legal tools for worker cooperatives and the sharing economy

Legal Tools for Worker Cooperatives and the Legal Tools for Worker Cooperatives and the Sharing EconomySharing Economy

Wednesday, February 4, 2015

Take a piece of card stock, fold into a tent shape, and write on front:

Name, Title/Affiliation5-7 words describing

your interests

Joe RinehartDirector of Cooperative DevelopmentDemocracy at Work Institute

Ted De BarbieriAssistant Professor of Clinical LawBrooklyn Law School

WelcomeWelcomeLegal Tools for Worker Cooperatives and the Sharing EconomyLegal Tools for Worker Cooperatives and the Sharing Economy

New York City’s New Economy

Center for Family Life in Sunset ParkPark Slope Food Co-op

New York City Worker Co-ops

Janelle OrsiExecutive DirectorSustainable Economies Law CenterAuthor, Practicing Law in the Sharing Economy

Legal Tools for Worker Cooperatives and the Sharing EconomyLegal Tools for Worker Cooperatives and the Sharing Economy

Workshop 1 — Big Picture Discussion: The New Workshop 1 — Big Picture Discussion: The New Economy and the LawEconomy and the Law

Welcome to Day 1 of:Legal Tools for Worker Cooperatives

and the Sharing EconomyPresented by:

Janelle Orsi, Executive Director of Sustainable Economies Law Center (SELC)Ted De Barbieri, Assistant Professor of Clinical Law at Brooklyn Law School

Ricardo Nunez, Cooperatives Program Director at SELC

TheSELC.org

The New Economy and the Law

The economy has many pieces.Let’s just start with bread:

smallbakery

Hostess

The 70% will create these things:Worker Cooperatives

Cohousing CommunitiesCoworking Spaces

Maker SpacesCommunity Gardens

Social EnterpriseShared Commercial Kitchens

Carsharing GroupsRidesharing

Tool Lending LibrariesEcovillages

Local CurrenciesBarter Networks

Time BanksLand Trusts

Grocery CooperativesCommunity-Owned Solar Cooperatives

Community-Supported Agriculture

LawyersCreating the

Next EconomyWorker Cooperatives

Freelancer CooperativesCohousing Communities

Community GardensCoworking and Maker SpacesShared Commercial Kitchens

Carsharing GroupsTool Lending Libraries

Community-Owned Solar CooperativesHousing Cooperatives

EcovillagesLocal CurrenciesBarter Networks


Grocery CooperativesCommunity-Supported Agriculture

Community Credit Unions

Academics

Litigators

Policymakers

Transactional Lawyers

Transactional lawyers will save the planet!

No, not these transactional lawyers:

Worker CooperativesCohousing Communities

Coworking SpacesMaker Spaces

Community GardensSocial Enterprise

Shared Commercial KitchensCarsharing Groups

RidesharingTool Lending Libraries



Grocery CooperativesCommunity-Owned Solar Cooperatives

Community-Supported AgricultureCommunity Credit Unions

At least one million lawyers need to start

greasing the wheels of a new economy:

●

Anyone who enters the field of sharing economy

law right now will, inevitably, be a leader in

this emerging field.

The new economy has issues.

It all starts with “issue spotting.”

Where have you noticed the law acting as a barrier to something cool you or your clients wanted

to do?

REALMS OF ECONOMIC

ACTIVITY

Employment Laws

And Are They Employees of Their Own ??

Volunteering

“Chores”

Volunteering

Employment

Volunteering

“Chores”

• Farm Internships• CSA Volunteers• Worker Cooperatives• Consumer Cooperatives• Mutual Aid

Minimum Wage

Workers’Comp

OvertimePay

Payroll Taxes

OSHA Compliance

We don’t have any money yet!

New Worker Cooperatives:

We’ll never have enough money

because we have always made less

than minimum wage.

Semi-Subsistence Farmers

We will neverhave enough

money, because we aren’t TRYING to

make money.

Food Cooperatives

And Housing Cooperatives, for example…

We can’t afford to just teach people about farming! We can barely afford farming!

Farm Internships and CSA Volunteer Programs

Securities Laws

Zoning regulations

Steps to Approaching Regulatory Grey Areas

STEP 1: Determine what areas of regulation

might apply if this were a public or commercial activity.

See the table in the handouts. Page 37-38

STEP 2: Determine whether that realm of regulation designates explicit exemptions for small scale, community-based, or cooperative activities.

Like cottage food laws or licensing exemptions for parent-run childcare cooperatives.

STEP 3:

If there is no explicit exemption, determine whether the activity legitimately falls outside of the realm of regulation, or help clients move to

a safer end of the grey area.

This is part is infinitely interesting and tricky.

When Regulations Might Not Apply:1.When there is no separation between consumer and producer.

2. When an economic activity is private.

3. When an economic activity is non-commercial.

1. When there is no separation between consumer and producer.

“No person shall buy, sell, deliver, or give milk that has not [been certified].”

SO, what does it mean to be in possession of ….

The issue at stake is not milk or cows or goats, per se…It’s our right to collectively produce things that we consume.

When the developer is the homebuyer and vice versa.

2. When an activity is private.

“Underground” Restaurants?

What is a Private Club?

FROM: Appendix B of 28 C.F.R Part 36, www.ada.gov/reg3a.html

Title II of the 1964 Act exempts any "private club or other establishment not in fact open to the public […]” In determining whether a private entity qualifies as a private club under Title II, courts have considered such factors as:

•the degree of member control of club operations•the selectivity of the membership selection process•whether substantial membership fees are charged•whether the entity is operated on a nonprofit basis•the extent to which the facilities are open to the public•the degree of public funding, and •whether the club was created specifically to avoid compliance with the Civil Rights Act.

http://www.ada.gov/reg3a.html

3. When the activity is not commercial.

Is it cost-sharing? Or commerce?

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Bein

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FormalInvolves strangersInspired more by a desire to get

CasualRelationship-basedInspired more by desire to give

STEP 4:If there’s no way for the client to avoid regulation,

search for ways to make compliance less burdensome. That might mean finding a “sharing

solution,” like a shared commercial kitchen.

STEP 5:

If the law seems to unreasonably block people from doing good things in the world,

change the law.

To do: Set a goal to change at least one law!

Local ordinance?State legislation?

Regulatory change?Federal legislation?

Maybe one of each? :oD

It’s fun to change laws!

How we change laws will depend on the purposes of regulation:

•Laws that Protect Consumers

•Laws that Protect a Marketplace

•Laws that Regulate a Profession

•Laws that Protect Communities and Ecosystems

•Laws that Protect a Resource or Necessity for the Public

•Laws that Protect Workers and Contractors in a Particular Industry

•Laws that Ensure Equitable Access to Public Accommodations

•Laws that Impose Additional Taxes on Certain Industries

•Laws that Require Consumers to Purchase a Particular Good or

Service

How to Make Bread in the

Current Legal and Economic System

Corporate Shareholders

LandWater

Seeds™



Work Money



Work Money



Shareholder-Elected Board

Work Money




MoneyPower

JobsFoodMoney

Power




Works long hours

Has average life span of 50




The U.S. Congress and the Supreme Court,

around 1937, decided that the relationship

seemed a bit too imbalanced.

Employment Laws



Employment Laws

Securities Laws



Employment Laws

Securities Laws



Consumer Protection Laws

Employment Laws

Securities Laws

Consumer Protection Laws Zoning Laws



Darden Restaurants

One half billion in profits per year

No paid sick time

$2.13/hour + tips



The laws haven’t really

protected us very well….

Grocery CooperativesWorker Cooperatives

Urban FarmsCohousing Communities

Community GardensSocial Enterprise

Shared Commercial KitchensCarsharing Groups



Community-Supported AgricultureCredit UnionsEtc. Etc. Etc….

Food Oasis Cooperative400 residents of a food desert neighborhood form a cooperative to

purchase locally-grown and healthy food.

Employment Laws

Employment Laws

Securities Laws

Employment Laws

Securities Laws

Zoning Laws



Employment Laws

Securities Laws

Zoning Laws


Regulations have limited how we use:

Our money

Our time and labor

Our relationships

Our homes and neighborhoods

Employment Laws

Securities Laws

Zoning Laws


At the same time, how can we loosen these bolts without opening the floodgates to extraction?

But this is a flawed system and it’s dangerous to loosen many of the laws.

Let’s try a new system.

XX

Board elected by workers, consumers, or both.

Profits distributed to workers on the basis of the value or quantity of their

work.

Or to consumers based on value or quantity of

purchases.

Or both.

Board elected by workers, consumers, or both.

Some people think all cooperatives are this:

The 2 things to know about cooperatives:

1.Board elected on a one-member, one-vote basis. Capital ownership doesn’t determine voting power.

2. Profits distributed on the basis of patronage. Capital ownership doesn’t determine profit share.

Work Money



Extractive!

This entity is designed to

extract.

JobsJobs

Generative!

This entity is designed to

provide, nourish, and

protect.

That’s our legal wedge!!

We need ANOTHER legal regime for

generative entities

We need one legal regime for

extractive entities.

Market Governance Structures

CommonsGovernance Structures

Governance

COOOOOOOOOPERATIVES!

One moral to the story:

We can’t change the economy without them.

We can’t change the legal system without them.

What is opposite of an apocalypse?

A co-opalypse!

Worker Coop

Housing Coop

EnergyCoop

Food Coop

ChildcareCoop

Freelancer-ownedand worker-owned

and consumer-owned cooperatives will soon

rule the Earth!

We’re creating a new commons

“A commons may arise whenever a group of people decides that it wishes to manage a

resource in a collective manner, with a special regard for equitable access, use and long-term

stewardship.” -- David Bollier

Read this book. It’s very quotable!

1. Share Control

2. Share Responsibility

for the Common Good

3. Share Earnings

3. Share Earnings

(on the basis of patronage)

smallbakery

Hostess

4. Share in Capitalization

5. Share Information

6. Share Resources and

Efforts

Elinor Ostrom’s principles for the management of common pool resources can even be applied to

worker cooperatives!

1. Clearly defined boundaries2. Rules regarding use of common

resources3. Participatory decision-making4. Monitoring by people who are

accountable to group5. Graduated sanctions for exploitation

of resources6. Accessible conflict resolution methods7. Recognition by the authorities of

group autonomy and self-governance8. For larger groups: Multiple layers of

nested enterprises (to keep group sizes small)

David Bollier:

“The important point, therefore, is to assure that commons can have as much autonomy

and integrity of purpose as possible.

If commons are to interact with markets, they must be able to resist enclosure, consumerism,

the lust for capital accumulation and other familiar pathologies of capitalism.”

V. ?Small &Groovy

New Agreements +

New Organizations

= New Economy!

“Hey! Making agreements and forming organizations! I can do that!” – said the transactional lawyer.

Community Supported Bread

Community Supported EVERYTHING!•Share CAPITALIZATION•Share PROFITS/BOUNTY

•Share RISK•Share WORK/LABOR•Share INFORMATION

•Share DECISION-MAKING

We should support them!

We could get our bread there sometimes.

Make agreements! It’s community-supported enterprise!

We all agree to buy one loaf

per week.

And I agree to:- Use healthy whole grains

- Buy from local farmer co-ops- Deliver by bicycle, and

- Spend 10% of my earnings in the neighborhood.

Our agreements and organizational structures are like roadmaps to our relationships….

And they become our own private laws.

Co-ownership agreements: • Tenancy-in-common agreements for

co-ownership of a house or multiplex• Car, truck, and van co-ownership

agreements• Shared studio, workshop, and office

agreements• Agreements for co-ownership of other

items, such as work or recreational equipment and electronics

Leases:• Leases for urban farm space• Shared workspace agreements• Leases for shared housingLicenses:• Licenses to share a yard for food-

growing or recreation• Licenses for use of co-working spaces• Licenses for short-term home stays • Licenses for the use of intellectual

propertyBorrow-lend agreements:• Agreements to regularly borrow a car

or other equipment

Agreements Galore!

