The Zipper (Why You Should Hire a Lawyer)

  • February 24, 2016

This morning as I was getting ready for work, I found myself contorted into a pretzel trying to zip up a maddening zipper on the back of my dress. Why on earth would anyone put a zipper on the back of a dress? Pure conjecture, but I was guessing

Are you tired of struggling?

Are you tired of struggling?

that this asinine design is left over from the days when women had ladies in waiting, always at the ready to help them button or tie up a piece of clothing.

(Sure enough – a quick search on the internet confirmed my suspicion: “In earlier centuries, buttons found on the back of a dress as opposed to the front were originally intended to give the appearance of wealth in a woman, as wearing such a garment implied the woman could afford servants to help her dress.”)

This got me to thinking about what I am sure is every clients’ frustration with going to a lawyer.  Why should it be necessary to hire a really expensive lawyer to handle something that they should be able to zip up themselves?

Well, much like the zipper on my dress, the legal system has evolved out of complex structures, relationships and systems. Just because our lawyers don’t wear those silly wigswhite wigs anymore doesn’t mean that the legacy of hundreds of years of operating within a complex legal systems has made it any more user friendly. Lawyers are educated and trained to navigate that complex system. Much the same way that doctors are educated and trained to navigate the complex systems of the human body.

There are some things that I encourage my clients to handle on their own (and spend the money they would spend on me buying a dress that zips up the side). These are things like trying to work out a dispute before it escalates, or discussing and outlining the terms of the deal they would like to see come to fruition. And then there are some things that I advise that my clients do ask for help on.

As an attorney I think it is important, and my duty, to be honest with my clients about what I think they can handle on their own and where I think they may need assistance navigating a complex legal structure. I love having that conversation with my clients. It gives me an opportunity to hear what their goals are and how they want to get there. Feeling empowered to make things happen in your business and personal life is energizing, but if someone is struggling with the darn back zipper, I gladly offer a helping hand.

 

78th (2015) Nevada Legislature Session Summary

  • June 30, 2015

78th (2015) Nevada Legislature Session Summary

78th (2015) Nevada Legislature Session Summary 

The 78th Session of the Nevada Legislature wrapped up on June 1, 2015.  In total Governor Sandoval signed 549 bills into law and vetoed 6.  AB 483 is one of the more significant pieces of legislation which imposes new commerce taxes, as well as new fees and other taxes for Nevada businesses – learn more in this blog.

In this article you will find a very brief summary of a number of bills which Incline Law Group believes may be of relevance or interest to our readers.  For a full list of newly passed legislation or to read the full text of any bill, visit the Nevada Legislative Counsel Bureau website.

BILL #

EFFECTIVE DATE BILL SUMMARY

TYPE

SB 253

10/1/2015

Excludes “guaranteed asset protection waivers” from certain provisions that govern and regulate insurance and prohibits a creditor who sells or offers for sale guaranteed asset protection waivers from including certain words in the name of the business of the creditor that could indicate that the creditor is an insurer.

Asset Protection

SB 264

10/1/2015 The Uniform Fraudulent Transfer Act (UFTA) sets forth statute of limitations periods for fraudulent transfer of property to avoid an obligation or creditor’s claims. This bill specifically includes spendthrift trust provisions from the UFTA. Asset Protection

AB 137

10/1/2015 Revises provisions relating to unlicensed contractors. Makes it a misdemeanor for a licensed contractor to solicit a bid or estimate from any unlicensed person and increases fines for several new and old violations of construction license laws. Contractors

SB 50 & SB 223 & SB 254

Various Dates SB 50 changes several technical requirements regarding the regulation and licensing of contractors. SB50 also creates new limitations on eligibility to recover from the insolvent contractor residential Recovery Fund administered by the State. SB223 makes technical changes regarding liens for wages and payment of certain benefits in certain projects. SB 254 regulates the amount of retainage that may be withheld from progress payments to  contractors in public works (5%) and private works (10%) and also provides the conditions on which retainage must be paid out to the contractors. Contractors

AB 125

2/24/2015 Makes a variety of technical and substantive changes to the rules regarding residential construction defect claims. In several different ways, the new changes significantly improve the legal position of developers and contractors in these cases. Contractors – Residential Construction Defect Claims

AB 44

7/1/2015 Makes various technical changes and expands the range of opportunities to use judgments by confession in justice courts. Courts/Litigation

AB 66

10/1/15 & 1/1/17 Increases the jurisdictional limits of justice courts in Washoe County and Clark County from $10,000 to $15,000, and the small claims limit from $7,500 to $10,000. Courts/Litigation

AB 435

7/1/2015 Creates a new 11th judicial district in Nevada to cover Lander, Mineral and Pershing counties, providing better efficiency for courts in Nevada’s rural counties. Courts/Litigation

SB 134

5/30/2015 Limits the amount of a bond needed in certain cases to obtain a stay of execution (collection) on a judgment pending appeal. Courts/Litigation

