Archive for January, 2008

Foreign Defendants in New York Courts

Wednesday, January 30th, 2008

Just before the Christmas break the New York Court of Appeals released its decision in Fischbarg which I missed while I prepared for and proceeded to make merry during the holidays.

Fischbarg deals with New York’s “longarm jurisdiction” legislation (CPLR 302(a)(1) for those looking for the cite).  Normally, if a dispute has nothing to do with the place where the lawsuit is brought, the court will decline to hear the dispute.  However, the U.S. State and Federal courts have resorted to this “longarm” jurisdiction to agree to hear disputes involving persons not resident in the applicable State (or in the U.S. for that matter).  This agreement to hear the dispute is usually predicated upon some action by the “foreigner” to conduct business in the applicable State.

In Fischbarg, the California defendants hired a lawyer in New York State to assist with litigation.  The defendants never set foot in New York State and the lawyer performed all of his work in New York.  The parties communicated through the phone, mail, e-mail and facsimile over a period of many months.  This was sufficient for the Court to determine that the defendants had “established … a relationship and repeated protect[ed] themselves into New York” and therefore had transacted business in New York to permit the longarm jurisdiction to be exercised.  It is also important to note that the Court stressed the fact that it was dealing an ongoing relationship and that limited contacts in New York (for example, simply phoning in an order for goods or having a corporate officer attend one time to discuss business) will not be sufficient to trigger the longarm jurisdiction.

While the case deals with a lawyer, there is no reason why it would not be applicable to any professionals or consultants.  The reality is that most business is conducted via non-face-to-face communications, the greater majority being e-mail today.  The result of Fishbarg is that any business engaging the services of someone in New York runs the risk that the New York courts will agree to accept jurisdiction to hear the dispute and the “foreigner” will have to go to New York to fight the case.  If you wish to avoid such a result, any retainer or engagement agreements you have with New York businesses or advisors should contain jurisdiction or “attornment clauses” in which the parties agree that any disputes will be heard only by the courts of a particular place so as to preclude the New York courts from assuming jurisdiction.


Who’s Minding the Store?

Wednesday, January 30th, 2008

Example #1: Jerome Kerviel, the trader who caused France’s Societe Generale to lose over $7 Billion, is reported in today’s papers as saying, in effect, “Sure my employer knew what I was doing (or they could have easily determined it), but they said nothing while I was making money.”

Example #2: I completed a trial two days ago in which my Bank client was sued by a customer who had left his son in charge of the business while he was away for over 2 months. While he was away the son (who had signing authority over the cheques) wrote a series of cheques without his father’s knowledge or permission to pay personal credit card and other expenses. The father’s business then tried to sue the Bank for processing the cheques.

What is common in both instances is an employer failing to keep a watch on its employees. The applicable legal concept is “respondeat superior” which means that an employer is responsible for the acts of its employees if those acts are within the normal scope of the employee’s duties. In example #1, Societe Generale is liable for Kerviel’s losses because they were trading losses and he was a trader. In example #2, the son had signing authority over cheques and he signed cheques.

Is the employer completely out of luck if a rogue employee should do something like this? Legally – no. Practically – probably. This is because the employer would take the losses and could then sue the employee for reimbursement of the losses. The practical reality in many cases, though, is that the employee would not be able to pay any judgment obtained by the employer.

In the end, take a look at who has authority to do what actions and ask yourself if you have any areas of exposure. Even if you think you have only minimal risk, take stock of what measures might increase that risk. For example, in Example #2, the son wrote the cheques and then hid the bank statements. The problem is that the bank account opening agreement provided that (a) the employer had 30 days from receipt of the statement to tell the Bank of any problems and if it did not, it was too late; and, more importantly, (b) the agreement required the employer to advise the Bank within 10 days if the statements had not been received (so that statements could be printed off right away). So, even if you think, for example, that the chequebook is safe the terms of your bank account agreement might require you to be more pro-active than you would otherwise think.

In any event, these cases underscore the need to “hire good help”.


E-Mail Marketing

Thursday, January 24th, 2008


You may recall that I made a quick post a while ago regarding a seminar held today by my former colleague Fazila Nurani on avoiding privacy breaches.  It was a very interesting seminar and I came away with several new tidbits of information to help in my practice.  I thought I would share one particularly interesting tidbit with you today.


As of January 1, 2004, all private sector businesses are subject to the Canadian government’s privacy legislation – the Personal Information Protectin and Electronic Documents Act (“PIPEDA”) unless the business is subject to similar provincial laws which apply to private businesses.  Ontario has no such similar legislation, so PIPEDA applies to Ontario businesses.


PIPEDA prohibits the disclosure of a person’s private information with the exception of that person’s name and business information.  So, if a business obtains your private information as a client or customer, the business can disclose your name, business title, business address and business phone number.  Many people (like myself) had thought  that if I can disclose your business address and your business phone number, that I could also disclose your business e-mail address.  Most businesses use e-mail addresses to send out newsletters, marketing e-mails, etc.


