage giving an impression that the war was creating monsters – her assertion was enough to lend credence to a fabricated protective order petition and sole custody claim. This particular soldier did come back different, but not in the ways claimed. He had lost some of his mobility, and his retention skills needed some rehab, but he was still the loving father he had always been. Thankfully, he also hadn’t lost his ability to stand firm in the face of adversity. By listening to his story and continuing to fight, we were able to turn the tables and obtain sole custody of the children this soldier hadn’t been permitted to speak to for six months. Now his spouse has visitation when he agrees.

For those who decide to serve these clients – and everyone who can should -- it is crucial that beyond the marital issues and financial circumstances, one become educated as to what the client has been through and what he or she faces. Learn not only the true nature of any medical diagnoses and their manifestations, but the treatments, side effects, treatment schedules, and even VA disability classification procedures. While we who have not served can never understand what a soldier goes through in a war zone, we can learn what they are facing upon their return, and we can -- for a change -- fight their battles.

Wednesday, November 11, 2009

Default clause in your Will

Most people provide for their spouse and children in their Will. And if a child predeceases you, it is generally provided that his or her share will go their descendants.
But what if your spouse and all your children predecease you? This is, in effect, what happens when there is the catastrophic accident. To whom do you want your property to go? If you have said nothing in your Will, then it will go to your "heirs" or your closest relatives. Not so bad. But what about your spouse's family? If you had died first with all of the kids and your spouse had survived a few days, then everything would go to your spouse's "heirs." In either example, this is not what most people would prefer.
If they have thought about it, most will provide that some share goes to one spouse's family and some share will go to the other spouse's family. Often this is expressed as a percentage: 50% to my heirs and 50% to the heirs of my spouse. This is actually a very simple and fair way to handle a very unlikely event.
If you do want to keep your assets in the family, then the split doesn't have to be a 50/50 split. It can be 60/40 or 80/20. The important thing is that both Wills have the same provisions so that, let's say, husband's family gets 40% of the family assets and wife's family gets 60% of the family assets. How you determine what percentage goes to which spouse's family can depend on one or more of several factors:
1) From which side of the family did the family assets come
2) Which side of the family needs to the assets the most
3) Which side of the family do you like the best.

There are other options for a default, like a charity or friends. The most important thing is that your Will provide for what you would like to have happen.

Our firm is growing

Rich, Rosenthal, Manitta, Dzubin & Kroeger, LLP is pleased to announce that Katelin T. Moomau, formerly employed at the Reese Law Office, has joined Rich Rosenthal Manitta Dzubin & Kroeger, LLP, as a litigation associate, with an emphasis in family law and civil litigation. A graduate of McDaniel College, where she earned a bachelor of science degree in 2004, Katelin worked for the Maryland General Assembly as a Legislative Assistant to Delegate Karen S. Montgomery. Katelin received her J.D. in 2008 from Catholic University's Columbus School of Law and continued working for the Maryland General Assembly in the Amendment Office, a branch of the Office of Legislative Affairs. During law school Katelin was also a law clerk at Lobel, Novins and Lamont, assisting the firm with tax, trusts and estates and general civil litigation. Katelin is a Virginia-certified Guardian Ad Litem for children. She is a member of the the American Bar Association, the Fairfax County Bar Association, and the Virginia Women Attorney's Association.