SB 224

6/1/2015 Establishes elements for a conclusive presumption that a person is an independent contractor for purposes of NRS 608. Employment

AB 92

10/1/2015 Makes changes to NRS 126.720 concerning adoptions, requiring the State Registrar of Vital Statistics to show the names of intended parents (adoptive) on birth certificates upon receipt of court orders issued by district courts in Nevada approving gestational agreements for children born in the State of Nevada. Family Law – Adoption

AB 151

10/1/2015 Provides that a court can ignore age restrictions for certain family members to adopt children if it is in the best interest of the child and the public. Also changes requirements for consent to adoption by spouse: a married person must obtain consent from spouse but obligations of other spouse are limited. Imposes a six-month wait for certain adoptions. Family Law – Adoption

AB 303

7/1/2015 With respect to the protection of children in terms of abuse and termination of parental rights, this bill expands the definition of “abuse” to include whether one of the child’s caregivers has abused another child in the household as evidence that any other child in the household is in need of protection. Family Law – Child Welfare

AB 324

7/1/2015 Revises provisions mandating the reporting of missing and runaway children within 24 hours and brings certain state regulations in conformity with federal laws. Family Law – Child Welfare

AB 263

7/1/2015 The most important family law legislation for this session, making sweeping changes to NRS 125.040 regarding determinations regarding child custody. Most importantly, it recognizes that non married parents should have the same presumptive rights to share joint legal and physical custody that married parents have. The statute now also imposes the same relocation standards that apply to out of state moves to moves within the state of Nevada if the move is at such a distance within the state that it would substantially impair the ability of the other parent to maintain a meaningful relationship with the child and adds a punitive attorney’s fees provision for bad faith conduct with respect to either parent in relationship to a relocation petition. The changes to this section also now make it a category D felony to relocate with a child without the written consent of the other parent or a court order. Family Law – Custody

AB 132

7/1/2015 Increases the fee for someone who commences an action for divorce in district court from $20 to $30 and extends the fee to those commencing an action for termination of a domestic partnership. Family Law – Divorce or Separation

AB 388

7/1/2015 This statute provides for additional filing fees that can be collected in modification proceedings filed in any divorce or separation proceedings that were originally submitted as joint petitions. It allows for the county to obtain a $129 filing fee for a motion to modify or enforce and a $57 filing fee for any opposition which helps them to recoup the lost filing fees on the front end of an “uncontested” divorce or separation proceeding that later results in a contested matter. Family Law – Divorce or Separation

AB 262

7/1/2015 The new provisions designate the priority for appointment of guardians and now allow, among other things, for the appointment of a nonresident over a resident if the nonresident was nominated and qualified to serve. Family Law – Guardianship

AB 362

10/1/2015 Makes modifications regarding the procedure for filing post judgment motions in divorce or separation cases based on a party’s omission of a community property asset or liability. It now requires that such motions, based on fraud or mistake, must be filed within three years from the entry of Judgment. Family Law – Judgments

AB 58

7/1/2015 Enhances the confidentiality of juvenile justice information and provides that it is a gross misdemeanor to disseminate or make public juvenile justice information. Family Law – Juvenile Rights

AB 112

10/1/2015 Amends the state’s anti-bullying bill to include that the quality of instruction is impacted by poor attitudes or interactions among administrators, principals, teachers and other personnel of the district as well as sets forth reporting requirements for violating this new provision. Misc.- Anti-bullying

SB 504

7/1/2015 Provides procedures and guidelines for the discipline of teachers and administrators, including revoking their license for non-compliance with anti-bullying statutes. Gives parents the power to petition superintendent to compel teachers and administrators to comply with anti-bullying laws. Misc.- Anti-bullying

SB 414

Immediately Encourages the Board of Regents to enter into reciprocal agreements with the State of California to authorize waivers of nonresident tuition to certain residents of Nevada and California in the Lake Tahoe Basin. Misc.- College Tuition

AB 239

Multiple Dates Revises the definition of “aircraft” to include unmanned aerial vehicles (“drones”) for regulation purposes, allowing for the regulation of drones, including the extension of trespass and police search protections to drone use as well as prohibiting the addition of weapons to drones. Misc.- Drone Regulation

SB170

Multiple Dates Sets forth criteria and limits for the authorization of a partial abatement of property taxes and local sales and use taxes to a data center that locates or expands in this State and meets certain qualifications. Misc.- Economic Development

SB 276

Multiple Dates Reallocates the number of certified medical marijuana establishments to other counties when there are no qualified applicants in a county or there are unused certificates in a county. Revises law to allow for transfer of ownership and relocation of a medical marijuana establishment. Misc.- Medical Marijuana

SB 305

Multiple Dates Authorizes an institution of higher education or State Department of Agriculture to grow or cultivate industrial hemp for research purposes if certified with the Department. Also, it excludes industrial hemp from the definition of “marijuana.” Misc.- Medical Marijuana

