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Better InsightsThird Parties Must Tread Carefully When Implementing Freezing Injunctions Directed Against Them
04/30/2015In a recent Supreme Court of Canada decision in Carey v. Laiken, 2015 SC 17, a lawyer was found in contempt for returning funds paid on retainer to his client that were subject to a Mareva freezing injunction. In previous litigation, Ms. Laiken sued her broker claiming he had defrauded her. She obtained a Mareva order prohibiting the broker and anyone having notice of the order from "disposing of, or otherwise dealing with" any of his assets. A few months…
There has been a wrongful transfer of funds, but you are unsure who is responsible and what has happened with those assets, except that a Hong Kong party may have information. Under the well-established principle developed in Norwich Pharmacal Co. v. Customs and Excise Commissioners (1974) AC 133, the whereabouts of property can be located and wrongful parties can be identified. The House of Lords in Norwich Pharmacal found that where a third party had become involved in unlawful conduct,…
State Tax Developments for Pass-Through Entities: Apportionment of Income for Corporate Partners
03/17/2015State taxation of corporate partners in multistate partnerships raises interesting issues. In many circumstances, the corporate partner is subject to multistate taxation and is therefore engaged in the process of allocating and apportioning its income on a multistate basis. The difference between allocating and apportioning partnership income could have a material impact on a corporation's state blended rates utilized for provision purposes and could go as far as turning an otherwise non-cash paying taxpayer into one that pays cash taxes.…
Since there is no treaty between the US and England, enforcement of judgments are at common law. English courts will treat a foreign judgment as a debt between parties rather than requiring the matter to be re-litigated on the merits. The English court will consider the following: The judgment is final and conclusive on the merits. This does not mean that the appeal process must be exhausted. But, there must be no stay of enforcement. The claim is for a…
Enforcement against foreign assets in a US court has been difficult. However, the Middle District of Florida in Wells Fargo Bank v. Barber, 2015 WL 470589 (M.D. Fla Feb 4, 2015), showed how it is possible. There, plaintiffs had obtained a state court judgment and sought to enforce that judgment seeking injunctive relief, foreclosing on a membership interest in a Nevis LLC, and to avoid fraudulent transfers. Defendants sought to dismiss the complaint. As to the count to foreclose upon…
Not long ago, I was speaking with a representative at the Washington Department of Revenue about the state's market based sourcing rules for the Business & Occupation Tax. During our discussion, I expressed my frustration at the difficulties of identifying where a customer "receives the benefit of a service" for purposes of sourcing receipts to the state. Much to my amazement, the Washington representative assured me that the reason for the switch to market based sourcing was to simplify the…
Account Holders Lack of Contacts Fails to Subject Cayman Bank to Personal Jurisdiction in Texas
02/12/2015The 5th Circuit affirmed the district court's finding that a foreign bank does not subject itself to jurisdiction in the US when the bank has no physical presence, does not conduct business in the US and the contract underlying the lawsuit was not signed in the US nor require performance here. In Monkton Ins. Servs., Ltd. v. Ritter, 768 F. 3d 429 (5th Cir. 2014), a Cayman Bank, incorporated in the Cayman Islands, entered into a contract with a Cayman…
State tax credits have been in existence since the 1980s and can be found in 46 states. The credits offer a "dollar-for-dollar reduction" of a taxpayer's tax liability. However, the problem encountered early on in the promotion of these credits was what to do if the credit could not be fully utilized by the taxpayer. Transferability allows tax credits to remain attractive to businesses with a low tax burden because they are able to use part of the credit and sell the remainder…
A judgment from a non-English court that is sought to be enforced in England by common law is called an "action of the judgment." This involves the creditor commencing English court proceedings against the debtor where the cause of action is an unpaid foreign judgment for a definite amount which is final and conclusive on the merits. But, overseas judgments will not be recognized if: The judgment was obtained by fraud, Enforcement is against public policy The proceedings resulting in…
Another tax season is upon us, and the hardships of complying with another annual tax return filing requirement affects most of us. However, for same sex couples, the hardships are further exacerbated by the different tax laws at the state level. At the time this post is published, same-sex marriage bans remain in place in Alabama, Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas. These bans and various appeals cause uncertainty for…
Applicable as of January 18, 2017, a recently adopted European regulation facilitates cross-border debt recovery by enabling creditors to obtain a "European Account Preservation Order" (the "EAPO") given by one judge in a member state and attach a debtor's bank accounts in another EU member state without further court proceeding. The EAPO will enable creditors to obtain an order (i) before the creditor initiates proceedings on the merits against the debtor, (ii) at any stage during the proceedings until a…
The focus was clarified recently as to when documents can be obtained from a foreign subsidiary of a US parent company involved in federal litigation. In Sicav v. Wang, 2014 U.S. Dist. LEXIS 81098 (S.D.N.Y. June 12, 2014), plaintiffs brought a securities class action against a Nevada holding company with subsidiaries in China and sought the production of documents from the overseas subsidiary. The court identified four factors that must be established to require the parent company to produce documents…
