February 2008 Archives
Criminal tax defense lawyers refer vernacularly to criminal tax cases that arise from legal business operations as "pure tax cases" as opposed to other tax cases that arise from illegal business activity.
Interestingly, Agents with the Internal Revenue Service raided the offices of nightclub operator Pure Management Group last week thereby creating the penultimate "pure tax case." The news accounts speculate that the investigation stems from cash payments patrons of the various Pure nightclub venues paid to doormen and other personnel to gain admission and for other services, including "bottle service" the historical equivalent of a "minimum" that a patron must commit to spend in the club. Those nightclubs typically generate 5000 patrons per night on weekends and each may pay $100.00 to $1,000.00 for the privilege of being "selected" to enter the club from a line that may extend for city blocks and last for hours.
The real hubub stems not from the investigation itself, but rather from the news that doormen at these nightclubs were and have been making nearly $500,000.00 per year, mostly tax free (until now), performing a relatively simple function. Truly a situation of being literally in the right place at the right time.
What happens next is the " we will cooperate quote from Pure which read as follows:
"Pure Management Group is fully cooperating with this IRS investigation and looks forward to a quick and satisfactory resolution," a statement released by the company said. "Until that time, we will have no further comment on this matter."
Pure Management Group owns some of the most popular venues in
This investigation may be difficult for the IRS because with the high profile investors come the high profile defenses. The IRS will likely seek to squeeze the investigation from the outside in, meaning that they will go after the employees, the doormen, bouncers and waitstaff with the hope of resolving those cases by obtaining information and cooperation for cases, civil and criminal, aimed at the larger newsmaker investors and other owners. To readers of this Blog, you already know the objective is to create high-profile cases that make the news and then increase the potential for deterrence. It's almost March.....six more weeks until tax time.
Our friend and colleague
Derek Jeter settled his case with New York State New York
Derek Jeter settled his case with New York State New York
New York State Tax officials contended Jeter should have been taxed as a state resident from 2001-03. Jeter, who has a
According to an AP report, Jeter was given notice a year ago that he owed
Even this Supreme Court occasionally finds itself to the left of the Bush Administration. The Court on Monday heard argument on what exactly should be the limit of the Money Laundering Control Act, which has been aggressively invoked in recent years by the Justice Department. In fact, in the last two years, more than 2000 defendants have been charged under the Act, but such charges often stemmed from the mere concealment of money not trying to make it clean.
Officers had stopped Humberto Cuellar in
A Bush Administration lawyer tried to answer tough questioning on why the mere concealment of cash in a car headed for
When the Justice Department attorney responded by arguing that putting money in a suitcase in a car’s trunk might be evidence of a “design to conceal,” Chief Justice Roberts said: “When I use a suitcase, I’m using it to carry my clothes, not to conceal them.”
This is the second money laundering case the Court has heard this term. Four months ago, the Justices considered the government's use of the money laundering law in a gambling case. In that case, a defendant convicted of running an illegal lottery operation was sentenced to five years in prison for gambling and 17 1/2 years for money laundering. Prosecutors had argued that the act of compensating employees and paying off the winning bettors constituted money laundering. “Come on," Scalia told a Justice Department lawyer. "Nobody runs a gambling operation without paying off the winners. It's not going to last very long. To make the paying off of the winners a separate crime from running the gambling operation seems to me quite extraordinary." Indeed.
Alan Milstein
There is no such thing as a "simple" will. What should appear to you as a clear and concise "executor's mission statement" is often quite difficult and time consuming to construct and may require considerable technical knowledge, skill, and experience. The technical and human aspects of the estate planning process must be brought together and placed into a larger context: the identification and achievement of your objectives.
Simply put, the estate planning process should help you see and solve your financial problems. This is why "do-it-yourself" Will drafting software sold directly to the public is both inadequate and dangerous; it may fail to consider and address many of the issues discussed below.
· Has your Will been coordinated with, or take into consideration the cash flow and tax implications of other dispositive documents such as IRAs, 401(k) plans, pension and profit-sharing plans, group and individual life insurance, revocable and irrevocable trusts, and jointly-held property?
· Does your Will reflect recent changes in your personal situation and objectives? For instance, does it take into consideration changes in your income, received or expected inheritances, newly acquired assets, health conditions, and business and personal relationships?
· Have you moved from a community property state to a common law state - or from common law to community property state?
· Do you have a second (perhaps vacation home) residence in another state - and how do that state's laws impact on your planning?
· Was your Will or trust draw before or after your youngest child or grandchild was born?