SB 447

7/1/2015 Makes it a crime to forge or counterfeit a letter of approval for medical marijuana or to possess a forged or counterfeit medical marijuana card. Defines “concentrated cannabis” and prohibits its extraction. Provides guidelines for medical marijuana use and approval for children under 10 years of age. Misc.- Medical Marijuana

AB 175

Multiple Dates Provides a definition for “transportation network company” (i.e. Uber, Lyft) and sets forth the regulations and requirements for such companies which include requiring background checks and a taxation structure. Misc.- Nevada Transportation Authority

AB 176

Multiple Dates Establishes the Yellow Dot Program which alerts first responders that a person who is regularly a driver or a passenger in a vehicle has important medical information that can be found in the glove compartment in the case of an emergency or collision. Misc.- Nevada Transportation Authority

SB 401

Multiple Dates Authorizes a person to file a complaint with the Secretary of State if the person is aware of a violation of existing law governing notaries public and implements new application requirements for notaries public or those apply for registration as a document preparation service. Misc.- Notary Publics

AB 162

1/1/2016 Authorizes certain peace officers to wear recording devices and requires agencies to implement policies governing use of recording devices and retention of records. Also establishes that any record on a recording device is a public record subject to inspection. Misc.- Police Transparency

AB 88

10/1/2015 Revises the Charter of the City of Reno with various changes. Gives the City Council more power to hire and appoint temporary vacant positions as well as imposes limits on number of employees and positions City Council may employ. Misc.- Reno City Council

AB 86

7/1/2015 Makes several minor changes to the current Silver State Health Insurance Exchange (State version of Obamacare). Reduces required meetings of the board from quarterly to annually, allows for compensation if money is available and reduces restrictions on who can sit on the board. Misc.- Silver State Health Insurance Exchange

SB 2

10/1/2015 Increases the maximum speed limit in Nevada from 75 to 80 miles per hour and expands the imposition of the current limited fine of $25 for incremental speed violations up to 85 miles per hour. Misc.- Speed Limit

SB 312

7/1/2015 Imposes a surcharge to certain room rates in certain cities (i.e. Reno) to improve and maintain publicly owned facilities. Misc.- Taxation

SB 231

Multiple Dates (5/27/15 & 1/1/16) Addresses controlled substances provided for injuries, timeframes for payment of bills by insurers, and injuries when employee impaired. Misc.- Workers’ Compensation

SB 232

Multiple Dates (5/27/15 & 1/1/16) Provides for numerous changes to laws affecting procedures for handling Workers’ Compensation claims. Misc.- Workers’ Compensation

AB 192

10/1/2015 Established different time periods for a developer to turnover control of the HOA based on the number of units in the development. This bill also revises the election of unit owners to the executive board during the period of the original developer’s control. Real Property – HOA

AB 238

10/1/2015 Requires an HOA to solicit three bids for works of improvement whenever possible depending on size of HOA and amount of expected cost relative to a percentage of the annual budget. Real Property – HOA

SB 389

10/1/2015 Amends existing law (116B) pertaining to condominium hotels and adds numerous provisions, some of which are amendments recommended for UCIOA by the Uniform Law Commission (UCL). Real Property – HOA/Condominium Hotels

SB 306

Various Dates Addresses the NV Sp Ct decision in SFR Investments Pool 1 v. US Bank by amending existing elements of Super Priority HOA liens, and notices  and procedures that apply to nonjudicial foreclosure sales to enforce those liens. This a very detailed bill that amends many provisions concerning liens and sales under liens to secure amounts due HOAs. Among other provisions, it includes new or amended requirements for notices to be given to foreclose an HOA lien; requirements for place where the sale is to be held, or postponed to the same location, date and time for a maximum of three (3) postponements, and new notices required if there are more than three (3) postponements. It also allows payment of Super Priority liens prior to sale, and NEW provisions allowing for redemption after the sale under certain circumstances. The bill also provides new notices required if a property is subject to the Foreclosure Mediation Program. A close review of the amendments should be undertaken if you are involved with an HOA sale either for the association or as the owner or a potential bidder at an HOA nonjudicial sale. October 1, 2015 is a key date that affects HOA sales that are subject to these amendments.This is the much-debated legislative response to the SFR case (Sept. 2014) discussed in prior Clarity blogs, including an update on the subject. Real Property – HOA Super Priority Liens

AB 183

10/1/2015 Provides that a grantee of a deed in lieu of foreclosure is liable for damages and attorneys’ fees for failure to record the conveyancing deed. Real Property – Leasing/Lending

AB 195

7/1/2015 Clarifies the amount of deficiency judgment that may be awarded against a debtor or guarantor under NRS 40.459.  A deficiency judgment is now limited to the lesser of the difference between the amount owed and the fair market value, plus interest from the date of the sale, or the difference between the sale price and the amount of indebtedness, plus interest from the date of the sale.  If the foreclosed property is a primary residence, a deficiency judgment is further limited by the consideration paid by a purchaser of the right to obtain the judgment. Real Property – Leasing/Lending

