The Free Press - Volume 5, Spring 2010

TRIBUTE TO THE CHAIR

By Liviu Vogel and Eva Engelhart

Please join us in thanking our chair, Mark Sheriff, for his exceptional service and leadership during a difficult period of transition for the Creditors' Rights Section. Mark's term was longer than the usual one year by about 6 months, because during his term, the CRS voted to change its by laws so that CRS elections are held simultaneously with other league elections at the Annual National Meeting, currently held in Chicago in the Spring. The change itself was controversial, but Mark bravely led us through it and we have survived intact with the League more united than before. What makes Mark's effort truly extraordinary is the fact that he has already been President of the League. While he could have continued in an advisory capacity as many past Presidents have done, instead Mark jumped right into the leadership of the CRS as its Chair. Mark, we look forward to the benefit of your wisdom as immediate past chair.

Editor's Note: Mark J. Sheriff, Chair of the Creditors' Rights Section, is a partner in the law firm of Wiles, Boyle, Burkholder & Bringardner Co. , LPA

 SPOLIGHT ON THE INCOMING CRS CHAIR: NICHOLAS D. KRAWEC

Interview by Liviu Vogel, Esq. and Eva Engelhart

Name: Nicholas D. Krawec (but all my friends call me Nick...both of them)

Residence/Hometown: I reside in Baldwin Borough, PA, a suburb of Pittsburgh

Education: B.A. , University of Pittsburgh (1974); J.D. , Duquesne University School of Law (1983)

Work History: a collector for a consumer finance company (a pre-FDCPA consumer debt collector - much more fun back then); U.S. Navy; Westinghouse Electric Corporation; Bernstein Law Firm, P.C.

Family: Wife: Dolores (I call her DJ because it's easier for me to remember and to spell); Sons: Michael, 23, and Jonathan (I call him JT - same reasons), 19.

Areas of practice and specialties: Creditors' rights; commercial collections; commercial litigation; mechanic's liens

What year did you join CLLA? : 1984

What other offices have you held in the CLLA and Creditors' Rights Section? :

  • Chair of the old Forwarders and Receivers Committee;
  • Chair of the CRS Promotions and Marketing Committee;
  • CRS Executive Council member;
  • CRS Secretary,
  • CRS Treasurer and (briefly)
  • CRS Chair-elect

Tell us about your family and your family interests and activities? : I am very active in a number of veterans and veterans assistance organizations, including the Southwest Pennsylvania Committee for Employer Support of the Guard and Reserve, the Navy League of the U.S., Pittsburgh Council, and the VFW; my wife DJ who, unlike me, is very musically talented, plays organ at our church, sings in the church choir, and also is director of our church's children's choir. My elder son Mike, who has had a fascination with motor vehicles since he was 7 years old, is a dispatcher and a driver for a local private bus company which contracts for transportation services with school districts and other organizations. He is developing an entrepreneurial spirit and is toying with the idea of eventually starting his own transportation company. My younger son JT, works part time at our neighborhood convenience store, and attends Community College. He eventually wants to get a degree in video game art and design. (He should - he spends enough time in front of his computer and on line). He has learned to save his money from his job, and he has bought (and installed) various upgrades to his computer and he even saved his own money to buy a big screen TV for his room (better than the TV I have).

What qualities do you feel that you bring to the job of Chair of the Creditors' Rights' Section? : A strong work ethic, and an intense desire to see the Section grow in membership.

What goals would you like to achieve during your term as Chair of the Creditors' Rights Section? : As you might discern by my answer to the prior question, I would like to increase CRS membership during my term as Chair. I think a 10% increase in membership is not an unrealistic goal. I think CRS members at League meetings should make a concentrated effort to seek out "blue dots" on the name badges of other attendees, to see if those blue dots are accompanied by a CRS logo sticker (or pin) on the name tag, and if not, pitch the benefits of CRS membership to those League members. The section has a lot to offer, and we all, as members, have a stake in its growth and success. Plus, another goal is not to mess up what all of my learned predecessors have done for this Section.

