Who Really Benefits

Attendance at a series of recent funerals, jump started my thinking on a variety of subjects, from estate planning to business planning and finally to concerns over seniors.

Before I dive into these thoughts, a quote attributed to Yogi Berra. “Always go to other people’s funerals, otherwise they won’t come to yours.”

The first subject is the recent passage of the federal tax bill which raises the taxable floor on estates from approximately $5,000, 0000 to $10,000,000 per person. The non-partisan Joint Committee on Taxation estimates the number of taxable estates would drop from 5,000 under current law to 1,800 under the new law. By comparison, 52,000 estates paid the tax in 2000 when the exemption was $675,000. Separately, the annual exclusion amount that an individual can give to any number of individuals without eating into the lifetime gift tax exemption was not changed by the new tax law. It will be $15,000 for 2018, up from $14,000 in 2017, thanks to indexing for inflation.

For decades lawyers have been creative on strategies designed to move assets out of estates, using tools like charitable gifts and trusts. While gifts and trusts are still useful tools in certain situations, I think that as a lawyer doing estate planning I can now get closer to the notion of the “simple will.”  We should be able to provide directives for the disposition of assets to survivors in a simpler and cost-effective non-probated manner.

Now I realize that thinking about estates is not the most uplifting of subjects, so I switch gears to think about doing business in today’s economy.

A recent ride through Cherry Creek stimulated some nostalgia and additional thinking on this second topic.

Cherry Creek used to be chock-a-block filled with successful mom and pop stores, now long gone. I am the third generation who benefited from ownership of a small retail operation.  Now, those mom and pop stores have all been replaced by national chains and franchises. In fact, my family’s store was put out of business by the big box highway stores.  In the days of my family’s operation, store owners were a class of entrepreneurs that took pride in building businesses that involved and supported whole families.  Those entrepreneurs did not need MBA from colleges. They often attended schools of hard knocks. They built something to last and were the bedrock of middle class America.  They were pillars of communities and succeeded or failed in large part on the trust they built with the communities they served. As businesses, they might have been sole proprietorships or maybe corporations. They paid their taxes with much less hand wringing than what seems to go on today. Those small business existed in a less litigious time, but from memory they always had a trusted lawyer adviser upon whom they could call when needed. Seems that in today’s world of DIY everything, this is less the case. Yet, with today's more complicated business atmosphere of taxation, regulation and litigation, the need for experienced counsel could not be greater.

The recent tax legislation reduced the effective tax rate for corporations from approximately 30% down to 21%.  The thinking was that reducing the tax rate would make US corporations more competitive globally (not necessarily locally), would allow corporations to do more for their employees, and it would eventually stimulate the economy. There were also some aspects of the bill which were designed to benefit pass through entities like limited liability companies and partnerships.

SBA data from the last census indicates that small business (500 employees or less) represent 99.7% of US Employer firms with 27.9M small business within this class. Large business with at least 500 or more employees represent 18,500 firms.  Over three quarters of small business are non-employers with 73.2 % classified as sole proprietors. In the last two decades, about 60 percent of the private sector’s net new jobs have been created by existing establishments and about 40 percent from the churn of startups minus closures. While firm births account for many new jobs, job losses from firm closures are equally important in accounting for net effects to employment levels. So who really benefits from the recent tax bill?

For decades, lawyers have been creatively designing business structures which can take maximum advantage of the tax code and offer maximum protection against liability.  Given my strong interest and experience in representing small businesses and startups, I am not seeing much tax benefit from the recent legislation, nor am I seeing increased liability protection, nor am I seeing an increase in accessible capital, the lifeblood of startups, and the recent failure of the farm bill will also hurt the family and small business farmer.   On the other hand, well healed real estate partnerships, REITS and other special entities may well benefit.

The third topic that weighed heavily on my mind relates to seniors and crime. The FBI Internet Crime Complaint Center released its yearly internet crime report, which states that over 300,000 consumers reported cyber-fraud and malware attacks in 2017, costing over $1.4 billion.

The threats that were at the top of the list reported by consumers include phishing, ransomware and whaling, as well as tech support fraud, non-payment scams and extortion.

Sadly, but indicative of reality, senior Americans are the most targeted demographic for cyber fraud. Over 50,000 complaints were lodged by consumers over the age of 60 with an estimated loss to these individuals of almost $350 million. Good data, yet few prosecutions were made for all of this crime.

As a patriot and practicing attorney passionate about upholding the law, I am concerned. My point in reviewing these three topics is that it seems that the current government has gone to great lengths in protecting the 1% of wealthy individuals and large business without commensurate concern for the majority of the population, for core of US businesses or protecting the most vulnerable segments of the population.  Whether there will be any trickle-down benefit is yet to be determined. Early indications are not promising.

