Legislature passes ‘one of the more disturbing bills’ following insolvency decisions

Nearly four months ago, two decisions were issued that involved parties in a commercial mortgage-backed securities loan — a non-recourse loan — which required the defendant landowner remain a “single purpose entity.” But the defendants became insolvent and defaulted on the mortgage.

The Michigan Court of Appeals ruled in Wells Fargo Bank v. Cherryland Mall Ltd. Partnership, et al. and the U.S. District Court in 51382 Gratiot Ave. Holdings, LLC v. Chesterfield Development Co. LLC that, by becoming insolvent, the defendants lost its single-purpose entity status, causing the loans to become recourse loans and allowing the plaintiffs to sue for the deficiency.

Now, the Detroit Free Press has reported that:

Wells Fargo bank will file a court challenge to a new state law signed by Gov. Rick Snyder that overturned a $2.4 million judgment against the brother and business partner of Michigan Republican Party Chairman Bobby Schostak, the bank’s attorney said Friday.

The law Snyder signed Thursday, which says a lender can recover only the real estate offered as collateral when a certain type of commercial loan goes into default, is unusual because it is retroactive, to the benefit of Schostak’s brother.

It sailed through the Legislature with bipartisan support but left some unhappy lawmakers in its wake.

“It was one of the more disturbing bills that we’ve taken up this session,” said Rep. Tom McMillin, R-Rochester Hills, who chairs the House Oversight, Reform and Ethics Committee.

The law is intended to overturn a judgment related to an unpaid loan on a Traverse City mall that was controlled by the Livonia-based real estate firm Schostak Bros. That judgment was upheld by the Michigan Court of Appeals.

The new law also could impact at least one other case recently decided on similar grounds in federal court in Michigan, though attorneys and legal scholars say the new state law may violate the U.S. Constitution.

“We fully expect to challenge the constitutionality of this law on a number of grounds,” said Troy attorney James Allen of Miller Canfield, who represents Wells Fargo, the bank that says it is owed the money.

 Our analysis of the two cases can be found here (subscribers only).

What’s going on with the SBM president these days?

We’re almost at the point when we can write a headline saying “State Bar of Michigan President Julie Fershtman: The First 100 Days,” but we’ll jump the gun a bit here.

Over a cup of Earl Grey tea at a Starbucks near her Foster, Swift, Collins & Smith, P.C. office, the 2011-12 SBM president reflected on all the things she’s either worked on, witnessed, or simply felt good about since her Sept. 15 inauguration.

First is the task force Fershtman formed to enhance the SBM’s Practice Management Resource Center (PMRC). Headed by Rebecca Simkins, it’s working on coming up with recommendations by April — some of which could be instilled immediately, others may be long-term goals.

But it’s been getting the word out about the PMRC overall that Fershtman said has given her the greatest satisfaction. Meeting with bar associations across the state, she said practitioners have been receptive to taking advantage of the service, which offers bar members training and hands-on assistance with legal technology and management components. She noted that many of the bar members she’s met haven’t known much about the PMRC, and she hopes the task force helps to change that.

That leads to hearing from bar members directly. Fershtman did say in her incoming speech that she wants to be the most accessible SBM president in history — complete with a presidential blog — and has kept her word by taking emails and calls from practitioners, spending upwards of an hour on the phone listening to what they have to say.

“I’m encouraged that they are comfortable enough to make the call,” she said.

Fershtman added that she’s also encouraged by the SCAO report calling for the elimination of 45 judgeships across the state — per the SBM’s Judicial Crossroads Task Force’s report — which she said wasn’t met with the kind of resistance as expected, as it’s attrition-based, “which is what we were seeking.” As well, she said Gov. Rick Snyder’s recently formed Indigent Defense Advisory Commission looks promising.

Still to go at the bar, she said, is better educating the public on the unauthorized practice of law, as well as the “Solutions on Self-Help” project, meant to give in pro parties some direction as to the proper court forms they need, and thus not wasting judges’ time.

Not bad for 100 days. Or something close to that.

Snyder appoints three to 36th District Court

Michael Wagner, Shannon Holmes and Prentis Edwards Jr. have been appointed to the 36th District Court in Detroit.

“I am very impressed by the legal skills, extensive experience and community involvement demonstrated by Michael Wagner, Shannon Holmes and Prentis Edwards Jr.,” said Gov. Rick Snyder in a prepared statement. “All three are highly successful attorneys and I am confident all three will make excellent judges.”

The appointments fill open seats created by the death of Judge George Chatman and the resignations of Judges Nancy Farmer and Noceeba Southern.

Wagner and Edwards Jr. were previously employed by the Wayne County Prosecutor’s Office. Holmes has worked as chief of staff for Detroit Mayor Dave Bing.

All three must run for election in 2012 to retain their seats.

MSC to hear pension tax arguments next week

A recently enacted bill that phases out the tax exemption for public employee pensions, and whether it violates the Michigan and U.S. constitutions, is at issue in a case that the Michigan Supreme Court will hear on Sept. 7.