Agreements for cooperative activity or mutual aid:

• Child care exchange agreements• Rideshare agreementsOperating agreements and bylaws for

organizations:• Operating agreements for cohousing

communities• Bylaws for cooperativesMembership and use agreements:• Member agreements for cooperatives• Agreements that describe rights and

responsibilities of members of community-supported agriculture (CSA) programs

Investment contracts / promissory notes:• Promissory notes for peer-to-peer

loans to enterprises and homebuyers • Shareholder agreements and term

sheets for local investing initiativesOther:• Liability waivers for shared spaces or

shared equipment• Agreements for barter transactions

When the sharing hits the fan…

GivingSharingBarteringSwappingCollaboratingCo-owingCooperatingBorrowingLendingExchanging

Some ways to specialize in the sharing economy:

Shared Housing LawCohousing Law

Small Social Enterprises LawLarge Social Enterprise Law

Community-Owned Enterprise LawCooperative Law

Fashion and Garment Enterprise LawNonprofit Law

Tax and Accounting for CurrenciesCommunity Food Law

Community Education and Child Care LawCommunity Health Care Law

Community Energy LawCollaborative Consumption LawShared Intellectual Property LawMediation for all of the above!

The Sustainable Economies Law Center’s living classroom:

Lawyers advising

communitymembers

People discussingthe sharing economy

Law studentsteaching

communitymembers

Community members teaching law students and

each other

How can we get to this tipping point?

Published by ABA Books

www.theselc.org

Also see our resource libraries:•UrbanAgLaw.org•Co-opLaw.org•CommunityEnterpriseLaw.org•CommunityCurrenciesLaw.org

50% discount code: PAB12SHR

Royalties go to the Sustainable Economies Law Center

Ideas?

Questions?

INTROSThe next slides are

ideas for intros

Say your name and fill in the blank:

“I would love to have ______________________ as my client.”

Janelle OrsiSustainable Economies Law Center

Ricardo NunezSustainable Economies Law Center

Ted De BarbieriBrooklyn Law School


Workshop 2 — Entity Structures in the New EconomyWorkshop 2 — Entity Structures in the New Economy

OrganizationsORGANIZATIONSEntity Choice and Structure in the

Sharing EconomyImportant: The architecture of

organizations will essentially be the architecture of a new economy.

These clients are coming for you!

They are weird.They are wonderful.

They want you to form their entity!!

How do we legally structure stuff like this? Community food gardens

Car-sharing groupsRenewable energy co-ops

Local currenciesTime banks

Cottage foods marketsChildcare cooperatives

Lending CirclesTransition Initiatives

Farmers marketsShared commercial kitchens

EcovillagesHousing cooperatives

Elder care cooperativesGrey water cooperatives

Mutual aid societies

There Are Three Layers of Considerations:

1.What entity to choose At the state level. 2. How to structure governance, operations, and financial provisions. At the organizational level.

3. What tax status to obtain. At the federal level.

Entity X Tax Status X Structural Decisions = ∞ options

And yet...we still need to create more options for sharing economy enterprises and orgs.

Common Entity Types (State Level)•Sole Proprietorships•Partnerships (General and Limited)•Limited Liability Companies (LLCs)•Low-Profit Limited Liability Companies (L3Cs)•General Stock Corporations• Plain Old Corporations• Benefit Corporations (in NY, CA, and many others)• Flexible Purpose Corporations (in CA)

•Cooperative Corporations and Associations•Nonprofit Public Benefit Corporations•Nonprofit Mutual Benefit Corporations

What is your entity?

Common Tax Statuses (Federal level. The state mostly follows suit.)

• Partnership taxation • Subchapter S• Subchapter C• Subchapter T• 501cEVERYTHING• Other: 528, 501(d)• Also consider rollovers: 1042

Rebranding alert!Cooperatives have a special tax status under

Subchapter T of Internal Revenue Code…That makes them “T Corporations!”

I sound important when I say the phrase

“T Corps!”

We’re very excited about:- Cooperative- Nonprofits

We’re sorta excited about:- Benefit Corporations

And also acknowledging:Other entity types are flexible and can

sometimes accomplish similar purposes

The big question: Who do you want to benefit?

Social Enterprise

Entities for Social

Enterprise

B Corp is just a kind of

certification.

Some consumers think certifications are sooooo cool!

Like!• Living wage certification•Green business certification•Fair trade certification•Organic certification•Union certification

•Not animal tested certification

And those newfangled kinds of entities?

Benefit Corporations•MUST operate for public benefit•Must report on general public purposes and specific purposes, and measure them using 3rd party standards.

Flexible Purpose Corporation •ALLOWS directors to consider one or more specific purposes beyond financial value, with requirements to report on their accomplishment of these specific purposes.

One reason CA created Benefit Corporations and Flexible Purpose Corporations is that we

don’t have a constituency statute.Example of Constituency Statute (30 states)“A director of a corporation . . . shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation’s employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located. A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation.” Connecticut General Statutes 33-756(d).

But we have the Business Judgment Rule!

The business judgment rule provides a rebuttable presumption “that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.”

Except….

Sold! To the highest bidder! Q: Which ice cream company is now owned by the same corporation that makes this stuff? Isn’t that charming?

When the company is being sold….When a board is considering selling a business (when it’s “in play”), it becomes the

obligation of the board to maximize shareholder profit. (The Revlon case)

Even Benefit Corporations aren’t immune to the gravitation pull of

wealth accumulation.

What else can you do with a regular old corporation?

• Create a nonprofit shareholder to act as a trustee of the corporation’s integrity.

• Shareholder agreements.• Limit the transferability of shares.• Create different classes of shareholders for different stakeholder

groups (employees, customers, etc).• Adopt a voting structure designed to give greater control to

employees and directors, and to reduce the authority of outside investors, especially of those investors that acquire shares from other shareholders as opposed to directly from the company.

• Require that certain decisions be made on a one-person/one vote basis, rather than on the basis of share ownership.

• Require supermajority voting for certain decisions.

Summary of some provisions Upstream 21’s Articles of Incorporation: Each director is required to sign an agreement stating that he/she shall discharge the duties of a director in a manner the director reasonably believes to be in the best interests of the Company, and the best interests of the Company is defined to include the Company’s and its subsidiaries’ social, legal and economic effects on their employees, customers, and suppliers and on the communities and geographic areas in which the Company and its subsidiaries operate; the long-term as well as short-term interests of the Company and its shareholders; and the Company’s and its subsidiaries’ effects on the environment. When evaluating any offer of another party to purchase the Company or merge, the directors are required to consider the following: the social, legal and economic effects on employees, customers and suppliers of the Company and its subsidiaries and on the communities and geographic areas in which the Company and its subsidiaries operate; the economy of the state and the nation; the environment; the long-term as well as short-term interests of the Company and its shareholders, including the possibility that these interests may be best served by the continued independence of the Company; and other relevant factors.

There are four classes of voting stock, including a class for employees.

When shareholders vote on any matter such as the election of the board, each share is entitled to one vote, but when the shareholders must vote on one of the following actions (“Extraordinary Actions”), different voting rules apply (described below):

Amendments to the articles of incorporationAmendments to the bylawsConversionMergerShare exchangeDissolution The sale, lease, exchange or other disposition of all or substantially all of the Company’s propertyRemoval of a director

An Extraordinary Action may only be approved if (1) a majority of all shares entitled to vote on the action, without regard to class or series, vote in favor of the action AND two-thirds of all shares of any two series of Class A Common Stock entitled to vote on the action, voting separately by series, shall not vote against the action; OR (2) two-thirds of all shares of any two series of Class A Common Stock entitled to vote on the action, voting separately by series, vote in favor of the action.

Another Newish Kind of EntityLow-Profit Limited Liability Company (L3C)

Charitable: The Company significantly furthers the accomplishment of one or more charitable or educational purposes and the Company would not have been formed but for the company's relationship to the accomplishment of charitable or educational purposes.

Not aimed at making a profit: No significant purpose of the company is the production of income or the appreciation of property; provided, however, that the fact that a person produces significant income or capital appreciation shall not, in the absence of other factors, be conclusive evidence of a significant purpose involving the production of income or the appreciation of property.

No lobbying, etc: No purpose of the company is to accomplish one or more political or legislative purposes

It’s all about the Program Related Investments (PRIs) from foundations.

New York State “Social Enterprise” Entity Options• Business Corporation Law (BCL)• Not-for-profit Corporation Law (NPCL)– Charitable– Non-charitable

• Cooperative Corporations Law (CCL)• Limited Liability Company Law (LLC)

New York State Benefit Corporation

• BCL – Article 17– Certificate of Incorporation MUST have a purpose

of creating “general public benefit”– “General public benefit” means “a material

positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.”

– Must present shareholders w/ annual benefit report

Cooperatives! A very short introduction

Question the First: Who do we think of when we hear the word “cooperatives?”

Beyond Mainstream Conceptions

Question the Second: What is a cooperative?

Question the Second: What is a cooperative?

“A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”

Third question: What are the cooperative principles?

Fourth question: Legally, what is a cooperative?

Cooperatives as a set of practices and values

Cooperatives as a tax category

Puget Sound Plywood, Inc. v. Commissioner (44 T.C. 305, 308 (1965)

• Subordination of capital

• Democratic member control

• Surplus allocations based on patronage

Cooperatives as a legal entity

What kind of co-op is it?

BREAD COOPERATIVE

•Worker coop: Members are worker-owners of the bakery.

•Producer coop: Each member has an independent bread baking business and the co-op markets or sells their product.

•Consumer coop: Members are the people who buy the bread.

•Multi-stakeholder coop: Two or more of the above combined.

A plain old corporation…A plain old corporation…

But in a cooperative…But in a cooperative…

A Consumer CooperativeA Consumer Cooperative

A Producer CooperativeA Producer Cooperative

For example, worker cooperatives often divide profits (“surplus”) on the basis of hours worked by

each member.

Patronage

BREAD COOPERATIVES AND PATRONAGE

• Patronage in Worker Cooperatives: Determined based on the quantity of services (measured by number of hour worked) or value of services (often correlated with salary and/or education level, skills, etc.).

• Patronage in Producer Cooperatives: Determined based on the quantity or value of bread sold to the cooperative.

• Patronage in Consumer Cooperatives: Determined based on the quantity or value of bread purchased from the cooperative.

Cutting edge ways of measuring patronage: By the number of jobs created, in order to reward founders? By the value of creative ideas and intellectual property contributed?

Where should we get our English Muffins??An entity that is formed for the purpose of PROVIDING LIVELIHOODS in our LOCAL COMMUNITY?

….Or an entity that is designed to GROW BIG, get a few people RICH, then SELL OUT to a GIANT CORPORATION?

Stock Cooperative: A development in which a corporation is formed […] primarily for the purpose of holding title to […] real property, and all or substantially all of the shareholders of the corporation receive a right of exclusive occupancy in a portion of the real property […]CA Civil Code Section 1351(m)

Let’s encourage hundreds of thousands of existing businesses to

sell to workers and convert to cooperatives!

Because

For example, worker cooperatives often divide profits (“surplus”) on the basis of hours worked by

each member.

Patronage

BREAD COOPERATIVES AND PATRONAGE

• Patronage in Worker Cooperatives: Determined based on the quantity of services (measured by number of hour worked) or value of services (often correlated with salary and/or education level, skills, etc.).

• Patronage in Producer Cooperatives: Determined based on the quantity or value of bread sold to the cooperative.

• Patronage in Consumer Cooperatives: Determined based on the quantity or value of bread purchased from the cooperative.

Cutting edge ways of measuring patronage: By the number of jobs created, in order to reward founders? By the value of creative ideas and intellectual property contributed?

Where should we get our English Muffins??An entity that is formed for the purpose of PROVIDING LIVELIHOODS in our LOCAL COMMUNITY?

….Or an entity that is designed to GROW BIG, get a few people RICH, then SELL OUT to a GIANT CORPORATION?

Stock Cooperative: A development in which a corporation is formed […] primarily for the purpose of holding title to […] real property, and all or substantially all of the shareholders of the corporation receive a right of exclusive occupancy in a portion of the real property […]CA Civil Code Section 1351(m)

Let’s encourage hundreds of thousands of existing businesses to

sell to workers and convert to cooperatives!

Because

OrganizationsNonprofits in the New Economy

We’re nourishing communities and creating livelihoods…

That must be a 501(c)(awesome)!

Nonprofits remove that drive to generate wealth for individual

members/shareholders.

Nonprofit corporations are like cakes

Tax exemption (like 501c3) is like the icing.

Is the focus of the benefit inward or outward?

Public benefit nonprofits (usually get 501c3 or c4 exemption)

V.