If a new attorney member of the CLLA is considering joining the CRS, what would you tell him or her about the benefits of Section membership? : I would tell that attorney to stop just "thinking about it" and join! We have outstanding educational programs, but more importantly, membership in the CRS and participation in its committees is a great way to meet new people, develop lasting friendships, and to become known as the "go to" person if another Section member has a client who needs representation in your state or city. As I said, the Section and its members have a great deal to offer.

When you're not practicing law, or tending to League matters, what do you do for fun and relaxation? My wife DJ and I like to spend time with friends either going to dinner and to a local amateur theatre, or going to karaoke.

If you did not become a lawyer, what do you think would have become your life's work? : Interesting question. I spent 20 years with the military (4 years active and 16 years reserve) and given my other activities I haven't really gotten away from it. So, if I had not gotten into law school, I probably would have stayed on active duty in the military for a career.

What one thing do you think we would be surprised to know about you that most people don't already know? : Well, I mentioned that my wife and I like karaoke, so even though I am not musically inclined (I can't read music or play an instrument) I have been told that I sing a pretty mean karaoke rendition of "La Bamba" by Richie Valens - even though I don't speak Spanish or have any idea what the words mean.

What is your favorite quote, or words to live by? : Courage is not the absence of fear; it is the ability to carry on in spite of fear.

Did you have any role models when you were growing up and in your career in practicing law thus far? If so, who are they and why were they your role models? : Growing up, my role model was my Dad. I think I learned my work ethic from him. My Dad was a steelworker, and I remember when I was a very young boy, that his union went on strike for about 4 months. He did whatever work he had to do to earn money to provide for us, and I don't remember ever going hungry during that time. In my career practicing law, I would have to say my role model was Joe Bernstein, my firm's founder. I consider him to have been my mentor, and he taught me everything I know about the practice of creditors' rights law. Because of all that he taught me, I really didn't otherwise have to do anything to prepare for the creditors' rights certification exam.

What is your favorite:

Car: Lincoln MKZ (which I am about to purchase)

Food: Seafood (except calamari)

Vacation spot: Williamsburg, Virginia

Actress/Actor: Sandra Bullock/Tom Hanks

Movie: A toss up between Saving Private Ryan, and Remember the Titans (I have watched both countless times).

Holiday: Christmas

Musical group/Singer: John Mellencamp

Book: Executive Orders by Tom Clancy

Sports figure: Hines Ward (great attitude - he comes up smiling even after he gets knocked into next week)

Editor's Note: Liviu Vogel, Esq. is a partner in the New York City based law firm of Salon Marrow Dyckman Newman & Broudy LLP. He heads the commercial collection department of his firm and his practice includes civil and commercial litigation, construction, real estate, and corporate transactions as well as business formations. Eva has been an associate with Ross Banks for 11 years. She focuses her practice on commercial and business litigation, primarily commercial collections. Eva's practice includes representing clients through trial involving collection of business accounts, contract payments, note payments, and post-judgment collections. She received her J.D. from the University of Houston Law Center in 1996 and received her B.A. from Brandeis University in 1993, Magna Cum Laude.

 Why are you a CRS Member?

The objectives of the Creditors' Rights Section are:

  • To assist the CLLA in promoting the highest standards of integrity, honesty and performance among its various constituencies.
  • To advance the interests of creditors' rights in all proposed state and federal legislation.
  • To assist the business community in the preservation and advancement of its ethical standards, legal rights and interests.
  • To support the judicial process in securing fairness and uniformity.
  • To benefit the legal community by promoting elevated standards of integrity, honesty and competence in the practice of law through continuing legal education.

Why Do Creditors Retain Members of the Creditors' Rights Section?

  • Our members are comprised of competent attorneys whose practices are concentrated in the field of creditors' rights and who are involved with networks of peers dedicated to promoting high standards and excellence in service to their clients.
  • Our members are involved in the creation and dissemination of current changes in legislation and case law on a regional and national level.
  • Our members engage in continuing legal education in the areas of creditors' rights and bankruptcy.
  • Many of our members have achieved certification as a Creditors' Rights Specialist from the American Board of Certification (recognized by the ABA ).
  • Our members enjoy recognition for high professional standards from both the business and legal communities.

As stated at www.clla.org.