· Has there been a divorce or estrangement that is not - but should be considered in the Will or trust?
· Does your Will provide for an outright distribution when a trust with its helpful management and investment advice and oversight is indicated?
· Have you set up a trust years ago that now "overprotects" and "over controls" with respect to assets passing to an informed and financially mature beneficiary?
· Is the trust perfectly valid and well drawn - but no longer necessary?
· Have you named the right people as personal representatives (executors (ix)), trustees, or guardians?
· Are all of the people you have named stable and financially responsible?
· Do your documents name sufficient "back-ups" in case the parties you named can't or will not serve or die after starting to serve?
· Have you named an individual for a position a corporate fiduciary should serve (or vise versa)?
· Have you named your now much older parents as guardians?
· Did you name close friends as guardians?
· Do the individuals you named as guardians have the economic resources, the strength, desire or will to raise young children?
· Have you named someone who will have a potential or inherent conflict of interest - such as naming one of several children as executor?
The solution to many of these questions is to insist that you and your attorney continually monitor and review the "big picture," to co-ordinate, keep each other informed, and most importantly, to keep you fully informed and your documents up to date.
John Lolio
The Massachusetts Supreme Court, relying on a 1988 Third Circuit decision, Keystone v. Home Insurance Company, has held that an excess insurer was not bound by the primary insurer’s decision to settle. The excess carrier had declined to provide coverage for a settlement due to exclusions in the policy even though the primary carrier had agreed to the settlement. The insured sued the excess liability insurer for declaration of coverage under a “follow form” excess liability insurance policy for settlement of the underlying class action.
The Massachusetts Supreme Court, in Allmerica Financial Corp. v. Certain Underwriters at Lloyd’s, affirmed the trial court’s ruling that excess insurers with “follow form” policies are entitled to make their own coverage and settlement decisions, regardless of decisions made by the primary carrier. In making its decision, the Court reasoned: “a basic point about excess insurance policies: they are separate and distinct contracts from the primary policy.” Thus, the court held, even where an excess policy “follows form,” excess insurers act independently of each other with respect to decisions about their policies, including coverage determinations and settlements.
The decision is the right one, of course, but it underscores the fact that any settlement discussion must include the excess carrier. Otherwise, the claimant may end up receiving only the primary's portion of the money due.
Leily Schoenhaus
A California Appellate court has issued an interesting opinion helpful to insureds involving the tender of claims under occurrence policies of insurance. A condominium association sued a developer in a construction defect lawsuit. The dispute arose in connection with a condominium project which, as early as 1990, showed evidence of defective construction. From August 1991 through June 1992, the developer was insured under a commercial general liability (“CGL”) policy issued by Standard Fire Insurance Company (“Standard”) which covered liability for property damage occurring “during the policy period.”
At the time of the incident, however, the Association had not yet been formed. That did not occur until August 1993, when the Association was formed to manage the common areas of the property. The developer tendered defense of the construction defect action to Standard, which agreed to defend under a reservation of rights. The Association argued that at least some of the property damage occurred during the policy period and the fact that the Association itself did not exist during the policy period, or own any of the damaged property during the policy period, did not mean that the property damage was not covered.
The trial court granted summary judgment in favor of the insurer but the Court of Appeal reversed and ruled that under an occurrence-based liability policy, the key issue is not when the third-party claimant was damaged, but rather, when the property now owned by the claimant was damaged. Because there was evidence that the condominium project itself suffered actual property damage while Standard’s policy was in effect, the court found that Standard had a duty to defend in the construction defect action. Standard Fire Ins. Co. v. Spectrum Community Ass., 141
Leily Schoenhaus
As we sit quietly awaiting the fate of poor
The Internal Revenue Service disallowed those expenses and Nicholas Cage filed a Petition in the United States Tax Court contesting the disallowances that now create income for him at the personal level and his alleged alter-ego company, Saturn Productions is similarly contesting those disallowed expense deductions. The Internal Revenue Service, in disallowing the expenses as improper because they were personal in nature re-characterized them as non-deductible which created a situation where they were then treated as income to the owner of the company, namely, Nicholas Cage. The net net is that Cage's company loses the deductions and Cage is charged with the income. This is actually a relatively simple case that hinges primarily upon the adequacy of the documentation maintained by Saturn and Cage to sustain the deductions.
Mr. Cage....Mr. Snipes is home if you want to give him a call.
