Transcript of the Boss Business Brief:
Your host, attorney, entrepreneur and investor, Toby Mathis. Don’t be a statistic, stay in business, make prolific profits. Learn how by listening in and receiving commonsense advice on how to run a better business, slashing costs, taxes, and avoiding painful pitfalls. The BOSS Business Brief, making better business owners, one person at a time.

Toby: Alright. You are listening to the BOSS Business Brief on News Radio 970 AM on KNUU, sunny Las Vegas. We are your twice weekly dose of business commonsense, the how the heck do I run a business/taxes, keep from getting ripped off, and other stuff you wish someone had told you 10 years ago show. I am your host, Toby Mathis, joined in the studio today by the likes of Steve Pellegrino, the spin doc.

Toby: That is a mouth full of words.

Steve: I have a question for you. One of the things we always talk about is how to keep from getting ripped off.

Toby: That is a tough one nowadays.

Steve: Yeah. Once you have been ripped off, what is your recourses. I love this, everybody says, “I’ll just sue them.” Anybody who has ever been involved in a business lawsuit knows that it is never just as easy as “Oh, I will sue them.”

Toby: No, and here is the thing. The averages are that you are going to get involved in probably four lawsuits of some sort. Now, the problem is that we are looking at averages. So, you take population, and you look at adult population, you look at the number of lawsuits file, and those numbers start to go up. When you are a business, you tend to generate a few more than somebody who might just be an employee somewhere. So, as a business, expect to be involved in a few more.

Steve: Expect the unexpected, but the truth of the matter is that even if you d o everything right. Even if you haven’t done anything in which you would think, you know, could get you sued, you could still get sued.

Toby: Absolutely, and usually what it is is what they call “deep pockets” or “sue everybody, see what we can get, throw some spaghetti at the wall.” If you are doing okay, then sometimes you will just get drawn in because you are doing okay. It is kind of like a doctor. If they see a patient and somewhere along the line that patient has a problem, most plaintiffs lawyers are going to sue everybody that was in the chain there just out of course, just to there is not the empty chair, not someone to point at that t hey say, “hey, this is the person that really screwed it up. They just include everybody and then let’s let the lawyers start to church and push against each other and see what comes out of it. Usually, if you are being brought into a suit frivolously, usually you will be dismissed at some point for some nominal amount, basically the defense cost to get out. It is annoying, but it happens.

About 10 years ago, I remember an insurance agent brought somebody in to our offices up in Seattle, where I am a partner in a law firm, and I think we did a quick claim deed. It was a $300 transaction is what it was and all it was - was a quit claim. Later on, that insurance agent sold them an annuity, unbeknownst to us at some time later in the future, and absconded with their money. So, they sued the agent. The agent was pretty much insolvent. I don’t know what was going on in his life, but he did not pay the amounts for the annuity, and they sued everybody including us. So, you are looking at a $300 transaction that ends up being a lawsuit and, yeah, you end up getting dismissed, because we didn’t do anything, we are not financial advisers, we don’t sell insurance and things like that, but they just bring everybody in and it costs you about $10,000 in legal fees and annoyance. I will tell you the worst thing is, when your defenses are the lowest, which is usually in the middle of the night, if you have the deep, dark demons that are going to come out, they are usually going to get you around 3:00 am, and you have a lawsuit, you are going to start thinking about it at 3:00 am and you are not going to get back to sleep. You are going to be annoyed, your going to be mad, and your going to be ready to put the s crews to them, but the fact of the matter is you just need to get out of it. Just get out of it.

Steve: Think about this, alright. There is no shortage of what normal people would consider frivolous lawsuits. However, they can be extraordinarily profitable. I am always drawn back to the original McDonalds “hot coffee” case. You know, you burn yourself with hot coffee, is that worth millions of dollars?

Toby: Well, here is the thing. You got to look at the reason you have the lawsuit. So, the McDonalds case is a good one, because a lot of people misinterpret it. In fact, you and I discussed this a couple of years ago on the show. In this particular case, it was not to compensate the victim because of the injuries of third degree burns on their lap or whatnot, it was to punish a repeat offender. McDonalds who, even though the regulators had said “turn down the temperature,” McDonalds believed that they made more profit if the coffee was hotter and they would crank it up, and it was beyond the amount that was prescribed by that state. If I remember the fact pattern 100% correctly, it would have been a couple of times that t hey had been sited for it, yet they still did it. Yeah, you could say to somebody, hey its hot coffee don’t put it in your lap, but have you ever had such hot coffee that it burned your tongue when you just took a little sip?

