By Lara Shipkovitz, Esq.

Recently in Pennsylvania a Westmoreland County Judge ruled that landowner gas leases need not have both parties signatures to be valid in Snyder v. Rex Energy., Case No. 09CI06332.  Local landowners brought suit against Rex alleging the company reneged on a deal to lease their properties for Marcellus Shale drilling.  Rex maintained the leases were unenforceable because they never signed the leases.  Accordingly, the Company argued no contract existed.  The landowners argued that a contract was entered when they signed the leases that were prepared by the company without making any changes to the lease; meaning, this constituted a valid acceptance of the terms offered by Rex.  Judge Caruso agreed stating that the leases, unlike those in other cases, did not contain the express requirement that the company sign them to be valid. The issue was considered early on in the pleadings and later, the parties settled.  Ultimately, Rex agreed to five year leases, including bonus payments and royalties for the landowners.   In light of the increasing rulings and considerations of Marcellus Shale issues, it is more than ever for a landowner to understand  his/her legal rights and obtain experienced counsel for any transaction affecting these rights.

 Check out our Marcellus Shale website and feel free to contact us (news@bernsteinlaw.com) if you have any questions.

by Shawn P. McClure, Esq.

At the end of June 2011, the Third Circuit Court of Appeals, in the case of Leshner v. The Law Offices of Mitchell N. Fay, F.3d, 2011 WL 2450964 (3d Cir. 2011), found that settlement letters sent on a law firm’s letterhead implied that there was forthcoming legal action, and therefore were “false and misleading” under section 1692e of the FDCPA, because the firm was not acting in a “legal capacity” when the letters were sent.  This ruling was made despite the existence of a disclaimer on the letters concerning the attorney involvement in the case.  

Section 1692e of the FDCP prevents, “false, deceptive or misleading representation or means in connection with the collection of any debt.”  The use of attorney letterhead and an attorney signature on a letter is enough to find that letter “false and misleading” if the attorney is not sufficiently involved in the sending of the letter so that the court finds that the letter is not actually “from” an attorney.

The leading case on debt-collection letters from attorneys is Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993).  In Clomon, the court found that collection letters on attorney letterhead with mechanically reproduced signatures were “false and misleading” under the FDCPA.  Even though the attorney approved the form of the letters and the procedures by which the letters were sent, the court still found that the attorney had no direct personal involvement in the mailing of the letters.  The court in Clomon expressly stated that several factors were taken into account when determining whether the letters violated the FDCPA, including: the attorney did not review each debtor file; the attorney did not determine when particular letters should be sent; the attorney did not approve the sending of particular letters based on the recommendation of others; the attorney did not see particular letters before they were sent; and the attorney did not know the identities of the persons to whom the letters were issued.   

That being said, debt-collection letters from law firms do not necessarily require attorney review. If the letter has a clear disclaimer explaining the limited extent of the law firm’s involvement in the collection action, then the letter does not “mislead” the debt with respect to the attorney involvement and will not be in violation of 1692e of the FDCPA.  For example, a debt-collection letter with the following disclaimer, “[a]t this time, no attorney with this firm has personally reviewed the particular circumstances of your account,” was found not to be in violation of the FDCPA because the court found there to be no false representation or implication that the letter was from an attorney or that an attorney had meaningful involvement in the case at that point. 

The fact that the letters in the Leshner case contained a disclaimer, but were nonetheless found to be in violation of the FDCPA is why this ruling is so impactful on creditors.  The disclaimer language in the present case stated, “[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.”  The disclaimer was also located on the backside of the letter.  The Third Circuit found that the language and location of this disclaimer insufficient to ensure that the “least sophisticated debtor” (the applicable standard when viewing potential FDCPA violations) wouldn’t have reasonably believed that an attorney had reviewed the file and determined that the debtor was a candidate for legal action.

This ruling by the Third Circuit emphasizes how important it is for creditors to be knowledgeable of the FDCPA and be aware of what seems to be its ever expanding landscape.    

I also believe that a couple of years ago, the Third Circuit handed down a decision involving “safe harbor” language on consumer debt collection letters (i.e., saying “may take legal action” instead of “will take legal action.”)  I believe the case caption was Brown v. Credit Card Services, but I do not recall the citation.  In any event, I believe the decision supported the proposition that even the use of such “safe harbor” language in consumer debt collection letters, MAY be deceptive or misleading if the record shows that the debt collector has a history of NOT taking legal action despite regularly saying only that legal action “may be taken.”  Here again, however, I think we actually have sued on enough retail claims that we would not be vulnerable under this standard either.  But still something to keep in mind.

by Arthur W. Zamosky, Esq.