AB 379

10/1/2015 Allows a landlord of a commercial lease to change the locks only after providing at least three days notice by certified mail of the failure to pay rent and the intent to change the locks. Real Property – Leasing/Lending

AB 386

10/1/2015 Provides landlord remedies for the eviction of persons who have forcibly entered or detained a dwelling. Real Property – Leasing/Lending

SB 239

6/1/2015 Prescribes requirements for termination or suspension of a line of credit and the recordation of the same. This bill also reduces the time period in which to file an action relating to a nonjudicial foreclosure sale and provides protections for bona fide purchasers for value at a foreclosure sale. Real Property- Leasing/Lending

AB 97

5/27/2015 Provides that a will that is delivered or presented to the clerk of a court becomes part of the permanent record maintained by the clerk of the court, whether or not a petition for probate is filed. The will now also becomes a court record open to inspection unless sealed pursuant to Part VII of the Nevada Supreme Court Rules. Trusts/Estate/Probate

AB 128

6/4/2015 Creates a power of attorney for health care decisions for adults with intellectual disabilities. Existing law provides for a statutory form for a power of attorney for health care decisions. This act provides such a form for adults with intellectual disabilities and a form for end-of-life decisions for adults with intellectual disabilities. Trusts/Estate/Probate – Guardianship

AB 130

10/1/2015 Increases the jurisdiction amount of a decedent’s estate that may be subject to summary administration from $200,000 to $300,000, after deducting encumbrances. Increases the size of a decedent’s gross estate that may be subject to transfer by affidavit from $20,000 to $100,000 for a surviving spouse, and to $25,000 for all others, excluding the value of any automobiles. Trusts/Estate/Probate

SB 384

5/27/2015 In 2009, Nevada enacted legislation to allow for family trust companies to exist without public supervision, unless the family trust company desires to be licensed. This act updates provisions of the law that apply when a family trust company chooses to be licensed. Trusts/Estate/Probate

Continue reading

Happy 800th Birthday Magna Carta

  • June 15, 2015

Eight Hundred years ago today, June 15, 1215, the Magna Carta was signed and sealed by King John of England.

Magna Carta

The Magna Carta or “Great Charter” of 1215 is a long list of  agreements between the King and barons designed to limit the king’s arbitrary powers. While the Magna Carta initially only lasted a number of weeks before it was annulled by the Pope, it is often cited as the earliest expression of the “rule of law” and the right to due process  of law.  There is much debate among historians and legal scholars over the true significance of the Magna Carta. While the Magna Carta only created rights for wealthy barons and lasted a short time before it was annulled, the idea of limiting the arbitrary powers of a monarch and the idea that one’s life, limb or property could not be taken without due process of law according to law, with decisions to be made by juries comprised of one’s peers, is considered foundational to our justice system today.

Happy birthday Magna Carta.

Signature Required: Electronic or “Wet”?

  • June 11, 2015

Technology has made our lives much easier. Most of us can no longer fathom leaving the house without our cell phone or taking a trip without bringing along their laptop and/or tablet. With the prevalence of technology today, it is not surprising that the law is adjusting to the use of technology.

If you purchased a home in the last decade, there is a strong likelihood that you were exposed to the world of electronic signatures (e-signatures) which streamline the process of signing documents such as offer and acceptance paperwork. As an example, if a seller was in New York and buyer was in California, having an offer on acceptance paperwork signed with “wet signatures” could take days. With multiple offers and counteroffers, days could easily become weeks. However, e-signatures allow instant turn around for documents.

are-electronic-signatures-legalBoth California and Nevada have enacted versions of the Uniform Electronic Transactions Act (“UETA”). This Act attempts to make laws consistent across all those states that have adopted it. In adopting the majority of the UETA, Nevada and California have paved the way for many other agreements to be signed electronically. However, there are certain legal documents that still require a “wet” signature (an original ink signature) to be enforceable.

For example, California Civil Code Section 1633.3(b)(1) specifically excludes wills, codicils, and testamentary trusts from the UETA meaning that these documents require an original wet signature to be deemed valid. Technology can help streamline our daily lives. However, it is not perfect and there are some instances when a pen and paper is the only way to legally enforce an agreement. Before signing anything electronically, please consult your attorney.

Making Contracts Work for You – Part 2: Warranties, Indemnity and Insurance Provisions

  • May 27, 2015

In a previous Clarity post, Making Contracts Work for You – Part 1: Top 5 Boilerplate Items You Don’t Read, I wrote about how you can make your contracts useful (to your side of the case) if you are in a dispute.  I also wanted to provide you some pointers on the use of warranties, indemnity and insurance provisions.

Warranties

A warranty is an agreement that the item sold, or some other subject matter related to your contract, conforms to a certain description.  The effect of a warranty is a contractual allocation of financial risk if the item sold (or other subject matter of your agreement) does not conform to the specified warranty.  A warranty is violated when the thing sold doesn’t satisfy the warranted condition.  When this happens, the party who made the warranty is liable to the other party for the cost to repair or correct the issue — without regard to fault.  Thus, warranties produce liability without fault, sometimes called “strict liability.”  When a warranty is breached, it may also provide a basis for rescission and restitution — this means unwinding the contract.

