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Monday, February 25, 2013

WHO ARE THE ENTREPRENUERS AND WHERE DO THEY COME FROM?

WHO ARE THE ENTREPRENEURS AND WHERE DO THEY COME FROM?

An interesting article in Small Business Trends, “WhereFuture Entrepreneurs Live Today,” provides some very interesting information on where the entrepreneurial spirit is the strongest, and where such drive is low.

In a study that questioned over 200.000, the rate of people wishing to start their own businesses within the next three years runs from a high of 79% in Uganda, to only two percent in Russia and Japan. The United States is also closer to the bottom, at 13%.

The rates appear to be highest, where economics are in the earlier stages of the growth curve, and lower where economies are advanced. The article states:

As the authors of the GEM report explain, a country’s economic development level matters. In poor countries, a much larger fraction of the non-entrepreneur population intends to start businesses in the future. This pattern is consistent with an argument that I and others have made elsewhere. As countries get richer, the opportunity cost of starting a business rises, reducing the fraction of the population that wants to be self-employed.

While that argument might account for the much higher level of entrepreneurial intentions in Uganda than Japan, it doesn’t explain why 13 percent of non-entrepreneurs in the United States intend to start businesses in the next three years, while only 2 percent in Japan do, or why such a small fraction of Russians plans to start a business in the coming years.

Another factor the article noted is that entrepreneurial ambition was higher in countries where such activity was seen as a “good choice.” 

Wednesday, February 20, 2013

Is this Good Legal Business? Is this Good in any Conceiveable Sense?

Is this Good Legal Business. Is this Good in any Conceivable Sense?

The Indiana Business Journal has reported that convicted fraudster Tim Durham will be represented, pro bono, by legal giant Kirkland & Ellis.

Writes the IBJ:

James H. Mutchnik, a white-collar criminal defense attorney at Chicago-based Kirkland & Ellis, revealed in court documents earlier this month that he’ll be representing Durham without charge during his appeal.

Durham filed in December to
appeal his conviction to the 7th Circuit U.S. Court of Appeals in Chicago, but said he had no money to hire an attorney.

 U.S. District Judge Jane Magnus-Stinson
granted his request to proceed with his case as an indigent after Durham told her that his multimillion-dollar home is in foreclosure and his financial assets are tied up in bankruptcy proceeding of the companies he used to control.

It’s
unclear [emphasis added] why Mutchnik chose to represent Durham pro bono. He didn’t return a phone call from IBJ, and a firm spokesman declined to comment beyond issuing a statement confirming that Mutchnik is in fact leading Durham’s federal appeal.


It does seem unclear, doesn't it. The IBJ article later quoted Durham's prior lawyer as saying that Kirkland & Ellis regularly takes pro bono cases.  Yeah, but probably not like these. This is why we have federal public defenders, right?

Imagine the good work that could be done with the tens of thousands, perhaps hundreds of thousands of dollars of legal fees that will be "donated" in this case.

PRO BONO PUBLICO MEANS FOR THE PUBLIC GOOD.

Yeah, right.




Sunday, February 17, 2013

The Last of the LLC Potpourri

As most business practitioners know,  a minority shareholder, a shareholder without a seat on the Board of Directors, or otherwise disadvantaged by the Articles or By Laws of a closely-held corporation can be squeezed by the Directors with little legal recourse. Many readers of this blog will have represented clients on either side of that inclined plane, wrapped helically around an axis.

One end of that axis can be effectively turned with a common tool. The other end, well, is better left alone.

The same disparities of power, avarice, mendacity, and the milk of human kindness can exist in a multi-member LLC.

Currently, IC 23-18-4-4 provides:

Written operating agreement

    
Sec. 4. A written operating agreement may do the following:
(1) Eliminate or limit the personal liability of a member or manager for monetary damages for breach of a duty provided for in section 2(a) of this chapter.
(2) Provide for indemnification of a member or manager for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which a person is a party because the person is or was a member or manager.


So let's go to section 2(a):

Acts and omissions liability; trustee for personal benefits derived through company; duties of member in company providing for manager
Sec. 2. (a) Unless otherwise provided in a written operating agreement, a member or manager is not liable for damages to the limited liability company or to the members of the limited liability company for any action taken or failure to act on behalf of the limited liability company, unless the act or omission constitutes willful misconduct or recklessness.