The Truth Will Set You Free

The mainstream media reported that the sun rose in the eastern sky this morning at 6:12 AM.  I take that to be true.  The news program then followed with the usual blood and guts stories, stories on the political scene, and the national economy.  After the report of the sunrise, the “truth” in any of these news stories needs to be critically examined. The news media, whether mainstream or alternative, have a profit-based motive to sensationalize or catastrophize. All human beings, conservatives and liberals alike, feel anxiety and the information provided by the news tends to be attractive or repulsive but nonetheless effecting our anxiety levels. It would be helpful to our anxiety levels to know that the information being provided is the truth and not a kernel of truth exaggerated for the purpose of sensationalism.

A self-proclaimed research technologist by the name of Aviv Ovadaya observed that as a society we are approaching an “information Apocalypse,” which could lead to “reality apathy” or people just giving up on finding the truth because it is too indistinguishable from misinformation. I would suggest that perhaps that apathy is also result of anxiety exhaustion.

Yet another perspective is offered by Plato in the seventh book of “The Republic.” It is the allegory of the cave.  Plato tells the story in the context of education which is the point of this short article.  The short version of this allegory is that a lifelong slave who had been chained in a cave believes that the world is a puppet stage backlit behind a curtain in a way that he sees shadows hauling objects.  Until he escapes, he believes that is the truth of the world.  Upon his escape, he goes out into the sunlight of the world and slowly begins to learn the new truth of the world.  He goes back to the cave to free his fellow prisoners and tells them about the true world outside.  The prisoners do not want to be free because a they are comfortable in their own ignorance and they are hostile to person who want to give them more information true or not.  Plato uses the cave and the freedom of the outside world to make the point that things you thought to be true are not always so. Daniel Kahan, a Yale psychology professor, suggests that advocating beliefs contrary to the ones that prevail in one’s group, risks estrangement from the others on whom one depends for support.  Beliefs can soothe anxiety. Truth can be anxiety producing.

In the book the “Knowledge Illusion” written by two CU professors, the main point amongst many is that our current world is so complicated that we have come to rely on the collective wisdom or truth as espoused by a “tribe” or group to which we have acclimated. Groups do offer material and emotional support. The group might be either a political party, religious group, social group or viewers of a news site.  Our individual filters give way to the group or tribe’s filters. Those filters feel right when they soothe or reinforce closely held belief, regardless of the truth.

I strive to regain confidence in my independence of thought, common sense and
judgment. I want to wander out from the cave into the sunlight.  The practice of law can afford me that opportunity. Recently, I have had the opportunity and pleasure of researching questions to which I had no answers.  Subjects like the efficacy of trademarks in the digital age, sales commission agents teaming up together to balance or restrain the overreaching of their principal, or the recourse for the homeowners against a national bank whose overly aggressive actions resulted in foreclosure of their homes.  It is hard to find the “truth” in these situations since nothing seems black or white anymore. Maybe Jack Nicholson’s character in the movie "A Few Good Men" was right when he said: “You want the truth, you can’t handle the truth.”   So, the question I pose is can there be a single truth in our complicated world of various shades of gray that we can handle?

Fact Versus Fiction Versus Belief

I first started practicing law as a Public defender and continued a litigation practice for an additional 21 years.  I was convinced that the factual evidence, if presented in a logical way with my limited powers of persuasion, would convince a fairly selected jury to see things my way.  Recent events and my reading of a very interesting book, The Influential Mind by Tali Sharot, have brought me to a startling revelation.  When people are presented with factual evidence that goes against their deeply held beliefs, factual evidence does not sway them.  Instead they invent more reasons their prior position was actually correct. Sharot asserts that the smarter the person is, the greater their ability to rationalize and reinterpret discordant information and the greater the polarizing boomerang effect is likely to be.  What a blow to my litigator’s ego, but more importantly could this be a clue to our currently divided country.

I grew up in a household in which one side of the family held themselves out as Republican and the other side Rooseveltian Democrats.  Dinners were always filled with lively but civil discussions.  I never did adopt one brand or the other. As a result, I never had deeply held partisan political beliefs. I tried to adopt a common-sense approach that was unencumbered by partisan loyalty.   I think I detect that my situation is not commonly shared.  People today seem to have a great need to identify with a tribe, group, club, religious affiliation, or political party more than an open mind to consider a common-sense based solution.  This branding or group identity as a facility for deeply held beliefs seems to fit Sharot’s characterization to a tee.

