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How Anyone Can Find Out What You Own

by rjmintz on February 9, 2018

How does a potential plaintiff find out whether you have enough money to make you an attractive lawsuit target? Thanks to the Internet, a lawyer can find out everything he needs to know.

It’s now well understood that Internet search technology allows virtually unlimited access to your most sensitive personal and financial information. Specifically, detailed information describing your real estate and business interests, the name of your bank and brokerage firm, your account balances, and your transaction history can be accessed and assembled without your knowledge or permission. Now, anyone can find out what you have and how much you are worth.

These capabilities have been developed and advanced mostly during the digital revolution of the past decade. Before the Internet, separate bits and pieces of information about your life were scattered in dusty file drawers and county records around the country. Your birth certificate, driving records, insurance file, marriage licenses, and loan applications were maintained or stored in written files, record books, or sometimes the computer at the office where the records were kept. Information could not be accessed from outside the office where the records were stored.

An investigator attempting to assemble information about your life had to travel from one county courthouse to another, stand in line, search through library archives and public records, and hope to come up with some useful information. The process of gathering personal information was a laborious and expensive job.

But all of that has changed. The scraps of paper and the written records have been converted into an electronic form which can be stored and searched by a computer. And these computers and databases have been connected through the Internet so that the information in any one computer can be accessed and searched from any other computer. If somebody wants to find out information about you, a single query will hunt through billions of documents stored on thousands of interconnected databases to produce a frighteningly thorough profile of your life. An investigator can now sit in the comfort of his or her office with a computer, a modem, and a cup of coffee in one hand, and in minutes, access everything he or she wants to know about you.

Down load pdf of the entire book

Coming next:  Searching for Your Real Estate

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In light of the new tax law, this is an updated version of the effectiveness of S-Corp tax planning.  An S-Corp has the potential to produce significant tax savings by converting “wages” into “profits”.  Under the new tax law profits from pass-through entities such as an S-Corp may also be subject to a 20% deduction of net business income.  Distributions from the company which are treated as wages are subject to FICA (social security taxes) and Medicare taxes in addition to ordinary income tax.  By treating distributions as profits instead, FICA and Medicare taxes can be substantially reduced.  An LLC can elect to be treated as an S-Corp for tax purposes and can achieve the same result.  LLC’s which elect to be taxed as a partnership or sole proprietorship may also achieve these tax benefits, but the rules are not yet clear on this point.

Many business owners and  professionals use S-Corporations (S-Corp) to conduct their practice. For a number of reasons this is often a good idea. See “Pros and Cons of Professional Corporations”.  An S-Corp can help limit personal liability – generally not from professional malpractice claims – but from other obligations of the corporation. For example if your corporation leases office space or equipment, you have no legal responsibility for payment unless you have personally guaranteed the contract. A Limited Liability Company would achieve the same result but physicians are generally prohibited from practicing medicine in an LLC, so the choices for how to organize your practice are usually restricted to partnerships, sole proprietorships and corporations.

The traditional problem with corporations is that they are treated as separate taxpaying entities, which means that they have the potential to produce two layers of tax, once at the corporate level and again at the shareholder level. The corporate tax can produce some nasty and surprising tax problems, but fortunately, the law allows shareholders to opt out of the corporate tax by filing an S-Corp election if they meet certain qualifications. Under this treatment, all the income of the S-Corp flows through to the shareholder’s personal return and is taxed there – only once – similar to a sole-proprietorship or a partnership.

Profits or Wages?

With this long-standing and simplified tax regime it would seem that S-Corps should be easy to manage and free of significant tax issues.  But, in fact, S-Corps have a unique hybrid status, capable of producing savings not available to other business entities. These benefits are created by particular grey areas within the tax law which treat certain types of business income more favorably than others. If income can be characterized to take advantage of the lower available rates, substantial savings can be generated.

More specifically, the income generated through an S-Corp and reported on the shareholder’s return can be classified as wages or as a profit distribution based upon a variety of factors. And the outcome of that determination matters a great deal because amounts treated as wages are subject to payroll taxes while profit distributions are not. Depending on the amount involved, the difference in taxes can be substantial. For example, in years after 2011, the FICA (Social Security) tax is 12.4% of the first $106,800 of salary and the separate Medicare tax is 2.9% of all salary without any upper limitation. If an S-Corp has profits of say $250,000, taking that full amount as salary results in combined payroll taxes of roughly $20,000. If the amount of salary was instead lowered to $50,000 with the balance claimed as a profit distribution, tax savings for the year would be about $11,000.