The proposed IC 23-8-4-4 would provide:
 (1) Eliminate or limit the personal Modify, increase, decrease, limit, or eliminate the duties (including fiduciary duties) or the liability of a member or manager for monetary damages for breach of a duty provided for the duties set forth in section 2(a) of this chapter.

Of concern here is the provision that can eliminate duties, including fiduciary duties.  It is the general rule that members of manager-managed LLCs have no fiduciary duties to the company or other members. But in member-managed LLCs, the members do have these fiduciary duties.

In the final analysis, this new Section (2)(a) may have little practical effect, but should reinforce the need for representation of counsel when forming or restructuring an LLC.








Tuesday, February 12, 2013

HAPPY DARWIN DAY

Today is the birthday of two of the greatest people in history. Abraham Lincoln, "The Great Emancipator," and Charles Darwin, the Author of "Origin of Species.".

This day cannot pass without notice.

http://www.wired.com/geekdad/2013/02/happy-international-darwin-day-2/



Hug your Scientist Today!

HERE'S SOME OF THAT LLC POTPOURRI

HERE IS SOME OF THE LLC POTPOURRI

Many LLC’s title their managers as CEO, president or vice president. Under the strict terms of the Indiana LLC statute, LLCs are operated by their managers. But in the real world, when dealing with the public or other organizations, the title of president or vice president has more real world meaning.  The layman (and let’s face it, a heck of a lot of non-business lawyers) would think of a president or CEO as someone with more “juice” than a manager.

Heck, convenience stores have managers, but they are often just a cashier that got promoted to an exempt salaried position and paid less per hour than he had earned as a non-exempt cash register cowboy. But the Author digresses…

The proposed law would create Ind. Code 23-18-4-4(3). It authorizes officers for LLCs managed by managers or members and sets up a framework for the rights, powers and duties of these officers. Ind. Code 23-19-3-2.5 is added to allow the written operating agreement for an LLC to provide for officers.

“POOR MAN’S” BUY-SELL AGREEMENT

A new section is proposed for Ind. Code 23-18-6. Proposed section 2.5 allows that ANY single member’s interest in an LLC may be designated as “Transfer on Death (TOD).” One or more beneficiaries can be designated. Also, the member interest can be held as joint tenants with rights of survivorship between two individuals.

This proposed section 2.5 has a couple of very important caveats, however. The written operating agreement must provide for such transfers or not prohibit them. Also, any transfers in section 2.5 are subject to other transfer restrictions, redemption options or other provisions.

Of course, business practitioners know that successful businesses need transition planning in the form of a “buy-sell,” stock or membership transfer agreement, or some other form of transition planning.

Many businesses owners wish to transfer their businesses to their children, other family members or key employees. And often, business owners wish to keep certain people out of the transitioning business. High on this list are the spouses and “disruptive” children of current “partners.”

If your business requires some transition planning, please contact the Author to discuss some solutions. Or if your current transition plan just needs a revision or a tune-up, the Author is also available to help.

Monday, February 11, 2013

Limited Liability Company Potpourri (I hate the smell of potpourri, but I like the word.)

Finally, the Author can dig in to legislative proposals that directly affect Indiana small businesses and small business law. Several proposals, some housekeeping, some material, to the Indiana Liability Company law, Ind. Code 23-18.

Of course we know that the LLC is the dominant small and sometimes large business organizational model. It combines limited liability with the benefits of “pass through” tax treatment. Millions of businesses can file their taxes on a Schedule C.
WHERE DID THIS GREAT IDEA COME FROM?

It seemed to the Author that LLC’s came from nowhere. It was 1993 or 1994, and there they were. Out with the S-Corp forms, in with the LLCs. The first state to pass an LLC law was Wyoming in 1977. The Author does not think of Wyoming as a leader in anything, except range wars, shot-up road signs, and density of cattle per acre. And no, The Wyoming Legislature did not invent them.
The Author went online and expected to find that LLCs were the brainchild of some leading American corporate law professors and some model acts from the 1960s. Nope, nothing like that. The LLC, with only a slight American gloss, came from that socialist paradise that the Club for Growth calls Western Europe.