How often do you hear that we are currently living in a “POST TRUTH ERA?”  For some, it of course assumes that there was ever a TRUTH ERA.  It may be more accurate to say that past political administrations have been more truthful that others, but to say they had the franchise on truth is a stretch. Any diehard Republican or Democrat will indicate that when their party held the White House it was the best of times.  How we measure the best of times seems now, as Sharot would say, “…the opportunity [to] rationalize and reinterpret discordant information to fit the preconceived notion.”

I take truth telling and listening to be a matter of character. Truth is the bedrock upon which the rule of law is based.  As a lawyer, whether a litigator or counsellor of the law, the truth must be the basis upon which we provide legal services. The truth may sometimes be difficult to either tell or receive but the legal profession must be the guardians of the rule of law.  I am very concerned that we are no longer a nation that respects the rule of law and the legal profession is not looked up as the guardian of the rule of law. We, as lawyers and/or as individuals of character, need to change that perception.

I wrote recently of the perception that the US Supreme Court was not a divided as we are led to believe is the case nationwide. The role of guardian of the rule of law for the legal profession starts at the top.   Recent leaks from the inner sanctum of the Supreme Court may prove me wrong that the Court is divided not along judicial lines but rather political lines.  Recently our Senate majority leader, who once said that he was dedicating himself to making sure the President Obama only served one term, recently said that the most important thing that the current President has done is appoint Justice Gorsuch to the Supreme Court. Politics has once again entered the Supreme Court.  The results of this term should be interesting. Stay tuned for further musings….

Is The Supreme Court Truly Supreme?

As a lawyer, I am most intrigued by the judicial branch of government.  The Supreme Court gets most of the headlines within legal news. But as my late great mentor Rollie Rogers (Colorado’s first Public Defender) said, "There is more (in) justice to be found (in) the lower courts down to the municipal level than there will ever be at the Supreme Court."
And while I believe this may have merit, it is to the Supreme Court that I turn my focus.

With the latest Supreme Court Justice coming from Colorado, and rumors of retirements abounding, I thought I would do a bit of analysis. I have gotten close to arguing before the Supreme Court but was denied, as are the vast majority of cases. It has been said that the hot button issues post Justice Scalia’s death were delayed.  The Court’s recent announcement of cases for the 2017 term makes up for the reticence.  The Court has already announced that it will hear cases on the following:  Trump’s travel ban, gay rights v. religious freedom, gerrymandering, internet/cellphone privacy, corporate violations of human rights and worker groups to address workplace issues.  Abortion, voting rights, and health care are also expected to make the docket.

The statistical analysis to understand ideological make up of the 2016-17 Court is not yet done and may skew due to the absence of a justice.  I am using stats for 2016 with some averaging in my analysis.  Most of these statistics come from a source called the SCOTUSblog Stat Pak.

Before launching into statistics, I thought some insight into my thinking would be helpful.  To my knowledge, the US Constitution does not refer to conservative/liberal, republican/democratic thinking, The Justices of the Supreme Court, the final arbiter of matters constitutional, should be interpreting the constitution not with conservative or liberal ideology, but rather with a disciplined legal analysis that recognizes constitutional principles in the context in which the cases arise.  The Founders knew not from airplanes, automobiles, pipelines, electricity, or the Internet, nor a country of more than 300 million people. Abraham Maslow might comment, "That is a lot of lab rats in the maze."  For those modern issues the Founder’s intent is inapposite.

For the last several years, approximately 8,000 cases per year are filed with the Supreme Court.  Oral argument was granted in approximately 80 cases.  In average, an additional 100 cases were decided without plenary review. On average for the past 5 terms, 49% of the cases were unanimously decided.  8% of the cases were decided 8 to 1, 12% of the cases were decided 7 to 2 and 11% of the cases were decided 6 to 3.  So 80% of the cases were decided by significant majorities.

19% of the cases were decided by a 5 to 4 vote. Those cases covered areas including 3 criminal law cases and one gerrymandering case.

For those of us here in the 10^th Circuit,  the Court accepted 3 cases, 1 was affirmed and 2 were reversed.

I am left with the conclusion that the Supreme Court may not be as divided as Congress or the country. Would another Justice appointed by our current President make a difference? Given the breakdown just presented, I suggest not.  If the Court rules on the 7 cases I mentioned in the first paragraph, we might project only 2 of those cases will be decided by a 5 to 4 vote.  I suppose those owners whose ox had been gored will be upset, but my thinking is that those justices may have a better vision for the country than either the Congress or the President.  Those two branches of government seemed to be more concerned with a vision of government and their reelection than a vision of our country.