Mutual benefit nonprofits(usually get c5, c6, c7, c8, c9……)

501(c)(3)Purposes are limited to:•Charitable (Includes relief of poor, distressed, and underprivileged)•Educational•Scientific•Religious•And some other stuff…

Other stuff: •It’s tax exempt AND donations are tax deductible.•Cannot operate for the private gain or benefit of any person. •Cannot operate substantial unrelated business.•You could operate a 501(c)(3) alongside your community, but must be careful to ensure that they are separate and independent.

Why 501(c)(3)s are an awkward choice for practical projects that

help to sustain us? Stuff like:

Community food gardensCar-sharing groups

Renewable energy co-opsTime banks

Shared commercial kitchensEcovillages

Housing cooperatives

The problem lies in the practical and the us.

501(c)(3)Purposes are limited to:•Charitable (Includes relief of poor, distressed, and underprivileged)•Educational•Scientific•Religious

Other stuff: •It’s tax exempt AND donations are tax deductible.•Cannot operate for the private gain or benefit of any person. •Cannot operate substantial unrelated business.•You could operate a 501(c)(3) alongside your community, but must be careful to ensure that they are separate and independent.

Can community garden organizations be 501(c)(3) nonprofits?A.YesB.NoC.MaybeD.SometimesE.ALL OF THE ABOVE (It’s complicated…)

501(c)(3) Tax Exempt Purposes:• Charitable (donating food to low income families, preserving land and ecosystems, relieving neighborhood tensions, creating a public park, combating juvenile delinquency, growing food to feed school children)• Educational (teaching people about food growing, providing vocational training) • Scientific (testing organic agriculture methods)• Religious (worshipping food! Umm, nice try. Growing food as part of a religious practice/workshop…)

What about selling the food? Is that sufficiently…• Charitable?• Educational? • Scientific?• Religious?

Can changed ecological and economic conditions give us a wedge to stretch

501(c)(3) purposes? • Look for Revenue Rulings and Tax Cases where the IRS or tax court took into account local or widespread economic or ecological conditions when determining the need for or benefit of an activity.• What does neighborhood deterioration look like? Is it everywhere now?

Tax-ExemptNonprofit

Corporation

Organized and operated exclusively for…. Charitable/Educational

Purposes

Tax-ExemptNonprofit

Corporation

Organized and operated exclusively for…. Charitable/Educational

Purposes

Related Business

Tax-ExemptNonprofit

Corporation

Organized and operated exclusively for….Charitable/Educational

Purposes

Related Business

•Must b

e substa

ntially related to

achieving…

•Must c

ontribute im

portantly to

and have a

substantial causal re

lationship to

achieving…

•Not larger in

scope than is

necessary to

achieve…

Tax-ExemptNonprofit

Corporation


Purposes

Related Business

•Must b

e substa

ntially related to

achieving…

•Must c

ontribute im

portantly to

and have a


lationship to

achieving…

•Not larger in

scope than is

necessary to

achieve…

Unrelated Business $

• See various revenue rulings that say what is or isn’t unrelated. • Sometimes volunteer run projects are presumed to note be unrelated. IRC 513(a)(1). Hmm….

Tax-ExemptNonprofit

Corporation


Purposes

Related Business

•Must b

e substa

ntially related to

achieving…

•Must c

ontribute im

portantly to

and have a


lationship to

achieving…

•Not larger in

scope than is

necessary to

achieve…

Unrelated BusinessMust be insubstantial (in its use of organization’s time and resources). It’s not clear what insubstantial is. 5% is safe. 15% might be ok. $

Tax-ExemptNonprofit

Corporation

Charitable/Educational

Purposes

Related Business

Unrelated Business

Pay Unrelated Business Income Tax (UBIT) on this portion of the income. File 990-T. $

Tax-ExemptNonprofit

Corporation

Charitable/Educational

Purposes

Related Business

Unrelated Business

$$

If unrelated business becomes substantial, it may jeopardize organization’s tax exempt status.

Tax-ExemptNonprofit

CorporationCharitable/Educational

Purposes

Related Business

Unrelated Business

$$$

Form a subsidiary for-profit corporation (or LLC)Owns/controls

Dividends Payments, Rent, etc. (Taxable to nonprofit)

Tax-ExemptNonprofit

CorporationCharitable/Educational

Purposes

Related Business

Unrelated Business

$$$

Subsidiary:-Nonprofit capitalizes subsidiary and receives shares-Nonprofit elects Directors-Maintains clear separation-Dividends paid to nonprofit (*no charitable donations)-Parent and subsidiary may enter into contracts with each other for goods or services (so long as at market rate), etc.

Owns/controls

Profits and Payments

Lunch: Teach school children and community members about

nutrition and cooking, then provide lunch for $3 per student.

Dinner: Have fabulous expensive dinners; provide vocational training to people in re-entry.

b

Nonprofits without tax exemption

AND:Fiscally sponsored nonprofits?

AND “nano-nonprofits?” (page 25 or 26ish of IRS Publication 557)

Why do churches get to have all the fun?

• Exempt under 501c3 • Don’t need to file 1023• Don’t need to file 990s• Do need to persuade the IRS that you are actually a church. • Those guys did it.

501(c)(4)s – Social Welfare Organizations

Examples: - Some farmers markets- Political organizations- Local currencies and time banks

Info: - Need to benefit a broad sector of the community, not a specific group- Donations are not tax deductible

501(c)(5)s – Agricultural and Horticultural Orgs

The primary purpose of exempt agricultural and horticultural organizations under Internal Revenue Code section 501(c)(5) must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products, for example: •Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state and county farm and home bureau.•Exhibiting livestock, farm products, and other aspects of agriculture and horticulture.•Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment.•Encouraging improvements in the production of fish on privately-owned fish farms.•Negotiating with processors for the price to be paid to members for, but not acting as an agent to help members sell, their crops.•Nonprofit association that operates an educational rodeo show promoting agriculture.

501(c)(6)s – Business Leagues

Examples: - Business Alliance for Local Living Economies chapters- Green Chamber of Commerce- Bar associations- Professional leagues- Orgs formed to support a category of businesses (certain type of food producers, for example)

Info:- The purpose of the organization must be to promote the common business interest of a group of persons.

By the way…About Form 1024…

When should you seek an exemption letter?

501(c)(7)s – Social, recreational, and “other nonprofitable purposes.”

Examples: - Gardening clubs and gardens (but not farms?)- Boat or RV-sharing club (but not a car sharing club?)-Shared workshops (?)- Tool lending libraries

Info:- Fun is mandatory: IRS will generally deny exemption for activities that are not sufficiently connected to or in furtherance of social, recreational, or other pleasure activities-Section 501(c)(7) is designed to provide tax exemption to organizations that groups form for their own benefit, rather than for a public benefit.- Rationale for tax exemption- Income received from nonmember sources are taxed as unrelated business income

501(c)(8)s – Fraternal Beneficiary Societies501(c)(10)s – Fraternal Societies

Info:- There are 100,000 of them!-(c)(8): Provide members with the payment of life, sick, accident or other related benefits - Both types of societies must engage in “fraternal activities,” such as social activities, ceremonies, rituals, and so on, and an organization found to be lacking in such things will not be found tax exempt- “The term “fraternal” can properly be applied to such an association for the reason that the pursuit of a common object, calling, or profession usually has a tendency to create a brotherly feeling among those who are thus engaged.”- Annoying: must operate under a “lodge system”

Hmm: How can we use this for the sharing economy? Mutual aid societies?

Section 501(c)(12) - benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, and “like organizations.”

Info:-“Like organizations” is not a catch-all.- No: A housing cooperative - Yes: Funeral cooperatives, cable television cooperatives, and energy services - - - Maybe? Other kinds of modern communication cooperatives (like internet service providers), personal services, or renewable energy cooperatives?

Other: -521 and 501(c)(16) Agricultural Cooperatives (Marketing products or financing the crop growing operations)

- 501(d) Apostolic Associations (Income-sharing communities)

- 528 Homeowners Associations (to acquire, construct, manage, and maintain property…what else can we do with 528?)

FINAL THOUGHT:Hooray for activities that don’t fit

into neat legal boxes!

BREAK!11:00 – 11:15am11:00 – 11:15am



Ricardo NunezRicardo NunezSustainable Economies Law Center


Workshop 3 — Governance and the Sharing Workshop 3 — Governance and the Sharing Economy, Part 1Economy, Part 1

Whoa! Governance is LIFE!

The quotable David Bollier:

“We can begin to imagine ourselves as commoners. We can begin to become protagonists in our lives,

applying our own considerable talents, aspirations and responsibilities to real-life problems. We can begin to act as if we have inalienable stakes in the world into which we were born. We can assert the human right and capacity to participate in managing resources

critical to our lives.”

GovernancePART 1: Three [or more] Things I Realized About Governance

It’s all about governance!

Thing #1:If you want an economy to

provide for a community, then thecommunity members need to participate

in the governance of all parts of that economy.

We’re about to become

protagonists in our own

economy!

How do you ENSURE that your bakery will make

decisions that benefit workers?

How do you ENSURE your bakery will make decisions

that benefit workers?

Put the workers in charge!!

Cooperatives don’t have to be this:

Board Election Ballot

The person who never listens to anyone.

The person who has creative ideas for the business.

The person who prioritizes social justice, above all else.

At the very least, members elect the Board. This means that co-ops are ultimately accountable to members.

Preferably we could harness the wisdom from

here and here:

Big words: “subsidiarity” and “polycentricity.”

New communication tools and governance models increasingly

enable governance to happenhere and here:

The quoteable David Bollier:

“Thanks to innovations in social networking, it is now possible to imagine the state providing

a greater role to citizens through online platforms.

They can do more than ‘participate’ in a preordained (rigged?) government agenda;

they can initiate new ideas of their own devising and assume real responsibilities that

matter.”

With resilient economies I can make three times as

much money as the average person!

Thing #2: In the new economy, profit maximization is not the thing that personally

motivates people to be involved…

(Not.)

I want satisfying work, in a place where my voice matters, I have control over my

work, I learn and grow, I can use my creativity, build community, advance

equity, and have fun!

Thing #2:Governance

structure dramatically

shapes all this!

Everyone is behind a wheel!

New communication tools and governance models increasingly

enable governance to happenhere and here:

But what about B Corps and Benefit Corps and [other pretty words]?

A word about profit maximization and how that affects governance….

Insatiable drive to accumulate!

People behave differently in governance roles when they have the opportunity to

advance their self-interest over and at the expense of the interests of others.


“The important point, therefore, is to assure that commons can have as much autonomy

and integrity of purpose as possible.

If commons are to interact with markets, they must be able to resist enclosure, consumerism,

the lust for capital accumulation and other familiar pathologies of capitalism.”

Thing #3:Without democratic and/or participatory governance, much of what we do in the new economy is ILLEGAL!

Preview: There are too

many legal hoops designed

for the old economy! Securities

Laws

That’s our legal wedge!!

We need ANOTHER legal regime for

generative entities

We need one legal regime for

extractive entities.

Market Governance Structures

CommonsGovernance Structures


“It is important that the State not become too involved in overseeing the commons lest it

overwhelm the will of commoners to manage things themselves, which is the very point.”

The somewhat less quotable Me:

But the State needs to identify basic elements of commons governance, or there would be no

way to determine what should be given autonomy versus what should be regulated.


“Not all commons are necessarily equitable and benign, so the state may have an

important role in setting minimal ground rules and performance parameters for them – and

then letting the ‘distributed creativity’ of commoners evolve the most appropriate local

solutions.”

PART 2: Designing your governance structures….

Bylaws

Designing your governance structures….

BylawsWe are governed by peace, love, and friendship.

Beware of the Tyranny of Structurelessness

This iswhat we

should do!

Rex

New economy organizations often make the mistake of not adopting clear governance

procedures.Need to be quite specific about stuff like:

•Procedures for meetings •Procedures for making, reviewing, and adopting proposals•Process for giving notice and creating agendas •Spheres of decision-making, management, and operations

•Committees, Circles, Spheres, Managers, etc.•Composition and election of governing bodies/committees, etc. •Voting rights•Procedures for amending governance policies•Conflict of interest policies

Elinor Ostrom’s principles for the management of common pool resources can even be applied to worker cooperatives and housing cooperatives!

1. Clearly defined boundaries2. Rules regarding use of common

resources3. Participatory decision-making4. Monitoring by people who are

accountable to group5. Graduated sanctions for exploitation

of resources6. Accessible conflict resolution methods7. Recognition by the authorities of

group autonomy and self-governance8. For larger groups: Multiple layers of

nested enterprises (to keep group sizes small)

Bylaws

The law currently dictates some elements of governance….