John Hanamirian
Not surprisingly, judges have not quite gotten a handle on this new fangled internet thing. Take for instance the injunction recently entered against the website Wikileaks. A Swiss bank named Bank Julius Baer with a branch in the
The latest controversy involves the posting of what the bank believes are private documents of its customers posted by a whistleblower to expose allegedly shady transactions. The federal judge issued first a temporary then a permanent injunction shutting down the site. The orders can not be construed as anything but prior restraints which, since the Pentagon Papers case, were supposedly almost impossible to obtain.
The delicious irony is that neither the Judge nor presumably the bank’s counsel understood that a domain name is just layman’s language for a website’s ip address which is a series of numbers separated by periods. Bloggers quickly posted the numbers, 88.80.13.160, so everyone can still access the site.
So it goes
Alan Milstein
The Supreme Court in an 8 to 1 decision held that The Medical Device Amendments of 1976 (
Donna Riegel had brought suit against Medtronic after a Medtronic catheter ruptured in her husband’s coronary artery during heart surgery. The catheter is a Class
Writing for the majority, Justice Scalia reasoned that the FDA spends substantial time reviewing each device application and grants premarket approval only if it finds there is a “reasonable assurance” of its “safety and effectiveness. . . It may thus approve devices that present great risks if they nonetheless offer great benefits in light of available alternatives.” Attacking the jury system which has done as much to protect consumers from dangerous drugs and devices as the agency viewed by many as too friendly to BigPharma, Scalia wrote that jurors would probably not be in a position to weigh the benefits and dangers of medical devices as well as agency experts because a jury “sees only the cost of a more dangerous design, and is not concerned with its benefits; the patient who reaped those benefits are not represented in court.” Apparently Scalia is unfamiliar with the way product liabilty cases are tried. Manufacturers in such cases always present evidence of the benefits their product provides.
Such a decision does real harm to consumers and ignores the history of unreasonably dangerous drugs and medical devices which slipped through the many hours of FDA scrutiny. While plaintiff’s lawyers are an easy target for critics, they have repeatedly uncovered the dangerous propensities of medical devices and drugs which had received the safe and effective stamp of approval by the federal agency charged with protecting consumers but has all too often answered to industry.
In its opinion, the Court leaves for another day the question of whether suits against drug manufacturers should similarly be preempted. While we are not optimistic with respect to how the Court will answer that question, drug manufacturers cannot rely on a federal statute such as the MDA to support their argument that they should be immune from suit even if they release drugs whose benefit does not outweigh the potential for harm.
Alan Milstein
The United States Supreme Court has declined to hear an appeal by Katrina flood victims after the Court of Appeals for the Fifth Circuit ruled they had no coverage under their policies of insurance. The policyholders in Vanderbrook v. Unitrin Preferred Insurance Co. (In re Katrina Canal Breaches Litigation) sought recovery under their policies for damage arising from flooding caused by breaches or overtopping of levees during Hurricane Katrina. Though the policies all expressly excluded losses caused by flood, the plaintiffs creatively argued that the flood exclusions did not apply because the levee breaches releasing the water were caused by the negligent design, construction or maintenance. The friendly district court had found the term “flood” ambiguous because it was not clear whether it referred to natural events or those caused by negligent or intentional acts. While this argument at first blush might seem a sure loser, courts have commonly found that the earth movement exclusion applied only to natural causes and not to manmade events.
The Fifth Circuit, however, found that the flood exclusions were unambiguous and, whether or not the negligent design, construction or maintenance of the levees contributed to their failure after Hurricane Katrina, the water inundation of
The result is a sad end to the hopes of Katrina victims seeking indemnification under policies they thought provided coverage in the event of such a preventable disaster.
Leily Schoenhaus
The Illinois Appellate Court has rendered an important decision concerning coverage under the advertising injury provision in a commercial liability policy. In Valley Forge Ins. Co, v. Swiderski, the question was whether a claim alleging violation of the Telephone Consumer Protection Act (“TCPA”) on account of an insured sending unsolicited fax advertisements gives rise to coverage for written publication of material that violates a person’s right of privacy. Swiderski Electronics had sent fax advertisements to various individuals without obtaining prior consent. A putative class action was filed seeking damages for violation of the TCPA and conversion of fax machine toner and paper. Swiderski tendered the suit to its insurers. The insurers disclaimed coverage and sought a declaratory judgment that they had no duty to defend or indemnify. The parties filed cross-motions for summary judgment on the duty to defend and the trial court found that the insurers had a duty to defend under the policies’ advertising injury provision.