What is “Reasonable Salary”?

The issue in most cases turns on what is a reasonable salary under the circumstances? What amount of corporate income is properly allocable to invested capital and what amount represents income from the shareholder’s services? It’s not an easy question.

A recently decided case illustrates the way this issue has been treated.  In David E. Watson P.C. v. U.S., Mr. Watson’s S-Corp was a partner in an accounting firm. In 2002 and 2003 the partnership distributed $203,854 and $175,470 respectively to Watson’s S-Corp. But rather than treating that amount as salary for his services, Watson claimed a salary of only $24,000 in each year with the balance labeled as profit distribution. Based on the payroll taxes then in effect, this resulted in a tax savings of nearly $20,000 over the two year period.

The IRS rejected this treatment and asserted that the reported salary of only $24,000 was unrealistically low in relation to the pay for other accountants with similar experience. The point was made that even accountants coming directly out of school make far more than the amount claimed. Ultimately the District Court decided that a reasonable salary amount for Watson should have been about $90.000 per year and full payroll taxes were due on this amount. The balance of the corporate income was treated as profit distribution.

Determining what is a profit distribution and what is salary is the subject of a longstanding game of cat of mouse between the IRS and taxpayers. The IRS’s position is that amounts of earnings attributable to corporate capital or assets may be properly classified as a profit distribution but that payments for shareholder services must be treated as wages.

In a medical professional corporation, it is often true that a large percentage of the income is related to services performed by the shareholder, but there are significant exceptions.  If profits are generated by the services of non-shareholder employees or from charges for lab work, equipment use, the sale of products or from other investments, then income earned from these activities might not be related to the physician-shareholder’s services. In these cases, the allocation between profits and wages is subject to considerable interpretation and the amounts claimed for each can significantly impact the amount of payroll taxes which may be owed.  Although Congress may take some steps in the future to clarify these issues, for now the outcome of disputes on this issue depends on the circumstances involved and you should certainly obtain the assistance of an experienced tax advisor when navigating the rocky landscape of tax strategies.

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Expanded Theories & Removing Incentive to Sue You

by rjmintz on January 15, 2018

In recent years, courts, state legislators, and clever trial attorneys have dramatically expanded traditional theories of negligence. As stated, negligence means a failure to exercise the proper degree of care. The question is what is the proper degree of care? How careful must we be?

In an iconic case, the rock group Black Sabbath was sued by the parents of a teenage boy who committed suicide. The parents claimed that the boy had been encouraged to commit the act by listening to certain lyrics on a record album. Although it was ultimately determined that the group was not liable for the boy’s death, the case did make it all the way through trial. The members of the group sat through countless hours of depositions and testimony and surely spent several hundred thousand dollars in legal fees. All of this time and money were wasted because an attorney for the boy’s parents attempted to connect a remote Deep Pocket Defendant to the case in order to obtain compensation for this unfortunate, but blameless event.

Take this example. Meticulous Max noticed that the brakes on his car were not working properly. Feeling the car was unsafe to drive, on Monday, Max made an appointment for his mechanic to pick up the vehicle in a tow truck on Wednesday. Late Monday night the car was stolen. As the thief was driving away in the car, the brakes failed and he crashed into another vehicle. The person driving the other car, Bob Brown, was injured in the accident. Bob sued Max alleging that Max was negligent in failing to properly maintain his automobile. The plaintiff argued that because of the high incidence of stolen cars, Max “should have” reasonably foreseen that his car might be stolen, and, if stolen, the faulty brakes would likely cause injury to someone. On this theory, Bob was successful and was awarded $325,000 by the jury. Clearly, Max thought he was exercising due care by not driving his car and by arranging for an appointment to have the brakes fixed. However, the jury expanded the concept of “due care,” ruling that Max acted improperly by agreeing to wait two days to have his car repaired.

This leaves us with a legally required standard of behavior that cannot be ascertained in advance. (And with which most people in Max’s town would disagree.) We know we have to be careful, but we do not know what that means. It is impossible to anticipate what standard a jury will impose with the advantage of hindsight. That is the problem.

Removing the Incentive to Sue You

The first goal of a sound financial plan is to protect your personal and business assets from potential lawsuits and claims. We will discuss this in great detail in later chapters. For now, keep in mind that assets such as your home, your bank accounts, and your brokerage accounts can be moved into a properly designed plan. Someone wanting to see what you have will not find assets reachable and available.