As it turns out, though, a decision of the Canadian Federal Privacy Commissioner in 2005 has held that a business e-mail is NOT part of the information that can be disclosed and is protected private information.  I’m sure that the Commissioner was trying to stem the flow of spam e-mails, but the result is that many businesses are running afoul of PIPEDA.  The decision was not appealed and, while I would not expect a court to reach a similar decision if a similar case goes before the courts, for the time being, that’s the law.


So, what if you do send an e-mail to someone who had not knowingly consented to the use of his/her e-mail address to send out marketing materials?  As it turns out, you are now exposed to a potential complaint to the Privacy Commissioner.  The penalties, at present, for such actions are not likely to be high – but the hassle of having to deal with such a complaint will surely outweigh the monetary penalties, fines or damages that might be awarded.


I don’t think this is necessarily anything to lose sleep over, but it is something to think about the next time you start to prepare an e-mail marketing campaign.




Legal Fees

Tuesday, January 22nd, 2008

A recent survey by Citi Private Bank of large U.S. law firm managing partners has shown that while they see definite storm clouds on the horizon, sixty percent still believe that their law firms will achieve balanced growth in 2008 of between 5% and 10%.  How will this growth be achieved in these large U.S. firms?  By increasing the amount of hours worked by its lawyers and by increasing rates for legal fees.

As you know, I started my firm in 2006.  Did I mention that 2008 will be the third straight year at my fee rates?


Multiple Bank Accounts

Monday, January 21st, 2008

I read an opinion piece in the Toronto Star’s business section this morning extolling the virtues of small businesses using credit unions rather than the big banks.  Some interesting points were made, but I use it rather as the starting point for another issue.

Many businesses do all of their banking with just one bank.  The banks foster this by promising (and usually delivering) on one form or another of a “package” for the business.  In other words, “if you give us all of your personal and business banking, we’ll give you a better credit rating, or a lower interest rate, etc., etc.”  There is a definite advantage to this “bundling” of business.  There is a downside as well, however.

What many businesses don’t do when they open up their bank accounts is read the account opening forms.  Most banks include wording in their forms that permits them to go to your bank account and take money out if you are indebted to the bank.  So, for example, if the business owes $500 on the corporate credit card and has not paid for whatever reason, and it happens to have $500 or more in the bank account, the bank is entitled to go to the account and take out the money.  Is it fair?  Sure, because you agreed to it when you opened the account.  So what happens, then, if you have written $400 worth of cheques against the account and the money isn’t there since the bank has taken out its payment of $500?  Simple, the cheque(s) bounce.

Using multiple banks may be worthwhile from a cash flow perspective.  To give an example, my firm’s main credit card is with a credit union at which I have no other accounts while my firm’s bank accounts are at one of the big banks.  I have absolutely no intention of not honouring my debts, but the reality is that credit crunches and cash flow problems can exist from time to time.  If I were to keep everything at the same bank, I would give that bank the legal ability to take money to satisfy its rights which may play havoc with my cash flow requirements.

Given the current credit restrictions and pending credit crisis, you may wish to consider separating your banking business.


Fraudulent Certified Cheque Warning

Tuesday, January 8th, 2008

I received an e-mail from the Law Society of Upper Canada today warning lawyers that there is a new scheme in which people are using fraudulent certified cheques.  Put simply, the scheme is that a person goes into a lawyer’s office with an urgent deal, hands the lawyer what appears to be a bona fide certified cheque, the lawyer deposits the funds, cuts new cheques from his account and then a day or two later finds out that the first cheque was bogus.  The result is that the fraudster has made off with funds from the lawyer’s bank account and the lawyer is stuck with a useless piece of paper.

My expectation is that lawyers will remain the primary targets of this scam since they could have sufficient funds in their trust accounts to give a big enough financial target for the crooks to go after.  However, other professionals or even small businesses that are doing well might be tempting targets for the fraudsters, so I’m passing the information along.  Normally the impediment to such a scheme was using the embossers to imprint the certified amount on the cheque, but this doesn’t seem to be a problem anymore.  So, if you get a new client or customer and he/she presents you with a certified cheque and wants to do business in a hurry, you would be best off to have your bank call the other bank that has supposedly certified the cheque and have the second bank confirm that the certified cheque is valid.


Let’s Go Raptors

Tuesday, January 8th, 2008

Two years ago a friend and I went to a Raptors game.  We bought the seats off of a scalper and when we went to the seats, we thought we were hosed.  The section had seats from 1 to 32, so there we were with tickets for seats 33 and 34 – which didn’t seem to exist.  But the usher said “oh yeah, those seats” and pointed up to where there were two seats all by themselves up in the cheap seats with an aisle on either side.  As we sat there, all I could think was “Wow, these are great.”  Of course, being on a small business budget and with the season almost at an end, I did nothing further.  The next season, last year, still being on a small budget, I went for a flex-pack and took clients who really loved the seats.  This year, still being on a small budget but with a little more room, I’ve taken seasons tickets for the seats.  My clients still love the seats.

