Transition Planning - Part 8 from Stark & Stark on Vimeo.

Transition Planning - Part 7 from Stark & Stark on Vimeo.

Transition Planning - Part 6 from Stark & Stark on Vimeo.

Transition Planning - Part 5 from Stark & Stark on Vimeo.

Most non-lawyers are aware of the four year Statute of Limitations for many cases, such as contract cases.  What most people do not understand, however, is that the Statute of Limitations can be extended if the damages or defective condition are not discovered immediately.  Typically, a Statute of Limitations commences to run at the instant that a right to sue arises, which is usually when a contract is breached or a personal injury is sustained.  Because strict adherence to a Statute of Limitations can cause injustice in the limited class of matters in which the injury or defect is not discovered for some time after it occurs.  For this reason, Courts have applied what is called the “discovery rule” to soften the application of the statute of limitations.  The “discovery rule” provides that the Statute of Limitations does not start until a defect or event giving rise to the right to bring a law suit is discovered or reasonably should have been discovered.  Therefore, in the case of defects in the construction of a residential structure, the Statute of Limitations does not begin to run until the defect in design or construction is discovered or should have reasonably been discovered. 

This sounds like good news for the homeowner discovering that the architect who designed his or her home designed a roof at an incorrect pitch, or that the builder erected a wholly structurally unsound building.  The Statute of Repose for Construction projects, however, may stand in the way of a suit against the architect or builder to recover for these defects even with the benefit of the “discovery rule” in extending the Statute of Limitations. 

The Statute of Repose is a law which bears some similarities to a Statute of Limitations, but differs in substantial ways.  In sum, the Statute of Repose abolishes a cause of action after a certain period regardless of when a defect or event giving rise to the right to sue is discovered.  In Pennsylvania, the Statute of Repose for Construction Projects is twelve years from the completion of construction of the structure in question.  Therefore, any claim against an architect, builder, or contractor must be brought within twelve years of the date of the completion of the defective design or work.  It should be noted that the Statute of Repose does not extend the applicable Statute of Limitations – if a defect is discovered or reasonably should be discovered when the defective design or defective work occurs, or earlier than the twelve year Statute of Repose period, the Statute of Limitations applies.  Interestingly, the Statute of Repose has been interpreted not to bar a suit against manufacturers of defective building products, and therefore the “discovery rule” applies to cases involving such defective building products.

Transition Planning - Part 4 from Stark & Stark on Vimeo.

The returns are due by May 15th of the year following the year for which reporting is due for those organizations that are on a calendar year reporting cycle. Many tax exempt organizations fail to file the required Form 990, and, if this is the third year of such failure, the tax exempt organization will automatically lose its tax exempt status.

It is strongly recommended that you check to ensure that your tax exempt organization is filing Form 990, and filing it on time (typically by May 15th) each and every year to avoid losing its tax exempt status. Due to the time and expense necessary to prepare and file a new application for tax exemption, most organizations cannot afford to let their exempt status terminate.

Transition Planning - Part 3 from Stark & Stark on Vimeo.

Transition Planning - Part 2 from Stark & Stark on Vimeo.

Seven months prior to his death and suffering from cancer, Melvin Simon altered a Will that was then in effect, granting a greater portion of his estate to his wife, Bren Simon,  diminishing the share of his estate that would be distributed to his adult children from a previous marriage.  When Melvin Simon made these final changes to his Will, he was in the company of his wife, an attorney, and a long-time financial advisor.  In Melvin’s weakened state, he required the aid of his financial advisor to guide his pen and sign his name on his revised testamentary document.

Not surprisingly, after Melvin’s death, a faction of his family consisting of his adult children viewed Melvin’s late change to his Will with suspicion, and through Deborah Simon, Melvin’s eldest daughter, sought to contest Melvin’s last Will in a legal contest.  Citing the help given to Melvin by his financial advisor in signing his name, Deborah Simon claimed that her father lacked the capacity to make a Will and was the victim of duress, presumably perpetrated by her step-mother and Melvin’s financial advisor.

Will contests very often arise from situations, like the one involved in Melvin Simon’s estate, where a family becomes factionalized by events before a decedent’s passing.  This factionalization, and the resulting desire to claim a greater share of an inheritance or deprive members of opposing family factions of their inheritance can often motivate scrutiny of a decedent’s Will and result in legal proceedings to contest a Will or series of Wills.