Since the lawyer for a potential plaintiff will usually only sue you if he knows there are assets and he knows he will get paid, it is extremely unlikely that any lawyer would be willing to file a case against you. You can successfully discourage lawsuits by holding your property in a protected manner, without revealing to the world what you own and how much you have. That’s the first important objective that you can accomplish. The importance of these asset protection strategies will be emphasized as we present this material.

Down load pdf of the entire book

Coming next:  How anyone Can Find Out What You Own

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Negligence

by rjmintz on December 29, 2017

Looking for Someone to Blame

In addition to liability for contracts, individuals and businesses face potential lawsuits for negligence. You will be considered to be negligent if a party is injured or his property is damaged because of your failure to exercise reasonable care. This is known as direct negligence. You may also be sued when you are legally responsible for the wrongful acts of others, such as a child or an employee. This type of liability is known as imputed negligence.

Direct Negligence

Direct negligence is exemplified by hitting someone while driving your car in an unsafe manner. The death of a patient due to a physician’s diagnosis which falls short of the advice of the hypothetical “common physician” is another example of direct negligence. An attorney’s advice to his client which is based upon a faulty understanding of the law or which falls short of the legal standard of proper investigation and diligence is also a matter of direct negligence. In other words, if, in the conduct of your business, you act in a way that is less than the minimum standard of performance the law requires for your job, then you are guilty of negligence and you will be liable for all foreseeable consequences of your careless acts.

Negligence can occur because of your failure to act as well as your improper acts. Failing to move to the side of the road when you hear an ambulance coming up behind you is negligent. A physician’s failure to prescribe a recognized treatment is negligent, as is the attorney’s failure to advise a client of the law relevant to a particular situation.

Imputed Negligence

In certain situations, you may be held liable for an injury even if you are not directly at fault. Imputed negligence means that the law will hold you responsible for the negligence of someone else. A negligent act by an employee, conducted in the scope of his employment, will be imputed to the employer. If you ask your secretary to pick up some sandwiches for lunch, she is acting within the scope of her employment when she drives to the deli. If she is at fault in an automobile accident, her negligence is imputed to you. You are responsible for the damages caused by her acts.

Down load pdf of the entire bookComing next:  Expanded Theories

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Oral Contracts: An Abyss for Deep Pockets

by rjmintz on December 1, 2017

A contract is formed any time two people make an agreement to do, or not to do something. Certain types of contracts, involving commercial transactions, must be in writing in order to be valid. But most contracts do not have to be written.

A promise that you make is considered to be a contract if the other party relies on your promise. Recently, we have seen girlfriends and boyfriends claim that they were promised certain things by their former mates. These alleged promises called for lifetime care and support or a specific dollar amount to be paid at the end of the relationship. Since, by its nature, an oral agreement has no visible trail, these cases come down to one person’s word against the other.

One interesting case involved the ownership of a California lottery ticket. George and Sarah lived together but weren’t married. He was eighty-five years old, and she took care of him. They kept some spare change and a few dollars in a coffee can in the kitchen. Sarah would take out a dollar every few days to buy a lottery ticket. Over the years, there were a few winning tickets worth $20 or $100, and she would put those winnings back into the coffee can to finance future tickets.

One day they hit the grand prize of $12 million—twenty annual payments of $600,000, less taxes. Soon after the celebration was over, human nature being what it is, George claimed that the money in the coffee can was really his money and he was the sole owner of the ticket. Sarah, shocked and hurt, claimed they had always treated the coffee can money as joint property and that she was justifiably entitled to half of the winnings. Both sides hired lawyers, and George refused to settle the case.

The case went to trial in San Diego, and the jury found for George. They believed his story that the money to buy the ticket belonged to him and that there was no legal agreement between them to share the winnings. George got to keep it all.

We certainly do not know who was telling the truth, and that’s exactly the point. Nobody ever knows for sure who is telling the truth in these situations. That’s why anyone with whom you are involved, in any kind of business or personal relationship, can claim that you broke a promise and that they are entitled to some amount of compensation.