Including warranties in contracts is an effective way to make sure your assumptions about what you are buying are included in the paperwork.  Requesting warranties during negotiation and drafting of documents is a good way to find out whether each party has the same understanding of what is being bought and sold.  Signing an agreement that contains warranties that you did not agree to make can produce bad results; likewise, failing to include warranties in an agreement to reflect what has been promised to you is also a bad idea.

Often, a seller will attempt to disclaim liability for any breach of warranties by requesting an “AS-IS” provision. The words “AS IS” and similar terms generally trigger a legally enforceable disclaimer of all express and implied warranties, except for warranties set forth elsewhere in the agreement.

Parties relying on warranties will often want a “survival clause” in the agreement to be sure that any important warranties continue in effect after close of escrow, for example.

 

Indemnity Provisions

Indemnity or “hold harmless” clauses are another way of allocating financial risk to a particular party in a transaction.  Indemnity clauses require one party to bear the cost of certain risks defined in the contract, which can range from particular losses, lawsuits, or even non-conformance with prescribed warranties.  Most commercial agreements should have some form of indemnity clause, in which one party agrees to defend (i.e., hire a lawyer) and indemnify (reimburse) the other party for the risks described.

definition-indemnity-6427471We find that indemnity clauses are often one-sided, and sometimes taken from unrelated contracts, so that the risks which ought to be negotiated and indemnified are overlooked, while the indemnity clause as written produces results which the parties never contemplated.  For example, Party A would not expect to find a clause that lays the costs of Party B’s fault back upon Party A.  Yet that kind of result can happen when indemnity clauses are not carefully negotiated and drafted.

Indemnity clauses can be quite complex, including provisions regarding the selection and control of the attorneys who will defend the claim.  A well-drafted indemnity clause will include a provision that the benefited party will be entitled to their reasonable expenses incurred to pay the indemnified loss, and any settlement, judgment and defense costs.

Losses are not always caused by one person or one discrete act or omission.  Events like construction site accidents and other industrial accidents are often the result of a combination of factors.  Environmental contamination can have multiple causes spread over decades.  In such cases, the wording of an indemnity clause can make a big difference.

The legal effect of an indemnity clause is usually a question of state law.  Different states have varying rules for interpreting and enforcing indemnity clauses.  Therefore, the state law selected in the agreement can have a major effect on the results produced by the indemnity clause.  Some states require particular wording in an indemnity clause before a court will shift the risk of a loss from one party to another.  If  the contracting parties intend to shift the risk of one party’s “active” negligence to the other, such an intent will often need to be specifically spelled out or the indemnity clause will not be given that effect.

Most or all states have limitations on the kinds of liabilities that may be indemnified, and some even have special statutes that change the rules in particular settings, such as construction contracts, for example.  Indeed, California courts have at times distinguished between “Type I,”  “Type II” and Type III” indemnity clauses. (I will spare you those details.)

Ultimately, the effect of an indemnity clause will turn on the state law chosen in the contract, the subject matter of the contract, the words used in the indemnification provision, the circumstances of the loss to be indemnified, and the different parties’ roles in producing the loss.

Insurance

I can already hear it — you know what insurance is.  However, did you know that a promise to procure insurance for another party can sometimes equal an obligation to cover the loss the insurance would have provided if you don’t procure it?  In other words, if you promise to insure another party in conjunction with a commercial agreement, you become the insurer if the agreed-to coverage is not purchased.  For this reason, insurance provisions in commercial agreements can have enormous financial consequences, particularly when a loss occurs which would have been covered by insurance required by the agreement.  As is often the case with indemnity provisions, insurance clauses are sometimes drawn from old, unrelated agreements, and your contract might wind up with unfair or insufficient insurance provisions.  Make sure the insurance clause fits the deal.

Next time you negotiate an agreement, make sure that you are best protecting yourself and avoiding unintended financial risks by including appropriate warranty, indemnity and insurance provisions that reflect your intentions and are enforceable under the state law selected in the agreement.

Happy contracting.

 

Nevada Supreme Court Puts Another Nail in AB273’s Coffin: Anti-Deficiency Protections

  • May 20, 2015

In my ILG Currents newsletter articles in January 2014 and April 2014, I discussed some important court decisions impacting Nevada’s 2011 Assembly Bill 273 (AB273), which expanded anti-deficiency protections available to borrowers and guarantors whose loans are secured to Nevada real estate. AB273 essentially limits a deficiency judgment after foreclosure to the amount paid for the assigned loan.  In the Sandpointe case decided in late 2013, the Nevada Supreme Court determined that AB273 was not applicable to the particular case before it, because both the loan assignment and the foreclosure sale in issue had occurred before the enactment of AB273. In Sandpointe, the Nevada Supreme Court was not required to address any difficult questions regarding the federal Constitution or federal “preemption.”