The LLC, then known as Gesellschaft mit beschrnkter Haftung, was invented in Germany in 1892. After this, LLC laws were passed in Europe, then later in South and Central America. 
The Indiana LLC laws were enacted in Indiana in 1993, only 101-years late, long before Daylight Savings Time.

STAY TUNED
The Author will hit some of the LLC proposals over the next few days.

As always, contact me with questions, comments, or to demand retractions that will never be made.

 

Thursday, February 7, 2013

HIPAA-Hell is Privacy Addiction [and] Affliction. No, just kidding. HIPAA means Health Information Portability and Accountability Act.


The recent HIPAA rules updates and modifications stretch across most areas of HIPAA applicability. Many relate to civil enforcement and breach notification. These are the things that lawyers and consultants will pounce on, and probably rightly so.

The Author will try to hit on the more operational things. Much of his HIPAA work in Privacy, Security and Transaction Standards was in the trenches with the people that had to make the policies work.

A REQUEST TO RESTRICT DISCLOSURES THAT A COVERED ENTITY MUST AGREE TO

Under the new the Amended Rule, a covered entity must agree to an individual's request to restrict disclosures of PHI to a health plan if: (1) the disclosure is for purposes of payment or healthcare operations and is not otherwise required by law; and (2) the PHI pertains solely to healthcare items or services for which the individual, or another person on behalf of the individual (other than the health plan), has paid in full (Required Restrictions). The Final Rule also eliminates a covered entity's ability to terminate its agreement to any Required Restrictions.
 
Likely the thought is that if a patient pays out-of-pocket, the health plan does not need to know the reason and facts from the encounter.
 
The relevant HIPAA rule amendment is below:
 

 § 164.522 Rights to request privacy protection for protected health information.

(a)(1) * * *

(ii) Except as provided in paragraph (a)(1)(vi) of this section, a covered entity is

not required to agree to a restriction.

* * * * *
(vi) A covered entity must agree to the request of an individual to restrict

disclosure of protected health information about the individual to a health plan if:

(A) The disclosure is for the purpose of carrying out payment or health care

operations and is not otherwise required by law; and

(B) The protected health information pertains solely to a health care item or

service for which the individual, or person other than the health plan on behalf of the

individual, has paid the covered entity in full.


 

PROVIDING ACCESS TO RECORDS THAT ARE MAINTAINED ELECTRONICALLY

When the Author’s healthcare providers find out that he has a background in HIPAA, he gets a range of comments. Most allied healthcare practitioners say that HIPAA was long overdue and necessary.

Most physicians reply in a more negative manner. The Author’s cardiologist called HIPAA “A good idea run rampant.”  Perhaps his reaction demonstrates his detachment from the massive administrative and operational tasks to make healthcare work. Or maybe he resents being told what to do by anyone. But in either event, he completely missed the point of HIPAA, as did most everyone else.

Americans are innately change resistant. Despite our technological and economic breakthroughs which evince an entrepreneurial and mold-breaking mentality, Americans resist change with a feudal ferocity. Eliminate the costly and useless penny? (How could we ruin the fond memories of piggy banks and 1₵ gumball machines.) Remove an unpopular comic from the newspaper? (We can never forget Sunday mornings at Grandpa’s knee listening to him read “Nancy” and “Peanuts.” to us.)

The healthcare industry saw that electronic healthcare records, Health Information Exchanges (HIE), and on-line claims adjudication were on the horizon. To prepare Americans that saw old Doc Adams and Marcus Welby as the medical apex, would have to be dragged in to the 21st century world of electronic medical records (EMRS.) HIPAA did the dragging, while much of America kicked and screamed.

