Lancaster Law Blog : Lancaster PA Lawyer & Attorney : Russell Krafft & Gruber Law Firm : Pennsylvania : Lancaster's Legal Link

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The Pennsylvania Supreme Court sent shockwaves through the lending world in May 2012 when it issued its opinion in Commerce Bank/Harrisburg  v. Kessler. In the case, the Court held that a bank's open-end mortgage was subordinate to a mechanics’ lien because part of the mortgage proceeds were used to fund soft costs like taxes and certain fees.

The Open-End Mortgage Exception

Kessler stands for the basic proposition that  "all means all" in Pennsylvania's open-end mortgage statute, with “all” referring to the amount of the loan proceeds that must go directly toward construction costs in order for an open-end mortgage to fall under the exception to Pennsylvania’s Mechanics' Lien Law. While typically a mechanics’ lien has priority under the law, the exception allows  an open-end mortgage to have priority over a mechanics’ lien when the proceeds of the loan secured by the open-end mortgage fund “all or part of the costs of completing erection, construction, alteration or repair of the mortgaged premises." In order to obtain this priority, the Pennsylvania Supreme Court decided that all of the proceeds of an open-end mortgage must be applied to hard costs, which greatly impacts lenders in Pennsylvania.

New Legislation Following Kessler

This year, new legislation was introduced which seeks to remedy this problem for lenders in two ways. First, the open-end mortgage statute would be amended to specifically allow proceeds to be used to fund soft costs, such as title insurance, transfer taxes, legal fees, engineering fees, accounting fees, architectural fees and management fees. Second, a mortgage will qualify as an open-end mortgage if at least 60.00% of the loan proceeds are used for these eligible costs. Metro Bank would have prevailed in Kessler if either one of those provisions were included in the statute at the time.

If Senate Bill No. 145 is passed, Pennsylvania lenders will be better protected with respect to their lien priority for construction loans.  Until then, there are some steps that can be taken to  protect those security interests. 

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About a week or so ago the stack of letters pictured to the right arrived in the mail like a stack of Christmas Cards.  The letters were from "Corporate Records Services" and stated on the front of the envelope "IMPORTANT ANNUAL MINUTES REQUIREMENT STATEMENT."  Initially, the letters appeared to be a mass mailing or simple junk mail solicitation. Russell, Krafft & Gruber, LLP received these letters because in the past many clients used our firm's address as their registered corporate address with the Department of State.  It was clear that someone had logged onto Pennsylvania's Corporation Bureau website and sent a mailing to every registered corporate address.  We still didn't know exactly what this was, but on the front of the envelope it stated "THIS IS NOT A GOVERNMENT DOCUMENT", so we knew it was a private company soliciting Pennsylvania businesses.

Alas, the mystery was solved when I saw Matt Miller's article on pennlive.com which stated that the US Attorney's office filed a civil suit against Aaron Williams and his business Pennsylvania Corporate, a California company, for trying to scam Pennsylvania companies with a similar or identical mailing.  The mailing indicates that corporations are required by law to have annual meetings and minutes and that the company sending the form will satisfy this requirement for $125.  Admittedly, the mailings we received do not have the same language as the mailings referenced in the suit, which stated failure to remit the $125 fee could result in the companies losing their limited liability protection and lead to dissolution, however, the fee charged is identical and the letter certainly creates the appearance that it is a government mailing and a legal requirement, despite the language on the front and the sheet inside pictured above.

In addition, the Pennsylvania Department of State has issued an Important Consumer Alert regarding these letters. If you receive a similar letter in the mail we recommend you do not pay the $125 fee or fill out the form . Instead contact a licensed attorney to assist you with your business matters.  Although you will not automatically lose your limited liability protection or be dissolved for failing to keep annual minutes and hold annual meetings, it is still a good idea to keep your records up to date for a number of reasons.  First, it helps bring all of the shareholders or members together to discuss the issues facing your business on an annual basis.  Second, there is some truth to the assertion that failure to follow corporate formalities could lead to "piercing the corporate veil" in the event you're sued, although it is rare.

Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University and practices in a variety of areas including Business Law.

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On the day following the horrible events in Boston on April 15, the Internal Revenue Service announced that it would provide a three month extension for taxpayers affected by the explosions to file and pay their federal taxes.

While the extension automatically applies to taxpayers who live in Suffolk County, Massachusetts, it also applies to victims, their families and first responders who live elsewhere. The extension also applies to taxpayers whose tax return preparers were adversely affected.

During the extension period, no filing or payment penalties will apply. However, interest will still apply to any payments made after the April 15 deadline. Interest will be charged at three percent, compounded daily.