• State Corporations Codes: Rules about notice, quorum, voting, elections, etc.

• Federal Tax Laws: Rules about Board composition, conflicts of interest, etc. Control of cooperatives, etc.

• State Common Interest Development Laws: Applies to some intentional communities. Davis Stirling Act in CA and similar laws in other states.

Do those laws annoy us? Yes and no. They are kinda good:- Due process for the group, so that an individual doesn’t have too much power- Due process for an individual, so that the group doesn’t have too much power- Fallback rules in case the group didn’t adopt clear rules

They are kinda annoying:- Requirement for secret ballots (Common Interest Development laws in CA)- Rules that require certain decisions to be made by specific voting procedure

They are helpful to outsiders, who want to know: - Who signs official papers? (The “President”)- Who keeps records? (The “Secretary”)- Who has the financial info? (The “Treasurer”)- Was a legally enforceable decision made?

Partnerships, LLCs, and unincorporated associations have more flexibility.

Conclusion: We should design new entity structures for the Commons.

Some governance goals can conflict with each other……or do they?

High levels of engagement in decisions v.

Efficiency of operations

Trust built upon a strong sense of community v.

Highly formal rules and procedures

Transparency and broad access to information v.

Protection of member privacy

Person who evaluates things

Underappreciated person who raises

money

Underappreciated person who keeps

track of stuff

Person who keeps track of

money

Importantperson who raises money

Person who also raises money

Meeting organizer

Paperpusher

People who need more support to do things ?? ??

Person who evaluates things

Underappreciated

person who raises

moneyUnderappreciated person who keeps

track of stuffPerson who keeps track of money

Importantperson who raises money

Person who also

raises moneyMeeting organizer

Paperpusher

People whoneed more support to do things

?? ??

Rememberthose old nonprofit

organizations….

and holacracy!(More info at www.holacracy.org)

http://www.holacracy.org/

Read some of SELC’s unique policies on our website!

Read Reinventing Organizations,

By Frederic Laloux

You can download the e-book and pay what your

wish.

• Red (Wolf Packs): Competition for power, magic, tribal, somewhat unstable (gangs, mafias)• Amber (Armies): Rule-based, highly organized,

replicable processes, conformist, highly hierarchical, stable, traditional (Catholic Church, public schools). • Orange (Machines): Thrive on constant

innovation, people given more autonomy in how they achieve organizational goals, meritocracy, people can rise in the ranks, organizations are like machines, scientific, industrial (consulting firms, law firms?)

Green (Families): • Rejects the idea that people should just be cogs

in machines. Takes into account soft factors, culture, emptions. • “Culture eats strategy.” I.e., if you have a great

work culture, strategy will follow. • Ideal of pushing decisions to lowest level, give

power to other stakeholders• Leaders of these organizations view it as a family

Amber: absolute truth of right and wrongOrange: what works and what doesn’tGreen: There is more to life than success or failure. Pluralistic-Green is keenly aware of Orange’s shadow over people and society: the materialistic obsession, the social inequality, the loss of community.

Green breakthrough 1: Empowerment

Green breakthrough 2: Values-driven culture and inspirational purpose

Green breakthrough 3: Multiple stakeholder perspective

• Self-management: Teal Organizations have found the key to operate effectively, even at a large scale, with a system based on peer relationships, without the need for either hierarchy or consensus.

• Wholeness: Organizations have always been places that encourage people to show up with a narrow “professional” self and to check other parts of the self at the door. They often require us to show a masculine resolve, to display determination and strength, and to hide doubts and vulnerability. Rationality rules as king, while the emotional, intuitive, and spiritual parts of ourselves often feel unwelcome, out of place. Teal Organizations have developed a consistent set of practices that invite us to reclaim our inner wholeness and bring all of who we are to work.

• Evolutionary purpose: Teal Organizations are seen as having a life and a sense of direction of their own. Instead of trying to predict and control the future, members of the organization are invited to listen in and understand what the organization wants to become, what purpose it wants to serve.

Coops as they were. A look at different approaches to cooperative organization

Food for Thought Books Amherst, MA

Olympia PlywoodOlympia, WA

Food for Thought Books Amherst, MA

• Founded in 1975 by Dick McLeester• Years of sweat equity and organizing

eventually led to a store front opening.• Clear Purpose: To educate the

community about the kinds of changes we need to have.

• Store grew over a 10 year period with substantial revenues with McLeester acting as GM.

• Collective management structure• After 10 years, they decided to begin a

bi-annual peer review process. A 4 page response was presented to McLeester.

• McLeester was asked to leave his cooperative, and he transitioned out.

Takeaways:•Lack of structure created an informal hierarchy •There was a lack of role clarity, especially around delegation of authority.•No shared process for resolving issues.•Members were not able to talk out the problems they were having as they were happening, i.e. unable to resolve tensions.

Olympia Plywood Olympia, WA• Founded in 1921 by 125 workers who

each contributed $1000.00 each to capitalize the business.

• First worker-owned cooperative plywood factory. Led to 18 plywood firms starting or converting to worker ownership. By 1972, 1/8th of US Plywood production was generated by these firms.

• Member elected Board of Directors who hired managers.

• Initially pay rates were equal among staff; the plant manager received the same wages as those sweeping the floors.

• Created extra safeguards for workers regarding decisions that management and the board would make.

• Olympia, and other plywood firms like it, created a circular pattern of authority within their coops.

Takeaways:•Cooperatives need structured systems of accountability and transparency.•Cooperatives are able to be more efficient and “profitable” than capitalist firms with clear systems of self-government, i.e. clear flows of authority and communication.

Flows of Authority and Communication in Worker-Managed Plywood Firms

Figure 2.1 from Paul Bernstein’s book, Workplace Democratization: Its Internal Dynamics

Governance in Cooperatives of Cooperatives

Arizmendi Association of Cooperatives • Founded in 1995 as a CA Coop Corp

• Cheese Board Collective members offered recipes, organizational structure, startup funding, and use of their name in marketing.

• Created two membership classes: • Corporate members (the

businesses that make up the Association). They elect two members each to the board of directors, aka the Policy Council.

• Internal AAC staff, known as the Development and Support Cooperative, or DSC. This group also sends delegates to the Policy Council.


Arizmendi Association of Cooperatives The relationship between the policy council and DSC

Starting a new bakery


Arizmendi Association of Cooperatives

New bakery joins the Association

To learn more, please visit geo.coop/replication-of-arizmendi

1. What are the governing bodies and what realms does each control?

Board of Directors?

Advisory Board?

Bicameral governance?

Empowered committees?

Circles?

Board

Board

Operations Circle

Operations Circle

Program Circle

Program Circle

Cooperatives Cooperatives

Legal Cafe Legal Cafe

Food Food

Housing Housing

Community Currencies


City Policies City Policies

Community Energy Community Energy

Legal Profession Legal Profession

Community Enterprise Community Enterprise

Employment Law Employment Law

Grants Grants

Organizational Abundance


Communications Communications

Circle Members: Chris Christina Janelle Neil Ricardo Yassi VolunteersHousing Coop Bill Housing Coop Bill

Coop Academy Coop Academy

Neighborhood Food Act


Currencies Bill Currencies Bill

Worker Coop Bill

Worker Coop Bill

Apprenticeships

Apprenticeships

Credit unions are legally required to have board-appointed supervisory committees.

2. How are governing bodies elected or appointed?

Board-elected board?

Member-elected board?

Elected or appointed by an overlapping circle?

Specific appointments by outside organizations?

What is the candidate nomination process?

Loconomics Cooperative’s Seven Director Seats

5 Directors elected by members (freelance workers)

“Local Economies Director” appointed by the Sustainable

Economies Law Center

“Freelancers Empowerment Director” appointed by the Freelancers Union

Community Land Trustsand their three-part Boards

Residents of the land.Non-resident

community members.

People with special expertise and experience.

David Bollier calls land trusts “private property on the outside, commons on the inside.”

Let’s get creative…

Elected by residents of the land

Elected by farm worker members

Appointed by nonprofits

Appointed by the Board to bring skills/expertise

Elected by members at large

Appointed by government?

2 ½. How are new governing bodies created?

Self-organized and validated by existing governing bodies?

3. Who are the members?

Criteria for becoming a member?

Qualifications to remain a member?

Are there different classes of members with different powers?

1. Individual freelance service providers who have completed a certain number of transactions on the platform

2. Worker-owned cooperative service providers

3. Nonprofit service providers filling unmet needs

4. Loconomics employees

5. Loconomics independent contractors

Board

Board

Operations Circle

Operations Circle

Program Circle

Program Circle

Cooperatives Cooperatives

Legal Cafe Legal Cafe

Food Food

Housing Housing



City Policies City Policies

Community Energy Community Energy

Legal Profession Legal Profession

Community Enterprise Community Enterprise

Employment Law Employment Law

Grants Grants



Communications Communications

Circle Members: Chris Christina Janelle Neil Ricardo Yassi VolunteersHousing Coop Bill Housing Coop Bill

Co-op Academy

Co-op Academy



Currencies Bill Currencies Bill

Worker Coop Bill

Worker Coop Bill

Apprenticeships

Apprenticeships

LUNCH!12:00 – 1:30pm12:00 – 1:30pm



Ricardo NunezRicardo NunezSustainable Economies Law Center


Workshop 4 — Governance and the Sharing Workshop 4 — Governance and the Sharing Economy, Part 2Economy, Part 2

4. What are avenues for member and stakeholder participation and influence?

Meetings?

Participation in committees?

Petitions?

Feedback loops?

Or simply running for and electing a new board?

5. How are proposals brought, considered, and adopted?

Who can bring a proposal, when, and about what?

Is there a clear process for incorporating feedback into the proposal?

Is it adopted by a majority? Supermajority? Consensus? By holacratic procedures?

Delphi MethodDonnie McLauren, who is writing book about governance, told me about Delphi process. Groups vote from among, say, nine options in first round. Each person stands up and advocates for their proposal. The bottom three options drop off after the vote, and people advocate again for the options that remain. Again drop off bottom 3. Then people advocate again for the three that are left, and then vote. Top vote wins. The result is that everyone likely feels pretty happy with the outcome, because they may have even advocated for the result, even if it wasn't their original first choice.

A Few Thoughts About Consensus Processes…Consensus by unanimity?

Always factor in the potential for impaired reasoning….

REPTILIAN BRAIN

A Few Thoughts About Consensus ProcessesI recommend:

• Allowing at least some decisions to be made by a percentage vote, like issues that require quick decision and would not likely leave the organization in turmoil (like purchasing insurance, etc.).

• Fallback mechanism if a decision is needed immediately

• Clear description of the basis for a block, like: The proposal will cause irreparable harm to the organization and its mission/values (which are clearly spelled out). • Your unique personal preference is not a good basis for a block

• Procedure for handling a block, such as 1) scheduling separate discussions to explore the issue, then 2) bringing a new proposal to the group, then 3) using a fallback if there is still not consensus.

Note the amazing potential for vagueness in consensus policies.

Holacracy and Proposals(Consent v. Consensus)

• Anyone can bring a proposal.

• The proposer may adapt the proposal through a highly structured feedback process. •Proposals are accepted if no one objects. An objection must be based on a claim the proposal moves the organization backward in its mission or harms the organization.

• Accepted proposals can be revisited and adapted at any time. This allows the organization to be nimble, experiment, shift course quickly, and adjust to small changes, all while moving forward.

6. How are meetings held?

Who can participate in meetings?

How often are meetings?

How to give notice?

In person or virtual?

How is the agenda set?

How is the meeting facilitated?

Is there a specific meeting procedure?

Holacracy has Highly Structured Meetings!

•Everyone Has a Voice: Most meetings are held by going in a series of circles, which helps to ensure that everyone has a voice.

• Keeps Personality Politics at Bay: The high level of structure keeps personality politics from dominating organizational culture, and keeps individuals from taking up too much space with too much talking.

•Different Meeting Process for Different Types of Meetings: Governance meetings, strategy meetings, and tactical meetings.

7. Transparency?How can the organization efficiently and clearly

communicate governance structure, rights, responsibilities, and activities to members and

stakeholders?

8. Central organizations and outside governance? What could be the role of a

centralized trust or federation of organizations that dictates some activities and decisions of the

member organizations?

