by Shawn P. McClure

Once a claim goes legal, there are many factors that come into play and directly impact a creditor’s ability to get paid.  As a credit professional, you must be aware of these factors to determine their impact on settlement negotiations and how far you decide to push the debtor.  As a creditors’ rights attorney, we must be available to quickly identify how these factors impact litigation and provide our clients with intelligent insight as to how litigation is likely to play out in light of these factors.

The rules of evidence are such a factor.  All of a sudden the forwarded email from a cousin’s mother’s friend who used to work for the debtor may not make it to the trier-of-fact, let alone have the impact the creditor thought it would.   

In the typical creditor-debtor dispute, evidence usually translates to written documents (contracts, invoices, statements, correspondence etc.) setting forth the basis for the parties’ relationship.  As a result of being a simple man, I like to keep in mind three simple concepts when determining whether I can get documents into evidence.  Those concepts are:

1.       Relevance – Why does this matter?

2.       Authentication – Is this real?

3.       Hearsay – Is this reliable?

The first concept is pretty self explanatory and is often easily understood because it involves logic that makes sense to a layperson.  For example, my client’s contract with the debtor is relevant to the issue of whether or not money is owed to my client.  Whereas, my client’s lease with their landlord has no bearing on the issue. 

It is with issues of authentication and hearsay, that clients and attorneys spend an inordinate amount of time explaining to each other and arguing with debtor’s counsel.  I could write pages upon pages trying to explain these concepts, so I will leave you with three helpful tips.  The last being the most useful.  Pay attention to rules on self-authenticating documents to hopefully ease the burden on yourself.  Hearsay is an out of court statement offered for its truth, it remains hearsay even if the declarant is now on the stand during trial.  Lastly, evidence law is determined by the trial judge that you are currently practicing before.  

I would like to wrap up by sharing a recent experience that illustrates why it is important to keep evidence concepts in mind throughout the legal process. 

I recently had a case where debtor’s counsel filed preliminary objections in response to my client’s complaint.  Simultaneously, debtor’s counsel served discovery requests.  More specifically, debtor’s counsel served a request for production of documents seeking the original credit application that was alleged in the complaint.  Debtor’s counsel filed preliminary objections asking the court to dismiss the complaint because we failed to attach the original credit application to our complaint.  The basis for these objections being that the failure to attach the original credit application was a violation of the Best Evidence Doctrine.  Well, we didn’t have the original credit application.  We told debtor’s counsel we didn’t have it in our responses to discovery.  However, in deciding the preliminary objections, the judge correctly overruled the debtor.  As simple as it sounds, debtor’s counsel forgot one importance aspect of the Best Evidence Doctrine.  It doesn’t come into play until a party is trying to put evidence into the record at trial.   

As for how that case turned out at trial … it will probably settle soon.     

by,

Shawn P. McClure

You do.  Seems simple enough.  However, you would be surprised at the number of creditors that are under the mistaken belief that the debtor will be on the hook for any and all expenses associated with a creditor’s lawsuit to collect on a debt.

For example, your case is scheduled for trial.  The parties are not close to settlement.  The debtor has retained counsel and has fought you every step of the way.  They have offered a 50% settlement.  You are not taking a dime less than, “everything your owed and then some.”

You must appear as a witness for trial.  The debtor still will not meet your demands.  “Well, you tell that son of a b@tch that I’m flying first class; staying at the Four Seasons and charging him for my time out of the office.  It’s going to cost him a lot more if I come to court.”

It is at this point that I must kindly point out that the debtor will not be on the hook for any of the aforementioned expenses in this $3,000.00 collection action.

This is result of a general rule of law often referred to as the “American Rule.”  The American Rule provides that each party is general responsible for paying its own attorneys’ fees and expenses associated with litigation.  Like any rule, there are exceptions. The two most common exceptions to the American Rule are the existence of a statute or contract that provides for the imposition of attorneys’ fees and costs on another party.  However, as stated above, the general rule is that every party, event the winning party, must pay its own attorneys’ fees and costs.