WHEN IS A FOREIGN CORPORATION DOING BUSINESS IN NEW YORK?

By Stuart B. Newman, Esq.

One of the most vexing questions lawyers are frequently asked is whether the activities of a corporation may constitute "doing business" in another state, requiring it to apply for a certificate of authority to do business in that state.

The question usually arises in one of two contexts: (1) opinion letters, where lawyers are required to opine as to whether a corporation is qualified to do business in all foreign jurisdictions where its activities or ownership of property require it to be so qualified; and, (2) litigation, where most states, including New York, require non-domestic corporations to be qualified as a condition for access to the judicial system to assert a claim in litigation.

Traditionally, the issue is decided by posing a series of questions to the client to gauge the weight of contacts the foreign business has with the state. "Do you own any property in that state? Do you lease property in that state? Do you have an office there? Do you have a telephone number listed in that state? Do you have any employees residing there? Do you have any bank accounts in the state? " The more affirmative answers a lawyer receives, the more objective the analysis a lawyer can provide.

However, a recent New York case, Schwarz Supply Source v. Redi Bag USA LLC, N.Y.L.J. Jan 8, 2009, Index No. 016733/08 (Sup. Co. Nassau Ct. Dec. 22, 2008)(Bucaria, J.S.C. ), suggests that this vexing question may be much more difficult to answer than previously thought, because the analysis used by the court was far more subjective. According to the opinion in this case, non-domestic businesses may meet the test for "doing business" in New York, even if none of the standard indicia are there.

On December 22, 2008, Justice Stephen A. Bucaria, New York State Supreme Court, Nassau County, rendered his decision in Schwarz Supply Source v. Redi Bag USA LLC. This case arose out of a dispute between the plaintiff foreign corporation, a distributor of plastic shopping bags, and the defendant New York limited liability company, a manufacturer who produced the plastic shopping bags.

Plaintiff Schwarz Supply Source filed suit for breach of contract. Defendant Redi Bag moved to dismiss Plaintiff's suit on grounds which included, pursuant to business Corporation Law § 1312(a), that plaintiff was a foreign corporation not authorized to do business in New York.

Plaintiff responded to this argument by asserting that: (i) it had neither an office nor a distribution center in New York; (ii) it did not have any employees based in New York; (iii) it did not maintain a New York telephone number; (iv) it did not have any bank accounts in New York; (v) it did not own any New York real estate; (vi) it did not advertise its services in New York; and, (vii) its business activities in New York were limited to buying goods from vendors, incidentally located in New York, for distribution to customers located across the country. Nevertheless, Justice Bucaria granted Defendant's motion, in part because the way in which Plaintiff did business appeared to "sidestep" the traditional requirements for "doing business. " He therefore concluded that Plaintiff Schwarz Supply Source was prohibited under New York Business Corporation Law §1312 from maintaining the action at bar. In 1963, the New York State Legislature enacted BCL §1312 relating to actions or special proceedings brought by unauthorized foreign corporations (1).

Essentially, the statute prevents an unauthorized foreign business corporation that does business in New York State from maintaining an action in New York State courts. The purpose of the statute was "to protect domestic corporations from unfair competition and to place them on an equal footing with corporations who are using the facilities provided by the state of New York in the conduct of their business", Dixie Dinettes, Inc. v. Schaller's Furniture, Inc. , 71 Misc.2d 102 (Civ. Ct. Kings Cty. 1972) (2).

However, the statute begs one very important question: What constitutes "doing business" in the State of New York for the purpose of the BCL?

Traditionally, "doing business" under BCL §1312(a) requires a greater amount of local activity by a foreign corporation than the "transacts any business" standard of CPLR 302(a)(1), which gives "long-arm" jurisdiction over foreign entities for acts done in New York. (3) Under the BCL, when a foreign entity does business, its activities within New York must be systematic and regular in order to be barred from maintaining an action. (4)

For example, the solicitation of sales and delivery of merchandise within New York, where the foreign corporation had neither an office, employees, property, nor a telephone listing within the state, was held not to constitute "doing business" under the BCL in Uribe v. Merchants Bank of New York, A.D.2d 21 (App. Div. 1st 1999), see also: S&T Bank v. Spectrum Cabinet Sales, Inc. , 247 A.D.2d 373 (App. Div. 2nd 1998).