The Last 100 days

100 days has become a standard of time for a measurement of success.  The most obvious example is the first 100 days of a President’s term.  As enticing as it may be to comment on our President’s first 100 days, instead I am actually going to share with you my last 100 days, which I hope you find more interesting than my commenting on the President’s first 100 days.  There are 3 events to discuss.  All three have a common theme, two are comparable and the last comes out of left field.

The first two involve business activities that have become all too common.  Both involve my representation of small companies that either sold assets or stock.  The last is a most recent newsworthy event that did not involve my representation, at least not yet.

For my entire first year in law school, we studied contracts.  The ins and outs of contracts fascinate and titillate law professors. The good ones pass on this fascination to their students.  I must have been bitten.  A foundation principle of contract law concerns contracts of adhesion.  Contracts of adhesion are currently defined as:

“A standard form contract drafted by one party (usually a business with stronger bargaining power) and signed by the weaker party (usually a consumer in need of goods or services), who must adhere to the contract and therefore does not have the power to negotiate or modify the terms of the contract.”

In many of the cases we studied, Courts held contracts of adhesion to be invalid and released the parties from the contractual obligations.

In the two business transactions I mentioned, I represented two small software development businesses whose assets or stock was purchased by Fortune 1000 companies.  In the transaction involving the asset purchase, the asset was a single application that solved a bedeviling problem.  We were presented with a thirty page sales and assignment agreement.  In the second transaction, a small software development company was being acquired by the acquisition of all of its stock.  The piece of software that was the heart of the company was essentially the only asset acquired.  However, the client’s development team was highly sought after.  The company had no hard assets and little revenue but it sold for multiple millions.  In that transaction, we were presented with a 100+ page purchase agreement.

In each contract, there were representations and warranties that the buyers wanted the sellers to make.  My job was to make sure that the sellers were not over representing or over warranting what it was that they were selling.  In each case, my legal training told me that these were contracts of adhesion.  Could they be negotiated? Yes, but not in any meaningful way if the deals were to ever be done.  Expediency won out over prolonged detailed negotiations.

It is the last example and an enlightening conversation that really made me sit bolt upright.  By now you all know about the poor soul who was dragged off a United Airlines plane when he refused to relinquish his seat on a flight that United oversold and had four company employees paying a lesser or no fare who needed to get to the plane’s destination.  As it turns out in the fine print of an airline ticket, which I have never read, (how many of you have read your cell phone contract, your cable contract, your concert or Bronco ticket, credit card contract or the purchase agreement for all your apps?), the airline reserves the right to de-seat you for any number of reasons.  The airlines apparently reserve the right to oversell a plane because of some algorithm which indicates that some number of people cancel or never show up for a flight.  I mistakenly thought that when you buy an airline ticket and pay your money, you have entered into a contract for transport from point A to point B.  Not so! And I find this outrageous. The conversation that made me sit bolt upright was with another lawyer, a consumer law expert, and a contemporary, who told me that he had not seen the concept of contracts of adhesion applied since he left law school.   Where have I been that I missed this lesson? The doctrine of contracts of adhesion needs to make a return and we need to start paying attention to the contracts we enter into.

My last 100 days has been rewarding in many ways, more importantly it has been educational, certainly in the lesson that today’s expediency to get the deal done or to get to point B is more important than a negotiated fair and just deal.  I wonder if the President appreciates the lessons of his last 100 days.

Caveat Emptor?

One of my recent experiences of buying something on line and trying to return it, turned into a minor nightmare, so I write this column as a form of therapy.

During my first year of law school, we studied contract law.  A part of that course was spent on the concept of CAVEAT EMPTOR.  The principle that the buyer assumes the risk of quality and condition unless the buyer protects him/herself by warranty or there has been a false representation.  CAVEAT EMPTOR was an English common law principle that replaced the old Roman principle of CAVEAT VENDITOR that actually places the responsibility for defects on the seller.  Those principles worked fine when we had face-to-face transactions on Bond Street or the Appian Way.  Now, we have the buyer’s digits facing off against the seller’s digits with the hope that the computer networks can sort it all out.  CAVEAT EMPTOR always fell away when the buyer could show a false representation.  I am not sure I know what the standards for true and false are anymore.  The digital world is compatible with our highly atomized society where communication is often electronic, whether by Facebook, email or text.  We hang out in our little cubicles with our laptops replacing windows for a look out on the world.  Long gone is that face-to-face world, as harsh as that may sound.  Want to have lunch?