Steve: Oh yeah.

Toby: Okay. That is too hot. You hand somebody that, I don’t care. If it is boiling water and they give it to you in a cup, that is inherently dangerous at that point. You should not be doing that through a drive thru, and that is pretty much what happened here. The lid was not on securely or something, and it ended up severely burning the person. I represented a client up in Seattle that had had something similar. It was through an espresso drive-in and they went nuts. I forget what they had the temperature at, but it was virtually boiling. The cup was so hot that the person was doing one of the “oh my god, oh my god,” where are they going to put it, and they ended up dropping the cup and it ended up burning the leg, and it was third degree burns. I mean, it is not like it is just a discomfort, but it is burned. So, then that lawsuit ends up being something where you are going after someone to try to keep them from doing something.

Steve: How would you say about the infamous McDonalds hot pickle case?

Toby: I don’t know the hot pickle case.

Steve: The hot pickle case, and I can see that our engineer is familiar with it because he is laughing, is that a lady got a hamburger from McDonalds and it had hot pickles, obviously, hot from the burger. It fell and burned her leg. She sued McDonalds for all this money and they her husband sued McDonalds also.

Toby: For loss of consortium?

Steve: Yeah, and I am just like…

Toby: People will take advantage of the system periodically. The plaintiff’s bar will tell you that is their job, is to keep people in c heck, because otherwise you will have these horrible instances where people take profitability over responsibility. So, these laws are written so that at the end of the day, if both sides battle, you get somewhere in the middle and you get a just result. That is kind of the whole thing. People look at defense lawyers and say, “how could you defend these scumbags?, and it is like, well because that is our system. Our system is that you work your best and your dangdest and, all things being equal, the truth will come out.

Steve: The best case that I remember is a case in Texas where a guy had hopped a fence that had barbed wire on it and everything - hopped the fence for a county power converter and peed on it, getting electrocuted, and he sued the county.

Toby: I don’t know whether he would have a successful suit, but perhaps.

Steve: He was actually awarded some funds. It is crazy.

Toby: Well, there was a big one in Basketball Town or something like that in California where a gentleman came in and there were birthday parties. They had a pizza parlor and a big huge basketball place. They got sued to the point where they ceased operations, because of somebody that was disabled and was in a wheelchair and they came in and they could not accommodate them. They did not have an elevator, so he could not participate in the party. Well, that sounds horrendous. “Oh my gosh. You go there to show up at a party, you cannot get up to the party, how embarrassing.” Yeah, there is a certain amount of damages that you would think, but in this particular case, the facility had asked to make accommodation prior. You know, is there anything special needed, because they could have moved to the ground floor, you know there are little things like that. Sometimes people go trolling.

I used to have ea buddy that represented Wal-Mart. Some of you guys might be going, “Wal-Mart, they sell…” No. We used to laugh because I said, “what is your typical plaintiff.” and he says, “well, they have to be about less than 5’ tall, more than 300 pounds.” This is what he used to say, because they would always be slipping and falling and breaking a hip, right? Well, they would actually go in there and you could catch them on camera dumping stuff out and falling on it. I mean, they would literally set themselves up. Hey, this is a good one. So, what do you do? You are the company and everybody looks at you as being a deep pocket and your unsympathetic, and people target you. People target you.

Up in Seattle, there was a big issue with fraud with people setting up auto accidents or just making stuff up. There would be two people and they would say they got into a car accident, they did not do a police report, but one admits liability, and here is this doctor. They never even went in for treatment. It is two people that knew each other and they are just scamming the system. And you have those that are out there. People are always complaining about insurance companies and this, that and the other. No, there are just people that behave badly on both sides. So, when you are a business…

Steve: When the insurance companies do it, it just costs billions more.

Toby: Well, with the insurance company there is so much fraud. I mean it is billions of dollars of fraud where they are just getting toasted. Eventually, you are going to get pretty jaded and you are going to start saying, “you know what, we are going to defend these things hard because we want to make sure that you have a legitimate case.”

Steve: And then you know what we are going to do? We are going to take a bunch of bail out money and throw a party and give out a lot of bonuses.

Toby: You are jaded. We did not need to bail out. That is another topic, but we had a system in place that is called “bankruptcy,” and it allows companies to unwind their position or continue on with bankruptcy protections. We did not need to go out there and throw tax payer dollars and these things, but that is a topic for a different day. The point is, that if you are out there and you run a business, especially nowadays, there is just a lot of bad activity. We got burned by a printer where we gave them money, they were supposed to mail out some things, and they just kept the money. The mail got shoved into the corner and the person was pretty much insolvent. So, you are just sitting here going, “what gives?” I mean, there are some people out there that are doing really horrendous things because they are under financial stress or whatnot. As a business, the best thing you c an do is make sure that you don’t have a huge target on your back. We get in to this with doctors and dentists a lot, and even some lawyers, but it is kind of like you are dealing with people that could sue you under malpractice claims and it is a very subjective issue. You know, they are going to hire someone that says the standard of care is X, your going to hire someone that says the standard of care is Y, and they are going after your malpractice insurance or what not. You want to make sure that that is the extent of it. You do not want to put a huge target on your back by having tons of assets that are easy to get at. So, a little bit of planning goes a long way there in making sure they don’t make claims that try to bust through the insurance.

Steve: So, what you are saying is that you can have personal assets, but if you have a business that is likely to get sued, you should probably have good separation.

Toby: Yes. I remember when I went to school over in Europe, in Spain, and you would go on the trains and things like that. I had this thing they hung around my neck and was like a billfold. It would go underneath your shirt, because you would never put your wallet in the back of your pants. So, there was some commonsense where they say, hey, you know, don’t put a whole bunch of cash hanging out your back pocket and get on subway or a train. You are going to get pick pocketed. There is just some commonsense things, that you do not go do certain things, because people are going to take it. As much as you would like to think people are great, don’t throw your wallet on the sidewalk and leave it there.

Hey, we have to take a quick break. When we come back, we will keep diving into this. We are also going to go over some specific things you can do to make sure you are not walking around with a huge target on your back.

Toby: Okay. We are back here listening to the Boss Business Brief. We are diving into some stupid lawsuit’s and how you can make sure that you do not get subjected to this sort of thing. During the break, Steve and I were talking about some idiotic suits. Sometimes they are against municipalities, or somebody sues the State. You were talking about an inmate?

Steve: Yeah. There was a Texas inmate who sued the county he was in for failure to give him Viagra.

Toby: So, basically a baseless claim. I cannot even believe that is true, but stupid suits are filed all the time. You cannot prevent somebody from doing it, for the most part. Now, there are folks that file so many lawsuits. There was a gal in California, I recall, a few years back that was suing all of her neighbors. The judge finally said, “if you ever want to sue another lawsuit again, you have to show cause as to why you can actually file it.” So, they finally put the kibosh on her being able to go out and just sue everybody. But for the most part, you can pretty much sue just about anybody for anything at any time.

Steve: Well okay. Tell me the story on this one. One of my favorite ones. It is a guy who owned a cutlery store. So, he sold knives and different things and tools, and he would sharpen them and all of this. Well, apparently a burglar had tried to break into his store. He fell through the roof, landed on, oddly enough, a bunch of cutlery, impaled himself. He sued the store keep…

Toby: You are sure of this?

Steve: I am sure of it. Now, I am not saying that he won lots of money or this or that, but the fact of the matter is the guy was committing a criminal act.

Toby: Well, here is the thing. Whenever you are dealing with civil suits, you have the standard of care of acting reasonable under the circumstances in preventing foreseeable harms from foreseeable plaintiffs. So, in law school you are always going to learn the spring gun one where the guy, he had a spring gun loaded on his door instead of an alarm, you know, so that when somebody would open the door, the broke in, they got shot. I forget exactly what the guy got shot with, but the point was that you set that up deliberately to harm somebody, you know, you anticipated that somebody might break into your house and here that is going to do harm. You are not allowed to do harm to people, because what if it is a cop or what if it is a firearm or other things. Just a reasonable person would not do that. So, you sit there and you go through that analysis. So, now let’s go to the cutlery show. Let’s say there is an access point through the ceiling where somebody could foreseeably use it and you are leaving cutlery pointing straight up with the purpose of, hey, if anybody comes through that ceiling they are going to get chopped up or they are going to be “so sorry.”