In Pennsylvania, those challenging a Will bear a significant burden in order to have a Will adjudicated invalid.  First, the contestant must establish standing to contest the Will – meaning that the party seeking to invalidate the Will must show that his or her interest in the decedent’s Estate would be affected by probate of that Will in place of a prior Will or intestate distribution.  Next, the contesting party must prove - by the standard of clear and convincing evidence – that the decedent lacked testamentary capacity when the challenged Will was made, that the decedent was the victim of undue influence, or both.  Note that adequate testamentary capacity may be found even if the decedent suffered from a debilitating disease or would not have the capacity to enter a contract at law – the decedent need only have had an intelligent knowledge of the property he possessed and intelligent knowledge of how he desired to dispose of his property upon death.  Undue influence is in the nature of fraud, and a contestant must show that the decedent’s Will was the product of coercive behavior and a level of control by another person that destroyed the decedent’s free agency. 

Proving lack of testamentary capacity or undue influence by clear and convincing evidence is a very difficult task.  Had the Melvin Simon Will contest been subject to Pennsylvania Law, the act of guiding the decedent’s hand at the Will signing – without more – would not constitute sufficient evidence to invalidate Melvin’s Will.

Transition Planning - Part 1 from Stark & Stark on Vimeo.

Tax exempt organizations with gross receipts normally under $25,000 are required to file Form 990-N. Tax exempt organizations with gross receipts over $25,000 are required to file Form 990-EZ or Form 990. Private foundations, regardless of financial activity, must file Form 990-PF. Finally, churches are not required to file any type of Form 990 or related return.

A Mechanics’ Lien Claim can present problems for Owners seeking to sell or refinance a home or other real estate.  Likewise, higher-tiered Contractors and Subcontractors can encounter headaches where a Subcontractor files a Lien Claim of questionable legitimacy or for defective work, jeopardizing the Contractor’s reputation or relationship with customers. 

The Pennsylvania Mechanics’ Lien Law presents remedy to Owners and Contractors for cases in which the Mechanics’ Lien Claim is disputed, but where a time-sensitive transaction concerning the property must be completed.  The Law allows an Owner to Discharge the Lien upon either payment of cash in the amount of the Lien into the Court, or upon the acquisition of a Surety Bond in double the face amount of the Lien (or a lesser amount upon approval of the Court).   This remedy may also be available to a higher-tiered Contractor, however the Contractor must first successfully Petition the Court to intervene in the case, and then move to pay the cash into Court or substitute the Surety Bond.

It is important to note some of the legal fictions involved in Mechanics’ Liens to better understand the import of this procedure.  A Mechanics’ Lien Claim is technically an action against real property, and not against an individual or entity.  When the Court grants the “Discharge” of a Mechanics’ Lien Claim upon payment into Court or entry of a bond, this does not extinguish the Claim, but merely substitutes the cash or bond for the real property, and removes the Lien from the chain of title to the real property so that a transaction may occur without first satisfying the Lien itself by payment to the Claimant.  Even after Discharge of the Lien Claim, the Claimant may prosecute the Claim seeking the cash held by the Court or payment under the surety bond, and therefore the Owner or intervening Contractor must defend an action at law upon the Mechanics’ Lien Claim.

UPDATE - FEBRUARY 25, 2010

I recently spoke with public relations firm representing the Estate of E. Pierce Marshall, Elaine T. Marshall, E. Pierce Marshall, Jr. and Preston Marshall who expressed a difference of opinion regarding the facts and procedural history of the Marshall litigation and asked me to provide this information to our readers.  I have added their comments below in italics.

A 2006 Supreme Court Case (Opinion) arising from a story most laypeople learned from supermarket tabloids reaffirms an age old exception to the jurisdiction of the Federal Courts. As many people know, deceased model and celebrity personality Anna Nicole Smith (then aged 26) married billionaire Oil Industry magnate J. Howard Marshall when Marshall was 89 years of age.  Famously, the marriage lasted fourteen months, until Marshall’s death, leading many to comment that Marshall must have died a happy man.