The reasoning behind the American Rule is to prevent discouraging people from seeking redress for their perceived wrongs or from expanding legal jurisrudence.  The American Rule recognizes that any other rule would have a chilling effect on one’s decision to pursue a meritorious claim merely because they may have to pay the defendant’s expenses if unsuccessful.

In sum, just because you are suing someone don’t think that it isnt going to cost you.

by Shawn P. McClure 

Under Pennsylvania common law, “the primary difference between a surety and a guarantor is the time at which a creditor can collect from each.  With regard to suretyship, the creditor can look to the surety for immediate payment upon the occurrence of a default by the principal obligor or debtor … However, where an individual is a guarantor, the creditor must first attempt to collect the debt from the principal debtor/obligor before demanding performance from the guarantor.”  Reuter v. Citizens & Northern Bank, 410 Pa.Super 199, 208, 599 A.2d 673, 678 (Pa. Super. 1991). 

Sounds troubling for a creditor.  After reading that statement, there is probably one question that quickly comes to mind.  What constitutes an “attempt?”  This question could be argued a hundred times over.  Thankfully, the Pennsylvania legislature has brought some clarity to this question. 

Under 13 Pa.C.S. § 1201, which is Pennsylvania’s codified version of the Uniform Commercial Code’s general definitional section, “[s]urety. Includes a guarantor or other secondary obligor.” 13 Pa.C.S. § 1201.  Thus, no “timing” requirement exists as to when a creditor can look to a guarantor for payment of a debt.      

Moreover, Pennsylvania statute provides that:                                                  

“[e]very written agreement hereafter made by one person to answer for the default of another shall subject such person to the liabilities of a suretyship, and shall confer upon him the rights incident thereto, unless such agreement shall contain in substance the words: “This is not intended to be a contract of suretyship,” or unless each portion of such agreement intended to modify the rights and liabilities of suretyship shall contain in substance the words: “This portion of the agreement is not intended to impose the liability of a suretyship.”

      8 P.S. § 1. See, also, Keystone Bank v. Flooring Specialists, Inc., 513 Pa. 103, 113, 518 A.2d 1179, 1184 (1986) (“section 1201 of the UCC is not the sole authority for treating a guarantor, especially where he has ‘guaranteed payment,’ as a surety.”).

      Accordingly, where Pennsylvania law applies, a creditor with adequately drafted documents does not have to first look to the principal debtor/obligor for payment before pursuing a guarantor.    

by Shawn P. McClure, Esq.

by Shawn P. McClure, Esq.

So you’ve met with an attorney and you have been informed that you have a “strong” case. Of course you instruct your attorney to immediately run to the nearest courthouse and file a writ, summons, complaint or whatever legal document is necessary in order to immediately get the ball rolling. In the words of a certain sports broadcaster on crisp fall mornings, “Not so fast my friend!”¹

Almost as important to the determination of whether or not you have a factual basis for a lawsuit, is the decision of what court to file that lawsuit in.² However, before narrowing in on a particular court, there is the question of what type of court you will file in.

Our country has a dual court system; we have both state and federal courts. Generally, the difference between the two court systems boils down to jurisdiction. Jurisdiction is a court’s ability to hear a particular matter. State and local courts are, for the most part, courts of general jurisdiction with the ability to hear almost every type of dispute. Federal courts are established under the U.S. Constitution for the purpose of deciding disputes involving the Constitution and laws passed by Congress. However, there are certain scenarios where a particular matter may fall within both the jurisdiction of the state and federal court systems.

For the entire article please visit: http://www.bernsteinlaw.com/publications/021810_1.htm and tell us what you think.

by Shawn P. McClure

“A quick question for all creditors out there. How many of you require a signature from your customers upon receipt of delivered goods? Better yet, how many of you actually deliver the goods that have been sold?