Steve: Well, actually the roof gave way.

Toby: The roof gave way. Well, you know, that is it. So, you set up a situation that was inherently dangerous. Again, what if there was a fire and it was the fire department and they fell through. Are you setting up a situation that you know would cause harm.

Steve: Well, my question is, is he responsible? I mean, he rented that place. Is he responsible for making sure that the roof is strong enough to withstand somebody running across it?

Toby: Well, there are going to be obviously lots of defendants in that case. You are going to go after the building owner, the land owner, the tenant, if there is anybody else on that lease. I mean, you are going to be looking at things saying, who are the responsible parties; who owed the duty to the individual who was on the roof.

Steve: Okay, but hold on now. Let’s take this for example, alright? Now, I am the owner of the cutlery store and this guy comes along. I am trying to make plans, I am building another cutlery store, because my first one was so successful, and I want to make sure this next guy doesn’t get my collection of vintage corvettes. What do I do?

Toby: You want to make sure he doesn’t get your….? Well, at that point it is too late. You already have something going on.

Steve: No. I mean for my next store, because I have a new collection of stuff.

Toby: Well, you just make sure it is not part of the store. So, typically what you would do is set up a corporation or LLC to own the business and you would make sure your assets are held outside of that. Usually, if it is collectibles and they are valuable collectibles, you would typically have those either in an LLC or some people just insure them and put them in their name, but you would make sure that it is not within the same name entity as the business.

Steve: So, they can only go after the business, they cannot go after me personally.

Toby: Yeah. Well, they could try, but generally speaking the party that they are going to have a claim against. I mean, most lawyers will name everybody and their mother, then people get dismissed when they say “we are not the reasonable party; you know, we were operating within this entity,” and they you have to prove the existence of the entity. Usually you have to show that you maintained records and that you treated it as a separate entity. They call it “piecing the veil.” If you fail to do that, then sometimes they will ignore the entity and go back after the owner. What I advised clients to do typically is make sure that their personal liquid assets, or their non-risk assets, things like brokerage accounts, cash, if they have precious metals, things like that, are owned outside their own personal name.

Steve: Vintage corvettes.

Toby: Yeah, well, vintage corvettes may be one where you put into an LLC and you keep it outside your name. So, even if they come after you, they still cannot go get the assets. In Nevada, we have charging order protections for the LLCs. So, you know, somebody coming after you does not get to go take all those assets. Now, if end up in bankruptcy, to a certain extent all bets are off. Now, all your assets are within the bankruptcy court. But if you a re just defending yourself against suits, you are much better off doing it this way. Because if you do not do it ahead of time, it is too late to do it. They have something called the “statute of fraud” or, gosh, I am missing the term, I cannot remember the precise legal term on statutes of fraud, but when you transfer assets when you know there is a creditor there, they will undo that transaction.

Steve: Fraudulent transfer.

Toby: Fraudulent transfer conveyance, yeah. So, you just have to be aware that, if you do that after, you know, here comes the liability, it is going to get undone. It does not mean people don’t do it. A lot of attorneys still believe that that is a pretty big hurdle for people to get over. A little bit of planning goes a long way. You know, you have to go win the lawsuit. Let’s say somebody sues you, they have to win the lawsuit, then they can start collecting on the judgment. It does not work the other way around, unless there is some fraud involved and maybe you can get a prejudgment writ of attachment or something where you are trying got get assets before you actually prove the culpability, because the case or the fact pattern is so horrendous that it would be unjust to let them keep access to the assets. But usually what you do is is I sue, I go out, I get judgment. Now I have this great judgment. Well, that is half the battle.

Steve: Good luck collecting.

Toby: Now you have to collect it. It is like OJ Simpson. The Goldmans had this huge judgment and he was still down in Florida with his house homesteaded, getting his pension that they could not touch. You know, all of his assets disappeared. You know, there was not anything to get. They try. They try and try and try, but at the end of the day, I mean, realistically…

Steve: And then he came to Vegas.