Following Marshall’s passing, Smith (who’s real name was Vicky Lynn Marshall)

Here correct name is: Vickie. Nobody commented J. Howard Marshall II was happy about his relationship with Vickie when he died. Testimony in the Houston probate trial from people who knew J. Howard was that he said the marriage was a mistake and that he was not happy.

became embroiled in a protracted dispute over the estate of her late husband with the deceased billionaire’s son and her own adult step-son, E. Pierce Marshall.  While Smith’s unrelated Bankruptcy proceedings were pending in Bankruptcy Court in California, Pierce Marshall asserted a claim against Smith, seeking to have the Bankruptcy Court declare that a claim which he intended to bring against Smith for defamation could not be discharged in Bankruptcy. 

Before the Bankruptcy Court, Pierce Marshall claimed that Smith had defamed him shortly after the elder Marshall’s death by making statements through her lawyers accusing Pierce Marshall of engaging in forgery, fraud, and overreaching in order to deprive Smith of certain testamentary gifts which her husband had made for her benefit.  In response, Smith pleaded the affirmative defense of truth – asserting that Pierce Marshall’s claims should fail because the content of her lawyers’ statements were true, and filing a counterclaim for tortuous interference with a testamentary gift that she had expected from the elder Marshall. 

Pierce Marshall had already won an $8 million libel verdict against her attorney in Texas state court, concerning the same facts and statements. He was seeking to preserve his future claims against Vicki during the bankruptcy process.              

The Bankruptcy Court granted summary judgment in favor of Smith on the issue of his claim for defamation, and after a trial on the merits, entered judgment in favor of Smith and against Pierce Marshall, finding that he had in fact conspired to falsify documents, and alter and destroy a trust instrument which the late J. Howard Marshall had directed his lawyers to prepare for the benefit of his wife, Anna Nicole Smith.

The Bankruptcy Court never held a trial on the issues. Instead the court arbitrarily ruled that the defendant was guilty of discovery abuse. The Bankruptcy Courts damage award was based solely on that issue. All this was taking place while the Marshall estate and all the issues Vicki raised were being heard during a 5 and ½ month long jury trial in a Texas Probate Court. Pierce Marshall prevailed in that case. The Texas Court specifically ruled that it had considered every issue before the Federal Courts.

Pierce Marshall then sought District Court review of the Bankruptcy Court’s findings, after which the District Court adopted the Bankruptcy Court’s findings and entered an award of compensatory damages in the amount of $44.3 million, and following a finding of “overwhelming” evidence of Pierce Marshall’s “willfulness, maliciousness, and fraud,” the District Court awarded an equal amount of punitive damages. 

The District Court vacated the Bankruptcy Court’s decision and discovery sanctions and held a de novo review. It agreed with Pierce Marshall’s attorneys that the Bankruptcy Court overstepped its authority when it took the case as the matter was not a core bankruptcy proceeding. In addition, the District Court did not adopt any of the Bankruptcy Court’s findings. Instead it held a brief de novo review before it issued its decision, after failing to allow Pierce Marshall’s to present a single witness.

Predictably, Pierce Marshall appealed the District Court’s judgment to the Ninth Circuit Court of Appeals, seeking to have the District Court’s judgment vacated, asserting that the Bankruptcy Court and District Court lacked the authority to adjudicate Smith’s counterclaims citing the “probate exception” to the general jurisdiction of the Federal Courts.  The Ninth Circuit reversed the District Court’s judgment, and Smith appealed to the United States Supreme Court.

The Ninth Circuit vacated and remanded the District Court opinion with instructions.

The United States Supreme Court reversed the Ninth Circuit, finding that the “probate exception” did not apply to Smith’s counterclaims, and therefore that the Bankruptcy Court and District Court did have jurisdiction over Smith’s claims.

The United States Supreme Court only held that the Federal District Court had jurisdiction over claims such and Vickie’s and expressly held that the core-non-core bankruptcy jurisdiction issue was a matter left to be decided by the Ninth Circuit on remand. 

            Did the ruling include the Bankruptcy Court or just the District Court????

