Incentive Trusts

I've been following an interesting string of comments on "incentive trusts."  These are trusts that tie distribution of the trust corpus (money) to the beneficiaries to the beneficiaries' achieving some benchmark, such as graduating from college, kicking a habit or otherwise conforming to some standard the donor wants.  The discussion has centered around whether attorneys should get involved in these trusts.  The biggest objection, from a drafting standpoint, is that such trusts have a great potential for litigation, especially where the standard to be achieved is somewhat nebulous.  For example, what does it mean to kick a habit?  Graduating from college is more concrete but even then there is wiggle room.  A particular college?  A particular major?  A minimum GPA?

Perhaps the best comment was by someone who said, ask the client, "If your child won't do this for YOU, what makes you think she'll do it for your MONEY?"  To that I would add, if your relationship with your child is so shallow that she will do it for your money but not for you, why would you want to leave her anything with strings attached in any case?

You Can't Escape a Good Constable

I've been trying to serve a defendant (Mr. X) on behalf of a local bank for about six weeks.  He's been lying to the constable about his whereabouts (strange, but true -- defendants sometimes lie to avoid being sued).  His last story was that he was out of state for an extended period.  A few days ago this constable went to an address to serve Mr. and Mrs. Y on behalf of a completely different law firm.  The man who answered said that Mr. Y didn't live there, that this was his, Mr. X's home.  The constable said "Hold on a minute," went to his car, retrieved my summons and served Mr. X at his new address, in a completely different city from his former address.

You just can't escape from a good constable.

Hiding Assets After Bankruptcy

A few days ago I received a call from a credit union about one of my clients.  Apparently my client is hiding his motorcycle, which was security for a loan from the credit union.  The credit union asked for my help in getting it back.

Now there's not a lot I can do for the credit union.  For one thing, my client and it are in an adversarial situation and my client comes first.  I did agree to send my client a letter telling him that he needed to either pay for the motorcycle or give it back.  That's the rule with secured debt.  The personal liability for the debt goes away, meaning the credit union can't sue my client and try to collect money from him.  But the security interest the credit union had in the collateral, in this case the motorcycle, is unaffected by the bankruptcy.  It just passes through the case without being harmed.

The bottom line is, if you want to keep your stuff, whatever that stuff is, and that stuff is collateral for a loan, you are still going to have to pay the loan after the bankruptcy.  If you aren't willing to or can't pay, you have to give it back.  Hiding it is not an option.

Of Baseball, Divorce and Lawyers

Major League Baseball's commissioner Bud Selig has announced that MLB will take over day to day control of the Los Angeles Dodgers because the team's owners, Frank and Jamie McCourt, are locked in a nasty divorce where ownership of the team is up for grabs.  Frank McCourt is threatening to sue Bud Selig and MLB for this move that is, to use an overworked word, unprecedented.

Frank McCourt bought the Dodgers in 2004 in a deal that was described as "highly leveraged" (read, McCourt bet the ranch and then some).  The Washington Post referred to McCourt as "McBankrupt" after he shelled out $430 million just so he could sit in the owners' box at Dodger Stadium.  But, hey, the San Gabriel Mountains, Elysian Hills, sunny weather, 80 degrees?  Who could resist?  And the Dodgers have a storied history, going back to the days when they were the Yankees' cross town rivals as the Brooklyn Dodgers.  Beginning with Sandy Koufax and Don Drysdale, who silenced the Yanks' bats in the '63 World Series, shutting them out 1-0 in Game Four for the sweep, and continuing with Steve Garvey and Ron Cey in the 1970s and 80s, the Dodgers were one of MLB's premier franchises.

But the Dodgers haven't won a series since 1988 and are reported to be in the position of having to borrow money to make payroll.  With ownership on the block, the owners squabbling themselves, and now MLB stepping in, you can bet the ones really licking their chops are the lawyers.  They're going to come out as the only real winners.

Gift Card from Blockbuster? Fuhgetabboudit

Did you get a gift card to Blockbuster that you haven't used completely? If so, throw it away.

