Defending Fraud Cases with Particularity (Specificity)

  • October 11, 2016

Defending fraud cases – enforcing the requirement of pleading fraud with particularity (specificity).

We often observe that claims in business and real estate disputes include allegations of fraud. Fraud allegations can be both upsetting and costly to resolve.  Fraud claims often assert unethical or criminal conduct, knowingly perpetrated by person accused.  Fraud claims might also be phrased as a negligent misrepresentation, which is just slightly less inflammatory.

Defending fraud claims requires some special strategies. At the most basic level, if requested, courts will require detailed allegations of fraud in comparison to other kinds of claims.  Thus, while it might be sufficient to generally allege that a defendant failed to exercise due care and thus was negligent in operating a vehicle leading to a car accident, courts will typically require considerable factual detail in fraud allegations, including the date, time and place of the fraudulent communication and what exactly was fraudulent or dishonest.  We believe it is most effective to start pursuing this detailed information early in the case.

In our experience, in both business and real estate cases, the alleged
real-estate-listings-fraudfraudulent actions of various parties are often lumped together collectively and are not specifically pleaded. In a fraud case, being lumped together with others’ wrongful conduct is both upsetting and complicates each individual’s defense.  Using procedural rules that require specificity in fraud allegations, we have found that courts are receptive to granting pre-answer motions seeking more detailed fraud allegations so that our clients can identify exactly what is attributed to them as opposed to all of the defendants collectively.

If you have been sued for fraud in a business or real estate transaction, the best time to start seeking specificity is through a pre-answer motion to dismiss or a motion for a more definite statement.  By doing so, there is a good chance the court will require the plaintiff to plead their fraud allegations against you and any other defendants with great specificity (and individualized per each defendant), which will provide better clarity and efficiency in defending your position as the case unfolds.  Incline Law Group LLP has had recent successes in various cases pursuing this strategy to the ultimate benefit of our clients.

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.

 

Real Estate Form Contracts vs. Custom Contracts

  • September 29, 2015

Almost every association of realtors, whether commercial or residential, has a set of form contracts for the purchase and sale, lease or lease option of real property. For many transactions, these forms will cover all the legal bases. However, there are circumstances when a custom drafted contract is warranted for a real estate transaction. This is more common with commercial real estate, but there are circumstances in which a custom contract is also advisable for a residential transaction.

contract_of_sale_of_real_estate-legalities_00011876When should you seek out an attorney’s help in drafting a custom contract for the purchase and sale of a home, investment or commercial property? Below is a short list of circumstances when a custom contract or terms may be advisable:

  • Are you changing the use or developing the property in a way that is different from its existing use? In that case you may need custom language that provides specific contingencies and due diligence review to protect your ability to cancel the contract if the property turns out not to be feasible for your intended use.
  • Are you purchasing something more than just a house or building? If you are also purchasing development rights or plans, water rights, grazing or agricultural rights or an ongoing business operation on the property, you may want customized contract terms or multiple contracts.
  • Are you purchasing or leasing multiple parcels or multiple parcels with different use? Are you purchasing multiple parcels from different sellers? Incline Law Group recently assisted with the acquisition of 6 parcels with four different types of use – multifamily, single family, commercial and mixed use (office/residential). With the complexity of the various leases, rent rolls, ongoing business operations and more, a form commercial purchase and sale contract just could not address all of the issues and we used a custom contract.
  • Is the property currently leased? The more tenants you have, the more complex the transaction can become. That does not necessarily mean you need a custom contract, but you do want to be sure you are properly assigning leases, accounting for security deposits and addressing open tenant issues.
  • Are there a lot of moving parts? In general, the more complex a real estate transaction is, whether that is because of the nature of the property, the type of use, the complexity of due diligence issues or the sophistication level of the parties, the more advisable it is for you to seek the assistance of an attorney and consider the use of a custom contract.

There may be plenty of other circumstances in which a custom contract, or at least custom drafted contract provisions, are advisable.  Not every real estate transaction needs a custom contract or terms, but when in doubt, you should seek the advice of legal counsel.

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.

 

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.