So, why are you reading all of this?  Here’s the pay-off.  I’ve decided to give a benefit to those of you suffering through … er, reading, my blog.  I will be giving away the two tickets to the final Friday night Raptors games for the next three months:

Friday January 25 – Raptors vs. Milwaukee Bucks

Friday February 29 – Raptors vs. Indiana Pacers

Friday March 28 – Raptors vs. New York Knicks

If you want to win, simply send an e-mail to and provide the following details: name, company, address, phone number and e-mail.  Only those 18 and over will be allowed to enter.  A random draw will be made one week before each game for the tickets and the winners will be advised immediately after the draw is made.  A skill-testing question will be required of any person whose entry is selected.  Why is that?  Because otherwise I would be running a pure “game of chance” (ie. a lottery) without a license and would run into problems with provincial legislation and the Criminal Code.

So, send in your e-mails and good luck!  Let’s Go Raptors!


Selling Real Estate While You’re Away

Monday, January 7th, 2008

I read the reports of the decision in Paul Reviczky’s case last month with some interest.  He is a 90 year old gentleman whose house was sold pursuant to a fraudulent power of attorney.  The sale was set aside and the decision last month ultimately set aside the mortgage given by a bank to the purchasers (and therefore Mr. Reviczky’s house was not “stuck” with that mortgage).  However, since I only handle real estate as minor matters collateral to transactions involving small businesses (usually when a client is selling his/her business and the business owns real estate – which is not often), I did not give the decision much more thought.

However, an article by Bob Aaron over the weekend left me thinking that I should at least make a quick comment about the result of the Reviczky case.  As Mr. Aaron points out, the result of the case is that it is going to become very difficult in Ontario to sell a house pursuant to a power of attorney.  This may have application for small business owners in the following context: when you have to be out of the city, province, country at the time your real estate purchase / sale is set to close.  While this does not happen everyday, it is not an uncommon situation. 

For example, the closing is set for three months from now.  Just before the closing date you get a call to do work out of town or to make a pitch for a big new project, etc., etc.  In the past one of the ways of handling this was to give someone – usually a trusted friend or relative – a limited power of attorney to let him/her sign on your behalf only whatever forms are necessary to close the deal.  This arrangement could be made quickly and was usually done at the last minute.  In light of the Reviczky decision, though, this type of arrangement may not be agreed to by the other side on the transaction.  Or, if they do agree, it will only be after additional expense and work on your part.  The result is that this is still a viable arrangement which can be made – but it’s not something that can be left for the last minute.  Something to think about for whenever you go to sell your house or your business and the closing date is a few months away.


New Year, New Spam

Monday, January 7th, 2008

Ah, a brand new year.  New plans, new hopes, new dreams, and a new opportunity to write about some idiot using my domain name again to send out spam over the weekend while I return to the office to find hundreds of “Mail Delivery Failure” e-mails clogging my inbox.

The preferred (although not exclusive) fake e-mail address being used this time is liqontariolegalzub.  As before, these e-mails are not being sent by anyone from my office and I apologize for any inconvenience caused to anyone.  My experience thus far is that the spammers use the fake address from my domain name for a day or two and then they move on to some other domain name, so this ought to die down by tomorrow.  But please do not bother sending me any e-mails complaining or asking me to do something about it because there is nothing I can do about it.


Limited Liability Partners’ Liability

Tuesday, January 1st, 2008


Section 26 of New York’s Partnership Law provides that no partner of a limited liability partnership “is liable … for any debts, obligations or liabilities of … the limited liability partnership…”  (Paragraph 10(2)(b) of Ontario’s Partnership Act is to roughly the same effect – although the wording is slightly more vague.)


The New York Court of Appeals last week had to deal with an interesting argument involving this provision.  In Ederer, a lawyer was a partner in a limited liability partnership.  Surprisingly, the partnership did not have a written partnership agreement (… the cobler’s children going barefoot comes to mind …) and the subsequent dispute over distribution of the partnership’s assets and an accounting of profits as between the partners therefore fell to be decided under the general rules set out in the legislation.


The former partners argued that the wording of the legislation was broad enough to prevent the one partner from suing them personally since the partners were not liable for “any debts” of the limited liability partnership.  The five-judge majority of the Court disagreed with the former partners’ argument.  Since Section 26 is found in the section of the legislation for dealings between the partnership and third party creditors and not in the section setting out the relationship between the partners themselves (again, the same in the Ontario legislation), the limitation of liability only applied to claims of third party creditors.


Judge Read, with whom Chief Judge Kaye agreed, came to the opposite conclusion.  In Judge Read’s view, to follow the majority would be to create an unfair preference for partners.  If the partnership were to fail, for example, “ordinary” creditors of the limited liability partnership could only go after the assets of the partnership and not after the personal assets of the partners outside of the partnership (homes, cars, money, etc.).  However, in any dispute between the partners after the limited liability partnership failed, the partners would be able to look to all of the other partners’ assets whether in the partnership or outside.


The majority’s decision is certainly in keeping with the common view of lawyers in Canada and the U.S. that the provision only deals with relations between the partnership and outside creditors.  That said, an interesting point is raised by the minority and it would be just as interesting to see how the argument is dealt with by the Ontario courts when it is inevitably raised.