9. When to spin off a project and create separate governance?

When should a project or enterprise have its independent governance structures (as opposed to coming under the governance umbrella of a

larger organization)?

10. When does it make sense to keep organizational structures loose and governance

decentralized?Such as an “adhocracy” or “do-ocracy?”

11. How does money interact with governance?

12. Is it actually possible to have automated governance and truly distributed organizations? See Project Douglas: https://eris.projectdouglas.org/

https://eris.projectdouglas.org/

Add these to your to-do list:

Become obsessed with governance!

Rethink the governance of EVERYTHING!

Participate in governance EVERYWHERE!

1.Participation in decision-making, whether direct or by elected representation.

• What degree of control do employees have over any single decision?• Which issues do they exercise that control over?• What is the organizational level at which it is exercised?

2. Frequent feedback of economic results to all employees (in the form of money, not just information) 3. Full sharing with employees of management-level information and, to an increasing extent, management-level expertise. 4. Guaranteed individual rights (corresponding to the basic political liberties) 5. An independent judiciary, aka independent board of appeals in case of disputes (composed of peers as far as possible) 6. A particular set of values and attitudes, aka a participatory, democratic, or cooperative consciousness

Workplace Democratization: Its Internal Dynamics by Paul Bernstein

In small groups:

•How does this discussion about governance relate to my world?

•Does it bring to mind past experiences with organizations and businesses?

•Or does it prompt you to think about things

related to your current or future work?


Ricardo NunezSustainable Economies Law Center



Workshop 5 — Community-Sourced Capital RaisingWorkshop 5 — Community-Sourced Capital Raising

Community-Sourced Capital Raising

Do you know where you dollar sleeps at night?

Hey Dollar,How do you feel about sitting in a

Wells Fargo savings account?

Um. Now what?

OaklandPinball

Oakland

Pinball

Let’s shift the culture and get people to invest

local!Let’s play!!

Impact Hub

LaurelBooks

Issues

25th St.

Collective

New Parkway

RockPaper

Scissors

Awaken

Red BayCoffee

Local wealth: $1

$

Impact Hub

LaurelBooks

Issues

25th St.

Collective

New Parkway

RockPaper

Scissors

Awaken

Red BayCoffee

Local wealth: $2

$

Impact Hub

LaurelBooks

Issues

25th St.

Collective

New Parkway

RockPaper

Scissors

Awaken

Red BayCoffee

Local wealth: $3

$

Impact Hub

LaurelBooks

Issues

25th St.

Collective

New Parkway

RockPaper

Scissors

Awaken

Red BayCoffee

Local wealth: $4

$

Impact Hub

LaurelBooks

Issues

25th St.

Collective

New Parkway

RockPaper

Scissors

Awaken

Red BayCoffee

Local wealth: $5

$

Impact Hub

LaurelBooks

Issues

25th St.

Collective

New Parkway

RockPaper

Scissors

Awaken

Red BayCoffee

Local wealth: $6

$

GovernanceI took all the money out my IRA and put it in 500 local enterprises!

Which should we be more worried about?

The 10% IRA withdrawal penalty?

Or….

How do we make this sound normal?

$

Oakland

Pinball

$Oakland

Pinball

Divest from EVERYTHING

that’s making the rich richer!!

Impact Hub

Community supported enterprise memberships

Loans to local land trusts

Money in credit unions

Cooperativememberships

Shares of local

businesses

Loans to renewable

energy projects

Your Future Investment Portfolio

Food

What options exist for our to fund the new economy?

Community Raised Capital options, promises and pitfalls

Janelle’s going to talk about Direct Public Offerings later, so we’ll move past that!

Thanks, Janelle!

(Donation based) Crowdfunding What is it? Is it useful?

Definition: the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

Equal Exchange’s Financing Model Exit Does Not Exist

• Equal Exchange is a worker-owned cooperative that pioneered the Fair Trade coffee company with a radical financing strategy: tell investors there was no exit strategy for the company.

• Early on, they told investors to not expect any returns on their investments!

• Created avenues for outside, passive capital and built legally binding, internal controls.

• Latest edition: Equal Exchange Certificate of Deposit with Eastern Bank (a mutual bank owned by its depositors)

Securities Law is for Everyone!

Securities Law: Because people could take

your money and lose it!

U.S. Securities and Exchange Commission mission is “to

protect investors, maintain fair, orderly, and efficient markets,

and facilitate capital formation.”

I just need to raise$10,000 to start

my business.

1. What will money be raised for? To buy land? Start a business? Buy tangible assets?

2. Form of investment: Loans? Equity investments? Cooperative memberships? Pre-sold products? All of the above?

3. How much money and how many investors? 1. How much money can the project take? Per person, and aggregate? 2. Will it depend on the investor? 3. Must the project raise the full offering amount before it takes people’s

money? 4. Any cap on the number of investors? 5. Will your law create a tiered system of regulation, placing fewer constraints

on businesses raising small investments and tighter constraints for large investments?

4. Investor qualifications? 1. Should the investors have any special qualifications? Minimum income

level? Minimum net worth? Geographic proximity to project? Relationship with the project?

5. Project requirements: How should the project be structured and how should it operate? Any requirements or limits on what it can do?

6. Advertising and info for investors and public: What info should the project/enterprise provide to investors and the public (disclosures about the business)? At the outset? On an ongoing basis?

7. Intermediary? May the project accept funds directly, or must it do so through an intermediary? What is the role of the intermediary (advertising? collecting investor info, providing disclosures, processing payments, holding funds in escrow)?

8. Compliance steps: Should the project be required to register with the state? Or simply provide notice and basic information to the state? What specific info should the project provide? How much discretion should the regulators have? For example should they be able to ask for audited financials if they want to or should it be set in stone what they can and can't do? Can they reject a project on the basis that it is overly risky? Should the state provide ongoing oversight?

Some Learning Goals:1)Be able to spot a security.2)To understand the interplay of federal and state laws.3)Learn a few simple ways to comply with the law.

• You create a security when you ask people to put money into your business or venture, and you offer them a return.

• For example, a security could be:

– Selling stock or equity;

– Asking people to lend money to your business;

– Offering a share of your business’s profits.

Basic Definition of Security

If you are offering a security, you need to:1)Register with the federal government (with some exceptions) and every state where you are offering securities

• Intra state exemption• Registration means filing an extensive document with

securities regulators. Usually requires audited financials. 1)Find an exemption from registration

Federal Definition: The Securities Exchange Act of 1933

The 1933 Act:“any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘security’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.”

Federal Case Law: What constitutes an “investment contract?”

• Howey Test: Court defined as “a contract, transaction, or scheme whereby the person invests his money in a common enterprise and is led to expect profits solely from the efforts of a third party.” (SEC v. W.J. Howey Co., 328 U.S. 293, 298).

• Investment of money: in manner as to subject investor to financial loss—inquiry focuses on what purchasers were offered or promised.

• Profits: Can include “capital appreciation…participation in earnings.”

• Definition is flexible not static--capable of adapting.• Often looks towards publication material but not

dispositive.

Federal continued …• Forman Case: Court said shares in a cooperative, were not considered securities, holding that “when a purchaser is motivated by a desire to use or consume the item purchased . . . the securities laws do not apply.” (United Housing Foundation v. Forman, 421 U.S. 837, 852-53 (1975)).

• Family Resemblance Test: Not all “notes” are securities despite federal definition. Notes look more like securities when:– The seller's purpose is to raise money for the general use of a

business enterprise or to finance substantial investments and the buyer is interested primarily in the profit the note is expected to generate;

– There is a plan to distribute the notes for trading and investment;– Investors reasonably expect that the notes will be treated as

securities;– However, when some other regulatory scheme reduces the risk of

the note, the courts are likely to find the application of the securities laws unnecessary.

The Risk Capital TestApplied in 17 states and maaaybe NY:

• Sobieski: CA Supreme Court found the sale of charter memberships in a country club as security even though the members would not share in the profits or ownership of the club. (Silver Hills Country Club v. Sobieski, 361 P.2d 906 (Cal. 1961).

• California Court (and a minority of other states) found the investor’s expectation of a return need not be a material benefit. Now, the test considers whether: – (1) The funds are being raised for a business venture;– (2) The transaction is offered indiscriminately to the public

at large; – (3) The investors are substantially powerless to affect the

success of the enterprise and;– (4) The money is adequately secured.

The New York Court of Appeals held that the sale of membership in recreational campgrounds is not a security where members acquire no legal interests in the company, no right to their business, any share of income, or any right to participate in management. Rather than a financial interest, the court found that members acquired membership solely for their own personal enjoyment and not for resale or profit. The court stated that the Howey test is the test of choice in New York; however, it also acknowledged the use of the risk-capital test. The court found application of the risk-capital test irrelevant because the memberships were being sold for an established business instead of to raise capital for a new enterprise. On this basis, the court failed to consider whether or not the risk-capital test would be a useful addition to the Howey test in New York. All Seasons Resorts, Inc. v. Abrams, 497 N.E.2d 33, 35 (N.Y. 1986).

What if every new business collects 500 Commitment contracts

before it starts raising capital?

Commitment:1. Customer agrees to purchase 40 loaves of bread by December 2015.

2. Baker agrees to …

You CAN raise money in a way that is not considered a security.

What about pre-selling?

Looks less like a security when there is less risk to the investor of being unable to redeem the

certificate.

- Business is already in operation;

- Service oriented (landscaping, child care);

- Not used to finance substantial investment.

Federal Accredited v. Qualified Purchaser

Only 7.4% of U.S. households were accredited in 2010!

More Federal ExemptionsPrivate offerings Section 4(2): “transactions by an issuer not involving any public offering.”•Regulation D: Geared towards small business (all file Form D)

– Rule 504: $1M; No advertising (unless coordinated with state), generally restricted resale (unless coordinated with state), comply with Blue Sky laws.

– Rule 505: $5M; No advertising, 35 sophisticated non-accredited, restricted resale, comply with Blue Sky laws

– Rule 506(b): No limit; No advertising, 35 non-accredited, restricted resale, NSMIA “covered security” so no Blue Sky required

– New JOBS Act Rule 506(c): No limit, Advertising Allowed, only to accredited, burden shifts to issuer for due diligence of investor income verification (third party authorization allowed--attorney or CPA)

•New JOBS Act Draft Investment Crowdfunding Exemption

Federal Exemptions• Intrastate offerings Section 3(a)(11): Rule 147 Safe Harbor--

presumption of federal exemption where:– Issuer resides or principal place of business in state where offering made; – 80% of assets and gross revenue of the business are located within the state

where the offering is made;– 80% of net proceeds from sales used in that state;– No part of offering made out-of-state within 9 months of last sale;– Legend required on security.

• Charitable organizations Section 3(a)(4): Religious, educational, fraternal, charitable or benevolent organizations. (Remember, not all states may have similar exemption!)

• Farmers cooperatives Section 3(a)(5): Organized under I.R.S. Code 521 co-ops and I.R.S. 501(c)(16) nonprofits, Cooperative Organization to Finance Crop Operations.

Crowdfunding!

In 2013:JOBS Act / CROWDFUND Act!

• At least $2000 per person

• At least $2000 per person • Or 5% of annual income

or net worth!


or net worth!•Or 10% if income or net worth is over $100,000


or net worth!•Or 10% if income or net worth is over $100,000

• Up to $1 Million Dollars

Crowdfunding Intermediary

No advertising!

Ok, investors, here’s some info about what you are getting yourself into….

Investor Education

Please fill out this form and give info about your income

and other investments…

Investor Info Form

JOBS Act Draft Investment Crowdfunding Exemption

• Can raise up to $1M per year; can structure how you want (e.g. as debt, equity, royalty).

• Issuer financial disclosure requirements: – If you hope to raise over $500K, audited financials required;– If you hope to raise over $100K, reviewed financials required;– Annual reporting to SEC.

• Maximum aggregate investments per year:– Investors with annual income or net worth under $100K can invest

greater of $2000 or 5% of annual income or net worth;– Investors with annual income or net worth over $100K can invest 10%

of income or net worth, not to exceed maximum investment or $100K.• Integration not triggered.• Preempts state law. • Must be done through an intermediary defined as broker-dealer

or "funding portal.”