A recent judgment of the Royal Court of Jersey shows how offshore fiduciaries and corporate service providers unquestioned loyalty can be very costly. In Noland and others v. Minerva Trust Company and others (2014) JRC078A, a trust company's officers did whatever they were instructed without asking questions. The trust company provided directors to a number of Jersey companies which were beneficially owned by a fraudster. Here, money was to be used to invest in German hospitals when the trust company's…
Increasingly, taxpayers are seeing the imposition of penalties on deficiency assessments. In fact in a number of situations the imposition of the penalty is automatic upon the issuance of the assessment. The penalties, which may range from 20% to 25% of the liability, are imposed for late payment or underpayment of taxes. Such penalties are generally imposed without taking into consideration the fact there is a lack of guidance or legal authority with respect to the substantive issue which gave…
The High Court in the United Kingdom granted an order for the identification and location of bank accounts from the London branches of two Italian banks. In Credit Suisse Trust v. Intesa Sanpaolo & Anor. High Court (Ch. D), 6 March 2014, the applicant Credit Suisse Trust sought Norwich Pharmacal relief against two Italian banks in connection with a worldwide freezing order issued after a trial in Guernsey. The Italian banks questioned whether information could be released by Italian banks…
Today, litigants are confronted with defendants who have sought to put assets beyond reach by moving them overseas, often into trusts or corporate structures in International Financial Centers. In response to the increasing internationalization of commercial fraud and a concern that their jurisdiction would gain a reputation for being a place where fraudsters could safely hide assets, the Cayman Islands enacted the Grand Court (Amendment) Law. By the Amendment, new Section 11A gives the Grand Court the power to make…
Gay Marriage: A Split amongst the Circuits
11/11/2014On November 6th, those fighting for the right to gay marriage across the entire U.S. were dealt a heavy blow when the U.S Court of Appeals for the Sixth Circuit ruled against the practice of gay marriage in four states (Kentucky, Michigan, Ohio and Tennessee). The ruling causes a split amongst the federal circuits on the issue and, consequently, added pressure on the U.S. Supreme Court to take up the issue of gay marriage once and for all. In fact,…
Maryland v. Wynne: Sammy Sosa’s Revenge?
11/05/2014Some have called it the most important state and local tax case that the United States Supreme Court has heard in 20 years. The case is Maryland v. Wynne and it concerns the extent to which a state must provide credits for taxes paid to other states. The Wynnes, shareholders of an S corporation, paid income tax as non-residents in states where their business operated. The Wynnes then claimed a credit on their resident Maryland income tax returns for the…
On October 23, 2014, the New York Court of Appeals in Motorola Credit Corp. v. Standard Chartered Bank, 2014 NY Slip Op 07199, decided whether the "separate entity" rule serves to prevent a judgment creditor from ordering a garnishee bank operating branches in New York to restrain a judgment debtor's assets held in foreign branches of that bank. There, the plaintiff served a restraining order on the New York branch of Standard Chartered Bank, which froze funds at Standard's UAE…
I recently had the opportunity to speak at the Chicago Bar Association regarding non-traditional defenses in state tax cases. Since preparing for that presentation, I have taken some time to reflect on how taxpayer bills of rights and procedural due process rights tie into my representation of taxpayers in state courts and before state administrative bodies. Nowhere do these issues seem more useful than in the context of alternative apportionment. In a recent two-part article that Breen Schiller and I…
Texas, like five other states, allows for pre-action discovery to discover the potential wrongdoers in an articulated claim. Rule 202 of the Texas Rules of Civil Procedure authorizes a pre-suit deposition to investigate a potential claim. In In re John Doe a/k/a "Trooper", No. 13-0073 (2014), the Texas Supreme Court considered a situation where an anonymous blogger launched an on-line attack of a company that develops and markets software for use by auto dealerships and its CEO. The CEO lives…
In a recent Private Letter Ruling (201438014), the IRS issued a taxpayer a triple-whammy. The PLR concerns a trust instrument that identified certain "pecuniary bequests" to be made to charities named within the trust agreement. Unfortunately, there were insufficient assets outside of an IRA from which to satisfy the pecuniary bequests. The IRA, however, did not name the charities as beneficiaries, but rather named the trust. Normally, paying an IRA to a trust results in income taxation on the amounts…
In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the US Supreme Court in January 2014 held that a corporation is not subject to personal jurisdiction merely because it "engages in a substantial, continuous, and systematic course of business" in a forum. A corporation is subject to general jurisdiction only where it is considered "at home" and absent exceptional circumstances, a company is only "at home" where it is incorporated or has its principal place of business. Based on…
On August 4, 2014, the U.S. Tax Court issued a final decision in the case of Estate of Franklin Z. Adell v. Commissioner (T.C. Memo 2014-155). The case involved Franklin Z. Adell, deceased. At the time of his death, Franklin owned 100 percent of the stock of STN.Com, a cable uplinking company. STN had only one customer, The Word network. The Word is a broadcast network managed by Franklin's son, Kevin. Nearly all of STN's revenue came from its contract with The…
Taxing and Legitimizing the Sharing Economy
08/26/2014The so-called "sharing economy" has recently gained a lot of steam. This model, which helps owners of latent high value assets pair up with possible users of those assets, has been cited among the most dynamic and exciting types of start-ups over the past few years. In fact, just this Monday, Illinois Governor Pat Quinn vetoed legislation that would have seriously restricted the extent to which the ridesharing app Uber may do business in the state, citing a fear of…