In March, 2014, Judge Robert Jones of the U.S. District Court of Nevada confronted some of the constitutional problems of AB273, head-on, in a case called Eagle SPE NV I. In short, Judge Jones determined that AB273 would be unconstitutional if it is applied retroactively to assignments of loans, which had been made before the effective date of AB273.  In other words, AB273 is unconstitutional if it is applied to prohibit a deficiency judgment on a loan assigned to the foreclosing lender before the enactment of AB273, even if the foreclosure sale is held after the effective date of AB273 in June 2011.

In a new case this past month, the Nevada Supreme Court has just ruled that AB273 cannot be applied to loans that have been assigned through the FDIC via operation of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).  FIRREA is a United States federal law through which the FDIC takes custody of a failed bank and transfers its assets to other banks. Relying on the Supremacy Clause of the United States Constitution, the Nevada Supreme Court ruled that the federal FIRREA law trumps the Nevada state anti-deficiency law. Accordingly, whenever an assignment of a failed bank’s assets is made through the FDIC, AB273 will not be applied to limit the rights of the loan’s new owner, as doing so would directly interfere with the federal statutory scheme for taking custody and liquidating failed bank assets under FIRREA.  Here is a key bit of the text from Munoz v. Branch Banking and Trust Company, Inc., Nevada Supreme Court (131 Nev. Adv. Opinion No. 23, April 30, 2015):

At issue here is whether NRS 40.459(1)(c)’s limitation on the amount  of  a  deficiency judgment  that  a  successor  creditor  can  recover conflicts with FIRREA’s purpose of facilitating the transfer of the assets of failed banks to  other  institutions.  Because  NRS  40.459(1)(c)  limits  the value that  a successor  creditor  can recover  on a deficiency judgment,  its application to assets transferred by   the Federal Deposit Insurance Corporation (FDIC) frustrates the purpose of FIRREA.  Therefore, we hold that NRS  40.459(1)(c) is preempted by FIRREA to the extent that NRS 40.459(1)(c) limits deficiency judgments that may be obtained from loans transferred by the FDIC.

So what does this mean for our clients? What clarity does this provide?

In the immediate aftermath of AB273’s enactment, from 2011 through 2013, we were successful in arguing the potential impact of this law for the benefit of clients who had been threatened with the prospect of a deficiency judgment arising from a foreclosure sale during the Great Recession. Those arguments had legs for two or three years while courts grappled with the meaning and effect of AB273.  As a result of the cases described above, including most recently Munoz, AB273 will have very limited application to loans that predated its enactment, or which were assigned before its enactment, but moving forward, AB273 will become a force to be reckoned with as new loans are made and assigned with AB273 as the underlying law of Nevada.

Federal District Court Limits Nevada Anti-Deficiency Protections (AB273)

  • May 13, 2015

This article was originally published in the April 2014 edition of Incline Law Group’s printed newsletter, Currents. 

In my last Currents column, I discussed the Nevada Supreme Court’s November, 2013, decision in Sandpointe.

Sandpointe concerned the application of Nevada’s 2011 AB273, which expanded anti-deficiency protections afforded to borrowers and guarantors whose loans are secured to Nevada real estate.

AB273 essentially limits a deficiency judgment after foreclosure to the amount paid for the assigned loan. Sandpointe determined that AB273 was not applicable in the case before it because both the loan assignment and the foreclosure sale occurred before enactment of AB273.  Sandpointe thus left the weightier constitutional issue of possible impairment of contract rights to future cases.

Within the past  month, one such case decision arrived on the scene –  Eagle SPE NV I, Inc. v. Kiley Ranch Communities, United States District Court, D. Nevada, March 24, 2014, 2014 WL 1199595 (“Eagle SPE”).  Eagle SPE  involved the assignment prior to enactment of AB 273 of four defaulted loans totaling $45 Million, with loan foreclosure sales occurring after the enactment.  Chief Judge Robert Jones of the U.S. District Court of Nevada delved headlong into the constitutional questions avoided by the Nevada Supreme Court and concluded that AB273 cannot be constitutionally applied to loans where the assignment to the foreclosing creditor occurred prior to the statute’s effective date in June, 2011. This decision is not currently binding on other Nevada courts, but it may portend the future legal landscape in Nevada. An appeal to the U.S. Ninth Circuit Court of Appeals and thereafter to the Supreme Court of the United States (“SCOTUS”) is certain to follow.

While the popular view is that laws simply cannot impair any vested contract rights, the decisions of the SCOTUS and federal appeals courts have established a much more subtle balancing test that allows some significant interference with contracts.

Judge Jones’ decision stated: “The amended statute, if retroactively applied to assignments made before the effective date, provides a windfall to a particular class (mortgagors) that could not have been reasonably expected under the mortgage and assignment when made, to the detriment of another distinct class (mortgage assignees). …”

Judge Jones concluded that parts 1 and 2 of the above test were satisfied – i.e., that AB273 indeed impairs contract rights when it is applied to a loan assignment made prior to AB273 enactment, and that there was a legitimate public purpose for the Nevada state legislature enacting the law to address a state-wide real estate crisis.