The decision, which was affirmed by the Illinois Supreme Court, held that coverage under personal and advertising injury is available for violations of the TCPA. Notably, the court in Swiderski declined to follow the Seventh Circuit’s decision in American States Insurance Company v. Capitol Associates of Jackson County, (the first federal appellate decision to address whether an advertising injury provision covered the sending of unsolicited fax advertisements) which held that coverage for TCPA claims was not covered under the advertising injury provision. In particular, the court noted that the TCPA protects a fax recipient’s privacy interest in seclusion, and the language of the advertising injury provision reflect that Swiderski and the insurers intended the policies to cover the type of injury to privacy that is the subject of the TCPA claim. The court’s holding effectively expanded advertising injury coverage from indemnifying against “invasion of privacy torts” to covering intrusion on seclusion type causes of action.
Leily Schoenhaus
We no longer have to put up with those ads for Vytorin and Zetia after cinical trial results questioned the efficacy of those drugs in controlling plaque. Soon we may be free of those Lipitor ads featuring Robert Jarvik. This time it is not because the cholesterol lowering drug has been shown less effective than advertised. It is the use of Jarvik that has caused critics to accuse the drug maker Pfizer of overselling its product.
Jarvik was the inventor of the first artificial heart. Few remember that after the clinical trial testing that device proved so ethically troubling, there was a fifteen year moratorium on artificial heart human experiments. In any event, the implication of using Dr. Jarvik as the pitchman is that the inventor of the artificial heart must know more about the health of real hearts than just about anyone. So we should listen to what he says about heart disease. The problem is that while Jarvic has a medical degree, he is not a cardiologist or even licensed to practice medicine. And while he looks fit rowing in his scull, presumably in part from the drug, the truth is the good doctor is not a rower and Pfizer used a double to do the actual rowing in the ad. “He’s about as much an outdoorsman as Woody Allen,” said a longtime collaborator, Dr. O. H. Frazier of the Texas Heart Institute. “He can’t row.”
The controversy has renewed the debate over direct advertising of prescription drugs to consumers. Some Congressmen have suggested Dr. Jarvik come in to testify and explain whether the ads misrepresent material information to potential users of the drug. As soon as they finish with the steroid issue in baseball, I am sure they will get to it.
Alan Milstein
The FDA has issued a draft proposal which would permit BigPharma to market their drugs for off label use by physicians. The proposal would permit drug manufacturers to distribute peer reviewed scientific articles touting their products for uses for which the companies had never sought FDA approval or even been denied such approval.
Not that the companies don’t market off label anyway. Pfizer, for instance, paid enormous fines for marketing its drug Neurontin for a panoply of off label uses that proved to be ineffective if not outright dangerous. And BigPharma has long promoted the use of antidepressants by children even though no study has demonstrated that such drugs are either effective or safe for use by anyone but adults. In fact, the estimates are that more than 20% of all prescriptions are for uses not approved by the FDA and not indicated in the labeling the companies supply with their products.
Such a proposal can only lead to harm to consumers. As the New England
Alan Milstein
Another day another senseless shooting on a school campus. The Supreme Court has the opportunity in the coming months to slow down the carnage. In District of Columbia v. Heller, the Court will interpret the meaning of the Second Amendment which reads: “A well regulated militia being necessary for the security of a
The question for the Court is whether that opening phrase has any meaning. The Court will consider whether the Amendment prohibits the District from banning handguns in a statute passed to reduce the amount of murders in our Nation’s Capital. Does the Amendment apply only to the right of states to arm militias in the form of police forces or the national guard or does it confer a right on every individual to own handguns, automatic weapons, and other firearms?
Numerous Friends of the Court have weighed in on both sides with more than one hundred briefs available over at Scotus. They range from briefs by Police Unions, District Attorney Associations, Historians, Physician and Public Health Groups, the NAACP , and the American Jewish Committee filed on behalf of the District of Columbia to those by the Bush Administration, the NRA, Pink Pistols, and Jews for the Preservation of Firearms Ownership filed on behalf of those opposed to the handgun ban.
Here is a decision by the High Court which has the potential of creating real and historic change at a time when politicians seem incapable of acting.
Alan Milstein
In the spirit of the holiday, a
This appeared first at Sports Law Blog.
My Verdict
As I wrote earlier, this hearing was not going to be like the last one. We heard some tough questioning, though hardly skillful cross-examination; we saw previously obtained affidavits; we heard the opinions of differing medical experts; and we learned there were syringes and gauze that are yet to be examined for their authenticity and probative weight.
Now we can begin to deliberate.