In our political world, politicians now communicate by rumor, leaked information and Twitter. Gone are press conferences where the press gets to go face to face with the politicians.  This may in part be the result of the news media confusing entertainment with real news, or the need to be first with a story regardless of whether it has been fact checked.  Or it may be the distortion field on which politicians play where there is no true or false (eg “I did not have sex with that woman”; I did not mock a severely disabled reporter, etc.).  It is not wrong to question where our politicians are leading us nor is it unreasonable to ask them about conflicts of interest.  Who was it that said: “Trust but verify...” ? Independent of the political sphere, it is also fair to question where society is going and is everybody on board. 

In our commercial world, we buy price competitive goods, probably manufactured off shore, branded by a name from the past, shipped by foreign carriers to multinational distributors and sold through outlets (brick and mortar or our laptops) by vendors who claim no responsibility for the quality of those goods.  I think delivery of health care is currently being thoroughly examined because it requires face-to-face interactions, paid for by a soulless third party, who along with everyone else, lost the ability to value that kind of service.  I think there are many health care professionals who are resisting the impulse to reduce their patient interaction for the sake of maximizing profit. The legal profession, always a paragon of virtue,  has taken the measurement of the hourly fee to dizzying heights, and now even sensible corporate clients are beginning to question the value, or at least the measuring stick, of those legal services. I have recently learned that there are approximately 894,000 sole proprietor owned businesses in Colorado. Surely that is a crowd that enjoys one off relationships. I remain a hands-on lawyer that glories in attorney/client relationship when I have that face-to-face opportunity.

Thanks for allowing me my therapy; I’d be happy if you would share your thoughts on any of my musings or ramblings.

Has the Practice of Law Changed?

Recently, I had the privilege of attending a celebration for two friends who have been practicing law for 50 years.  That is a righteous period to perform good services for people.  These two lawyers have done that.  I aspire to that goal, but it has made me explore what our profession has become and what I should be doing to accomplish my goal.

In my opinion, the legal profession has traveled the road away from professionalism and toward commercialization. The public is bombarded with ads from lawyers. Advertising is now an accepted practice, justified by the argument that more people are aware of lawyers and therefore have greater access to the justice system.  I am skeptical of that premise. There is an enormous number of people who self represent themselves, in divorce cases, landlord tenant cases, and most notably, in foreclosure actions.  It was a woman representing herself in the Federal District Court who convinced the Court that banks should have the original loan documents before they can foreclose. That brave soul caused a revolution in the mortgage and banking business. Her pro se representation was an embarrassment for the legal profession: she could find no one to represent her despite ubiquitous advertising.  Advertising does not advance access to justice; it does however commoditize good legal representation.

Today there is ample opportunity to find inexpensive do it yourself legal services from sources like Legal Zoom for individuals and businesses. On the other end of the spectrum, there are the very expensive international mega firms serving the interests of individuals and businesses involved in global pursuits. I think the public could be well served by the spectrum of those offerings.  In addition, there is a promise that technology can democratize justice by broadening availability to the masses, and reducing the costs of discovery.  Predictive software is projecting that it can replace human experience and expertise.

For me, a small cog somewhere in the middle of the legal spectrum, I thrive and I think my clients thrive on the personalized services that I offer.  Not merely the task of writing a simple will, a short contract, or splitting out a series of question for discovery,   but in the discussion, education and experience  that accompanies or precedes the task.  

If you are reading this short piece, you and I have a connection.  The connection may be by one degree of separation or perhaps three degrees of separation but the connection is there and rewardingly palpable, at least from my end and hopefully yours.  I am often asked what my specialty of law is.  I like to say that I represent people and businesses that find themselves in an ever-complex world and who need help navigating through that complexity.  It might be a life plan, estate plan, business formation or succession, capitalization methods, mergers and acquisitions, real estate matters, contracts or protection of intellectual property.

Over the years, in addition to the practices of law I have just described,  I have also been deep into charitable works, community service and on occasion Pro Bono representation.  I have done it because it makes me feel good and confirms my role in a community of like interests.  

I think my goal of a 50-year practice is real and rewarding.  It is not quixotic. I like people, I like to provide valued services, and I like being a trusted advisor.  Through these newsletters I have learned much for your feedback, I would be honored if you would continue to provide me with that feedback.

On my community service news, you might be interested to know that in the second year of the land development project I previously wrote about, the real estate developers, after hiring a professional lobbying firm finally prevailed and a wonderful open space will give way to 11 homes with a road that dissects the highline canal trail.  On the one hand, I was deeply saddened by the local political cave in, on the other it invigorated me to continue the participation in preserving community interests.  

Len Goldstein

Attorney at Law

http://lengoldsteinlaw.com/