The Court will hear In Re Request for an Advisory Opinion Regarding Constitutionality of 2011 PA 38 at the request of Gov. Rick Snyder, who asked the Court to rule before Oct. 1, the earliest date that any of the act’s provisions could take effect.

Opponents of the law say that it violates the Michigan Constitution because it reduces the pension income that public sector retirees have already earned. The bill’s supporters say that the Constitution does not create a permanent public pension tax exemption and that the bill is consistent with the Legislature’s power to tax.

Oral arguments will begin at 10 a.m. at the Michigan Hall of Justice in Lansing.

Two judges appointed for Barry County

LANSING — Gov. Rick Snyder announced the appointments of Amy McDowell to the 5th Circuit Court in Barry County and Michael Schipper to the 56-B District Court in Barry County. 

McDowell, of Hastings, fills the vacancy created by the retirement of Judge James H. Fisher effective June 30, and will need to run in November 2012 for the remainder of Fisher’s term ending Dec. 31, 2014.

She spent five and a half years with the Barry County Prosecutor’s Office before entering private practice in 2001. She founded the law firm McPhillips and McDowell in 2003.  

Schipper, of Middleville, fills the vacancy created by the retirement of Judge Gary R. Holman and will serve the remainder of Holman’s term through Jan. 1, 2013.

He began his law practice with the Grand Rapids law firm Clary Nantz before joining the U.S. Attorney’s Office in 1990, where he worked for 20 years with the civil and criminal divisions. He has most recently served as director of compliance for A.D. Maxim & Associates, a health care consulting firm.

Source: State of Michigan

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

MSC to consider constitutionality of pension tax law?

Who wants to wait for a proper case to matriculate through the court system? Not Governor Rick Snyder and the Michigan Senate They want the Supreme Court to opine on the constitutionality of the pension tax, which exempts people born before 1946 [Saginaw News/Mlive]:

With no debate and a quick voice vote, the Senate this morning approved a resolution formally asking the Michigan Supreme Court to weigh in on the constitutionality of the tax bill it approved last month. Specifically: taxing public pensions, taxing retirement differently according to age and eliminating the personal deduction for those above a certain income.

Expecting lawsuits from public employee groups, particularly over whether taxing public pensions violates a Michigan Constitution provision barring the impairment of a pension benefit, Gov. Rick Snyder filed a similar request last week.

Eliminating the Michigan Business Tax and replacing the revenue with a host of income tax changes will cost certain pensioners born after 1945 some $340 million in new taxes. About a quarter of that is estimated to come from the pensions of public employees.

Of course, if the court does agree to hear the issue and strikes the new tax, one would find it highly unlikely that the Legislature could replace the tax before it is supposed to go into effect on January 1 of a major election year.

State Bar’s force report goes before House Judiciary Committee

Members of the state House Judiciary Committee appeared to be business-oriented Thursday when Janet Welch, executive director of the State Bar of Michigan, made a presentation on the Bar’s recently released Judicial Crossroads Task Force Report.

The report offers suggestions on what can be done to fix the state’s justice system during a massive state budget crisis, such as the state being responsible for funding an indigent defense system; making e-filing statewide; and a shared jurisdiction system that would reduce the number of judges.

Though the Legislature can only push for such legislation as court consolidation and indigent defense, the idea of a business docket perked the most interest.

Rep. Ken Horn, R-Frankenmuth, and Rep. Phil Cavanagh, D-Redford Twp., said they were intrigued by the three-year pilot program, which would be based in Oakland and Wayne counties, the state’s most active court systems. It would involve two or three judges solely dedicated to business-to-business disputes.

When asked whether it would involve additional costs, Welch said once it’s up and running, it would be a means of saving costs. She added that the business impact committee, which drafted the pilot idea, found that such a model would not take any resources away from each county’s existing court system.

But actual cost numbers were what some committee members most hoped to review.

While Rep. Kurt Heise, R-Plymouth, called the report a “great first step,” he added that he shared the same views as Rep. Bob Constan, D-Dearborn Heights, in that the two would have liked to see more specific recommendations with respect to court consolidations, pay cuts for judges and staffs, especially in southeast Michigan.

Essentially, “how we can see the kind of sacrifices of the judicial branch that, frankly, the rest of us are having to make, and, as we’ll learn by the end of the day [following Gov. Rick Snyder’s budget proposal presentation], that we’re going to have to make even more of.”

Welch said that there will be more specific numbers as concurrent jurisdiction plans go forward.

After the meeting, Rep. Mark Meadows, D-East Lansing, mentioned that there are bills ready to be introduced for indigent defense funding, and that stronger efforts would be made following last year’s legislative collapse. In addition, Committee Chair Rep. John Walsh, R-Livonia, said that there would be a committee made up specifically for it.

Because of time restraints, Welch was invited to return to the next committee meeting for further questions on the report.

The report, which was written for members of the Legislature, the governor and the Michigan Supreme Court to review with the intent that they will consider making changes, can be found at http://www.michbar.org/judicialcrossroads.

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine