January 30th, 2013
Banks, credit unions, and independent servicers of ATM services have long been saddled with onerous dual-notice provisions informing consumers of ATM fees under the Electronic Fund Transfer Act, 15 USC § 1693, et seq. (“EFTA”). Originally passed to protect consumers from unwittingly incurring ATM service fees, the dual-notice provisions have been used far more to enrich attorneys than to protect consumers. The EFTA previously required ATMs to provide two forms of fee notices and to require consent before an ATM fee may be charged. The first notice was a conspicuous placard on the outside of the ATM. The second notice must appear on screen requiring Then the consumer to click through the screen to accept the fee and complete the transaction. If the user did not wish to accept the fee, he or she could cancel the transaction.
Where the consumer receives on-screen electronic notice of a fee and consents to pay the fee, the consumer suffers no harm if the placard has been damaged, removed, or omitted. However, ATM providers have faced expensive class action litigation over failure to provide these external notices. While actual damages are almost never available for failure to provide only the placard notice, the EFTA provided for statutory damages of $100 to $1,000 per transaction in addition to statutory attorneys’ fees where an ATM operator has failed to provide dual-notice. This problem was exacerbated by the fact that it is not possible to constantly monitor all ATMs to ensure that the placard has not been removed.
Because consumers were not actually harmed by the lack of dual-notice, the House and Senate recently unanimously passed legislation to eliminate dual-notice. The President signed this legislation on December 20, 2012, and the amendment was effective immediately. It is an open question whether the change will affect preexisting litigation or lawsuits filed alleging violations of the dual-notice requirement which took place prior to the amendment. However, because the EFTA contains a one-year statute of limitations, any claim not filed by December 21, 2013, will presumably be barred.
It is important to continue to provide on-screen notice of and consent to incur ATM fees. This sensible amendment provides financial institutions much needed relief from frivolous lawsuits while protecting consumers from incurring hidden fees.
January 29th, 2013
Statutory Update: Banks Must Be Vigilant to Comply with Recent Changes to Minnesota’s UCC Financing Statement Rules
On July 1, 2013, Minnesota’s adoption of recent changes to its codification of the Uniform Commercial Code (UCC) become effective. For financial institutions, one of the most important changes is the stricter requirements for filing a financing statement (UCC-1) in the correct “name of the debtor.” Section 9-503(a), as amended, provides as follows:
(4) … [i]f the debtor is an individual to whom this state has issued a driver’s license or state identification card that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’ license or the state identification card;
(5) If the debtor is an individual to whom paragraph (4) does not apply, only if the financing statement provides the individual name of the debtor or the surname and first personal name of the debtor…
(g) …If this state has issued to an individual more than one driver’s license or state identification card or any kind described in subsection (a)(4), the one that was issued most recently is the one to which subsection (a)(4) refers.
Minn. Stat., § 336.9-503(a)(4)-(5), (g) (emphasis added).
There is generally no need to take any action with regard to financing statements properly filed before July 1, 2013. Under Section 9-805(b), financing statements that were properly filed before the amendments take affect will continue to be effective. But if a debtor changes his or her name, under Section 9-507(c), the creditor has four months to file Form UCC-3 stating the debtors name consistent with the debtor’s driver’s license or state identification card. Similarly, once the original financing statement expires (typically five years after the original filing date), the debtor’s name must be corrected. Merely filing a continuation of the original statement will be ineffective if the original statement did not comply with the new requirements. While it is not clear from the text of the UCC as adopted by Minnesota, it is likely the most prudent course of action to file Form 3 amending the debtor’s name then to file a separate Form 3 continuing the original statement.
While the new rule is more precise, it has the advantage of generally being easier to follow. Making a photocopy of the debtor’s driver’s license or state identification card and filing using the debtor’s name exactly as it appears will place the secured party in a good position. It is important to make a note of when the driver’s license or state identification card expires. After expiration, subsection (4) above will not apply, and the filing must “provide the individual name of the debtor or the surname and first personal name of the debtor.” Therefore, it is important to confirm that the debtor’s new unexpired driver’s license or personal identification card contains the same name as the previous card or that the financing statement complies with subsection (5).
It is important to remember that even minor discrepancies in the name of the debtor can prevent perfection of a security interest. Accordingly, confirming compliance with the new law is essential for the financing statement to have any value for the secured party.
October 20th, 2012
With election day looming (November 8), it’s a good time to brush up on voting leave law in our area. On election day in Minnesota, employers must grant all workers eligible to vote (age 18, legal citizen, whose voting rights have not been rescinded by felony conviction) the time off necessary for the worker to appear at the poles, cast his or her vote and return to work. [Minn.Stat. § 204C.04].
Minnesota law also provides that employees serving as election judges must also receive paid time off from their employer to serve. An employer may, however, offset those employees’ wages by the amount the worker is paid to serve as an election judge, and may also require that the worker provide 20 days’ notice and the certificate from the appointing authority that states the hours to be served and the compensation to be paid for the election judge’s service. [Minn.Stat. § 204B.195].
Workers in Wisconsin must also be provided up to three consecutive hours of leave to vote, but it is not mandatory that such leave be paid. [Wis. Stat. 6.76]. Additionally, the Wisconsin employer may choose the hours that the employee is absent and the employee must provide the employer with a request for the time off before election day.