Blockbuster filed Chapter 11 bankruptcy last year, as was widely expected. Up until last week, it looked like Blockbuster might be destined to become one of those companies that just quietly fade away until one day you suddenly notice they aren't there anymore. But last week Dish Network offered $320 million for Blockbuster, a higher number than the liquidation value of the entire chain. So it looks like Blockbuster might live on.

If so, its gift cards are no longer accepted. Gift cards are a form of "executory contract" under the Bankruptcy Code. An executory contract is one that still has to be performed by one or both parties. In this case, Blockbuster still had to perform by renting movies to holders of the cards. In Chapter 11 a debtor can "reject" executory contracts, meaning the debtor simply says, "I'm not going to perform my obligation under the contract." And that's exactly what Blockbuster has done. Go into any of their retail outlets and you'll see signs posted that say that after April 6, 2011, gift cards are no longer accepted.

The other parties to rejected executory contracts, in this case holders of gift cards, become general unsecured creditors in the Chapter 11 case. General unsecured creditors are the lowest form of creditor life in a bankruptcy, entitled to be paid after virtually everyone else gets something, and then only if there is any money left. In reorganizations, general unsecured creditors sometimes get a few cents on the dollar. But in order to get paid, they have to file a proof of claim. In the case of Blockbuster gift cards, the potential return to holders probably isn't worth the price of a stamp to mail the claim in.

What Should a Bankruptcy Cost?

Whenever I speak with a potential client, one of the questions always asked, often one of the first, is "how much will it cost?" This is a legitimate question, but, upon hearing my estimate (which varies from case to case) some potential clients never become clients. I am sure that in many cases they find someone willing to do the work cheaper.

Consumer bankruptcy attorneys all seem to compete on price. It's understandable that someone facing bankruptcy needs the lowest cost possible, but what clients often don't understand is that bankruptcies aren't like potatoes. In most cases, a pound of potatoes from one grocer is as good as a pound from another, so it makes sense to find the grocer with the lowest cost. But everybody's financial situation is different. It doesn't make sense to shop for a bankruptcy attorney solely on the basis of cost.

Many large-volume bankruptcy attorneys (or bankruptcy mills) churn out dozens of cases a week. In a consumer bankruptcy, about the only thing an attorney can't delegate to a paralegal is appearing in court, so those high volume attorneys spend their time in court and leave the rest to secretaries and paralegals. That means except for the few minutes when the client is actually in court or at the meeting of creditors, he or she doesn't speak directly to the attorney. Secretaries and paralegals can't give legal advice, which means they can't answer a client's questions in many cases. Is that what clients want, to pay the lowest fee and be run through a processor?

Bankruptcy is a serious step. It's a confusing process that goes on for months and, in Chapter 13, years. Clients should be willing to pay enough to get the attention they deserve.

Barry Bonds Goes on Trial

The trial of Barry Bonds, major league baseball's home run king, for lying to a grand jury about whether he used steroids during his career, began today. But as Tom Verducci, columnist for Sports Illustrated, points out in his article on SI.com, this trial isn't about Bonds' legacy, which, according to Verducci (and whose opinion I share) is non-existent. The ones who have something at stake are the lawyers on both sides. The prosecutors have to gain a conviction to prove they haven't wasted eight years and countless thousands, if not millions, of taxpayer dollars chasing someone whose conviction or acquittal has little social importance. Society doesn't need protection from Barry Bonds and the Balco steroid shop was shut down years ago, so Bonds' conviction, if it comes, is a ho-hum deal legally. The defense attorneys need an acquittal because in the world of criminal defense, a high profile loss can end a lawyer's career almost as quickly as using steroids can end an athlete's career.

So Barry Bonds is all-time home run king and Mark McGwire, whose image is as tainted as Bonds', is the single season home run king. In a lot of people's eyes, Hank Aaron and Roger Maris are still the kings. And some die-hards even question Maris, because he hit his 61 season homers in 162 games instead of the 154 that Babe Ruth had. That debate will continue like it has for nearly 50 years, but no one ever accused any of those guys of playing juiced.