Ready? Set? Write a law!Every state should create special

securities exemptions for: Micro-investments

Hyperlocal investmentsRenewable energy projects

FarmlandCommunity supported agriculture

Worker cooperativesPre-sold products

Crowdfunding a houseMinority-owned businesses

Farm equipment

• Up to 35 unaccredited investors• In California• People you have a pre-existing relationship with• No advertising • File a simple form with Department of Business Oversight

Some states have “Friends and Family” exemptions

CeInvestment

secured by a Deed

of Trust

GovernancePerhaps we can find creative ways to

“hack” the existing laws:

“Reverse Private Offering!”

Disclaimer: Reverse Private Offering is not exactly a thing.

Hey Laurel Book Store,Can you keep this $300 for

me and just pay it back with 2% interest over the next

five years? Thank you, dear!

GovernanceHack the existing laws:

Everyone get an investment advisor!

Also consider self-directed IRAs.

Equity Trust recently helped a community finance land purchase with self-directed IRAs.

We did a direct public offering!

Direct Public OfferingsQuimper Merc

Direct Public Offerings (DPOs)

• Find an exemption in federal securities law

• Business applies for a permit from the state(s) where they will be soliciting investors

• Publicly advertise investment opportunity within that state

• Not an “IPO”

Direct Public Offerings (DPOs)

• State must provide a permit approving investment offering materials (“qualification by permit”)

• Permitting process can take a few weeks to a few months AFTER you submit the initial application in good shape

• Permit valid for one year; renewable

Direct Public Offerings (DPO)

• Fee: $500 to $2,500 in California

• Many businesses choose to set a minimum investment amount per person

• May want to avoid having more than 500 “unaccredited” (e.g. non-wealthy) investors OR 2,000 total investors AND more than $10 million in assets

DPO Pros

• Business is free to advertise online, in public media, at events, etc.

• No SEC registration!! (must file Form D only)

• No middleman or broker is required

• Marketing DPO forces enterprise to get exposure; get people literally invested in its success

DPO Cons

Lots of work before and after you get permit from the state(s)!

Legal paperwork and fee is an initial hurdle to overcome

Legal paperwork usually requires the assistance of an attorney; adds costs

What to submit to the state

• Financial statements (past, projected)

• Description of business

• What will you do with the money?

• Risk factors

• Samples of the security

• Subscription agreement or contract (if applicable)

• Copies of all advertising materials

What to submit to the state, cont’d

• List of who will be selling the securities (and compensation info)

• Lots of info about the directors, officers, executives, managers of the business

• Articles, bylaws

• Lots more!

• See the regulations for full list of required materials

Key thing to remember

•Make sure that any potential investor is getting ALL the information they might reasonably need to know to make an informed decision.

A few more notes on DPOs

• There are special regulations for real estate investment offerings that are more onerous

• There may be limits on how much unaccredited investors can invest

• Only officers and directors of the issuer (the business) can advertise generally

Investment Companies

• “I have a great idea! I’ll create one big entity that will get a permit to raise money and it will invest in other great, local businesses that need to raise capital so they don’t need to get permits!”

• Investment Company Act of 1940 would impose lots of additional expensive requirements on that entity….

New York State Martin Act

• Art. 23-A of New York General Business Law• Requires registration of securities sold in

– Real estate offerings– Theatrical syndications– Intra-state offerings

• Issuer offering “securities to the public” need to register as a broker/ dealer (inexpensive)

• Co-op membership shares not securities, in general

Qualifications for Intrastate Offering

• The issuer must be incorporated in New York State.

• 80% of revenues, assets, and use of offering proceeds must be in New York State.

• Solicitations and advertisements may be directed to New York State residents only.

• Securities may only be sold to state residents, by state residents, or by a corporation of that state that also does business within that state.

Some Resources

• CommunityEnterpriseLaw.org

• CuttingEdgeCapital.com (check out blog and resources links)

BREAK!3:15 – 3:30pm3:15 – 3:30pm


Janelle OrsiExecutive DirectorSustainable Economies Law CenterAuthor, Practicing Law in the Sharing Economy


Workshop 6 — Community Land TrustsWorkshop 6 — Community Land Trusts

OrganizationsLand Trusts

This assumption holds most of society captive:

The goal of landownership and homeownership is to accumulate wealth when the market drives up

the value of the property!

Look, the Stick family bought a house!

Then their house gained $100,000 in value was because of the good school, nice city

park, and cute coffee shop.

All the owners had to do was sit around and drink lattes!

I want to get paid $100,000 a year to drink lattes!

Look how respectable and accomplished they are!

Oh….What if new urban farms, parks,

healthy food stores, better transit, and other public

infrastructure actually harm the same people they were designed

to benefit?

It’s not that we need land trusts, per se.

It’s that we need organizations that can enforce restraints on the use of

land and that can work to ensure that everyone has access.

An inherent tension in our work:

We’ll achieve many of our goals by putting restraints on how land can be used and

transferred.

But those restraints can make it harder to sell (alienate) the land.

Restraints on alienation? Isn’t that un-American?

“The harmful effects that may flow from restraints on alienation include impediments to the operation of a free market in land,

limiting the prospects for improvement, development, and redevelopment of land, and limiting the mobility of landowners

and would-be purchasers.”-Restatement Third of Property, § 3.4 Direct Restraints on Alienation,

Comment C at 442 (2000).

CA Civil Code 711: Conditions restraining alienation, when repugnant to the interest created,

are void.(Enacted 1872.)

Restraints on contract? Isn’t that un-American?

Got ya!

Restraints are more enforceable through contract (such as a lease).

“Determining reasonableness of a restraint on alienation requires balancing the utility of the purpose served by the restraint against the harm that is likely to flow from its enforcement. […] Restraints on alienation of land are used to accomplish a wide variety of purposes of differing utility:

[…] to retain land in families […] to preserve affordable housing[…] to control entry into communities, like retirement

communities, developed for specialized purposes[…] to further the conservation, preservation, and

charitable purposes to which land is devoted.”

- Restatement Third of Property, § 3.4 Direct Restraints on Alienation, Comment C at 442 (2000).

Tips: 1)Explicitly describe the purpose and social/environmental/personal needs for such a restraint.2)Describe the way in which the owners will benefit from or benefit “in consideration of” the restraint. 3)Build in a sufficient number of exit options for property owners and co-owners, along with clear procedures and timelines for how to exercise them.

Ways to put restraints on land:Deed covenants and restrictions

LeasesEasements

Mortgages (hmm)

Not a good idea, in retrospect:LEHC / HDFCs where the limited equity provision was tied to a mortgage that

got paid off.

Who creates and enforces the restraint? •Your own group?

•By giving limited return when people leave•And by giving distributions to past members upon dissolution

•Is that a nightmare? Maybe not so much anymore. • Or by making the distribution to a nonprofit.

•A city•Sometimes cities will grant you a zoning permit, but only if you create affordable housing. Then the city enforces a deed restriction that limits equity.

•A lender•Sometimes lenders will give subsidized loans with good terms, and in exchange, require that the community be limited equity. Like the HUD loans from 40 years ago that are now expiring.

•By the way, expiring restraints make for a weird situation. • A land trust

•The land trust could own the underlying land, and residents get long term ground leases + ownership of the building. The land trust creates and enforces limits on how the units are sold.

•A nonprofit•Create some sort of affordability easement or deed restriction and grant in to a nonprofit.

+Documents re-allocatingthe bundle:- TIC Agreements- CC&Rs- Leases- Easements

Leasewith MORE

than the usual bundle

of rights.

Deedwith LESS than the

usual bundleof rights.

= ?

Land as commons

We’re working on legal structures for land trusts aimed at creating equitable access to land, building ecological farms, and creating

sustainable livelihoods.

Words with no legal meaning, mostly….Intentional Community (umbrella term)

CohousingIntentional Neighborhood

CommuneEcovillage

Shared HousingHousing Cooperative

CohouseholdingCo-ownership without community

Land Trust*Land Cooperative

Land Bank*

Some Variations on Land TrustsCommunity Land Trust (housing/commercial)

Agricultural Land TrustConservation Land Trust

Three primary models:1. Title held by the trust and leased to

occupant.2. Title held by occupant and easement held by

the trust.3. Right of reversion and other deed

restrictions.

Common Goals of Our Housing Clients:To be more than just a renterTo avoid stressful financial burdensTo avoid inflexible, long-term debtTo live in housing that facilitates local economy, sharing, and sustainabilityTo foster a non-speculative housing system To foster a thriving ecosystem

Sharing Strategies:Sharing SpaceIntentional villages/neighborhoods

CohousingShared housing

Sharing Management/ControlSharing Financing

What’s Up with All These Docs?Formative Documents (File with the state)

Articles of IncorporationArticles of Organization

Governing DocumentsCC&RsBylawsOperating Agreements

Rules and Policy DocumentsPet PoliciesArchitectural GuidelinesEtc… Etc… Etc… Etc… Etc… Etc… Etc… Etc… Etc…

Transactional DocumentsPurchase and Sale AgreementsLeasesContracts for this and that

Reporting DocumentsRegister with Secretary of StateTax returnsDBA forms

3 Common Arrangements for Structuring Relationships

with Shared Land:-Tenancy in Common

- Condos- Ownership by an Entity

Tenancies in Common (TICs)

Useful for:Cohouseholding 1 Unit

“Casual Cohousing” (2 to 4 Units), andRetrofit Cohousing

Small Intentional Communities

Condos:

Ownership byAn Entity:

Temporarily set aside everything we’ve said about what a co-op is. In the context of housing,

the legal definition is kinda different.

Civil Code 1351(m) "Stock cooperative" means a development in which a corporation is formed or availed of, primarily for the purpose of holding title to, either in fee simple or for a term of years, improved real property, and all or substantially all of the shareholders of the corporation receive a right of exclusive occupancy in a portion of the real property, title to which is held by the corporation. The owners' interest in the corporation, whether evidenced by a share of stock, a certificate of membership, or otherwise, shall be deemed to be an interest in a common interest development and a real estate development for purposes of subdivision (f) of Section 25100 of the Corporations Code.

Are housing cooperatives cooperative enough?

Key elements of cooperatives:- Democratic- Cooperative profit sharing - Limited equity

CA’s definition of stock cooperative doesn’t mandate any of these.

What is Common Area? What is a Unit?

Promoting and Preserving Affordability

Step 1: Make it affordable to begin with• Less expensive financing• Less expensive buildings

Step 2: Keep it affordable• Put a restriction on how the land or

shares of it are sold• Make sure someone is enforcing that

restriction

Preserving AffordabilityThat means putting some restraints on how people

transfer (“alienate”) land. Stuff like: •Limits on who you can sell your share to or lease to, such as:• Only sell back to the community• To a low-income person, elderly person, etc• Only to people who already live in the neighborhood and their families.

•Limits on how much you can get for it:•Only what you paid for it? •What you paid for it, plus interest?•What you paid for it, plus a return correlated to the consumer price index (CPI) or area median income (AMI)?•With compensation for the improvements you made? •Only what you paid, plus your share or profits or losses in the entity? •Etc.

22% of housing units in Zurich are cooperative non-profits

https://placesjournal.org/article/housing-and-the-cooperative-commonwealth/

Civil Code 817. "Limited-equity housing cooperative" or a "workforce housing cooperative trust" means a corporation organized on a cooperative basis that, in addition to complying with Section 817.1 as may be applicable, meets all of the following requirements: (a)The corporation is any of the following:

(1) Organized as a nonprofit public benefit corporation pursuant to Part 2 (commencing with Section 5110) of Division 2 of Title 1 of the Corporations Code.

(2) Holds title to real property as the beneficiary of a trust providing for distribution for public or charitable purposes upon termination of the trust.

(3) Holds title to real property subject to conditions that will result in reversion to a public or charitable entity upon dissolution of the corporation.

(4) Holds a leasehold interest, of at least 20 years' duration, conditioned on the corporation's continued qualification under this section, and provides for reversion to a public entity or charitable corporation.

(b) (1) The articles of incorporation or bylaws require the purchase and sale of the stock or

membership interest of resident owners who cease to be permanent residents, at no more than a transfer value determined as provided in the articles or bylaws, and that shall not exceed the aggregate of the following:

(A) The consideration paid for the membership or shares by the first occupant of the unit involved, as shown on the books of the corporation.

(B) The value, as determined by the board of directors of the corporation, of any improvements installed at the expense of the member or a prior member with the prior approval of the board of directors.