In the United States, the concept of replevin dates back to the late Nineteenth Century and has been available in most jurisdictions to the present day. 

A replevin action is used to regain possession of chattels that are being wrongfully detained by another party.  The action allows a Court the ability to order that the property be returned to the party asserting rightful ownership prior to a final judgment on the merits. 

Historically, a replevin action could only be sustained by a party that had full ownership of the property sought.  However, Pennsylvania Courts have held that a security interest coupled with a right of immediate possession is sufficient to maintain an action.  Since the Pennsylvania UCC allows a secured party to take immediate possession of the collateral, an action for replevin is appropriate even if the moving party does not have full ownership.

As a prerequisite to bringing a claim for replevin, the moving party must make a demand for return of the property.  Assuming the moving party has either 1) full ownership or 2) a security interest and an immediate right to possession, if the party with possession at the time of the demand refuses to return the property, he or she will have satisfied the “wrongful detention” requirement for replevin.

Actions for replevin must be brought in the County in which the property is located or in any County that the wrongful possessor can be sued under the Rules of Civil Procedure.  An action for replevin is brought by filing a Complaint in the appropriate County. 

After the filing of the Complaint in replevin, in order to take immediate possession of the property, the party seeking the property can seek a writ of seizure from the Court.  The writ must be prepared and served in accordance with the Pennsylvania Rules of Civil Procedure.  The moving party must also post a bond with the Court of double the value of the property at issue.  A hearing on the writ of seizure is then held and a judgment on the disposition of the chattel is made.

The case then goes to trial in a fashion similar to most matters before the Court of Common Pleas.  The parties can opt to have the trial before a Judge only (instead of before a jury) if they like.  The issues in a replevin trial are typically limited to the plaintiff’s ownership or security interest in the chattel and the plaintiff’s right to immediate possession of the chattel.  Those matters need to be proven by a preponderance of the evidence to be successful.  A successful plaintiff in a replevin action also has the right to recover costs and damages, however, exemplary damages are awarded very rarely.   

As with all areas of law, the specific facts of any scenario could change the manner in which to proceed.  The preceding was intended to give a basic outline of a replevin action in Pennsylvania.  For a more specific analysis of a specific claim or dispute, you should consult an attorney.

by Kit F. Pettit, Esq.

With all of the types of business entities available to choose from when starting a new business, how do you know which business entity is best? There are LLC’s, LP’s, S-Corps and C-Corps, and each type of entity has its own advantages and disadvantages depending on a number of considerations. Some of the advantages and disadvantages are tax matters, asset protection, liability protection and transferability. Some of the considerations include the entity’s size, the type of business activity, desired governance structure and other business investment matters.

Typically, tax treatment is one of the most important factors in choosing the form of business entity. Among other things, one of the basics tax matters an entrepreneur should know when deciding which entity may best suit his or her business plan is that C-corporations are subject to double-taxation while S-corporations are generally not subject to the two layers of taxation. A new business owners should also be aware that limited liability companies and partnerships are flow through entities and the earnings of these types of entities are not subject to federal income tax, however, Pennsylvania treats all limited liability companies as corporations for capital stock taxes. There are numerous tax advantages and disadvantages for each type of entity and a skilled legal practitioner along with advice from an accountant can help an entrepreneur through this maze.

Once the entrepreneur is aware of the tax considerations, personal liability protection is often the next most important factor to consider. The various entities can have different liability shields. Careful planning and consideration should be given and knowledge of the statutory liability limitations is most important. For example, 15 Pa.C.S.A. § 1526 sets forth the statutory rules with respect to the personal liability of shareholders of a business corporation while 15 Pa.C.S.A. § 8922 provides the rules for personal liability of members and managers in partnerships and limited liability companies. Business trusts are governed by a different statute. 15 Pa.C.S.A. § 9506.

The governance structure and standards of conduct of the shareholders, partners or members is also a very important consideration when organizing and forming a new entity. The governance structure of each type of entity differs and there are business, legal and other reasons why an individual or group of individuals may prefer one management structure over another. In Pennsylvania, corporations have established governance principles and structural formalities that are for the most part defined by statute and case law. 15 Pa.C.S.A. § 1701 et al. Partnerships are primarily governed by contract between the partners, i.e., a partnership agreement, however, there are certain rights and duties of partners governed by statute. 15 Pa.C.S.A. §8331 et al. As for limited liability companies, they have significant flexibility with respect to governance of the company. For example, a Pennsylvania limited liability company can be “member-managed” which follows the general partnership rules, or it can be “manager-managed” which governance mechanism is most similar to that of a corporation. 15 Pa.C.S.A. § 8941.

