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Check this page often for the latest news from ED Publications and also from the industry’s top First Amendment and labor attorneys about legal issues and pending legislation on both the state and national level that may impact adult nightclubs. One of the best defenses against government interference and intervention in your club operation is taking steps in advance to ensure your club is operating according to existing statutes. An ounce of prevention is worth a pound of cure, and our legal experts share tips on how to accomplish that.

 

 

Lawsuits:

stamps-rules-regulationWhat can happen to club owners when they fail to plan?

Have you built your defense against a damaging lawsuit around an LLC or corporation for your club, with bank and savings accounts under your name? If so, you’re “a plaintiff’s attorney’s wet dream,” accoridng to attorney Clint Coons. But as Coons explains, he “shatters these dreams” with his rules of asset protection planning.

Premises injuries to patrons or staff, employee wage claims, drug or sex trafficking, prostitution and whatever else could go wrong despite your best training, procedures and policies, can still land you and your business in court. And, despite all of the exonerating evidence, your business could still be held liable.  

How can and does this happen?  As my grandfather, a practicing attorney for over 50 years so aptly put to me after I began my practice “the law has changed in significant ways grandson. 30 years ago you had to have done something wrong to be sued. Today, that is no longer the case.” Let us not also fail to recognize the prejudice and misconceived notions shared by many in public about the nature of the business. Consider the following situation suffered by my client, whom I will refer to as Kevin.

One evening two patrons left Kevin’s club, and while standing in front of the club having a smoke, both are struck by a vehicle pinning them against the side of Kevin’s club. One patron lost both legs and the other one leg to the accident. The driver, another patron, had just received his car from Kevin’s valet and mistakenly put his car into reverse rather than drive.  A subsequent blood test shows his blood alcohol content (BAC) was 1.2.

A lawsuit is brought seeking 20 million in damages.  Kevin’s club, the valet service, the building owner and Kevin are all named as defendants (notably, the jailed driver is ignored, as he has no assets). Kevin’s initial reaction was to turn over the defense to his insurer to whom he pays sizeable premiums.  

Unfortunately, after reviewing the facts, Kevin’s insurer informs Kevin he is not covered because he violated his insurance policy when he hired a valet service.  What Kevin failed to realize was in article 49, paragraph 3, page 15 of his policy (written in type so small you can’t read it) wherein it stated if Kevin ever hired a valet service he was obligated to have the valet service name his insurer as an additional insured under their policy.  

A greedy piece-of-shit insurer, scum-bag attorneys and many other comparable names probably come to mind after reading this account. Kevin felt and voiced the same and lamented how “this is totally unfair, I did nothing wrong.”  In response, I reminded him of what my grandfather said, “being wrong has nothing to do with getting sued,” you are staring down a double barrel liability shotgun loaded with claims and sighted on huge money.  

If you are like Kevin or other club owners I have worked with in the past, you have probably built your defense around an LLC or corporation for your club; hopefully, a separate LLC for your building, and a large insurance policy.  Club accounts are probably flush, and your personal bank accounts and investments are similarly substantial and in your personal name.  If so, then you are a plaintiff’s attorney’s wet dream.  

I believe in shattering these dreams by showing business owners how the use of creative entity strategies can keep profits and investments protected, and in some instances, deter litigation. This belief and actual success with thousands of clients bring me to my rules of asset protection planning, which, by the way, were used by Kevin and saved him from having to pay one dime to the litigants or their attorneys.

Lawfully create entity ownership to maximize protection

A common mistake made by many business owners is making it far too easy for a plaintiff’s attorney to find their assets.  Such mistakes are common because many attorneys who set up these structures do not appreciate or value the importance of anonymity.  Attorneys are great at telling you the benefits of setting up an LLC or corporation for your business and how it will protect you in a lawsuit.  This advice, for the most part, is what I refer to as accurate information. But just because the information is accurate does not make it relevant. Think on this: which of these scenarios would you prefer?

