Saturday, December 30, 2006

I Fell Into a Pit of Striking Vipers: Tales of Crazy Makers, Liars, and Deniers

Dealing with crazy makers, liars, and deniers is a fact of life for most of us, but most of us really don’t have the understanding or the coping skills to respond accurately when confronted with these negative behaviors. We all want to trust people that we love and work with. Unfortunately, life’s realities have a way of impacting even the most optimistic, positive, and trusting folks.

I once was told that the business of lawyering is really about understanding human nature. I agree. But, I would take it a step further and say that all successful businesses are built on understanding and accepting human nature. The same is true of most enduring relationships.

A working knowledge of common personality disorders, mental illnesses, brain injury issues, addiction problems and how to define personal boundaries is a necessary tool for modern life. These are tools that are useful in identifying and responding to certain rather unpleasant events. While it may help emotionally to have this knowledge and it may serve as a reality check for one or both parties, it still doesn’t help on the legal front. And, what happens when you’ve done your best and you still find yourself in an intractable situation with someone you trusted enough to enter into a relationship with but that relationship has now gone sour?

Arguably, most law is nothing more than a series of default contracts designed to help people deal with relationships gone bad. However, the default provisions of the law may or may not provide protection for one or both parties despite vast bodies of statutes designed to provide some stability for the greater community at large. And, for a large part of the population the statutory defaults are the most effective and low cost option. But, if important issues and high stakes are involved wouldn’t it make sense to protect yourself with a written contract?

In many cases to have any rights of recourse (enforcement of a promise) at all under the law, written contracts are required. These are the classic Statute of Frauds requirements for “writings:” marriage contracts, contracts over one year, some types of commercial contracts over a certain dollar amount, contracts pertaining to the sale of land, and promises to pay on behalf of another. Denial comes into play when we tell ourselves that there is a good reason not to have a formal agreement memorialized in writing. Some of those reasons may include a perceived need for “flexibility,” an idea that not having the agreement in writing will save money or time or a relationship, or, in some cases lack of formal written agreements are a tool used to create openings for pure opportunism.

There is an old saying that all is fair in love and war, and, in modern life, most people have extended this to include finances as well. Thus, the chances of any verbal contract agreement between parties falling apart are high. Put two or more people together who are incapable of acknowledging or accepting accountability for oral contracts and you will have the modern day equivalent of falling into a viper pit. The party with the most power, endurance, or resources usually wins due to attrition, but incurs substantial damage as well. Let the vipers beware. Happily, for the rest of us there are written contracts.

Thursday, December 14, 2006

Audit Clauses ARE for the creative.

In their most simple form, audit clauses allow one or both parties to audit each other's bookkeeping.

In very brief and straightforward clauses, the party requesting the audit is authorized to: 1) request an audit, 2) with adequate notice, 3) at reasonable business hours, and, 4) hire a competent accounting professional to conduct the audit. The requesting party is usually limited in its investigation by: 1) number of times an audit can be requested in any given period of time, 2) scope of the business records to be audited, 3) previous evidence of inappropriate use of audit results, if any, and, 4) the requirement to bear the cost of the audit process.

In the broad spectrum of Intellectual Property which includes all manner of publication (film, music, multimedia, software, games, licensing, written works, etc.), the stakes are higher and the clauses more complex. Power is concentrated in the hands of the distribution company or industry insiders. This requires that artists begin the difficult task of adding a dual competency in business by gaining at least a nominal understanding of various contract clauses and the accounting procedures contemplated in the language.

Here's an interesting article called Model Audit Clause. The writer is a prominent entertainment attorney in Los Angeles. I recommend spending some time in the trial notes portion of this attorney's site. It's eye opening.

This is an example of an ideal audit clause that an artist would like to see in a contract. Note, however, that the artist in order to take full advantages of the rights he or she establishes, must be diligent in tracking expenses on both sides of the equation, that of the other party and their own. And, the artist must track what the other party is doing during the process and raise an objection at that time.

It's pretty hard to know if someone's ripping you off, if you can't keep your own books straight. There is a lot of denial out there in the indie community about: 1) the need to keep good records, 2) the need to follow formalities, and, 3) the realities of dealing with professionals, including the poor sod trying to do your books.

Saturday, December 09, 2006

Of Orcs and Audits

This is the first post in a series I'll be doing on audits. If you haven't heard about Peter Jackson being pulled as the director of The Lord of the Rings prequel The Hobbit have a look at the CNN article. The letter written by Peter Jackson and Fran Walsh appears on The One Ring, a fan site.

Audit provisions are found in all types of contracts, not just film and television contracts.

It just happens that in the entertainment industry the stakes for the little guy are a lot higher and the accounting is much, much more creative. Language in the audit clause and appropriate follow through can make the difference between dying broke and living an independent senior existence for many artists.

The second topic I'll be covering on the broad subject of audits is how to conduct an in house contract audit. It's ten o'clock, do you know where your contracts are? Who is terminated and who isn't? Does contract language comport with current law? And, last but not least, Word for the not so dummies who need to quickly check contract language.

The last topic will be on financial audits. The kind the CPA's do, and what the shortcomings of that process are. It's not as dry as you might think. How not to cook the books 101.

Notice the new, svelte Pete Jackson? I did, particularly since I recently started a diet. If you are interested you can view my nutrisystem members page. You can also view my myspace site which is more specifically geared to all things film.

Tuesday, December 05, 2006

When the Government Calls . . . Answer

Woody Allen famously said, “Eighty percent of success is showing up.”

One sure way to insure non-success in legal matters involving the government is to fail to appear. The classic failure to appear occurs in judicial settings. Ignoring traffic citations and parking tickets, phone calls and letters from representatives of taxing entities, failing to file various documents and non-conformance to various formalities imposed by law, all amount to potential future problems and are another form of "failing to appear."

While failure to appear for some types of court and administrative hearings can land a person in jail, other types of failure to appear may not have obvious consequences. Failure to adhere to the legal formalities imposed by statute and case law can have profound financial consequences on the owners of closely held corporations when the protection of the corporate form is taken away. It’s human nature to believe that we will never be in a situation where our own business fails, and, thus, the rules don’t apply to us.

Arguably, it is hard to hear the call of the government amongst the din and clamor of daily life, but for those who don’t answer the consequences can be severe. All lawyer jokes aside, one of the primary roles of attorneys in this society and throughout the world is to assist citizens in answering the call of their government. In navigating the maze of answering the government’s call, help is available, and, it pays to be well advised.

Monday, December 04, 2006

A few more or less random thoughts and notes on estate planning which are not to be regarded as legal advice or endorsement of any particular action:

  • The statutory scheme for disposal of assets, ie. dying intestate (without a will), may be an acceptable solution for some folks.
  • But, if you have minor children wills are necessary if you don't want the court appointing their guardian.
  • Probate in Washington State is not the bugaboo it is in some other states.
  • If you own property that you plan on passing by will in another state it will be subject to that state's probate scheme.
  • Term life insurance has never been more affordable even for senior citizens.
  • A common misperception is that the proceeds from life insurance policies are not part of the taxable estate at death.
  • An advantage of passing property by will is that probate imposes a statute of limitations on creditors.
  • Believe it or not, it is not unusual for otherwise rational people to forget to move property into a trust.
  • Many types of property, non-probate assets, pass outside of wills by beneficiary designation.
  • The rules on Medicaid eligibility have recently changed.
  • There are excludable assets and transfers under Medicaid analysis.
  • The federal estate tax scheme has never been so uncertain as it is now.

Sunday, December 03, 2006

Seattle Times exposes the seamy underside of the guardianship business in Washington State

Kudos to the Seattle Times for exposing the weaknesses and failures of the court appointed guardianship business. It is a relief to see the problems of professional guardianship brought forward into the light of day. For too long, court commissioners, judges, guardian ad litems, and many lawyers have perpetuated the image of the abusive, neglectful, and, spendthrift family member as the rule rather than the exception. All the while, these members of the legal community have known, but chosen to ignore or minimize the problems of professional guardianship.

As the Times series points out, one of the key problems is the high cost of guardianship services, relative to that of a family member who typically serves for free. One of the barriers to family members serving as guardians is the bonding process. Typically, courts will seek to block funds not needed in the current year. For the funds needed in the current year, the court often requires the guardian to be bonded for that amount. These fidelity bonds are not easy to get and are underwritten by a relatively few companies. For an otherwise highly capable and caring family member, personal financial impacts of disability, bankruptcy and business failure can disqualify the most qualified person for guardianships.

It is debatable whether the track record of this State’s guardianship services as a whole, surpasses the track record of family members. What is clear is that courts are concentrating the care of highly vulnerable individuals and/or their estates in the hands of a small group of people who are tightly connected with the court system. Guardianship services have received highly favorable treatment from the courts and the legal community when cases have been brought to court.

Most chilling is the case of the aged Alzheimer’s patient who jumped to her death from a condo window. Although she was receiving around the clock care from caregivers in the employ of the guardianship service, her body was not found until the next morning. A Washington State Appellate court found that the personal representative of her estate could not bring claims on her behalf against the guardianship agency. Had the patient been in a nursing home, there would have been profound consequences for this failure.

The guardianship agency in question had managed to siphon off several hundred thousand dollars from the estate prior to the patient’s death. One can certainly understand the frustration of the personal representative in this case. Lawyers have tended to dismiss this case as an aberration as the lawyer representing the plaintiffs, Douglas Schaeffer, is a bit of a pariah in his own legal community having been suspended from practice in the Judge Anderson scandal in Pierce County several years ago. It’s useful to note that this scandal involved the guardianship “game” in the area.

The Times lends a much needed voice of credibility to exposing the failures of the system in the name of professionalism to protect some of society’s most vulnerable members. Read the series here.