Yet, no single measure of "doing business" seems to be uniformly applied state-wide. In, Great White Whale Advertising, Inc. v. First Festival Productions, 81 A.D.2d 704, 706 (App. Div. 3rd 1981), the court proclaimed that "whether a company is 'doing business' within the purview of section 1312 of the Business Corporation Law, so as to foreclose access to our courts, depends on the particular facts of each case with an inquiry into the type of business activities being conducted."

However, the courts have maintained that there are certain traditional indicia for doing business in New York for the purpose of BCL §1312. These indicia include, but are not limited to, whether plaintiff: is headquartered in New York; has a New York office; has any New York based employees; has a New York phone listing; has any New York bank accounts; owns any New York real estate; or, advertises in New York.

In the instant case, however, the plaintiff Schwarz Supply Source had none of these traditional contacts with New York. The plaintiff was a Delaware corporation, headquartered in Chicago. The parties had a manufacturer-distributor relationship. Defendant Redi Bag participated in an online auction conducted by Bed Bath & Beyond for an opportunity to be chosen to manufacturer plastic shopping bags for its stores to be distributed by and through Schwarz Supply Source. After it was chosen as the manufacturer, Redi Bag contracted to supply the bags to Scharz Supply Source for distribution to Bed Bath & Beyond retail stores throughout the country.

The court, however, declared that the nature of Schwarz Supply Source's distribution operation avoids the traditional requirements for "doing business" in New York State, stating that a company that supplies material to retail stores "would not include such case law indicia as advertising, and the plaintiff's practice does not require an office, telephone or a sales representative in New York State, instead... the relationship arises out of an internet auction, initiated by Bed Bath & Beyond and utilized by the plaintiff to provide services to, inter alia, New York businesses." (emphasis added)

The court opined that the "[a]greement which forms the basis of this and the Redi Bag action clearly describes the plaintiff as a distributor of the defendant's products and essentially creates an agency relationship between the parties on the aspect of Market Development Support set forth in the agreement. Similarly, the business relationship created by the agreement demonstrates indicia, e.g. , Insurance requirements, indemnification and a trade secret and confidentiality disclosure, that manifests a working relationship between the parties that leads to a categorization of the plaintiff as a distributor to Bed Bath & Beyond, at least. "

Such provisions concerning insurance, indemnification and trade secret confidentiality are standard components of many commercial contracts. The court appears to set a new threshold for "doing business" under the BCL for a non-domestic entity, crossed merely by having a "working relationship" with a New York business. This would vastly broaden the class of foreign entities that would be seemingly required to qualify in New York.

The court seems to equate having any business activity with New York-based companies with having business activities of localized or intrastate character. (5) Even if we accept the court's proposition that Plaintiff had "substantial" business contacts with New York-based companies on its face, that still falls short of the "wholly intrastate" standard of Domino Media, Inc. or the "localization or intrastate character" standard of the United States Supreme Court in Allenberg Cotton Co.

It should also be noted that the court failed to take into account the directionality of the flow of commercial activity. If a foreign distributor, acting on behalf of a New York retail store or state-wide retail chain, channels goods produced elsewhere into New York, a court may theoretically construe such activity to be a business contact of sufficiently local or intrastate in character. Here, however, Schwarz Supply Source channeled the product of a local manufacturer out of New York and into venues around the country. It does not follow that, under the traditional standard, such business contact would have the local or intrastate character sufficient to be deemed as "doing business" in this state.

To do business within the meaning of BCL §1312 an unauthorized foreign entity's business contacts with the state must be so systematic and regular that the entity establishes a continuity of activity within the state. The United States Supreme court added that such activity must have a localized or intrastate character, or else the state's "door closing" statute runs afoul of the commerce clause of the United States Constitution.

Where once there may have been clarity, now the threshold for contacts with New York that would sufficiently constitute "doing business" under the Business Corporations Law is now far more vague and expansive in scope than it ever has been.