For more information about voting leave, other leave or employment law matters, contact Jerrie Hayes, Chris Wendland, Dave Pederson or Mark Utz at 507-288-5440.
August 10th, 2012
If you are considering buying closely-held corporation stock and hiring an appraiser to value it there are several considerations to keep in mind. In determining the value of closely-held corporation stock, the corporation’s net worth, earning power and dividend-paying capacity are taken into account. Moreover, after these factors are taken into account, the stock is usually discounted (i.e., its value for tax purposes is reduced) if it represents a minority interest in the corporation.
As you may know, hiring a qualified appraiser can help you assess the validity of your own determination of investment value, i.e., the return on your investment in the closely-held business, and help you structure an offer and convince the seller of a negotiating price range.
You may also need the independent appraisal to get financing (e.g. to establish the value of the company’s tangible assets) and to provide documentation to support any valuation. In fact, where the valuation of stock in a closely-held corporation is relevant to the correctness of a tax return, the taxpayer must submit with the return complete financial data on which the valuation is based, including copies of reports of any examination made by accountants, engineers, or technical experts, as of, or near, the valuation date.
Thus, the appraiser’s report can provide this substantiation. What’s more, should the valuation issue become the subject of litigation with IRS, the appraiser’s expert testimony can be the best way of presenting the factors used to value closely-held corporation stock. In fact, it would appear that the taxpayer can even shift the burden of proof to IRS on the valuation issue if the appraiser’s testimony provides credible evidence.
Caution is appropriate in reviewing an expert’s qualifications. The general standard applied to the admissibility of an expert’s opinion is whether that testimony would assist the trier of fact in deciding the case. If an appraiser’s techniques, experience or qualifications are found unreliable and irrelevant, a district court or Tax Court judge may find that the expert’s testimony does not meet the admissability standards of Federal Rule of Evidence and, thus, the testimony will not be evidence in the case.
To save time and money, it may make sense to find an appraiser who can provide both asset appraisals and business valuation. In any case, you should check the appraiser’s references, experience, and credentials. In that regard, you need to determine whether the appraiser has been certified or accredited by the American Society of Appraisers (ASA), the Institute of Business Appraisers (IBA), the National Association of Certified Valuation Analysts (NACVA), or the American Institute of Certified Public Accountants (AICPA).
You should also ask whether your appraiser is familiar with the widely recognized professional standards for appraisers. The Uniform Standards of Professional Appraisal Practice (USPAP) and the Principles of Appraisal Practice and Code of Ethics (PAPCE) establish authoritative principles and a code of professional ethics for appraisers. In addition, the Business Valuation Standards (BVS) of the American Society of Appraisers supplement and clarify the USPAP and the PAPCE with respect to the valuation of businesses, business ownership interests, and securities.
You should also select an appraiser who has real experience in buying or selling businesses. Moreover, it would be a good idea to inquire whether the appraiser has experience testifying as an expert witness to establish valuation and whether the appraiser has represented both taxpayers and IRS. The fact that an appraiser has provided expert testimony on behalf of taxpayers and IRS can only add to the appraiser’s credibility should you someday need his testimony to establish valuation.
For each of the foregoing reasons, it is essential that you select an appraiser whose qualification, experience and analysis are beyond reproach.
July 6th, 2012
When a married individual purchases homestead property in his or her name alone (or refinances a mortgage on homestead property owned in one spouse’s name), the non-owner spouse will, nonetheless, be required to sign a number of documents at closing. This is because Minnesota Statutes Section 507.02 requires both spouses (whether an owner or not) to sign documents conveying an interest in homestead property, including mortgages. The original intent of this law was to protect a non-owner spouse from the unilateral conveyance of the homestead by owner spouse. Conveyances of the homestead that are not signed by both spouses are generally void.
In HSBC Mortgage Services, Inc. vs. Graikowski, __ N.W.2d __ (Minn. Ct. App. 2012), the Minnesota Court of Appeals decided a case in which an unmarried borrower, Graikowski, applied to refinance a mortgage on his homestead, but married two days before closing. The mortgage was not signed by the non-owner spouse. Graikowski defaulted on the mortgage and the lender initiated foreclosure proceedings. Graikowski argued that the mortgage was void because the mortgage lacked his wife’s signature. If Graikowski’s argument was successful, HSBC could not foreclose on the property, and would have no interest in the property.
The Court of Appeals dismissed Graikowski’s argument and found the mortgage to be valid. The Court of Appeals determined that Graikowski was “estopped” (i.e., legally prevented) from asserting that the mortgage was void because Graikowski had misrepresented his marital status in his loan application.
In most closings, as in Graikowski, a borrower signs a loan application to initiate the underwriting process. The borrower signs a second loan application at the time of closing (which may be several weeks or months after the initial loan application was signed). When signing a loan application, a borrower affirms that the statements contained therein are true and correct and that the borrower will correct any erroneous information contained on the loan application. Graikowski committed a misrepresentation by signing the second loan application as a “single man”. Had Graikowski correctly represented his marital status, HSBC would have required Graikowski’s spouse’s signature on the mortgage, and the requirements of § 507.02 would be satisfied. The Court of Appeals would not allow Graikowski to benefit from his own misrepresentation.
The decision in HSBC Mortgage Services, Inc. v. Graikowski confirms existing law that lenders are allowed to rely on, as true, the representations made by their borrowers. The decision also provides a cautionary tale to borrowers to inform their lenders of changes that may affect their financing.