The more likely scenario is that delivery of your goods to customers is done via a “common carrier.” Generally, a common carrier is a third party business that exists for the transportation of goods and/or people. More specifically, I am referring to all of the goods that you, as a creditor, have sold and shipped to customers via FedEx or UPS.

In those cases, the customer receives the goods from the common carrier and signs for them. As we all know, this signature is often electronic. The common carrier then charges either your or the customer’s account for the shipping depending on the parties’ agreement, and business continues as usual.

Then the customer’s payments start coming late, then payments cease altogether. The customer ignores your demands for payment, and you decide to retain a creditors’ rights attorney.

Suit is filed, and your former customer, now a defendant, files a response denying that the alleged goods were ever received. Your creditors rights attorney provides you with a copy of the defendant’s response, and asks you to address the dispute regarding receipt of the goods.

Once your blood stops boiling and the cursing subsides, you respond that will simply contact the common carrier used, FedEX, and obtain copies of the signed delivery forms. However, your frustration continues to mount when you are told that your common carrier only retains records for a period of six months.

Therein lies the problem. By the time suit is filed and discovery is initiated, it is very likely that the common carrier you used for delivery of the goods has since purged their records in accordance with their own documentation retention system. Even if you were able to contact the common carrier and obtain copies of the documents, there are still a number of evidentiary hurdles present, such as hearsay, authentication and foundation.

One possible solution may be to implement a document retention process regarding signed delivery forms from common carriers into your regular business practices. This may allow you to take advantage of the “Business Records Exception” of evidence. This rule allows for the entry of certain documents, in this case the commone carrier signature documents, in cases where there is not a first hand witness, in this case the FedEx or UPS man, available to testify as to those documents. The rationale for the exception being that employees are under a duty to be accurate in observing, reporting and recording business facts, so that typical concerns regarding reliability of such third party documents are somewhat limited.

In order for a record to meet the requirements of the Business Records Exception, four general requirements must be met: 1) The record was made and kept in the course of a regularly conducted business activity; 2) It was the regular practice of the business activity to make the record; 3) The record was made at or near the time of the event that it records; 4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.

While the implementation of such a system may seem like a troublesome task, once in place it could easily be maintained, and will allow you, as a plaintiff/creditor, to prove your case a lot easier.”

by Shawn P. McClure

Now that I have my inbox somewhat under control, I would like to write about my recent experience attending the Commercial Law League of America’s (“CLLA”) 79th Chicago meeting.  While last weekend, April 16-19, was the CLLA’s 115th Convention and its 79th Chicago Meeting, it was my first experience at a CLLA function.

For those of you who are not familiar with the CLLA, the CLLA is a worldwide organization of attorneys and other credit professionals who are committed to excellence in the fields of commercial law, bankruptcy and insolvency.  One of the main thrusts of this organization is to protect and represent the interests of creditors in a multitude of commercial and legal settings.  The CLLA’s Chicago Meeting is a prime example of how the CLLA effectively achieves this purpose.

The Chicago Meeting was an abundant display of the legal, educational and professional services that the CLLA has to offer those not only in the credit industry, but the general business community.  From the informative educational programs to the interactive ask an expert sessions, the Chicago Meeting is a great way for an attorney or other credit professional to quickly become knowledgeable on a number of topics within the general business and credit communities.  Moreover, I found the Chicago Meeting to be an invaluable source for networking and meeting both prospective and current clients, as well as fellow attorneys. 

Lastly, I must comment on the camaraderie among current members and their willingness to go out the way to make new members/first time attendees such as myself feel more than welcome at this event.  It was refreshing to witness such free flowing discussion not only about business matters, but also about each others social and personal affairs.  As a first time attendee, I can only hope that there will be many more trips to Chicago, which will inevitably lead to new friendships among colleagues and peers.

            If this week’s events are any indication, it may no longer be a question as to whether General Motors Corp. and Chrysler, LLC. will file bankruptcy, but rather when and how long that bankruptcy will last. 