Judge Jones also concluded that any impairment of the assignee’s expectancy interest – its benefit of the bargain – cannot be limited.  He found that AB273 essentially destroys an assignee’s upside or benefit of its bargain, but completely protects the assignee’s out-of pocket losses from the contract impairment.  Judge Jones concluded this is a windfall to the borrower, and does so without discussing the particular borrower’s circumstances (rather he discusses all borrowers collectively and abstractly).  Nor does Judge Jones consider the probability that in essentially all deficiency judgment actions after foreclosure, the borrower has not enjoyed any windfall at all – it is not walking away with a pile of money in its pocket, it has no remaining interest in the property, and has probably lost its entire equity capital investment and perhaps years of sweat equity.

In this light, Judge Jones’ conclusion that every foreclosed borrower has enjoyed a windfall and is impermissibly receiving special protection is neither supported by the facts of the case nor economic reality.  Moreover, the decision fails to address the fact that a potential windfall is accruing to the party who acquired the loan at a discount, in a voluntary transaction between the foreclosing holder of the loan and the prior holder or loan originator.  The foregoing aspects of Judge Jones’ analysis may prove to be crucial in appellate litigation that is certain to follow – after all, the case concerns a deficiency of $35.7 Million.

My prediction is that the case will proceed to the U.S. Ninth Circuit Court of Appeals and eventually to the SCOTUS, and the argumentation will focus on whether AB273 in fact accords a windfall to borrowers, whether all Nevada borrowers with assigned mortgages are an improperly defined special interest group, and whether AB273’s protection of the loan assignee’s out-of-pocket losses, while entirely destroying its benefit of bargain (the right to enforce the assigned loans at face value when acquired at less than face value, when the devaluation of the collateral is already known or obvious) is permissible under the Contracts Clause.  The Ninth Circuit will make an interesting appellate forum for these issues.  If Judge Jones’ decision is upheld, it will have the effect of gutting the consideration-paid limitations imposed by AB273, in regard to all loan assignments made before AB273 took effect in June, 2011.

NV Supreme Court Addresses AB273 – Anti-deficiency Protections

  • May 13, 2015

This article was originally published in the January 2014 edition of Incline Law Group’s printed newsletter, Currents. 

In 2011 the Nevada legislature enacted Assembly Bill 273, and in doing so expanded the anti-deficiency protections available to borrowers and guarantors in Nevada.  An anti-deficiency law is one that limits the amount of money which a lender or its assignee may obtain from a borrower or guarantor in excess of the value of the real property or other collateral given to secure the loan.  Of particular importance, AB273 limits the amount that an assignee may recover through a deficiency judgment to the amount of consideration it paid for the assignment of the note and deed of trust, minus  (1) the amount paid for the property at the foreclosure sale, or (2) the fair value of the property on the date of foreclosure, whichever is greater.

Within a few months after AB 273 was enacted, trial courts in Nevada began to issue conflicting rulings regarding application of the new law.  In particular, on one day in late 2011, two different judges from the Eighth Judicial District Court in Clark County issued rulings with opposite conclusions about the effect of the law.  The two cases, Sandpointe and Nielsen, were then appealed to the Nevada Supreme Court.  Since then, attorneys and judges handling collection cases and the banking industry in general have been waiting for rulings on these cases.

In November, 2013, after a two-year wait, the Nevada Supreme Court issued its rulings in Sandpointe and Nielsen.  Depending on who you ask, there are differing opinions regarding what was decided and not decided by SandpointeThe following is this attorney’s view of the primary issues decided and not decided by Sandpointe:

First and foremost, Sandpointe determined that the AB273 anti-deficiency protections apply to any loan where the foreclosure sale (private trustee’s sale or judicial foreclosure) occurs after the effective date of the statute, which was June 10, 2011.  The court noted that a creditor’s right to a deficiency judgment vests when the foreclosure sale happens.

Some have suggested that AB273 only applies to an assignment of a right to obtain a deficiency judgment after foreclosure (i.e., a cause of action), but not to an assignment of a note and deed of trust.  In fact, Sandpointe expressly and impliedly determined that the AB273 anti-deficiency protections apply to any transfer of the right to obtain a deficiency judgment, regardless of when or how the right was transferred.

The Supreme Court also explained the practical economic effect of AB273 when it applies.  In this regard, the court stated:

Following the enactment of NRS 40.459(1)(c), a successor holder is now limited in its recovery, in a deficiency action or suit against the guarantor, to the sum by which the amount paid for the “right to obtain the judgment” exceeds the greater of the fair market value or the actual sale price. Under NRS 40.459(1)(c), no award may be made for other amounts that the successor in interest may have incurred following the acquisition of the right to obtain the judgment, such as accrued interest, costs and fees, and any advances, as provided in NRS 40.451 and NRS 40.465.

No doubt the statement that no award may be made for accrued interest, costs and fees will produce additional controversy.