An employee can claim that you promised him a job for life. Let’s say that you own a medical practice and you decide that the work of Dr. Jones, a physician who works for you, is no longer satisfactory. If you fire Jones, there is an excellent chance that he will sue you. In the lawsuit, he will claim that he is entitled to a percentage of ownership in your practice based upon an oral agreement which you made. That is all he needs to do. He doesn’t need any other evidence. He simply claims that you made certain promises about sharing the practice with him. Now you have to defend yourself and risk losing a portion of your business. It is now your word against his, and the jury can decide who they believe. These types of claims are made every day in our courts, and many employers end up making huge settlements with the fired employee in order to avoid the expense of litigation and the risk of loss.

A Japanese chip manufacturer in the Silicon Valley closed down its plant and laid off all the workers. The company was sued by all 868 workers for more than $1 billion on the grounds that they were promised lifetime employment. The case was ultimately settled for more than $20 million after millions of dollars in legal fees and thousands of hours of wasted time and energy.

Claims of a contract based upon an oral agreement are numerous and difficult to defend against. I have three cases in my office right now where the plaintiff is claiming a legal interest in the client’s business based on alleged promises to share ownership. These claims are powerful and effective because they are easy to fabricate, expensive to defend, and may involve millions of dollars.

Down load pdf of the entire bookComing next:  Negligence

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The New Deep Pockets

by rjmintz on November 3, 2017

The new targets or the new Deep Pockets are those who have saved up some money for retirement, those who operate a successful business, and those who own a home or have some rental property with any equity. This number is a lot less now than it used to be. Real estate and stock markets have crashed. Many have lost their jobs and their businesses. Those who have survived are vulnerable because their savings are now even more valuable to them. The estimates are that there are more than 100 million adults in the population, and 30 million have mutual funds, savings, and a few even have some equity in their home. That’s 30 million people with something valuable to lose.

The Finemans of the world don’t get sued, and they don’t have to spend their time, energy, and money defending a case. They don’t get sued because they don’t have any money or anything worth taking. Aunt Ellen, who bought him the car as a gift, got sued because she had some money. She was the one who lost her home and all of her savings because she was the Deep Pocket. A lawyer’s job is to tie a party who has some money into a case so that he will get paid. A successful lawyer is one who can create a clever new theory of liability so that someone with money or insurance will be found legally responsible. Even if our common sense tells us that this Deep Pocket had nothing whatsoever to do with the injury, a judge or jury or court of appeals will decide a case based upon their own view of what is fair and rational.

A doctor prescribed antihistamines for a patient with an allergy. The patient ignored the warning label about driving while taking the medication and caused a serious auto accident. The patient had little insurance and few assets, so the doctor was sued. The plaintiff’s lawyer successfully argued that the doctor should have known that the patient might drive his car while on the medication. The jury found the doctor liable for $6.2 million in compensatory damages. The doctor’s malpractice insurance didn’t pay a nickel of the claim since the policy only covered claims by a patient—not those injured by a patient.

Was the doctor really at fault here? He lost everything he owned, and he didn’t do anything wrong. The mistake he made was not realizing that as a physician, and as someone who had a home and some savings, he was an inviting and vulnerable target for a lawsuit.

Down load pdf of the entire bookComing next:  Oral Contracts: An Abyss For Deep Pockets

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The Appeal of Settling

by rjmintz on October 25, 2017

When a lawyer threatens to sue you, he is exploiting all of these facts about human nature. He knows that the outcome of the case will be uncertain regardless of the merit of the case. He knows that if you have reachable and collectible assets, the risk of loss will cause you extreme worry and stress. Finally, he knows that if you choose to fight the case, your time and your privacy will be violated and your resources will be depleted or exhausted by tens or hundreds of thousands of dollars in needless legal fees and costs. Doesn’t settling the case sound much more appealing and logical?

Settling is more appealing, and that is exactly what you should do. As unfair as it sounds, if you fight the case, you may well lose. You will certainly spend much more money and time, and you may never recover from the emotional toll, the damage to your personal relationships, and the impact on your business.

If you have available and reachable assets, which can be uncovered in an investigation, then the lawyers hold the leverage. They know that you are vulnerable, and you are better off settling the case. They want some easy money from you, and then they will move on to the next case. That’s how the legal extortion racket works.

The Easy Cases Are Gone

Over the past decade, as the number of lawyers and lawsuits have increased, the insurance companies have adopted a policy of not settling cases. In the past, insurance companies routinely settled virtually every claim for a multiple of the injured party’s medical expenses. A slip and fall or auto accident case was worth approximately six times the amount of the medical expenses incurred by the client.