            On Monday, the Obama Administration forced out General Motors Corp. Chief Executive, Rick Wagoner, with the threat of withholding additional bailout money from the automotive giant.  This can be viewed either as a reaction to recent public outcry against executive bonuses and their pay, or a sign that the government has decided to rethink its philosophy regarding the distribution of bailout funds, including whether or not further bailouts are merited.  I tend to view it as the latter.    

On a side note, I must first point out that French automotive company, Peugeot Citroen, ousted its Chief Executive, Christian Steiff, on Monday, citing a need for a change in leadership to realize the company’s potential.  Peugeot Citroen is Europe’s second biggest auto maker by volume.  This removal highlights the fact that the continuing decrease in consumer auto sales is much more than a domestic problem.   

            However, here in the United States, Wagoner’s removal was followed by a press conference in which the President showed exactly how far his administration is willing to delve into the U.S. automotive business.  The Administration’s auto task force criticized then rejected both GM and Chrysler’s plans for restructuring their businesses.  The Administration made it clear that it believes that Chrysler will not be able to survive on its own, which has prompted Chrysler to amp up talks of a possible partnership with Italy’s Fiat.  More importantly, the President openly discussed the possibility of bankruptcy for General Motors Corp., and the effects of such a bankruptcy.  The President’s willingness to openly discuss bankruptcy as an option suggests that the Administration may now begin to realize that an amicable resolution of the problems facing the automotive industry is not possible.

            In addition to taking an integral role in the restructuring of the American automotive industry, the Administration announced three government programs aimed at jumpstarting domestic auto sales.  First, the President stated that the government would honor any warranties from General Motors Corp. and Chrysler, LLC. in an effort to encourage Americans to purchase their cars.  The President also announced a proposed program that would provide cash rebates to individuals for the purchase of a new more efficient car upon the trade in of an eight year old vehicle, or a vehicle getting eighteen miles to the gallon or worse.  Finally, the President highlighted a program to provide tax deductions of sate and locals sales taxes paid on the purchase of a new vehicle.        

            From a political standpoint, the President may be better served forcing the auto companies to enter into Chapter 11 bankruptcy.  If the Administration continues to become more involved in the restructuring efforts of GM and Chrysler, one of the problems that it will undoubtedly encounter is the unmanageable cost of United Auto Workers union retiree benefits.  Given union retirees reliability as Democratic constituents, it may be unlikely that President Obama will take the hard line stance with the UAW to gain concessions, which are most likely necessary to allow these companies to survive.  Another component to these events and the likelihood of bankruptcy is the “forced” partnership between Chrysler, LLC. and Fiat.  Our President may face harsh criticism if the government provides future bailout funds, composed of the American taxpayers’ dollars, to a company with such a large foreign component.

            From a legal perspective, the argument is quite simple.  Business reorganization/restructuring is exactly why we have Chapter 11 bankruptcy.  Admittedly, a bankruptcy filing by an automotive figurehead such as GM would result in the largest bankruptcy proceeding in the history of American jurisprudence.  However, bankruptcy court is the designated arena for the shareholder, worker and creditor disputes that ultimately prevent an amicable restructuring of a company.  Furthermore, a problem of this size and complexity is better served via the clearly defined procedures of the bankruptcy court, as opposed to the political influences and whims of Washington.   

            Do the above referenced events mean that bankruptcy is certain for General Motors Corp. and Chrysler, LLC.?  I would say only time will tell, but time is precisely what these automakers may longer have, as Present Obama has given GM and Chrysler deadlines of sixty and thirty days respectively to provide a restructuring plan that would justify further government support.

We’ve added a couple new attorneys to our blog.  Scott Schuster, an associate with the firm’s Bankruptcy & Restructuring practice area, and Shawn McClure, an associate with the firm’s Creditors’ Rights practice area.  Look for their posts in the future.