Eligible taxpayers living outside of Suffolk County can claim the extension by calling the IRS at 1-866-562-5227 beginning on April 23. Eligible taxpayers who receive tax penalty notices can also call this number to have those penalties abated.

Within the next week, it is expected that the IRS will issue a notice clarifying the application of the extension and the determination of who will be eligible.
  

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Although I don't spend much time watching TV, I came across the new Netflix series House of Cards in which all 13 episodes were released at once for back to back watching. I enjoyed the series for its political perspective, but found it interesting as an employment lawyer as well.

Claire Underwood played by Robin Wright is the cold and beautiful wife of Francis Underwood, House Majority Whip (Kevin Spacey). Claire is the director of the non-profit Clean Water Initiative (CWI). In the beginning of the season, she fires half her staff, assigning the actual serial ax job to the office manager, who is terminated by Claire immediately after the firings are completed. She then actively recruits Gillian Cole (Sandrine Holt). When Claire first interviews Gillian, she is ill and, even before she is hired, Claire sends her to her personal physician, all expenses paid, a novel recruiting tool. Once she is on the job for a few months, Gillian tells Claire that she is pregnant as an explanation of why she cannot fly on CWI business. Gillian begins missing work periodically, and childless Claire makes a remark questioning her priorities and commitment to CWI. Ultimately, Gillian defies Claire on a matter of principal and Claire fires her on the spot for her insubordination. When Claire is later visited by counsel, we find out that not only has Gillian sued CWI but that she will not accept any monetary amount to settle her claim. Gillian tells Claire that the publicity resulting from her suit will cost CWI, Claire and her high profile politician husband more than any settlement payment and insure a better world for her unborn child. She also has many witnesses happy to testify for her including the former office manager, and adds that any embellishment of her testimony is justified by the need to expose CWI as a sell-out to corporate interests.  

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"Lessons from the Lion's Den:  Employment Law Takeaways from the Penn State Scandal" is the title of one of the sessions I will be attending at the Employment Law Institute, a gathering of employment lawyers in Philadelphia later this month. I anticipate this will be a popular session as the Penn State scandal has changed much of the way we approach not only employment law but education processes and non-profits' conduct as well. 

As a volunteer Master Gardener through the Penn State Cooperative Extension, I have been recently notified that all Master Gardeners must have background checks performed. One of the forms that I just received and must complete, along with all other volunteer Master Gardeners, is a Disclosure Statement in which I must report professional misconduct or sanctions, and any harassment or discrimination that I was found to have committed by any court, adjudicative body or administrative body including, but not limited to, any findings of harassment or discrimination made by present or former employers. I am further to report any felony or misdemeanor for which I was convicted or pled no contest. 

Although I am told that engagement in such conduct may not, in and of itself, disqualify me, failure to disclose this information or any misrepresentation is grounds to revoke my volunteer certification as a Master Gardener. 

Certainly, criminal convictions in which an individual is afforded due process protection, and which are public record, are something that is reasonable to report. However, findings of harassment or discrimination made by present or former employers is not in the same category. I advise both employers and employees that any internal investigation of harassment or discrimination in the workplace is distinguishable from criminal process in that due process rights do not exist. Someone about whom a harassment or discrimination complaint is made is not entitled to counsel, not entitled to cross-examine his or her accuser and not entitled to notice of interrogation.

Requirements for disclosure, such as I just received, will increase the pressure on both employers and employees to engage in a more legalistic process within the workplace before findings are made that could have long term ramifications. 

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. She received her law degree from Duquesne University School of Law and has practiced in the area of employment law for over 25 years.

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We have previously written that one of the most important advantages of the Alternative Rehabilitative Disposition option when facing a DUI is that it will not count as a criminal conviction. Further, once you complete the ARD program, you can have the charges completely expunged from your record. Some of my clients ask me why it is so important to have a clean criminal record (and by clean, I mean having no convictions for misdemeanors or felonies). The following is a list of areas to illustrate how having a criminal record can have a negative impact on your life:

Employment

Employers can generally use your criminal record as a determining factor in hiring and firing, and most employers prefer not to employ those with criminal records. An ARD is no guarantee that the charges or conduct which supported the charges will not be a problem in employment, but there is no question that it is preferable to a conviction or guilty plea that cannot be expunged.

Travel

A criminal record can make it difficult for you to travel outside of the country. Some countries refuse to allow entry and others require you to deal with red tape, such as filling out waivers, releases, and other documents, before they will let you enter.

Housing

A criminal record could also affect your ability to live in a particular place or building. This is not the general rule, but some condominium and planned communities have restrictions preventing sales of real property to persons with criminal records.

Credit

A criminal record can also have a negative impact on your credit score. Primarily, the impact comes from the employment problems discussed above limiting or reducing your income, but it could also impact your ability to obtain certain loans, especially those subsidized with government funds.