When an individual went to an attorney claiming injury from an accident, the attorney would send the client to a cooperative doctor for extensive medical care and therapy. The doctors (and chiropractors) billed wildly for every imaginable treatment and procedure—almost all of which was unnecessary and was performed solely to inflate the amount of the medical bill. The physician would get paid out of the proceeds of the eventual settlement. The lawyer had a nice fat medical bill—multiplied by six under the standard formula—which he could then present to the insurance company. The insurance company paid the inflated claim then raised the rates on all its policyholders to cover these costs.

At least several generations of personal injury attorneys have made handsome livings by playing this game. But unfortunately for them, in most states, this game is over. Starting in the early 1990s, many insurance companies adopted a policy of no settlement. When the attorneys offered up the medical expenses, the claims adjusters were required by their companies to reject the claim. The policy was to litigate every claim all the way to trial.

It was understood that this strategy would be more expensive in the short run as the companies incurred huge legal bills fighting even the smallest claim. The upside was that the personal injury lawyers, deprived of their bread and butter fast settlements, would be driven out of business as their cash flow disappeared. Most attorneys can’t wait two, three, or five years to get paid. And they certainly don’t want to shell out all of the costs of bringing a case to trial, including depositions, expert witnesses, and discovery. Even worse is that after putting up all the money and going to trial, the case could be lost. Years of hard work and lots of money down the drain. That result means financial disaster and one more overeducated short order cook.

The insurance companies were like a pack of big goofy elephants. They had no idea that they had the power to step on and crush their lawyer adversaries. Once they decided to use their great strength—virtually unlimited capital—they were successful beyond their expectations. Lawyers stopped taking the “slip and falls,” the bogus auto accidents, or any other insurance case without a big potential payoff. The insurance companies were the big winners. The lawyers, their incomes and lifestyles seriously impaired, looked around for new groups to target—an easier and softer prey not so willing and able to fight back.

Download pdf of the entire bookComing next:  The New Deep Pockets

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Asset Protection for Patients

by rjmintz on June 27, 2017

In light of the proposed appeal of The Affordable Care Act, we are re-issuing this Article about the importance of protecting your assets from unexpected medical bills and claims:

Asset Protection for Patients

By Robert J. Mintz

In a new and ironic twist, a growing number of individuals are now legally protecting themselves from their doctors. The idea may be surprising, but with rapidly disappearing health coverage, medical expenses are now a realistic and high probability threat to the lifetime savings of millions of Americans.  Just as physicians have been diligent about planning to minimize their malpractice liability risks, now patients are anticipating and protecting themselves against the serious financial consequences of unforeseen medical expenses.

No one doubts that there’s a monumental crisis in health care coverage. Forty-five million Americans have no medical insurance and even those with group or private policies are sometimes stuck with unexpected and un-payable bills. Higher deductibles and co-pays can easily balloon out-of-pocket costs beyond anything anticipated. Even those who think they have solid insurance, in a good plan, may find out, when it’s too late, that their coverage means a lot less than they thought.  Every day we hear stories from clients and the news about insurers refusing payment during or after treatment.  In a recent CBS News report about one of the nation’s largest insurers, Richard Blumenthal, Connecticut Attorney General, declared that “The company [Assurant Health] offers the illusion of coverage while challenging any large claim.” In the report, a former claims adjuster revealed that it was company policy to scrutinize any significant claim, often manufacturing excuses to avoid payment. Unfortunately, despite a few notable fines and lawsuit settlements, these hardball tactics appear to be the normal course of business for at least some insurers.

When Patients Can’t Pay

What happens when a large medical bill can’t be paid?  Usually the outcome is a lawsuit filed by the hospital or collection agency with a judgment and a lien filed against the patient’s home and accounts. In most states, a percentage of the debtor’s employment earnings can be garnished. Generally, before this point is reached, the patient files a personal bankruptcy to stop the wage garnishment and wipe out the medical bills and other accumulated debts. But that requires that he give up all of his assets including savings accounts, real estate and equity in his home.  These assets, except those that are specifically exempt, are turned over to the Court and divided among the creditors.

According to a 2005 study by Harvard University, about half of the 1.5 million annual bankruptcy filings are caused by illness and medical bills. And surprisingly, three fourths of those had health insurance at the start of the illness which triggered the filing. “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy”, said Dr. David Himmelstein, the study’s lead author and an associate professor of medicine. “Most of the medically bankrupt were average Americans who happened to get sick.”

