Archive for September, 2009

25
Sep

I attended the 2009 annual American Agricultural Law Association conference in Williamsburg, Virginia.   The lunch speaker on September 25th was Tom Vilsack, the Secretary of Agriculture.  He’s a good speaker:  he measures his words carefully and is a smart guy.

Mr. Vilsack spent a couple of hours with us and took questions at the end.  I asked for the administration’s view on the estate tax.  Those of us in the estate planning field know that the estate tax law was passed in 2001.  Under current law, there is no estate tax in 2010, but it returns with a vengeance in 2011.

So, Congress needs to provide a long-term fix.  Mr. Vilsack acknowledged that he did not know the official White House position.

I was impressed when Mr. Vilsack (who himself practiced law in Iowa) said he’d check on this issue.  How cool is that – a Cabinet-level guy going back to Washington knowing that we want to know the future of the estate tax?

I think this issue will be on his radar in the future, and may not stay in idle.

The lunch was a highpoint – the best speaker I’ve ever heard at the ag law conference, and we get some good ones.

Category : Developments | Blog
25
Sep

This is part two of a discussion of an intriguing law review article on fiduciary duties as applied in the context of limited liability companies.  The prior blog considered the theological roots cited by Ms. Szto.  This part examines other roots for fiduciary duties.

Ms. Szto starts again with a religious analysis.  Says she, “Canon lawyers provided the link between Roman legal devices and biblical views of property.  For several centuries, the study of Roman law found a home within the church.  Augustine taught that property must have a spiritual use.”

Now we are introduced to the connection between fiduciary obligations and the church – Ecclesiastical courts handled probate matters.

Says the author, “The Middle Ages saw the development of the use, the forbear of trust and agency law (agency and trust law being the forbears of partnership and corporate law).  This came about mainly through ecclesiastical courts.  It was accomplished through continued clerical adaptation of fidei commissa . . . and the ecclesiastical court’s jurisdiction over probate law.  Eventually, the Courts of Chancery enforced uses.  All these lay the groundwork for high business fiduciary duties, many centuries later.”

In this way, fiduciary relationships evolved from rules limiting inheritances in real property.  Ms.  Szto explains that, “Uses of personalty were enforced in the 1100’s by English common law courts.  However, the Franciscans are credited for the first wide-scale employment.  St. Francis of Assisi founded the Franciscan Order in 1209.  According to Maitland, although the Franciscans had taken vows of property, they employed the ‘ad opus’ to receive the benefits of property ownership, which was akin to the Roman ‘usus.’”

Which is to say, the clergy helped drive the “use,” in which beneficial possession was separated from actual legal title.  Even more, conveyance of fee ownership by will was limited, at least in England.  “Because the common law prohibited the devise of freehold land, the feoffment to uses were popular during the rein of Edward III (1327-1377).  Feoffors would convey land to feoffees, who then conveyed land to third persons – cestui que uses – named in the feoffors’ wills.  The terms use, confidence, and trust were used simultaneously.”

Still, a right without a remedy has little value.  The court must step in when misconduct occurs.   “There is evidence that ecclesiastical courts enforced uses before the Courts of Chancery did.  This is because ecclesiastical courts had jurisdiction over probate matters. . . . Interestingly, records of ecclesiastical enforcement of uses disappear in the last part of the 1400’s, apparently because of the jurisdiction of the Courts of Chancery over uses at that time.”

More next week on the limited liability companies.

Mary Szto, “Limited Liability Company Morality: Fiduciary Duties in Historical Context,” 23 Quinnipiac Law Review 61 (2004-2005).

Category : Law Reviews | Blog
17
Sep

Legal commentators have differing opinions regarding the origin and background of fiduciary duties.  A recent article by Mary Szto would seem to focus on the business side of things, as her article is entitled “Limited Liability Company Morality: Fiduciary Duties in Historical Context,” 23 Quinnipiac Law Review 61 (2004-2005).

However, the author strikes a deep religious tone to fiduciary relationships.  Says Ms. Szto, “Fiduciary duties are the offspring of ecclesiastical property views and Roman legal forms.  They would then mature into agency and trust law; partnership and corporate law would later wed them to the business association.  They are Christological in origin.  Fiduciary duties acknowledge that property ownership, including the business enterprise, requires stewardship.”

In analyzing the history of fiduciary duties, she argues that, “The origin of fiduciary duties has religious and secular roots.  These roots were wed by canon lawyers in the medieval era . . . Fiduciary duties in the biblical tradition begin in the Genesis creation account.  The human mission on earth is being a fiduciary, being a steward of God’s and other’s property.  Israel is a fiduciary.  So is Jesus Christ.”

Continuing in this vein, she explains that,  “In the biblical account, after creating the world, God appoints man and woman as agents.  They steward the world, exercise dominion, and are fruitful.   God is the world’s eternal owner, and his agents are stewards.  Fiduciary duties thus bond God, his creation, and his creatures.  Adam and Eve failed in the enterprise, however, and the rest of biblical history is the story of redemption.  It is a search for the faithful fiduciary and a permanent inheritance.  God redeems Israel from Egypt and gives Canaan to her as an inheritance.

“Within this creative-redemptive-consumptive framework, business people in the Bible have fiduciary duties to God and others . . . In Christian theology, Christ is the perfect fiduciary.  He is the selfless steward who lays down his life for others.  By dying and rising, he enables those who accept him to have an eternal inheritance.  Christ is the bridge between death and life, time and eternity, temporal and permanent property.”

Next week we’ll continue an analysis of this article.

Category : Law Reviews | Blog
10
Sep

In a June 2009 decision from New York’s highest court, the Court of Appeals held that attorneys for a hedge fund did not owe fiduciary duties to the investors.  The hedge fund in question was structured as a limited partnership, and the investors were limited partners.

When the investment turned sour, the investors sued, claiming the law firm knew that the hedge fund operators had invested money in violation of the restrictions set forth in the partnership agreement.  The lower court dismissed the action against attorneys, which decision was affirmed on appeal.

As to the claim against the attorneys for breach of fiduciary duty, the court explained that:

“A fiduciary relationship arises between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.  Put differently, a fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other.  Ascertaining the existence of such a relationship invariably requires a fact-specific inquiry.”

The court further held that:

“To the extent plaintiffs assert claims for fraud or aiding and abetting predicated on [the attorneys’] silence, they similarly fail for lack of a duty to disclose.  In the absence of a fiduciary relationship, we perceive no legal duty obligating [the law firm] to make affirmative disclosures to plaintiffs under the circumstances of this case.”

While that’s one way of defining the fiduciary relationship, it only leads to more questions.  Fiduciary duties  arise in the context of certain relationships, in which the law imposes heightened duties on one of the parties.  It would have been easier if the court simply stated that the attorneys did not owe a fiduciary duty to the investors because the attorneys represented the hedge fund, not the limited partners.

Eurycleia Partners v. Seward & Kissel, 12 N.Y.3d 553 (June 4, 2009)

Category : Case law | Blog