Toby: Then he came to Vegas. Then he got his just dessert.

Steve: Now he is in Clark County Detention.

Toby: A lot of people will feel that way, but I don’t know. You know, the point is that there are some things you can do to make sure that it is a much more difficult equation for the attorney. So, if you know, and this is how we used to value cases. When I was going through law school I worked for a civil attorney and they would actually value, “what do you think it is worth.” Like, if we win, what is the damages. So, let’s say it is a $100,000, what is our chance of winning? Let’s say we give it 80%. So, you would value that case now at $80,000. What are our chances of collecting? 50%. So, now you would value that at $40,000. So, all things being equal, that case is worth about $40,000. What is the settlement value then, if we do not have to go through all this other stuff? You know, boom, boom, boom, the next thing you know, you have these settlement values and you use other cases, arbitration awards, jury awards and everything else to try to value these things in each state to try to figure out exactly what you think the case is worth. So, when somebody sits down, they think this person wronged me, I get $1,000,000 suit. Never quite that easy.

Steve: At the end of the day, you are lucky to get $1 to $3.80.

Toby: Yeah. The lawyers get paid. That is your rule. And any lawsuit that ever get involved in, just remember, the lawyers never lose. One of my partners, his dad or his grandfather was an attorney, he said “I never lost a case. Many of my clients did, though.” But he never lost. The lawyer gets paid. So, at the end of the day when you are going into these realms…

Steve: That is why lawyers should never sue other lawyers.

Toby: Well, there are some people that say that, but some lawyers are really horrendous. So, that is the policing on them, too.

Steve: It just becomes a big mish-mosh of..

Toby: It is a big miss. It is an a absolutely mess. And then we also have a judiciary…

Steve: And some lawyers really revel in that.

Toby: Well, some lawyers do. Some lawyers like to make it messy, because they get compensated and they get their clients compensated as a result of making it messy. I mean, if somebody sues you, unless you have actually gone through it, you do not appreciate the emotions that go through it. When somebody serves you and says, “You owe me $20,000,” and there is no reason on earth why you would owe that. You are like, “it is not fair, this sucks” and you have to go out and get a lawyer. The lawyer then says, “$5000 retainer,” and you are griping and saying, “this is not fair. We are going to get every nickel back out.” No. This is life. Life is not fair. Sometimes bad things happen to good people. Put on your big boy pants and get rid of that thing. Get it away. You do not need to sit there and dive into this stuff, because I will tell you what, it makes you flipping miserable.

Steve: What was exactly that terminology you used again?

Toby: I don’t know.

Steve: “Put on your big boy pants.”

Toby: Yeah. Put on your big boy pants, Stevie.

Steve: Okay. I just wanted to make sure we had you on file saying that.

Toby: Well, if your in business, sometimes you have to do it. I mean, I have to do that. I have to put myself in check because when I get involved in a lawsuit I usually start thinking of grind, grind, grind, and five years later when they are bankrupt and, you know, we have driven them into…. I have actually bankrupt a few.

Steve: What do you do then?

Toby: You don’t get anything.

Steve: What do you do? You put on your…

Toby: I put on my big boy pants and I say, you know what, it is not worth it. It is taking away my energies. I am better off working every day and making sure that I am being profitable and an asset to my company. I do not need to be diving into all these lawsuits or whatever. You know, even if you have a slam dunk, there is a settlement value to everything. You try to get them to go away. Because guess where you do not want to be? You do not want to be in court. Court houses, as neat as they are to go and visit, you do not want to be there being asked questions. Because the second somebody starts asking this stuff to you, you tend to get defensive. I don’t care who you are or what you are doing. It is annoying.

Anyway. Hey, if you need to make sure that you do not have a big bulls-eye sticking on your back, give us a call here at BOSS at 214-1100. 214-1100. We also have a ton info including a free e-book called, “Understanding Asset Protection,” that breaks it down into little bits and pieces, so that you can understand what your options are and how things work. You c an get that online at bossoffice.com. You can also look at all our old shows. I mean, we probably have two years of archived shows there. So, feel free to visit and, until next time, this is Toby Mathis with Boss Business Brief.