Month: January 2013

What Is A Series LLC?

By: James C. Mosser

This post is an overview of a longer article entitled “What Is A Series LLC?”

Many Texas practitioners deal with a client’s business formations as part of their everyday business or ancillary to the other matters they work on for clients. Since I am a lawyer at a small law firm, I am in the latter group.

I like the business formation landscape. There is plenty of interesting nuance and choices. This depends on the client and the purpose of the transaction. In certain circumstances, the new darling is the Limited Liability Company (LLC) and especially the Series LLC. The hot debate in Texas amongst those in the know concerns how to treat a Series LLC nonfiling entity.

Black’s Law Dictionary defines “entity” as “[a]n organization or being that possesses separate existence for tax purposes. Examples would be corporations, partnerships, estates and trusts. Entity includes person, estate, trust, governmental unit.”

However, there’s a problem with the supposedly official definition of an entity, which wrongly excludes the Series LLC.

Over the last two years, many Texas attorneys and commentators have discussed the Series LLC and advised that the nonfiling entity (Series) is not a legal entity. However, the Series specifically is described in the Business Organizations Code (BOC), starting at BOC 101.601. A scholarly reading of the BOC will reveal that these commentators are wrong.

Most commentators in Texas have decided that the Series LLC is not an entity. More egregious is that the Secretary of State has assumed the same position based on badly reasoned writings lacking in any legal theory or support. Then, to make matters worse, the State Comptroller has decided that the Secretary of State is the decision maker when it comes to determining what an entity is in the State of Texas, instead of the Texas legislature.

A reading of the state law given to us by the legislature shows the real definition: BOC 1.002, Definitions. At paragraph (18), “domestic entity” means an organization formed under or the internal affairs of which are governed by this code. This definitely includes the Series LLC.

However, because of the unfathomable attitude of the State Comptroller and the Secretary of State, we are left with a group of powerful regulators acting contrary to the Texas Constitution and the laws of Texas as passed by the Texas legislature!

So, who cares? You should care because if you are not a Texas filing entity according to the Comptroller, you pay taxes for the other Series entities that owe taxes, even if your Series does not owe any money.

A last note: Some commentators claim they do not know how a Series LLC will be treated by Texas (if it is foreign) or other non-Series States. I am not positive how it will be treated by Texas. But a properly formed Series LLC should be given the full faith and credit of the sister states old Public Acts and given effect to the “internal affairs doctrine related to the operations of a series limited liability company.” Art. IV, Sec. 1, of the United States Constitution.

Today, this leaves the Texas transactional practitioner in the position of not recommending the formation of a Series LLC in Texas. Maybe the real resolution is just to form multiple LLCs in Texas, as we have been doing for years.

To learn more about the Series LLC in Texas, read James Mosser’s full article, “What Is A Series LLC?”

As always, our blog posts are not legal advice and do not constitute an attorney-client relationship! If you want legal advice, you need to retain a lawyer.

A Short Introduction to Discovery

Discovery is why your civil lawsuit takes so long. It’s the cooperative process of exchanging information between parties in a lawsuit, which can take months or sometimes years. The purpose of discovery is so that a case can be judged fairly on the facts and not due to a “surprise” document that the opposing party withheld until the last minute.

Basically, discovery makes things fair.

Your attorney will request discovery from the opposing party. The opposing party will request discovery from your attorney. Legal rules called the Rules of Civil Procedure govern the timing and delivery of responses. As a client, you might be asked to help answer discovery questions from the other party or to give your attorney some documents to allow the other party to examine.

There are three main types of discovery requests that might require client input: requests for admission, requests for production, and interrogatories.

Requests for Admission. This type of discovery request comes in the form of statements that you must admit or deny. You can also say that you don’t know or don’t have enough information to answer the question. Here are examples:

  1. Admit or deny that you are the managing partner of Local Business.
  2. Admit or deny that Local Business signed a contract with Widget Corporation LLC on May 12, 2008.

Requests for Production. This type of discovery request is primarily for documents. You have probably given your attorney most of the documents related to your case, but the opposing party might ask for more.

  1. Produce all originals of and all copies of all contracts signed by you and Widget Corporation LLC since 2006.
  2. Produce all communication (including letters, emails, texts, and other electronic documents) between you and Widget Corporation LLC concerning contracts since 2006.

Interrogatories. This type of discovery request usually comes in the form of an open-ended request for information, requiring a response beyond a simple yes or no. You might initially be asked to answer these questions and then to approve the final answers your attorney has written.

  1. Describe the safety, storage, and maintenance methods and practices regarding Widgets that you maintained in your regular course of business.
  2. Identify all persons formerly or currently employed by you who have or might have knowledge of Widget safety procedures.

As you can see from these basic examples, discovery can become very involved. Your part is to be as forthright with your attorney as possible and to disclose all relevant information promptly to your attorney. He or she will very likely have additional instructions or requests for you to supplement discovery responses as your lawsuit progresses. If you ever have questions about your lawsuit, ask them!

Remember, folks, at the end of the day there’s no substitute for having a lawyer of your own.

As always, our blog posts are not legal advice and do not constitute an attorney-client relationship!

Steinberg Argues Before Fifth Circuit

On December 3, 2012, Alexis F. Steinberg argued before the United States Court of Appeals for the Fifth Circuit in New Orleans, Louisiana. She presented the crucial question of interpretation regarding the homestead provisions in the Texas Constitution, Article 16, Section 50.

The essential issue under discussion was whether a lien against a homestead made in violation of the Texas Constitution is void (legally unenforceable) or voidable (able to become void but not necessarily so). Steinberg argued that the lien against the Appellants’ property was not voidable, but rather void from the start (“void ab initio“).

This “void not voidable” issue was first raised in relation to Mosser Law’s clients in the District Court, where James C. Mosser, who tried this case in 2011, uncovered and explored the nuances of the homestead provisions in his pleadings and motions. After appealing the Court’s judgment, Mosser mentored and advised Steinberg as she prepared to bring her oral argument before the Fifth Circuit.

Mosser and Steinberg are aware that this issue could become persuasive for Texas courts and Texas citizens with void property liens. As Steinberg wrote in Mosser Law’s Brief for Appellants:

In the recent case Smith v. JPMorgan Chase Bank, the “court engaged in a detailed analysis of the plain language of the Texas Constitution; the nature of liens which are void from inception instead of merely ‘voidable’; and the Texas Constitution’s requirement of homeowner’s demand and lender’s opportunity to cure before a forfeiture. The Smith analysis should be applied here. The Priesters’ lien was void ab initio, not voidable.”

Because the lien was constitutionally void, the District Court should not have dismissed the case. This void versus voidable issue is material to Texas homeowners and to the legal interpretation of the state’s Constitution.  If the liens are considered voidable, a four-year statute of limitations applies to a homeowner’s claims.  However, if the liens are properly interpreted as void, a homeowner may bring a claim against a lender whenever the homeowner realizes the liens on his or her property violated the Texas Constitution.

Drawing on the plain-language interpretation of the Texas Constitution and pertinent case law, Steinberg presented her argument on this matter cogently and eloquently.

If you have Windows Media Player, you can listen to Steinberg’s argument here or by searching the Fifth’s Circuit’s Oral Argument Recordings Page for “Alexis Steinberg.”

Do you have an appeal? Find out by contacting Mosser Law.