Privacy

In Pennsylvania, it is possible to research the criminal court docket in almost every criminal case, including ARD cases. Thus, anyone could go online and find a person's case, the charges against the person and the outcome of the case. Most people are not comfortable with that information being so public.

Family

If you are currently going through custody or a divorce proceeding, this could have a negative impact on your position.

There are various other effects a criminal record can have on your life. If you are charged with DUI, consider speaking with an attorney who can guide you through the process of determining whether you qualify for the ARD program.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including DUI/ARD.

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Custody can be a tricky issue no matter what the child’s age. When you add a teenager into the mix, it can be even more difficult to navigate the correct procedures for custodial parents and non-custodial parents to follow. Teens often have strong opinions on which parent they prefer to live with, opinions that can change rather often or unexpectedly. The issue becomes even more clouded when a teen is close to age eighteen. Parents often wonder to what extent they should treat their teens like adults in making major decisions such as which parent to live with.

In my family law practice, I have encountered situations where a non-custodial parent wants to follow the wishes of a teenager and allow him or her to move into their home.  For example, the question may be, “Can my sixteen-year-old daughter just move in with me? Even though the Custody Order gives my ex primary physical custody, isn’t she old enough to decide where she wants to live?”

I always caution parents in this situation. Do not allow your teenager to just move in with you on a whim or because he or she is upset with the other parent. The existing Custody Order is an enforceable legal document and non-compliance could result in contempt proceedings being brought against you. Regardless of the fact that the teen could be only months away from the age of majority, a Custody Order is a directive from the Court, and both parents are obligated to comply with it.

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As family law attorneys, we often encounter the issue of relocation in custody situations. I previously wrote about the top custody myths in Lancaster County and addressed a common myth that parents have in custody situations -- "I can move wherever I want and take my children with me." This assumption, as I point out and as Holly Filius expands on in her blog post about changes to the Pennsylvania Custody Act, can be hazardous for parents who do not understand or know about the notice requirements of the law. These requirements are discussed frequently in family law sites and blogs, but what many clients wonder is how far a move has to be in order to trigger the notice requirements required by law. Is it okay to move to the next neighborhood? The other side of town? What about 30 miles away?

The Custody Act defines relocation as any move that significantly impairs the non-custodial parent's ability to exercise custodial rights to the children. Any move that falls under this definition requires the custodial parent (the parent who has physical custody of the child or children the majority of the time) to follow the notice procedures of the Act. This begs the question, how far can a move be before it "significantly impairs" the other parent? Here in Lancaster County, a move is usually considered relocation if the custodial parent proposes to move with the children to a different school district. Changing districts could make it difficult for the other parent to complete the necessary custodial exchanges and take the children to any events or appointments they have while under their care. Although there are some Pennsylvania school districts that are geographically small, rural ones can be spaced far apart so that even moving to the "next district over" could create a significant distance to travel. 

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The idea of getting the State of Pennsylvania out of the alcohol business has been kicked around by numerous legislatures over the last couple of years although, to date, none of the proposals have gained enough support to really spark a serious debate.  That may be changing. Governor Corbett’s major initiatives for 2013 include ensuring that the privatization of all of the state’s alcohol sales becomes a reality. The big question being asked right now is whether the idea is good for Pennsylvania. The answer to that question seems to depend entirely on your perspective. Whether you are a consumer, a restaurateur, a business owner or simply an interested taxpayer, the answer to whether this idea is a positive thing for the State of Pennsylvania can be drastically different.      

As of right now,  the proposal is over 200 pages but the following are a few of the specifics which have been circulated thus far:

• Full privatization of wholesale and retail alcohol sales;
• Wholesale will be brokered by brand, with a valuation formula used to determine the cost of each item;
• The holder of a wholesale license has the right to distribute the brand statewide;
• The creation of five retail licenses:
  • Wine and spirits retail license;
  • Big box stores;
  • Grocery stores;
  • Pharmacies; and
  • Convenience stores;
• Limits will be set for some of the foregoing license categories while others will be application based with no set limit;
• Beer distributors will have the ability to enhance their licenses in order to sell wine and they will be able to purchase a wine and spirits retail license to sell a mixed six pack; and
• Restaurants and hotels will be able to sell six bottles of wine and up to a thirty pack of malt or brewed beverage for off-premise consumption by paying an annual fee.

Looking at the above proposals, from a consumer’s perspective, the privatization and the above additional options for consumers would provide significant convenience and conceivably would result in better prices because of increased competition. Furthermore, adding additional retailers to include some of the large retail outlets which appear in many other states would also likely provide for additional selection and larger inventories for some retailers.