How Patients Protect Themselves

The high level of financial risk posed by an unpredictable medical event is now leading patients to take steps to protect their savings from this threat. For instance, I met with Mr. and Mrs. X last week, a couple in their early 50s. They have about $300,000 of equity in their home and $200,000 in savings. Mr. X is self-employed and Mrs. X works for a small company. Both are covered under her group plan, but, with rising costs, the company might cut back or terminate the plan sometime soon. Individual policies may be available at that point but the cost and extent of the coverage is unknown.  The goal of their planning is to protect their savings from large, unexpected bills at any point in the future.  Asset protection, using techniques such as a Family Savings Trust can effectively shield savings from these events, but the planning must be completed before the fact. If bills have been incurred, or expenses loom, planning is too late at that point.

Conclusion

Of course the real solution to the problem is for everyone to have affordable insurance which covers any health care costs. However, it’s almost impossible to imagine a scenario in which competing financial and political interests are able to agree and implement a worthwhile plan, at least for the foreseeable future. For now, many believe that their only reasonable choice is asset protection to minimize these risks.  Early planning and advice from a knowledgeable local attorney are essential to the success of these measures.

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The Legal Extortion Racket

by rjmintz on February 28, 2017

What are the rest of the lawyers going to do? What about the other 95 percent of trial lawyers who are not so great and not such good lawyers? How is a lawyer who is not at the top going to feed his family? His chances of getting your case against Exxon-Mobil are about the same as hitting the lottery. Many of my close friends are personal injury attorneys. They think and dream about the one good case that will earn them enough to be on easy street. But the one good case never seems to come. Instead, most lawyers make a living by looking for somebody to sue and filing bad cases with bad facts. As long as a lawyer can find a potential defendant with even modest assets, he will attempt to make his case. If he doesn’t have a good case, he has to go with what he has. That’s how he makes a living.

The lawyer is willing to gamble that by filing a case he will be able to squeeze a settlement or play “lawsuit roulette” with the jury. Just like the population in general, from whom they are drawn, jurors can be confused and misled by emotional and irrational arguments. Experiments in human behavior show that most of the time individuals are unable to distinguish the truth from a lie. When asked to distinguish truthful from untruthful testimony based upon the demeanor and expression of the witness, in a majority of cases, the subjects in the experiment incorrectly identified the lie as the truth and the truth as the lie. The conclusion of the study has frightening implications. Jurors are more likely to believe a witness who is lying than one who is telling the truth.

This phenomenon has been understood and exploited for years by political leaders and others with a message to sell. A lie that is repeated forcefully and with conviction becomes accepted as truth. Think of the Nazi propagandists and the McCarthy type demagogues who convinced millions of people of the “truth” of their cause. More recently, public hysteria over so called “death panels” illustrates the relative ease with which fear and irrationality can be heightened and manipulated by skilled politicians to influence the outcome of the public agenda. Advertising messages repeated often enough are believed, regardless of the merits of the product and despite overwhelming evidence to the contrary. That’s the foundation of the advertising industry and is the basis on which political leaders and corporate interests present their programs.

In the same manner, a lawyer attempts to “sell” his case to the jury. Facts are distorted. Lies, half-truths, and perjured testimony are zealously advanced on behalf of the “injured” plaintiff. If things go right and the lawyer gets lucky or knows what he is doing, the jury will reward these efforts with a judgment for several hundred thousand or maybe a few million dollars. Every day in court a sympathetic plaintiff prevails against a wealthy or comparatively wealthy defendant— even in those cases which appear to be absurd, illogical, and utterly without merit.

Any lawyer who is still in business after a few years of practice has learned that the unpredictability of human behavior can be used to his advantage. The uncertainty of the outcome creates a potential risk of loss for even the most “innocent” defendant. Lawyers know that for most people the risk of financial loss also creates a highly uncomfortable level of emotional strain. If you have ever been sued—no matter what the cause—you understand that the unpredictability of the result and the possibility of economic loss can generate a severe degree of stress and emotional charge.

Download pdf of the entire book

Coming next:  The Appeal of Settling

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The Ability to Pay

by rjmintz on February 10, 2017

The Ability to Pay

The reality of our legal system is that people are named as defendants in lawsuits not because of their degree of fault but because of their ability to pay. When an attorney is approached by a potential client who is claiming injury or economic loss, the attorney will consider whether a theory of liability can be developed against a party who can pay a judgment. This is called the search for the “Deep Pocket Defendant.”