1. Being in a lawsuit but with an entity plan, assuming it is properly structured to protect against inside and outside liability claims, that protects you from judgments entered against your business; or
2. Possibly avoid being sued altogether because you do not appear to own anything worth taking, and if sued, you still have the protections offered by number one?

Kevin opted for choice number two and his case settled for his policy limits (yes, the insurance company paid because they probably realized the inclusion of the additional insured language would not have mattered in this case).  All of Kevin’s assets were untraceable via a public records search.  

Unfortunately for the building owner who opted for choice number one, he paid policy limits and a whole lot more.   The plaintiffs’ attorneys discovered the building owner’s total worth and using their words “we know you have the assets to pay this claim. Thus, we will not settle for your insurance policy.”

How to create a successful strategy like Kevin did

First, change how you set up your businesses.  When creating an LLC, you should not be the owner. When setting up an LLC, most states require the LLC list either the name of its manager or the names and personal addresses of its members, depending on the structure.  This information becomes public and is easily discoverable. Business anonymity begins with creating a Wyoming, Nevada or Delaware LLC (anonymity compliant LLC) to own your various businesses.  In all three of these states, a person can establish an LLC or Corporation and mask their involvement through the use of a nominee. A nominee is typically an attorney whose information is listed on the entity as its contact person for filing purposes; thereby keeping the client, who is the actual owner and manager of the LLC, private and protected under attorney-client privilege.

Subsequent business entities established in states outside of Wyoming, Nevada or Delaware should be set up as member-managed LLCs with the anonymity compliant LLC as its sole member. If you adopt this approach, then all public information will point a potential business or personal creditor, to the anonymity compliant LLC. When pulling the information on the anonymity compliant LLC, the search will hit a dead end with the name of your nominee attorney.

Secondly, never serve as your registered agent. Every entity must have a registered agent whose information is listed with the secretary of state’s office. The role of the registered agent is to accept service of process if someone wishes to sue your business. Being your registered agent informs the entire world that you have a relationship to your business entity.

Thirdly, never own real estate in your name or entity that violates the previous paragraph. In my next article, I will address Rule #2 and the importance of LLCs, including how to properly structure them for maximum asset protection.  Most attorneys recommend using LLCs for real estate, and I do not disagree. But if you create your LLC in the same manner as I suggested in the previous paragraph, no one will discover your ownership.  

Another tool I recommend people consider for real estate ownership is a land trust. A land trust is purely a title holding vehicle that allows a person to mask their ownership by having title held via a nominee trustee.  The property owner is the trust beneficiary and actual owner, but this information is kept from the public record because the land trust is not recorded.   

Kevin avoided the calamity that befell the building owner because Kevin’s many assets—real estate investments, cash, savings, investments—were all held in various LLCs or land trusts each of which owned by one or more anonymity compliant LLCs.  From the public’s point of view, Kevin is worthless.  

Before disaster strikes and planning options begin to evaporate because a lawsuit has started, consider making a few modifications now to reduce your attractiveness to a money-hungry attorney looking for an easy pay day.
One last piece of grandfatherly advice: “It’s not what the attorney wins in a lawsuit, it’s what he collects.”  Create a plan that leaves your would be creditors famished for their failure to collect.

NOTICE: Even the best “asset protection” strategies may not be applicable to certain state and federal matters, such as cases brought under the Fair Labor Standards Act and others. This article is not designed to provide legal advice, and we urge you to consult counsel of your choice to answer any questions you may have on these issues.

Clint Coons is a successful private attorney to many wealthy business owners. Mr. Coons has published dozens of articles and workbooks on the subjects of real estate investing and asset protection, including his most recent book “Asset Protection for Real Estate Investors.” A successful attorney, business owner, and speaker, Mr. Coons has used his innovative and dynamic strategies coupled with real–life experiences to help thousands of people save millions of dollars and build real wealth.  
Mr. Coons is a founding partner of Anderson Law Group and current manager of Anderson’s Washington office. He can be reached at 800.706.4741 or email ccoons@andersonadvisors.com.