HAND OVER MY ELECTRONS*

Under the final rule, covered entities that maintain one or more designated record sets electronically are required to provide an individual with a copy of his or her medical record in the electronic form and format requested by the individual, if such format is readily producible. If the requested format is not readily producible, the covered entity must offer to produce the electronic PHI in at least one readable electronic format. Covered entities may use various methods to accomplish this, such as providing a disc with a PDF file, sending a secure email with a Word file, or providing access through a secure web-based portal. Although covered entities are not required to purchase software or hardware to accommodate requests for various specific formats, they must be able to provide some form of readable electronic copy, and HHS notes that it anticipates some covered entities may need to invest in order to meet this requirement. A hard copy may be provided if the requesting individual rejects any of the offered electronic formats. Commentary from HHS also clarifies the following:

·         The electronic copy provided must include all of the electronic PHI held by the covered entity in a designated record set, or appropriate subset if only specific information is requested, at the time the request is fulfilled.

·         If the electronic PHI contains a link to images or data, the images or other data must be included in the electronic copy provided.

·         If a medical record is in mixed media (e.g., some paper and some electronic PHI), the covered entity is not required to scan the paper documents to provide a single electronic copy. Although a covered entity would have this option, a combination of electronic and hard copies may be provided.

·         A covered entity is not required to use an individual's flash drive or other device to transfer the electronic PHI if the covered entity has security concerns regarding the external portable media.

·         If secure email is not available and an individual requests to receive the electronic copy via unencrypted email, the covered entity may send the electronic copy in this fashion, but only if the covered entity has advised the individual of the risk that the information could be read by a third party.

Third Parties
The final rule adopts the proposed rule's requirement that, if requested by an individual, a covered entity must transmit the electronic copy directly to another person designated by the individual. HHS clarified that covered entities may rely on information provided by the individual regarding the third-party recipient, but they must implement policies and procedures to verify the identity of any person requesting PHI and implement reasonable safeguards to protect the information disclosed.

Fees
The final rule adopts proposed amendments to include labor costs for copying PHI, whether in paper or electronic form, as one factor that may be included in the reasonable, cost-based fees that may be charged to individuals. HHS clarified that labor costs could include the technical staff time spent creating or copying electronic files, such as compiling, extracting, scanning, and burning PHI to media. Reasonable, cost-based fees also may include: (1) the costs of supplies for creating electronic media (e.g., discs, flash drives) if the individual requests the copy on portable media; and (2) postage if the individual requests mailing or delivery of electronic media. However, under the final rule, covered entities may not: (1) include costs of new technology, maintaining systems for electronic PHI, data access, and storage infrastructure; or (2) charge a retrieval fee (whether a standard fee or actual costs) for electronic copies. Finally, under the state law preemption provisions of HIPAA, a state law imposing lower costs limits would apply. Thus, if costs permitted under HIPAA exceed the state law limits, the covered entity may not charge more than the state law allows.

Timeliness
The final rule decreases the time within which covered entities must respond to requests for access from 90 to 60 days by removing the provision allowing an additional 30 days to respond if PHI is not maintained onsite. Covered entities now have 30 days to respond, but they may have a one-time extension of up to 30 days upon provision of written notice to the individual, including the reason for the delay and the expected date of completion. HHS considered, but declined to adopt, different timelines for electronic versus paper copies, opting instead for a single standard.

 
*Much of the foregoing analysis came from  Allen Killworth and Claire Turcotte (Bricker & Eckler LLP, Columbus and West Chester, OH), for providing this email alert to the American Health Lawyers Association.

Below are some of the relevant amendments to the regulation.

§ 164.524 Access of individuals to protected health information.

 

* * * * *

558

(b) * * *

(2)***

(ii) If the covered entity is unable to take an action required by paragraph

(b)(2)(i)(A) or (B) of this section within the time required by paragraph (b)(2)(i) of this

section, as applicable, the covered entity may extend the time for such actions by no more

than 30 days, provided that:

(A) The covered entity, within the time limit set by paragraph (b)(2)(i) of this

section, as applicable, provides the individual with a written statement of the reasons for

the delay and the date by which the covered entity will complete its action on the request;

and

(B) The covered entity may have only one such extension of time for action on a

request for access.

(c) * * *

(2) Form of access requested. (i) The covered entity must provide the individual

with access to the protected health information in the form and format requested by the

individual, if it is readily producible in such form and format; or, if not, in a readable hard

copy form or such other form and format as agreed to by the covered entity and the

individual.