In a majority opinion penned by Justice Ginsburg, the Supreme Court clarified the Court’s prior holdings establishing a probate exception to Federal Jurisdiction.  The Court first noted that, although nothing in the text of the Constitution compels the exception to jurisdiction, such an exception was recognized by the English Courts of Chancery - which is the correlative jurisdiction granted to the Federal Courts in the First Session of the First United States Congress under the Judiciary Act of 1789.  The Court then explained that the probate exception did not preclude all claims related to or arising from a decedent’s estate, as the Ninth Circuit had erroneously concluded, but that claims for the annulment or probate of a will or the administration of a decedent’s estate should properly remain in the State Courts. 

The Supreme Court never ruled on the merits of Vicki’s claims. The issue of whether those same issues had already been decided, in Pierce Marshall’s favor, by the Texas Probate Court is one of the many appellate issues still before the 9^th U.S. Circuit Court of Appeals.

Of particular importance is the Procurement Code’s applicability to construction contracts exceeding $500,000.00 between private contractors and the Commonwealth and its agencies or subdivisions.  Displacing a patchwork of prior law, the Procurement Code was enacted to streamline the purchasing/contracting process and to provide a “uniform and mandatory” system for the administration of public contracts in the Commonwealth. 

The Code defines “construction” as “[t]he process of building, altering, repairing, improving or demolishing any public structure or building or other public improvements of any kind to any public real property.”  Importantly, “construction” for the purposes of the Procurement Code does not include routine operation or maintenance of existing structures.  Note also that the Procurement Code applies to lower-tier contracts between prime Contractors and Subcontractors where the party in place of the owner is the Commonwealth or Commonwealth agency.

In sum, the Procurement Code entitles a Contractor which performs in conformity with the contract to payment from the Commonwealth, Commonwealth agency, or subdivision.  The Procurement Code proceeds to provide an aggrieved contractor with a means to effectuate proper payment, and to set payment deadlines if the contract between the parties is silent as to this term.  The “teeth” of the Procurement Code, and what most often piques private Contrators’ interest, are the provisions of the Code which provide a remedy of interest, penalties, and attorneys’ fees in favor of a Contractor where the Commonwealth has withheld payment in bad faith after payment has become due.   In the aggregate, an award of a penalty, interest, and attorneys’ fees can greatly reduce the harsh negotiating tactics employed in other contexts with private owners, or where the prime Contractor has been fully paid but leverages such a position to the disadvantage of Subcontractors.

To succeed in making a claim against a posted payment bond under the act, a first or second tier subcontractor or material supplier must first file a written notice with the prime contractor within ninety (90) days of the date that the claimant last performed work or provided materials it reasonably believed would be used on the project.  The notice must also contain the amount that is claimed to be due, and the name of the party with whom the subcontractor contracted and to whom the subcontractor furnished labor and materials.  Of supreme importance is the method of delivery of this notice – it must be delivered to the prime contractor by a means that yields a written record of delivery by a third party.  This would include service through the United States Post Office by Certified Mail with Return Receipt, use of a carrier such as Federal Express or DHL with restricted delivery confirmation, or by use of the services of a commercial process service outfit usually employed by attorneys to make service of civil process or subpoenas in many jurisdictions. 

If the claimant is then not paid by the prime contractor after this notice is sent, the claimant must bring a claim in Federal District Court within one year of the date of last work or forever lose the right to bring a claim against the payment bond.   In order to be successful, the claimant must then establish that it is a first or second tier subcontractor or material supplier, and that it provided labor or materials in furtherance of the federal project or with a reasonable, good faith belief that the materials furnished were to be used on the federal project.  If the claimant is able to support its claim and prevail, the claimant will be entitled to payment in the amount of the contract price with extra work, or the reasonable value of the labor and materials furnished, together with interest at the rate provided for similar claims in the State in which the project  is located.  The Circuit Courts of Appeals have come down with differing rulings regarding whether attorneys fees may be recovered, however the Third Circuit in interpreting Pennsylvania contracting law has found that attorney’s fees are generally not recoverable in cases under the Miller Act.

The AAA’s dominance in Arbitration, particularly in the construction industry, led to what many considered exorbitant filing fees required at the time of an Arbitration Demand.  These fees were considered particularly high when viewed in comparison with the filing fees of Courts, and the fees increase in steps with the amount of the claim demand.  Many considered these fees contrary to the stated purpose of Mediation and Arbitration – to lower the costs involved in resolving claims and disputes. 

