On Governor Delete, The Stink Eye and Raising Your Bar

               You may have heard that Gov. Rick Scott’s transition team was recently found to have brazenly trashed…or, err…mistakenly deleted a trove of public records, actually email communications.

               Oops.

               The emails likely detailed much of the team’s discussion of hiring decisions, Cabinet vetting and policy development during that crucial period between his election and unlocking the front door of the Governor’s Mansion. We’re talking 40 to 50 email accounts. That’s accounts, not individual emails. Easily thousands of pertinent, perhaps sensitive, communications governed by Florida’s public records law.

               Oh, the fun we could have ranting about conspiracy theories, pervasive hubris and a continuing pattern of disdain for the rule of law and the sun shining on their cozy cabal. “Public record laws? Pfffft!”

               But that’s not where we’re headed today. Giving the bumblers the benefit of the doubt, there are lessons in the good Governor’s stumble. I mean, think about it. If this could happen to an apparently sophisticated staff of nationally credentialed professionals who retained an assumedly seasoned and competent private vendor to handle email organization and retention, what does that say about you and your company?

               The whole “back-up” thing is important, sure. We’ve all lived through the gut wrenching realization that our computer has puked, sending us into an apoplectic daze while the IT X-Men copter in to the rescue. But there is a collateral legal issue perhaps equally important and more to the point of the stink Gov. Scott has found himself in over this issue:

               Um…email retention policies.

               Wait, wait! Don’t leave, please. I know it ain’t sexy but I assure you it is necessary. Like a Level One Trauma center, you don’t need it until you need it, and then, thank the lord, you’ve got it nearby.

               See, there is this thing called spoliation of evidence (please no emails about how to spell “spoil,” the word really is spoliation) and if you get caught doing it, well, just take out your wallet and start spilling the Benjamins. Of course, if you plan on never suing anyone, getting sued, thinking of getting sued or don’t consider there’s the slightest chance you may end up in a courtroom wondering why Juror #6 is giving you the stink eye, then read no more.

               But talk to the president of Residential Funding Corporation who jeopardized a favorable $94 million judgment a few years ago after they couldn’t produce emails requested, properly, by the other side and the judge rightly told the jury they could infer that the emails would have been adverse to Residential’s interests. Stopped yawning yet?

               Or ask UBS Warburg, LLC how a $29 million employment discrimination verdict tastes after the judge instructed the jury they could infer bad intentions when UBS cavalierly failed to produce emails that should have and could have been produced.

               Yeah, oops. Again.

               The lesson is that if you even sniff legal trouble on the horizon and hit the delete button, even accidentally, you’re as good as cooked. Like other systems you use to make sure your machines stay greased and your widgets keep flying off the loading dock, this is simply a must do. A “Duh!”

               Bragging to your golf foursome about your organized, comprehensive and monitored electronic document retention system may get you laughed off the first tee but being able to prove it to that juror with the stink eye may just buy you greens fees for life.

               Sure, you could rationalize and say if it can happen to the Governor it can happen to anyone. But don’t you want to set your bar a little higher than that?

               All the best.

               Bill Yanger

Your Momma Wears Army Boots to Church: Florida LLCs and Olmstead

               I was recently reminded of a grade school game in Miss Bailey’s class at Forest Hills Elementary. We’d sit in a circle and she’d give one kid a sentence to pass along in a whisper to the next kid who would do the same and so on and so on until it made the complete circuit. Then we’d all cackle with glee when “The big black dog chased the stick into the water” turned into “Your momma wears army boots to church” or some such nonsense. The lessons, lost on us then, are now obvious and last a lifetime.

              

               It seems many folks have been sitting around in similar though virtual small business circles and passing along the news that in Florida, LLCs no longer provide a corporate veil of protection and one should run from them as fast as they possibly can.

               Bullhonkey. They may as well have said, “Your momma wears army boots to church.”

               Let’s try to straighten this out.

               In June 2010, the Florida Supreme Court threw lawyers and their business clients a curveball when it held in Olmstead v. Federal Trade Commission that a creditor’s right to recover against judgment debtors’ interests in a single member LLC goes beyond a statutory charging order and allows the creditor to in essence seize the entire entity. Charging orders permit a judgment creditor to only grab distributions that the judgment debtor receives from an LLC. Under previous Florida law the creditor could receive the distributions but had no control or stake in management decisions. Then, the Olmstead Court held essentially that a judgment debtor may be forced to surrender all right, title, and interest in the debtor’s single member LLC. Would multi-member LLCs be next?

               Gulp.

               But, the legislature to their credit acted quickly and in April 2011 passed legislation subsequently signed by Gov. Scott that amends the old law, addresses the Olmstead confusion and balances the rights of judgment debtors and creditors. Notably, it does prevent some judgment debtors from stashing assets in a single-member limited liability company but this was no LLC armageddon.

               Keep in mind also that while Olmstead’s fallout may have hinted at consequences beyond single member LLCs, the new legislation specifically states in effect that Olmstead does not apply to multi-member LLCs and that the old charging order process is still the only remedy. A judgment creditor cannot dismantle your multi-member LLC or show up one morning claiming to now own it. The charging order is also still required in a single member LLC situation and a creditor must convince the court that the charging order will not satisfy the judgment within a reasonable time in order to foreclose on the entire ownership interest.

               So, when your buddy leans over and whispers in your ear that his Delaware LLC is better than your Florida LLC, just smile and tell him you know better…and that his momma wears army boots to church.

               All the best.

               Bill Yanger

Not In My World

               So, yippee and hurrah! Congress gets its deal done.

              

               The House passed the debt ceiling bill, or whatever one chooses to label it, yesterday and the Senate will do so today. And how proud they must be. It reminds me of a harsh but particularly prescient quote from writer and tweaker of the high and mighty Mary McCarthy back in the 50’s:

               “The American, if he has a spark of national feeling, will be humiliated by the very prospect of a foreigner’s visit to Congress—these, for the most part, illiterate hacks whose fancy vests are spotted with gravy, and whose speeches, hypocritical, unctuous, and slovenly, are spotted also with the gravy of political patronage, these persons are a reflection on the democratic process rather than of it; they expose it in its process rather than of it; they expose it in its underwear.”

               Okay, so I doubt one has much of a shot at getting elected to Congress without being able to read and write but beyond that, McCarthy’s got a point. Like the sagging reality of a nude beach, the view is often unpleasant. And for all the tea-bagging hysteria and chagrined progressive egos one thing seems to be lost in the hoopla of this “deal.” There is no real agreement here, no meeting of the minds, no contract.

               They have done nothing more than agree to agree. No wait, actually they have only agreed to take a stab at agreeing by passing the buck to a “commission” to hammer out details one suspects will be slippery at best. This is less governance than it is sanctioned procrastination. And in my world, the real everyday world, the world of business contract language that necessarily binds the parties to specific action and defines the consequences of failure or breach or inaction, slippery procrastination just don’t cut it, Brother. If you and your company are able to pawn off your tough and gritty decisions to some hazy “commission” and still turn a profit, more power to you. I suspect that is not the case.

               So, do they have a deal? Yeah, maybe. But an agreement?

               Not in my world.

               All the best.

               Bill Yanger