(C) Accumulated simple interest, an inflation allowance at a rate that may be based on a cost-of-living index, an income index, or market-interest index, or compound interest if specified in the articles of incorporation or bylaws. For newly formed corporations, accumulated simple interest shall apply. Any increment pursuant to this paragraph shall not exceed a 10-percent annual increase on the consideration paid for the membership or share by the first occupant of the unit involved.

(D) (2) (A) Except as provided in subparagraph (B), for purposes of a return of transfer value, both of the following are prohibited: (i) A board of directors returning transfer value, either full or partial, to a member while he or she still remains a member. (ii) An existing member accepting the return of his or her transfer value, either full or partial. (B) A board of directors may return to an existing member and the existing member may accept return of his or her transfer value in the event that the member moves within the cooperative from a category of unit initially valued at a higher price to a different category of unit valued at a lower price.

(c) The articles of incorporation or bylaws require the board of directors to sell the stock or membership interest purchased as provided in subdivision (b) to new member-occupants or resident shareholders at a price that does not exceed the "transfer value" paid for the unit.

(d) The "corporate equity," that is defined as the excess of the current fair market value of the corporation's real property over the sum of the current transfer values of all shares or membership interests, reduced by the principal balance of outstanding encumbrances upon the corporate real property as a whole, shall be applied as follows:

(1) So long as any such encumbrance remains outstanding, the corporate equity shall not be used for distribution to members, but only for the following purposes, and only to the extent authorized by the board, subject to the provisions and limitations of the articles of incorporation and bylaws:

(A) For the benefit of the corporation or the improvement of the real property. (B) For expansion of the corporation by acquisition of additional real property. (C) For public benefit or charitable purposes.

(2) Upon sale of the property, dissolution of the corporation, or occurrence of a condition requiring termination of the trust or reversion of title to the real property, the corporate equity is required by the articles, bylaws, or trust or title conditions to be paid out, or title to the property transferred, subject to outstanding encumbrances and liens, for the transfer value of membership interests or shares, for use for a public or charitable purpose.

(e) Amendment of the bylaws and articles of incorporation requires the affirmative vote of at least two-thirds of the resident-owner members or shareholders.

NY Private Housing Finance Law

• Article 11 Housing Development Fund Companies

Financial Considerations Related to How People Buy In and Sell Out

• Resale Restrictions• Right to purchase (at appraised fair market value? At predetermined price?)

•Right given to other members•Right given to the association

• Right of first refusal refusal (at the price of a bona fide offer)• Limiting equity / Preserving affordability•Compensation for Improvements

•Appraisal before and after•Depreciated re-imbursement•Straight re-imbursement

•Distributing Proceeds on Sale of Entire Property•On the basis of relative value of each unit?•On the basis of number of years in community?•On the basis of share of ownership in the entity?

PROTECTING PLACE WITH CONSERVATION EASEMENTS

WHAT IS A CONSERVATION EASEMENT?

A conservation easement is a legal limitation on the use of land in a

written document that is executed by the property owner and

binding on successive owners for the purpose of retaining the land in its natural, scenic, historic, agricultural,

forested, or open space condition.

PROTECTING PLACE WITH CONSERVATION EASEMENTS

ISSUES RELATED TO CONSERVATION EASEMENTS

Conservation purposes Conservation easement holders

Tax deductions for donation of conservation easementsThreats to perpetuity: Mortgage subordination

Mineral rights Marketable record title acts

Recordation of the easementAmendment of easements

Baseline documentation reportCo-owned property

SOURCE OF INFORMATION - www.landtrustalliance.org

http://www.landtrustalliance.org/

Someone recently told me that U.S. farmers and farm corporations own the majority of the

nation’s privately owned land….?

The average age of farm owners in the U.S. is 57.

400 million acres of land is about to change hands…

Let’s make some trusts!

Preservation of Agricultural Land

Food for thought:Can we manage agricultural land as a commons if the farm businesses are not managed as a commons for

the benefit of workers’ livelihoods?

I want satisfying work, where my voice matters, I have control over my working

conditions, I learn and grow, use my creativity, build community, advance equity,

nourish this ecosystem, and have fun!

Work as commons

Worker-Owned Cooperative Farm

Brooklyn Alliance of Neighborhood Gardens (BANG) Land Trust

Brooklyn Alliance of Neighborhood Gardens (BANG) Land Trust

VALUES•Access to Land •Sustainable Environments •Community •Governance •Education •Collaboration

GOALS1. Conserve Land 2. Create a Community of Greenspaces 3. Educate, Engage and Inform 4. Engage Government, Institutions and Individuals 5. Build the Organization 6. Become a Facilitator of Land Conservation




Workshop 7 — Ethics in Sharing Economy Law Workshop 7 — Ethics in Sharing Economy Law PracticePractice

Ethics in New Economy Law Practice

Spoiler alert:It gets awkward

Featuring:The voice of Abraham Lincoln,

As played by Janelle Orsi

“[Make] your Skill in the Law a Blessing to your Neighborhood.”

– Cotton Mather (1700ish)

Statistic cited by the Supreme Court in Bates v. State Bar of Arizona, 433 U.S. 350 (1977).

The 70% will change the world! Let’s help them do that!

b

The 70% is in the best position to create the solutions we need in society. Let’s grease the wheels of:

create wealth forthese people:

These things:

Lawyers receive the privilege of being the only people who can

practice law.

In exchange, lawyers adhere to ethical rules to ensure the integrity

of their practice.

Ensure quality and protect

society?

Protect the interests of

lawyers?

What is the purpose of enclosing the

legal profession?

What happens when law becomes…

Ensu

re q

ualit

y

and

prot

ect

soci

ety?

Lincoln:“I see in the near future a crisis approaching that

unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the

money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the

Republic is destroyed.”— Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins)

Be mindful of ways in which laws have been corrupted:

From the Preamble ABA Model Rules of Professional Conduct:

“Lawyers play a vital role in the preservation of society.”

A lawyer is: “an officer of the legal system and a public citizen having special responsibility for the quality of justice.”

“[a]s a public citizen, a lawyer should seek improvement of the law, access to the legal system, the administration of justice and the

quality of service rendered by the legal profession.”

Purpose of Law and Legal Profession

So let’s go back in time to get into the spirit of lawyers’ ethical rules….

This guyGeorge Sharswood1854 “An Essay on

Professional Ethics”

David Hoffman’s 1836 “50 Resolutions in

Regard to Professional Deportment”

Why the Legal Profession has Ethical Rules“There is, perhaps, no profession, after that of the sacred ministry, in which a high-toned morality is more imperatively necessary than that of the law. There is certainly, without any exception, no profession in which so many temptations beset the path to swerve from the line of strict integrity; in which so many delicate and difficult questions of duty are continually arising. There are pitfalls and man-traps at every step, and the mere youth, at the very outset of his career, needs often the prudence and self-denial, as well as the moral courage, which belong commonly to riper years.”-- Sharswood, p. 1

Here’s a man-trap:Our clients do a lot of illegal things.Not bad things. Just illegal things.

Should we help them ?

Our clients will be doing a lot of weird and wonderful things…

A new economy means new legal territory

REALMS OF ECONOMIC

ACTIVITY

Governance

YOU CAN’T DO THAT.

What many lawyers say:

Since the survival of our communities and planet depends on people implementing innovative and creative

solutions, we should tell our clients:

LET’S TRY TO MAKE IT WORK!

“Legal propositions cannot be framed with the certainty of mathematical theories. The most carefully studied

language still leaves room for interpretation and construction. Time itself, which works such mighty

changes in all things, produces a state of circumstances not in the mind of the lawgiver.” -- Sharswood, xxvi

Interpreting Laws With Reference to Changed Times

A note about other sources: •California Ethics Opinions: If you see a citation that looks like this: CAL 2003-162, it means it’s the State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2003-162. You can also click the link and go straight to the opinion.

•California Rules of Professional Conduct: Any rule in the format #-### (example: 1-200) is a California Rules of Professional Conduct.

•ABA Model Rules: Any rule in the format #.# (example: 2.1) is from the ABA Model Rules of Professional Conduct.

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=VRUC1tVaqA4=&tabid=838

Do lawyers have an affirmative obligation to urge clients not to break the law?

Rule 3-210: A member shall not advise the violation of any law, rule, or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid. A member may take appropriate steps in good faith to test the validity of any law, rule, or ruling of a tribunal.

Ethics Opinion CAL 2003-162 seems to go a little further:

“Although a lawyer may advocate political and social change through the violation of tax laws, she may not advise a client to violate the law unless she believes reasonably and in good faith that such law is invalid and there is a good-faith argument for the modification or reversal of that law.”


Lawyers and Civil DisobedienceSee: CAL 2003-162

Hmmm: “A state may not forbid or proscribe the advocacy of a violation of law except where such advocacy is directed to inciting or producing imminent lawless action and is likely to incite or produce such action.” (Brandenburg v. Ohio (1969) 395 U.S. 444 [89 S. Ct. 1827].)

“Attorney’s status as a lawyer does not change the analysis. To the extent speech is constitutionally protected, Attorney has the First Amendment right to advocate political and social change through the violation of law, even though the First Amendment rights of lawyers are limited in certain respects.” (See Standing Committee on Discipline v. Yagman (9th Cir. 1995) 55 F.3d 1430)

Read more here: “Civil Disobedience and the Lawyer's Obligation to the Law,” Judith A. McMorrow, Boston College - Law School, Washington and Lee Law Review, Vol. 48, pp. 139-163, 1991


Hmm…Representing undocumented immigrants in

forming cooperatives?

Can an attorney help a client form a business if the activities of the business are illegal? Such as a

milk cooperative? Can the attorney limit the scope of representation to the cooperative

entity, and disclaim any involvement in advising on health/safety/food/ag regulations?

This is where limited-scope representation agreements are helpful.

Form more info on limited scope representation, see:

An Ethics Primer on Limited Scope Representation By The State Bar of California Committee on

Professional Responsibility and Conduct

http://www.americanbar.org/content/dam/aba/migrated/legalservices/delivery/downloads/ethics_primer_on_limited_scope_representation.authcheckdam.pdf

Limited Scope/ Unbundled Legal Services in NYS

• Rule 1.2(c) - scope may be limited when reasonable

• Rule 6.5 – can be limited as part of a pro bono legal services program

“Legislation is indeed a nobler work than even jurisprudence. It is the noblest work in which the intellectual powers of man can be engaged, as it resembles most nearly the work of the Deity.”

-- An Essay on Professional Ethics, by George Sharswood, 1854

Be like a Deity. Change laws.

Add to your to-do list:Set a goal to change at least one law!

Local ordinance?State legislation?

Regulatory change?Federal legislation?

Maybe one of each? :oD

It’s fun to change laws!

Be an Angel. Help Other Lawyers.

To do:Help Other Lawyers and Those Who

Want to Become LawyersFrom David Hoffman’s 50 Resolutions

#17 Should I attain that eminent standing at the bar which gives authority to my opinions, I shall endeavor, in my intercourse with my junior brethren, to avoid the least display of it to their prejudice. I will strive never to forget the days of my youth, when I too was feeble in the law, and without standing. I will remember my then ambitious aspirations (though timid and modest) nearly blighted by the inconsiderate or rude and arrogant deportment of some of my seniors; and I will further remember that the vital spark of my early ambition might have been wholly extinguished, and my hopes forever ruined, had not my own resolutions, and a few generous acts of some others of my seniors, raised me from my depression. To my juniors, therefore, I shall ever be kind and encouraging; and never too proud to recognize distinctly that, on many occasions, it is quite probable their knowledge may be more accurate than my own, and that they, with their limited reading and experience, have seen the matter more soundly than I, with my much reading and long experience.

Hmmm….Does this sentiment remain in any rules of professional conduct?

By the way…NY Bar Admission Rules § 520.4 Study of Law in Law Office

(a)General. An applicant may qualify to take the New York State bar examination by […] (2) the applicant successfully completed the prescribed requirements of the first year of full-time study in a first degree in law program at an approved law school […] (5) the applicant thereafter studied law in a law office or offices located within New York State, under the supervision of one or more attorneys admitted to practice law in New York State, for such a period of time as, together with the credit permitted pursuant to this section for attendance in an approved law school, shall aggregate four years. (b) Employment and instruction requirements. An applicant studying law in a law office or offices within New York State must be actually and continuously employed during the required period as a regular law clerk and student in a law office, under the direction and subject to the supervision of one or more attorneys admitted to practice law in New York State, and must be actually engaged in the practical work of such law office during normal business hours. In addition, the applicant must receive instruction from the supervising attorney or attorneys in those subjects that are customarily taught in approved law schools.