The above matters highlight some basic and important considerations when starting a new business. Corporate formation and organization is more than an online “check-the-box” process. It takes knowledge and careful planning based on information provided by the client. For example, does a majority-member of a limited liability company really want unanimous consent provisions in the company’s operating agreement that would require the consent of a 5% member for certain company actions? Would you incorporate as an S-corporation if you anticipate distributions to some shareholders and not others? After all of the considerations have been discussed and the form of entity selection is made, an entrepreneur should also know that each type of entity has its own formation and organization requirements and respective formalities that should be properly observed and followed once incorporated or organized. Observation and practice of these important formalities such as annual meetings of members and shareholders is a part of the liability protection mechanism and should not be ignored or forgotten once your business is up and operating.

by Jennifer L. Tis, Esq.

One thing that I’ve noticed time and time again in my practice is that clients are not always aware that they may need to appear in court at some point if they choose to take legal action against a debtor. In Pennsylvania, if the matter is not settled or if judgment is not obtained prior, it will go to either arbitration or trial. The factor that determines which type of hearing you will have is the amount for which you are suing. If that amount is over a certain limit (usually $25,000.00 or $50,000.00 depending upon the county) your case will go to trial and if it is below a certain amount it will go to arbitration. The arbitration that I refer to, however, is through the Court of Common Pleas and is not affiliated with the American Arbitration Association. It operates much like a trial except for the fact that your case is presented to a panel of three attorneys as opposed to a Judge. What many creditors do not realize is that regardless of whether the matter will first be scheduled for arbitration or trial, a witness must physically appear at the hearing to testify on behalf of the Plaintiff. I have been asked many times whether the witness may ‘appear’ by telephone. This has never been allowed in Pennsylvania Courts and it is expected that if you file suit in Pennsylvania you, or a credible individual with first-hand knowledge of the matter, are able and willing to appear in Pennsylvania Courts in regards to that suit. Although many cases come to an end through either settlement or judgment, by default or otherwise, long before trial or arbitration is scheduled , one must always prepare for a potentially lengthy litigation. Therefore, I would urge anyone considering filing suit in Pennsylvania to first ask themselves whether they will be able to travel to the county in which the suit is filed for one or more hearings. If the answer is ‘no,’ such action should be reconsidered so as not to spend even more money chasing a debtor who has already caused you a loss.

When it comes to the national economy, the numbers are so large that we are blown away and feel unable to think about them in rational terms. True, they are large numbers. But many of us have learned to work on situations of financial distress for small companies and large, as well as people with small debt and small income and those with large debt and large income. The principles are the same.

If a client (company, family, individual or city) spends more than it takes in, there are short- and long-term consequences, as well as short- and long-term strategies to deal with it.

Strategies fall into a few basic categories, generally always a permutations of either:

1. Charge more for what you sell.

2. Spend less to produce what you sell.

3. Sell more of what you sell.

Get more money! Increasing revenue is a good thing. How one does that depends on the circumstance and whether the client has the ability to sell more product, get a better (or second) job, bring in a strategic partner, etc. In a small business, the owners can work harder, provide more services (or value) and advertise to create more volume. These are but a few of the options. Sometimes the client can discount its products to create more volume and more cash (while, this may present some issues on the back end if the basic cost structures and markets don’t change). However you do it, getting more revenue is important. Selling unused (or under-used) assets can help. Collect accounts that are slow pay. Sell unused raw materials. Lease or sell unused capacity. Clean out the garage and have a garage sale.

Spend less money! Cut expenses that can be cut. Do more with fewer employees. Eat out less often. Get non-working family members to work instead of paying staff. Negotiate reductions with vendors. Create efficiencies.

As a business, credit and bankruptcy lawyer, I have been involved in literally thousands of discussions about how to fix financial problems for people and businesses. It generally comes down to the same thing. And everyone knows what to do, but the most common response is: “If I do X, it will only affect the cash by a small amount and it won’t fix the problem. A business that comes up short by $10,000 every year could cut out free coffee in the kitchen and save $200 a month, but they perceive that as so small as compared to the $10,000, they don’t do it. They look for the $10,000 solution and there isn’t one. If it were that easy, they would have done it already! Think about finding $1 trillion of shortfall and how hard that could be if we are looking for the $1 trillion solution!