In response to the grumbling over AAA filing fees, and likely in view of the economic climate, the AAA has implemented a pilot program providing a “Flexible Fee Schedule” effective June 1, 2009 through May 30, 2010.  In sum, the Arbitration Demand is made, and deemed filed, upon payment of an “initial fee,” which is comparatively low – about $1,000.00 for most cases, at which time a ninety (90) day period begins to run during which the parties can confer and chose an Arbitrator or Arbitrators by agreement.  If the parties are successful in conferring and choosing an Arbitrator before the ninety days expires and before AAA circulates a list of Arbitrators, the parties receive a 50% discount applied against the “proceed fee,” (also progressively more expensive as the amount of the claim increases) which is due at the expiration of the ninety days. 

The statutory language defines a fraudulent transfer as a transfer made by a debtor “with actual intent to hinder, delay or defraud,” or a transfer made by a debtor  “without receiving reasonably equivalent value in exchange for the transfer or obligation.”  In assessing information to determine the efficacy of pursuing the collection of a debt where the debtor makes representations that he is insolvent and unable to pay the debt, it is important that the creditor diligently pursue certain information regarding the debtor’s transfer of assets and property to establish that the debtor has acted with “intent to hinder, delay or defraud” one or many creditors.
 

The most common kinds of fraudulent transfers seen in collection efforts are sham “paper transfers;”  transfers in which the debtor attempts to transfer legal title to property or assets while retaining the use and enjoyment of the property or assets.  In the context of corporate debtors, often the transfer of property or assets will be from the corporation to an “insider” for less than fair market value, yielding an undercapitalized corporation without sufficient assets and cash to satisfy a debt or judgment.  These sham transactions are particularly common where a corporation engages in a business that is cyclical and on the downslide of a cycle – the corporate “insiders” will squeeze substantially all of the income and assets from a corporation when business slows, leaving the corporation’s suppliers and other debtors with an insolvent, empty shell corporation that cannot satisfy its debts.  
 

Take, for instance, a situation in which a debtor corporation is threatened to be sued or sued for a substantial debt, and the corporation subsequently sells corporate assets or property to a corporate shareholder, board member, or officer at a “discount” of the property or asset’s fair market value – if the debtor then secures a judgment against the corporation, the sale of the corporation’s assets to a corporate insider at a “discount” may be shown to have been a fraudulent transfer.
 

Another example of a fraudulent transfer often seen in collections is the popularly believed notion that a debtor can escape a financial obligation by “putting property in someone else’s name,”  - most often a spouse or other family member - while retaining use and enjoyment of the assets or property.  For example, if an individual debtor with a money judgment against him engages in a sham sale of his car to his daughter, but no funds exchange hands or a nominal amount changes hands, and the debtor continues to use the car as if it was his own, the sham sale can most likely be avoided, and the car attached as property of a debtor pursuant to a money judgment.

Many Contractors may have become familiar with the recent Amendments to the Pennsylvania Mechanics’ Lien Law which became effective in January of 2007.  Those Amendments were the first Amendments to the Law since the Law’s adoption in 1963, and reflected an effort on the part of the Pennsylvania Legislature to re-assert the Contractors’ and Subcontractors’ right to file Mechanics’ Liens for non-payment by restricting effective Up-front Lien Waivers and providing a bonding procedure to ensure payment where Up-front Waivers were required.  For residential projects, Up-front Mechanics’ Lien Waivers were permitted only for projects for which the dollar value of the entire project was less than $1,000,000.00.  This dollar figure threshold seems to have created more questions than it answered, and created a good deal of ambiguity for Owners, Contractors, and Subcontractors in practice.

In response, the Pennsylvania Legislature has just amended its prior amendments to replace the million dollar threshold with a statutory test for a residential project for which Up-front Lien Waivers may be obtained.  Effective October 10, 2009, Up-front Mechanics’ Lien Waivers can be obtained for residential projects upon which will be built a residential structure not more than three stories in height, exclusive of any basement level.   Therefore, it would seem that most single family style residential projects can be the subject of Up-front Lien Waivers, increasing the chance that Contractors and Subcontractors will experience payment problems for work performed on residential projects.