The Court did not rule on the applicability of AB273 to loans transferred to a FDIC takeover.  AB273 refers to “persons” — in particular, a “person” assigning and a “person” receiving assignment.   Successor banks that hold assets received through the FDIC argue that the FDIC is not a “person” within the definition of statute and, therefore, that successor banks acquiring loans from FDIC are not limited in what they can recover.  This issue will undoubtedly be addressed in a future appellate court decision.

Sandpointe and Nielsen have answered some important questions following the enactment of the AB273.  Several crucial issues regarding this important law still remain to be decided, and will undoubtedly be the subject of future appellate decisions and/or legislative changes.

 

Making Contracts Work for You – Part 1: Top 5 Boilerplate Items You Don’t Read

  • May 11, 2015

In this two-part series, Making Contracts Work for You, I will discuss various ways that you can strengthen your contracts, so that in the case of a dispute, your contract works on your behalf.

Many people and businesses use self-written business forms as contracts and rely on handshakes to seal a deal. When a dispute arises from said deal, many of these people or business later turn to attorneys for a review of said contract.  Having an attorney review the contract will often reveal shortcomings, and then the second-guessing of the agreement then begins.

Contract

A few simple, but well-defined boilerplate terms can make your standardized agreement an advantage for you in the case of a dispute, or at least keep the playing field level.  In many cases, a court cannot rescue you unless you give it the ammunition to do so.  It makes great sense to improve your leverage and chances of collection, and perhaps even ward off disputes, by improving your standard contract forms with the simple tools mentioned below.

Here are 5 provisions that can make or break your success in a lawsuit that arises from your contract:

1. Attorney’s Fees Clause — language that says the winner also gets his attorney’s fees recovered.

Why? Under the “American Rule” you generally cannot recover attorney’s fees in most states, unless you have a right to attorney’s fees in your contract or under a special statutory remedy.  You want an attorney’s fee clause that is properly drafted.

2. Clear Payment Deadlines and Interest Provisions — terms that state when payment or performance is due and the consequences for delay.

Why? Disputes can take a long time to resolve.  The accrual of interest can become a powerful bargaining chip, and a significant item of recovery.  Interest compensates you for the loss of use of your money, and, to some degree, the loss of your own time devoted to the case.  Allowable interest rates vary according to the applicable state law.  If you want to charge “compound interest” — in other words, interest on interest — this must be explicitly stated in the agreement.  Otherwise, only simple interest will accrue on the principal sum due.  Typically, we see contracts with no interest rate stated; the interest rate only appears in invoices.  The interest rate(s) should be agreed upon, up-front, in the contract.

3. Choice of Law, Consent to Jurisdiction, and Venue — where a lawsuit must be filed and what law will apply.

Why? Cases can be won or lost based purely on the financial burden caused by the location of the lawsuit or arbitration hearing.  You want to be in your own home “court,” spending nights at home with your family, trying the case with your favorite lawyer.

4. Correct Naming of the Parties and Authorized Signatures — are you actually signing a contract with the party you think you are dealing with?

Why? Some level of due diligence is always appropriate.  If you are doing business with a corporation or other entity, you want your contract signed by a properly authorized representative with the corporate name properly stated.  You would be surprised how often this is overlooked.  Are you dealing with the true property owner, or his uncle who just got out of jail?  There is a wealth of publicly available data available on the Internet to verify the correct names of corporations and the true owners of property, businesses, etc., so you can ensure you have the correct, authorized signatures.

5. Personal Guaranties — an additional source of payment if the contracting party defaults; usually a person with money, property or both.

Why? It doesn’t take much for an unscrupulous person to form a corporation or an LLC.  If you do not have a solid track record of doing business with a business entity or trust, it may be appropriate to ask for a personal guaranty. Guaranties must be in writing to be enforceable; they can vary from a single sentence to multi-page guaranty agreements.

We are always happy to review our clients’ standard contracts and provide advice that will make your agreements stronger.

Absolute Privilege in Commenting to the Media About Pending Litigation

  • March 19, 2015

In litigation, normally any statements made during the litigation process are considered to be absolutely privileged. That means such statements are not actionable as libel or slander (often referred to as defamation).

privilege

However, what if a litigant comments to a newspaper (or other media outlet) about the pending litigation or another party?

The Nevada Supreme Court recently held in Jacobs v. Adelson (325 P.3rd 1282, 130 Nev. Adv. Op. #44, May 2014) that a litigant’s comments to a newspaper about another party in the case are not absolutely privileged. The court allowed a claim for defamation to proceed against the party making statements to a newspaper that could be considered false or malicious.

The court adopted the majority rule that the absolute privilege does not apply to a “mere observer” (the newspaper). The privilege is only in place to protect and encourage free flowing communication during the litigation. The court distinguished between “bona fide litigation activities and a public relations campaign.”

The case suggests that comments made in social media are also not protected as privileged statements. Social media may be the ultimate “observer” of our day. So, be careful what you say or post.

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