Stuart B. Newman is a partner at Salon Marrow Dyckman Newman & Broudy LLP. Mr. Newman is a member of the Executive Committee of the Business Law Section of the New York State Bar Association, and founder, and former Chair of the Advisory Board, of the New York Business Law Journal.

 

CAN THE SPAM - CHANGE IS NOT EASY

By: Brenda A. Majewski, Director of Operations, Kohn Law Firm S.C.

A recent firm decision to take a much more proactive role in cutting down on spam emails that hit our servers has not been without pain and the realization that change comes hard to many. While our existing filters were handling many banned words and phrases, and IP addresses, more and more sophisticated email spammers circumvented that. When Acai Berry, and every variation of that spelling, hit the market, and I had to be reminded many times a day as to how important it was to order it, it was also time to review what was in place.

We are constantly updating client requirements for greater security measures, and those include data security, access, and restoration. Spam emails and their links are notorious for viruses, spoofing addresses and a host of other system and data security problems. As we update client security policies, we are also updating system access policies that address business use of firm assets, including data systems. Internet usage is tracked and reviewed for business appropriate access. Email usage is now also being more formally tracked for the same business appropriate reasons. While the email itself was already addressed in document and data retention policies, usage now has a policy. Some lessons from the trenches we learned along the way include items such as communicating well in advance of the change the impact it will have on users. That communication needs to be at the level the user will understand, and not at the level of the technology department. Proactively make sure your current client base, vendors, courts, adversary attorneys and the like from any database you maintain can get through the filter to you.

Test the system. It is very easy to set up a generic email account to email from, including possibly your own personal account. Use the words and phrases you want blocked. Forward on a group distribution email from your test account. View the return message. Will the people you communicate with understand the phrases in the returned email? Do you have any control over what the information says on what gets returned to them? Do you want emails bounced back to the original sender or quarantined to be reviewed and released when needed? After reviewing the quarantine option for a few weeks, we opted to bounce email back if they contained objectionable information. The learning curve on that is high as innocuous emails with no subject lines may get bounced back. First time senders to our email address may be bounced back until they are cleared to send. While those are a few of the downsides, the real upside has been in the control of information no longer coming in past a firewall or residing in an email folder to be reviewed and then determined if it needs to be released to the addressee. A three day review of my own email account showed over 1,000 attempts to access my email address, with fewer than 100 of them legitimate. Under our new plan, 900 of them were returned to the sender. That's a production increase on better usage of time.

There are many products out there claiming to control spam. Spend the time necessary to find one that fits your business needs, and improves the overall operation of your practice. Emial is a vital part of our day to day practice, but it is also a communication tool that needs to be managed.

While I no longer get the emails that may start with a subject line of FW: FW: FW: FW: Thank you, I am still very accessible to those who need to find me. I no longer have 100 angels watching over me because I forwarded on an email quickly, nor will I be advised of the most recent panic alert such as watching underneath my car for an assailant to grab me, or leaving my door unlocked for someone to jump in the backseat , or enjoying lemon slices in a Corona without thinking about the hands that put them there, or sitting on a hotel bedspread without knowing what might have happened on it before I got there, and Acai Berry isn't curing any ailments, I have enough watches and don't need an online degree course, however  I will get all of the information I do need, without sifting through the junk. We've canned spam for the time being.

Brenda Majewski is the Director of Operations for Kohn Law Firm S.C. , a 100+ member debt collection and litigation firm based in Milwaukee, WI. If brendam@kohnlaw.com bounces back to you, she's still available at 1-800-451-1791.

LETTERS TO THE EDITOR

Letters or comments can be sent to eengelhart@rossbanks.com. In case you haven't received the word, The Free Press has instituted a "Letters to the Editor" column. If you don't want to take time out of your busy schedule to do research for a scholarly article, if you have a suggestion, recommendation, or constructive criticism to direct to the Section leadership or the Free Press editorial board, or if you just want to "vent" (in a non-abusive manner, of course), you now have a forum. You can submit a letter any time it suits your fancy, and you need not wait until just prior to the publication of an edition of the Free Press. Submissions will be kept on file for future publication.