The Deep Pocket Defendant will have substantial insurance coverage or significant personal assets. The measure of an attorney’s skill is his ability to create a theory of liability which will connect a Deep Pocket Defendant to the facts of a particular case.

Here is an example of what might happen in a particular case. Mr. Wilson is driving in his car. Mr. Fineman runs through a stop sign at an intersection, smashing into Wilson’s car and causing Wilson severe injury.

From his hospital bed, Wilson Googles “local attorneys” and calls the first attorney he sees, Alan Abel. He is what is known as a “contingent fee” lawyer. He works for a percentage of the ultimate recovery and determines whether to invest his time and money in a case based upon what his expected return will be. Since the time and expense of preparing for litigation can be considerable, an attorney cannot afford to take a case that is not likely to pay off. Remember—no recovery, no fee. Usually the attorney advances all costs and expenses, and in exchange, he recovers these costs plus 30 percent to 40 percent of any amounts that he can get from the defendant.

Before Abel decides to take Wilson’s case, he will want to do some serious research to determine the merits of the case. Not the legal merits—the financial ones. He will want to know whether Fineman has substantial assets in order to make the case worthwhile.

Abel runs a financial search and determines that Fineman has no insurance and no significant assets such as a home or a retirement nest egg. What happens? Is that the end of the case? As for Fineman, it probably is the end of the case. Abel is not going to waste his time suing someone who can’t pay. But Abel is not going to give up so easily. He has a client with substantial injuries and that means a large damage award—big bucks. But first he has to find someone who can pay.

Here is how a successful lawyer would analyze the case to try to draw in a Deep Pocket Defendant:

    1.  Was Fineman on an errand for his employer at the time of the crash? If so, the employer can be sued.

2.  Did Fineman have any alcohol in his system? The restaurant that served him may have liability.

3.  Was Fineman on any medication? The pharmacist, drug company, or physician may have potential liability for failure to provide proper warnings, or for writing or filling the prescription improperly.

4.  The stop sign Fineman ran through was in a residential neighborhood in front of someone’s house. Did the homeowner properly maintain his property and clear his foliage to provide an unobstructed view of the stop sign? If not, there is a case against the homeowner for negligence.

5.  Did the municipality take due care in the placement of the stop sign? Should it have used a traffic light instead? There may be a case against the city or county.

6.  The driver’s side door of Wilson’s car collapsed on impact. There is a possible case against the manufacturer for not making a more crash resistant frame.

Do you see how far we are moving away from Fineman—the person responsible for the accident—in an effort to tie in a remote Deep Pocket Defendant? In any rational legal system, Fineman would be regarded as the wrongdoer—he disobeyed the traffic law and he caused the injury. Instead, we have an attorney trying to force the blame onto someone else—who wasn’t at the scene and doesn’t even know the people involved.

The example that we just gave you is taken from a real case. Guess who ended up as the defendant.

In the actual case, the defendant was Fineman’s ninety-two-year-old widowed great-aunt Ellen. As it turned out, she had purchased the car for Fineman as a gift to him. Abel’s private investigator searched the assets of Fineman’s relatives and found that Aunt Ellen had a house that she owned and some savings in the bank. She was named as the defendant in the case and was found liable on a theory called Negligent Entrustment. The jury found that she should not have bought the car for him. She should have known that he was a careless driver and might cause an accident. She caused the accident by buying him the car. The verdict was for $932,000, and Aunt Ellen lost nearly everything she owned.

The point of all this is that the foundation of every lawsuit is a defendant who can pay. Once such a defendant is located, it is easy enough to construct a theory of why that defendant should be responsible. Judges and juries often act on their emotions—not on the law. And when the contest is between an injured or a sympathetic plaintiff and a wealthy or comparatively wealthy defendant, the plaintiff will win virtually every time, regardless of the defendant’s actual degree of fault.

As a result, the plaintiff’s attorney will search for a party who can pay a hefty judgment. In the old days, it was said that “He who has the gold makes the rules.” Now the saying goes: “He who has the gold pays the plaintiff.” The fact is that no matter how remote your connection to an injury, if you have even modest assets, an attorney for the injured party will attempt to show that you are somehow legally at fault and you will be named as a defendant in the case.

Down load pdf of the entire bookComing next:  Not Enough Good Cases to Go Around

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