These problems are generally solved by taking a number of small steps simultaneously. Slow the bleeding (if you can’t stop it). Sell some languishing assets. Find some increased sources of revenue. Negotiate some cash savings with creditors. These are but a few of the options that struggling families and companies look to. None of them solves the problem by itself. Maybe all of them together only slow the slide until the economy comes back (or the big customer settles its strike or the next budget year starts and the other breadwinner gets back to work or…).

But you have to do something or, more appropriately, a bunch of somethings. And you have to watch the results closely, track them to see how it is going. You also have to keep finding new things to do to cut expenses, build revenue, slow cash outlays, and so on.

Sometimes if you delay too long and fail to see the cliff ahead of you, you’ll fall off that cliff. That, in my experience, comes most often from either following a single decision maker who makes the wrong decision (certainly a risk in a small business with a strong personality at the helm) or from analysis paralysis (thinking about things so long that you do nothing and drive off the cliff).

Former Senator Everett Dirksen is credited with saying “a billion here, a billion there. Before you know it, you are talking about real money.” The flip side of the numbness we feel to these large numbers is that we feel the inability to affect them unless we are affecting large numbers. That is a fallacy. Small impacts multiplied by large instances create large impacts.

If we have a $10,000 deficit this year and we cut 5% off of every expense, we save $500. If we cut out a few dinners, movies and concerts altogether, we will be sad for a while, but we’ll save $1000. If we take the bus instead of drive to work, we’ll save another $500. Stop smoking and save $500. Right there we have $2500 of savings. Then we look to increasing revenue and cashflow. A part time job for a family member. A reduction of staff by 1 person. Before you know it, we are talking about real impact.

In making these decision, we have hard choices. If the decision maker really likes to smoke cigarettes, but doesn’t care as much for movies, it will likely result in not cutting out cigarettes, while cutting out more movies. These are choices that can be made. Making them is hard and if we have too many decision makers who are also unwilling to compromise because they are trying to make long-range philosophical impact, there are lines in the sand which we will be be able to cross. That will prevent us from making any decisions about driving directions, speed and distance, causing us to argue while the car drives off the cliff.

Pretty simple, huh?

Bob Bernstein

by Maribeth Thomas, Esq.

Alternate dispute resolutions such as mediation have become prevalent in bankruptcy proceedings and often result in much success for all parties involved. Mediation is not an official judicial proceeding and instead is designed to encourage collective agreement amongst parties to a dispute. The mediation process is informal and is most often entered into voluntarily by the parties.

In particular, mediation can be especially effective in Chapter 11 bankruptcies as a tool to construct a consensual plan of reorganization. The mediation process provides the debtor with an opportunity to negotiate, with the assistance of a neutral third party, with creditors in an informal setting to reach a settlement that is fair and in the best interests of all involved parties. Furthermore, by providing the debtor with an opportunity to resolve claims outside of court, both money and time can be saved by avoiding potentially expensive and lengthy litigation.

Mediation may also be useful in the chapter 7 context to resolve disputes involving preference, avoidance, non-dischargeability, fraudulent conveyance and claims allowance actions. Most recently, jurisdictions have implemented mediation procedures to prevent foreclosures. Such programs have been pioneered in Florida courts and require the debtor to file a chapter 13 bankruptcy. The programs work to reduce foreclosures by reducing monthly payments and, in certain instances, forgiving mortgage principal. Early statistics demonstrate that the programs created by bankruptcy courts are significantly more successful in stopping foreclosures than programs implemented in the state court system.

The Bankruptcy Court for the Western District of Pennsylvania has adopted mediation procedures as a method of dispute resolution under Local Rule 9019-2. General Court Procedure # 4 establishes the specific requirements and standards for the mediation process. While the court can direct a party to mediation, a party may request mediation from the court through a signed stipulation or by the filing of a motion. It is important to remember that the mediation process does not delay any other proceedings in the bankruptcy case. If the mediator assigned to the case requires compensation, such costs are usually shared between the parties involved in the mediation. Each party and its primary attorney, must be present at the scheduled mediation conference, as well as any other parties in interest whose presence is necessary for a full resolution of the matter. Importantly, all material, both oral and written, that is produced at a mediation conference is to remain confidential. However, any material presented at the conference that would otherwise be discoverable or admissible is not exempted from discovery in a court proceeding merely by its use in mediation. If the parties are able to reach a settlement through mediation, the mediator must submit a fully executed stipulation to the court within twenty days after the conclusion of mediation. If the mediation conference does not result in a successful resolution of the dispute, the matter proceeds as scheduled before the court. For a full description of the procedures for mediation before the Bankruptcy Court of the Western District of Pennsylvania, please refer to the court’s General Court Procedures which can be found on the court’s website: http://www.pawb.uscourts.gov/.