Editor's Note: Eva has been an associate with Ross Banks for 11 years. She focuses her practice on commercial and business litigation, primarily commercial collections. Eva's practice includes representing clients through trial involving collection of business accounts, contract payments, note payments, and post-judgment collections. She received her J.D. from the University of Houston Law Center in 1996 and received her B.A. from Brandeis University in 1993, Magna Cum Laude.

REPORT OF THE NOMINATING COMMITTEE

With the resignation of Stuart Blatt from his position as Chair-Elect of the Section, the remaining officers on the ladder, Nick Krawec and Liviu Vogel, have agreed to step up a year. The vacancy in the officers of the Section for 2010-2011 will therefore be in the post of Treasurer, which would have been held by Liviu.

Nominations were solicited for Executive Council and Secretary, as is annually done, and also for Treasurer. Nominations were taken through March 1, 2010, and the Nominating Committee does hereby report the slate of candidates for election:

Treasurer:

  • Jordan Humphries
  • Richard Roosen

Secretary:

  • Ian Bardin

Executive Council:

  • Eva Engelhart
  • Steven Filipowski
  • Jim Kozelek
  • Emory Potter
  • Lorna Walker

CRS elections will be held at the conclusion of the Creditors' Rights Section general membership meeting in Chicago, on Saturday, May 1, 2010.

Beau Hays, Chair

Editors' Note: Beau Hays, Esq. , is a partner in the Atlanta, GA law firm of Hays & Potter, P.C. , practicing in the areas of creditors' rights, construction law, bankruptcy, business law, commercial law, collections and civil litigation.

EDUCATION COMMITTEE REPORT

By Jordan Humphreys, Esq.

Education Committee reports we are all set with a diverse block of education for Chicago 2010. Ken Rozich is busy soliciting programs for New York 2010.

We encourage you to approach us with an idea for a program or to volunteer to speak at an upcoming convention. Speaking at a convention is a great way to raise your profile in the League which can lead to more business for you and your firm. Please feel free to contact one of us with your ideas.

Last, we are currently looking for additional members to serve on the Education Committee. If you are interested in serving on this Committee, please contact Jordan Humphreys at jhumphreys@fpb-law.com.

Editor's Note: Jordan Humphreys, Esquire is Chair of the CRS Education Committee. Jordan Humphreys, Esq. is a partner in the firm of Ford, Parshall & Baker in Columbia, Missouri.

PRACTICE GROUPS

By: Liviu Vogel, Esq.

In Chicago, on Thursday morning, come join the Complex Litigation Committee and attend its networking and educational sessions starting at 9:00 AM. Chair, Walid Tamari, of the Chicago law firm of Tamari and Blumenthal, LLC, has put together another great event. Our newest committee, the Construction Law Committee, chaired by Rick Johanson, a partner in Engel, Hairston & Johanson, P.C. in Birmingham, AL, will have an organizational meeting on Thursday, April 29, 2010 at 1:30 PM. On the agenda will be suggestions for educational and networking programs to be held at the meeting in New York in November 2010. This is your chance to get in on the ground floor of the Construction Law Committee and help form its future. We hope to see you there.

NEWSLETTER COMMITTEE REPORT

This newsletter is circulated three times per year electronically in the Spring, Summer and Fall (and via fax for those not online). Members are encouraged to submit articles of interest or letters to the editor for inclusion along with a short bio for publication. The annual Best Feature Article award is noted elsewhere in this issue. The award and gift will be presented at the CRS meeting in New York. Current co-editors are Liviu Vogel, Esq. , Salon Marrow Dyckman Newman & Broudy LLP, New York, New York, and Eva Engelhart, Esq. , Ross Banks May Cron & Cavin P.C. , Houston, Texas.

Calendar of Events

Strategic Planning & Leadership Conference 2010

  • InterContinental Boston, Boston MA
  • August 5, 2010 - August 8, 2010

CLLA's Western Region One Day Meeting

  • Hilton Hotel , Universal City CA
  • October 15, 2010

90th Annual New York Meeting

  • NY Sheraton Hotel & Towers, New York NY
  • November 11, 2010 - November 14, 2010

Southern Region One-Day Conference

  • Royal Sonesta, New Orleans LA
  • February 24, 2011 - February 26, 2011