What are we to make of the affidavits from Mr. and Mrs. Pettitte? According to Chairman Waxman’s opening remarks, this is devastating to the credibility of Clemens. But was it? Pettitte recalls that when he confronted Clemens with his prior “admission” of past HGH use, Clemens immediately said that was not what he had told him, that only his wife had taken the drug, and that he never did? That is certainly consistent with the testimony of Clemens today. And if he had previously admitted to such use to Pettitte, and if they were so close, why would Clemens deny what he had said five years earlier? I find it just as credible that Pettitte simply misunderstood Clemens’s earlier remarks but in good faith still believed he had accurately recalled what Clemens had told him earlier. Of course, the earlier conversation was before Mrs. Clemens had taken HGH but the questioning was not very sharp on this point. Mrs. Pettitte’s affidavit doesn’t add anything to the mix because all she knew was what Pettitte told her.
The syringes and the gauze are more troubling. If DNA testing confirms it is the blood of Clemens on an object laced with either steroids or HGH, these objects may be the equivalent of Monica’s blue dress. But the absence of a controlled chain of custody probably makes the evidence inadmissible in any criminal prosecution and the reason for that calls into question the probative value of the evidence. Why would McNamee keep such evidence and only of Clemens? Why did he not reveal such evidence to prosecutors breathing down his neck or to Mitchell and his staff but suddenly produced them after he admits he was furious at Clemens for playing their taped conversation and revealing to the public the details of his sick son? I find no credible answers to these questions that would allow me to trust the authenticity of the objects.
Finally, whose testimony had the ring of truth based on their body language and demeanor and motive for being deceitful? The one qualification we all have as jurors is our ability to assess the credibility of witnesses based on our experiences in every day life. But that is a tool with varying degrees of sharpness. All of us have rightly judged someone a liar but we have all also been deceived once or twice.
Here McNamee is an admitted serial liar not only to the authorities but also to the press, his friends and his employers. Clemens, on the other hand, certainly has greater motive to lie; his reputation and legacy have been placed on the line.
For what it is worth, I remain unconvinced of Clemens’s guilt. I would have to believe if Clemens did what he is accused of doing more evidence would be out there: records of his purchase of the illegal substances, medical evidence of his steroid use, the testimony of his trainers or close friends, something more than what we have. Given the amount of resources spent to uncover this evidence, and believe me too much money and time has already been spent, such evidence if it ever existed would have surfaced.
So I find in favor of Mr. Clemens. Tell me why I am wrong.
Alan Milstein
In today’s Washington Times, Bob Cohn previews tomorrow’s showdown in Congress between Roger Clemens and Brian McNamee. Cohn interviews me as well as
Recent changes to the Pennsylvania Mechanics' Lien Law have impacted commercial property owners, developers and mortgage lenders who must now re-examine construction planning and contract negotiations in order to avoid mechanics' liens on their properties. Before the amendment, a contractor or subcontractor could waive its right to file a lien claim against the property by the terms of the construction contract even before work began and payment made by the owner, thus eliminating the possibility that the contractor or subcontractor could file a lien claim during the project. Under the current lien law, an express waiver given by a contractor in a construction contract or otherwise is now, with very few exceptions, unenforceable in non-residential construction projects in
Another important amendment to the Pennsylvania Mechanics' Lien Law eliminates the requirement that the subcontractors provide owners (in the case of alterations or repairs) with a preliminary notice of intention to file a claim prior to completion of their work. Under the old lien law, owners were initially insulated from subcontractors' liens to the extent that the law forced subcontractors to first provide advance notice to their general contractors of their intent to lien, giving the general contractor time to make payment to the subcontractor or material supplier before a lien was filed against the owner's property. Now, unpaid contractors and material suppliers will be able to go directly to the courthouse and file a lien against a property without the advanced warning to the general contractor or the owner. Pennsylvania's previously accelerated time line for contractors to file liens has also been extended; claimants may now take up to six months from the time they complete work on the site to file their lien claims, instead of four months under the old lien law.
This is an advantage to contractors who wish to preserve their rights to recovery by a lien, but because of business relationships, may be reluctant to lien an owner who is 90-120 days late on final payment. This change in the time line for filing the lien affords the parties more time to resolve these issues after the project is over before the contractor is forced to file a lien in order to stop the clock.
Edward J. Hovatter
This appeared today over at Sports Law Blog.
Let me disagree with Howard. I think this week is the Super Bowl or should I say World Series of Sports Law. When Roger Clemens faces off against his accusers and testifies before Congress, all of us get to be jurors and render judgment on his guilt or innocence and on the quality of the work of the