(ii) Notwithstanding paragraph (c)(2)(i) of this section, if the protected health

information that is the subject of a request for access is maintained in one or more

designated record sets electronically and if the individual requests an electronic copy of

such information, the covered entity must provide the individual with access to the

protected health information in the electronic form and format requested by the

559

individual, if it is readily producible in such form and format; or, if not, in a readable

electronic form and format as agreed to by the covered entity and the individual.

* * * * *

(3) Time and manner of access. (i) The covered entity must provide the access as

requested by the individual in a timely manner as required by paragraph (b)(2) of this

section, including arranging with the individual for a convenient time and place to inspect

or obtain a copy of the protected health information, or mailing the copy of the protected

health information at the individual’s request. The covered entity may discuss the scope,

format, and other aspects of the request for access with the individual as necessary to

facilitate the timely provision of access.

(ii) If an individual's request for access directs the covered entity to transmit the

copy of protected health information directly to another person designated by the

individual, the covered entity must provide the copy to the person designated by the

individual. The individual's request must be in writing, signed by the individual, and

clearly identify the designated person and where to send the copy of protected health

information.

(4) * * *

(i) Labor for copying the protected health information requested by the individual,

whether in paper or electronic form;

(ii) Supplies for creating the paper copy or electronic media if the individual

requests that the electronic copy be provided on port

Saturday, February 2, 2013

Senator Delph Withdraws "Loser Pays" Rule

The Indiana Law Blog reports that SB88, a law which would require that the "loser" in a lawsuit pay the "winner" has been withdrawn.

The Indiana Star reports in the story entitled "Gov. Mike Pence-backed tort reform bill exits quietly",  states :
 
Sen. Mike Delph, who had filed the measure at the request of Gov. Mike Pence’s administration, said he withdrew Senate Bill 88 after hearing concerns from several legislators, including from Sen. Brent Steele, chairman of the Senate Judiciary Committee.

The problem with the bill is simple, Steele said: “It doesn’t work.”

Steele, R-Bedford, said he had filed “exactly the same bill” in 1995 and got an earful from just about every interest group.

They convinced him, he said, that it is unworkable because determining just who is the loser in a lawsuit is difficult — and impossible in “no fault” divorce cases.

From the Author's perspective, Senator Steel is right, the law is unworkable, unpredictable, and will yield some very bizarre and unpredictable results.

Along with Delph pulling the ill-advised SB88, he is proposing an Indiana Constitutional Amendment which would require the Indiana Senate vote yes or no on a judicial retention vote with a 2/3rds majority. This would usurp the voter retention vote from Hoosier voters (who currently approve judge retention.)

Most commentators that have chimed in suggest that this is an attempt to inject partisan politics into the judge retention process. Just what Indiana needs. The Indiana judicial selection process has avoided the raw partisan ship that has plagued other states and reduced public confidence into the respective state's judicial system.

A LITTLE OFF TOPIC, BUT STILL DARNED RELEVANT...

And on another note not related to business law, but directly related to Fort Wayne, ,the Author calls attention to Saturday, February 2nd's Journal Gazette ,where there are two drunken driving cases that reached disparate and seemingly unfair results. Both sentences were issued by the same Allen County judge.

In the front page case, a 33-year old blond single mother that killed a man  (Nathan Gatchall) and fled the scenes in her heavily damaged vehicle, was given not prison time. She plead "open" to the charges, meaning the judge could impose the sentence he thought appropriate. Instead of sentencing her to prison, the young woman, who had left a bar late at night and  had a .22 BAC and marijuana in her system, was given four years probation. The judge noted that the state had not charged her with causing the death of Mr. Gatchall. But when she struck and killed Mr. Gatchall, she claimed that she thought she had hit a pot hole. (No pun intended.)

But in another case, Gabriel Biddle, a 29-yo father, was ordered to serve four-years in prison in a multi-car collision that caused no deaths. The accident cause major injuries to Biddle's fiance. Biddle did have two prior DWIs and a BAC of .52. The judge ordered four years to be served, and two suspended.

In this second case, one must question the purported BAC of .55. That is at a level that would cause death in most people.