by Shawn P. McClure

Once a lawsuit is filed to collect on an outstanding debt, a number of factors that were not present prior to the filing of a lawsuit become serious impacting factors on the outcome of the case and ultimately the collection of the debt. Such factors include the costs of witness travel and hiring local counsel to litigate in distant locales.

These two factors are easily eliminated by a properly drafted forum selection clause. A forum selection clause is a contractual provision, whereby the parties to the contract agree that all future legal disputes between the parties will be litigated in a particular forum. Often such clauses are overlooked or left out of documents because no one expects a relationship to go south when it is first being formed. However, A valid forum selection clause offers a creditor not only the savings and comfort of litigating at “home,” but provides an additional pressure point on a debtor who may have to travel to defend.

For a legal analysis of the state of forum selection clauses in Pennsylvania, please click here.

by Shawn P. McClure, Esq.

It is a very common situation for a creditor to be owed a large sum of money from a debtor who continues to operate by paying other creditors or parties. Naturally, this is very frustrating. It can also be very disturbing because at the same time there are rumblings of the debtor’s financial instability. At this point, the creditor must decide on a course of action.

Certainly, the creditor has the option of filing a state court breach of contract action and working toward obtaining a judgment. However, litigating a lawsuit takes time and even more time is spent to execute on the judgment. The passage of time affords the debtor the opportunity to continue paying others and ultimately wind down the business.

There is another option, which is often overlooked. Force the debtor into bankruptcy. This is done by filing an involuntary bankruptcy petition. The reason for an involuntary bankruptcy is to prevent and protect creditors from unfair activities and treatment by debtors. The greatest advantage to an involuntary bankruptcy is that it forces bankruptcy upon the debtor rather than allowing the debtor to ultimately file on its own terms. This is extremely important because of the ability to recover payments or wrongful transfers by the debtor within certain time frames leading up to the filing of the bankruptcy petition. These payments and transfers can be brought back into the bankruptcy estate to be properly distributed by the bankruptcy court.

In sum, bankruptcy is not always a bad thing for unsecured creditors. It just simply depends upon whose terms the bankruptcy is filed.

If you are interested in reading more about involuntary bankruptcy click here

by Shawn P. McClure, Esq.

Often, when foreclosing on a piece of real property, a secured creditor’s focus and objective is limited to the recovery of the property. However, in this economic climate, more and more secured creditors are electing to pursue a deficiency balance against the debtor because the underlying debt owed exceeds the value of any real property that is recovered.

Deficiency Judgments in Pennsylvania are governed by statute. 42 Pa.C.S. § 8103. In order to establish a deficiency balance, a judgment creditor must first file a Petition to Fix the Fair Market Value of Real Property Sold. This Petition must be filed within six (6) months, “following execution and delivery of the sheriff’s deed for the property sold in connection with the execution proceedings.” 42 Pa.C.S. § 5522(b)(2). Therefore, it is important that a creditor make the decision to pursue a deficiency balance as soon as possible.

The purpose of the petition is to establish a fair market value of the real property sold, so that figure can be offset against the total amount of the debt owed. This process recognizes that the secured creditor who purchases the real property at foreclosure sale for Sheriff’s costs, usually a couple thousand dollars, cannot then pursue the debtor for the full remaining balance of the debt. Establishing the fair market value and crediting it against the debt owed prevents the secured creditor from receiving a windfall.

The Petition is filed as a supplementary proceeding on the same docket in which the judgment was entered. If an answer is filed to the Petition alleging that the fair market value of the property is more than the value stated in the petition, then the court shall hear evidence and fix the fair market value of the property sold. This is usually a battle of appraisals that turns on what parties’ appraiser appears more qualified and credible to the court.

While the deficiency judgment process in Pennsylvania seems quite simple, there are two important factors that cannot be overlooked: 1) Timing; and 2) Hiring a qualified appraiser. These are both issues that can easily be address by your creditors’ rights attorney.