When seeking help from another attorney, can you disclose confidential client information?

See the State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2012-183

“In addition, Fox Searchlight recognized that the attorneys for the in-house counsel were themselves bound by the rules of confidentiality and attorney-client privilege and, thus, disclosure to them would not be a public disclosure. Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294 at p. 311.

Thus, Fox Searchlight makes clear that lawyers have the right to disclose employer-client confidential information when seeking legal advice from their own lawyers whether for their own protection or in aid of the client’s cause. Fox Searchlight, supra, 89 Cal.App.4th at pp. 313-314.

What do you usually do?

http://ethics.calbar.ca.gov/Portals/9/documents/Opinions/CAL%202012-183-ADA-rev.pdf

Ethical Considerations in Working With Interns and Apprentices?

Avoiding enabling interns and apprentices to commit unauthorized practice of law.

Communicating ethical rules.

Will attorney/client privilege apply when non-necessary people are in the room (in the case

of observers)?

Others?

“There will still be business enough." -- The Collected Works of Abraham Lincoln edited by Roy P. Basler, Volume II, "Notes for

a Law Lecture" (July 1, 1850), p. 81.

Be like Lincoln. Share information with the

public and clients

“Don’t share so much information that you put yourself out of business."

-- My Mom

When Does Public Speaking Create Attorney-Client Relationship?

CAL 2003-164: “The context of a radio call-in show or other similar format is unlikely to support a reasonable belief by the caller that the attorney fielding questions is agreeing implicitly to act as the caller’s attorney or to assume any of the duties that flow from an attorney-client relationship.”

But read the detailed analysis of the opinion for a more nuanced understanding.

It never hurts to say: “I’m not your attorney and this is not legal advice, but here’s

some information that could help you….”

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=tdI0awT-KcE=&tabid=838

Legal Structure of Law Practice, Part 1• No: Partnerships with non lawyers (Rule 1-310)• Sole Proprietorship• Partnership • Limited Liability Partnership (LLP) • Professional Corporation

• “Professional corporation” means a corporation organized under the General Corporation Law […] engaged in rendering professional services in a single profession, […]pursuant to a certificate of registration issued by the governmental agency regulating the profession. (Corporations Code 13400)

•Shares of capital stock in a professional corporation may be issued only to a licensed person or to a person who is licensed to render the same professional services (Corporations Code 13406)

•A law corporation is a corporation which is registered with the State Bar of California and has a currently effective certificate of registration from the State Bar pursuant to the Professional Corporation Act (Business & Professions Code 6160)•And if you think you’ll bring in a lot of money, choosing to be taxed as an S-Corp will save you on taxes.

• Not: LLC, Cooperative Corporation• Nonprofit: But can you charge regular lawyer fees if you are a nonprofit?

Legal Structure of Law Practice, Part 2

What about nonprofit and for-profit practices side by side?

What about Law Collectives?

How can a law firm be more like a cooperative?

CAL 1992-126Rule 1-320 prohibits an attorney from dividing fees with a

non- attorney even with the consent of the client. Consequently, an attorney who paid his secretary a percentage of his legal fees was guilty of the illegal

division of fees. (See Gassman v. State Bar (1976) 18 Cal.3d 125 [132 Cal.Rptr. 675]

Fee-Splitting with Non-Attorneys

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=1SthI35h13A=&tabid=839

Hmm, part of the purpose of restrictions against partnering with non-lawyers is to ensure that no one has the right to direct or control the professional judgment of a lawyer. (ABA Model Rule 5.4)

Rule 2-200(A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless:

(1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division; and(2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.

Fee-Splitting with Attorneys Outside of Firm

CAL 1997-150What ethical issues arise when attorneys enter into arrangements to share office space or services, such as reception and library facilities, maintenance staff, secretarial staff, or paralegal staff, without forming a law firm?

DIGEST: Attorneys sharing space or staff must take reasonable steps under the circumstances to ensure that their clients and potential clients are not deceived, misled or confused regarding the nature of their relationship. Attorneys who share office space or services also must take reasonable steps under the circumstances to protect each client's confidence and secrets. If attorneys do not address these issues sufficiently, they may violate their obligation to maintain clients' confidential information.

Attorneys sharing facilities or staff must affirmatively disclose to the public and to clients the nature of their shared arrangement when the arrangement tends to confuse, deceive, or mislead the public. (Rule 1-400(D)(2).)

Lawyers Who Share Stuff

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=_8xwvqvK9Lw=&tabid=839

A major benefit is that it keeps overhead low.

CAL 2012-184May an attorney maintain a virtual law office practice (“VLO”) and still comply with her ethical obligations, if

the communications with the client, and storage of and access to all information about the client’s matter, are

all conducted solely through the internet using the secure computer servers of a third-party vendor (i.e.,

“cloud computing”)?

Virtual Law Office

http://ethics.calbar.ca.gov/Portals/9/documents/Opinions/CAL%202012-184-ADA.pdf

CAL 2010-179Whether an attorney violates his or her duties of confidentiality and competence when using technology to transmit or store confidential client information will depend on the particular technology being used and the circumstances surrounding such use. Before using a particular technology in the course of representing a client, an attorney must take appropriate steps to evaluate: 1) the level of security attendant to the use of that technology, including whether reasonable precautions may be taken when using the technology to increase the level of security; 2) the legal ramifications to a third party who intercepts, accesses or exceeds authorized use of the electronic information; 3) the degree of sensitivity of the information; 4) the possible impact on the client of an inadvertent disclosure of privileged or confidential information or work product; 5) the urgency of the situation; and 6) the client’s instructions and circumstances, such as access by others to the client’s devices and communications.

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=wmqECiHp7h4=&tabid=837

From SELC’s Legal Café Intake Form:“No ongoing services: I will be taking part in a one-time legal advice clinic organized by the Sustainable Economies Law Center (SELC). I understand that neither SELC nor any volunteer attorneys are agreeing to provide advice and legal services on an ongoing basis. Legal services will be limited to the advice provided during today’s session. “

Limited Legal Services

From SELC’s Legal Café Intake Form:

This is not a thorough review of legal issues: I understand that attorneys at the Legal Cafe are giving advice on the fly, and that the Legal Cafe is designed in this way to ensure that many people can get basic legal questions answered quickly. At the same time, this means that attorneys cannot do a thorough review of all legal issues relevant to my matter. I understand that the advising attorneys may even fail to spot important legal issues related to my matter. I understand that if I want a thorough review of legal issues, I should hire an attorney separately.

I understand that SELC cannot check for conflicts of interest: Due to the short-term, walk-in, and limited nature of the legal services provided, it is not possible for SELC to systematically screen for conflicts of interest. For example, if I ask for advice about my dealings with a landlord or contractor, it may turn out that SELC has advised, or will advise in the future, the same landlord or contractor on the same matter. I am informed of and understand this risk, and I waive all conflicts of interest that may arise during the course of or subsequent to the legal services provided to me.

Advice Clinics

Rule 1-650(A) A member who, under the auspices of a program sponsored by a court, government agency, bar association, law school, or nonprofit organization, provides short-term limited legal services to a client without expectation by either the member or the client that the member will provide continuing representation in the matter:(1) is subject to rule 3-310 only if the member knows that the representation of the client involves a conflict of interest; and(2) has an imputed conflict of interest only if the member knows that another lawyer associated with the member in a law firm would have a conflict of interest under rule 3-310 with respect to the matter.(B) Except as provided in paragraph (A)(2), a conflict of interest that arises from a member's participation in a program under paragraph (A) will not be imputed to the member's law firm.(C) The personal disqualification of a lawyer participating in the program will not be imputed to other lawyers participating in the program.

Conflict Checks in Advice Clinics

From SELC’s Intake Form:

I understand that confidentiality and attorney-client privilege are limited in this setting: Information shared during the advice session will be kept confidential by attorneys, SELC staff, and volunteers present. However, I understand that, due to the public nature of the space, information I share may be overheard by others, and it may not be possible to protect its confidentiality. Because of the presence of students and observers, attorney-client privilege may not apply to the information I share. This means that if I am ever a party to a lawsuit, there is a chance that the volunteers or attorneys could be subpoenaed and compelled to disclose information I share during the advice session.

Privilege and Confidentiality in Advice Clinics

Sharing economy law practice involves working with groups…

Now it gets especially awkward…

Confidentiality ContactConflicts

Confidentiality•Model Rule of Professional

Conduct 1.6

• U.S. v. Kovel, 296 F.2d 918 (2d Cir. 1961)

Contact•Model Rule of Professional

Conduct 4.2,

a.k.a. The “No Contact” Rule

ConflictsModel Rule of Professional Conduct 1.7:

Conflict of Interest Involving Current Clients

Rule 2-100 Communication With a Represented Party(A) While representing a client, a member shall not communicate directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer.

This can be difficult in a transactional context. Example: Lawyer advises entity, knowing that some members of the entity periodically seek advice from independent counsel regarding their transactions with the entity.

Communication with Represented Parties

Read more about it in this opinion: The State Bar of California Standing Committee on Professional

Responsibility and Conduct Formal Opinion No. 2011-181Consent under the “no contact” rule of California Rule of Professional Conduct 2-100 may be implied. Such consent may be implied by the facts and circumstances surrounding the communication with the represented party. Such facts and circumstances may include the following: whether the communication is within the presence of the other attorney; prior course of conduct; the nature of the matter; how the communication is initiated and by whom; the formality of the communication; the extent to which the communication might interfere with the attorney-client relationship; whether there exists a common interest or joint defense privilege between the parties; whether the other attorney will have a reasonable opportunity to counsel the represented party with regard to the communication contemporaneously or immediately following such communication; and the instructions of the represented party’s attorney.

http://ethics.calbar.ca.gov/Portals/9/documents/Opinions/2011-181%20%5B10-0002%5D%20-%20PAW.pdf

Discussion (from Calbar): Rule 2-100 is not intended to prevent the parties themselves from communicating with respect to the subject matter of the representation, and nothing in the rule prevents a member from advising the client that such communication can be made.

But, grey area alert!See this opinion - CAL 1993-131: “When the content of such communication originates with or is directed by the attorney, the communication is prohibited as indirect communication under rule 2-100. When the content of such communication originates with and is directed by the client and not the attorney it is a permitted communication under the rule.”

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=iFVW3C5-FPc=&tabid=839

This comes up all the time!

From David Hoffman (1936)43. I will never enter into any conversation with my opponent's client, relative to his claim or defense, except with the consent and in the presence of his counsel.

44. Should the party just mentioned have no counsel, and my client's interest demand that I should still commune with him, it shall be done in writing only, and no verbal response will be received. And if such person be unable to commune in writing, I will either delay the matter until he employs counsel, or take down in writing his reply in the presence of others; so that if occasion should make it essential to avail myself of his answer, it may be done through the testimony of others, and not by mine. Even such cases should be regarded as the result of unavoidable necessity, and are to be resorted to only to guard against great risk, the artifices of fraud, or with the hope of obviating litigation.

Unrepresented Parties

Do you need to ask another party if they have a lawyer?

More info in CAL 1996-145

“If an attorney has actual knowledge that an opposing party is represented by counsel, he or she may not contact the party about the subject of the representation without the consent of the attorney. Knowledge of such representation can be imputed from the surrounding circumstances and is determined by an objective standard rather than the subjective knowledge of the attorney. If the attorney does not have reason to know whether a party is represented, the attorney is not required to inquire if a party is represented. Nevertheless, it may be prudent to inquire when it is not clear whether the party is represented. However, when the attorney has reason to know the party is represented based on the circumstances, the party's statement to the contrary will not relieve the attorney of the duty to obtain that lawyer's consent before communicating with the party. The obligations of the attorney do not differ based solely on the means of communication. The means of communication, however, can be one fact that may be considered in determining whether the surrounding facts lead to the inference of knowledge or require further inquiry.”

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=XTtAMXcBusQ=&tabid=839

Market economy involves transactions where one person stands to lose while the other gains.

Commons economy involves transactions where a community of people create ongoing relationships to

serve mutual and aligned interests.

See the works of David Bollier for explanation of the difference between Market and Commons.

Will we analyze conflicts of interest differently in a different economy?

It’s a Small World After All

Hypo: Organization A asks you to review a lease it is

entering into with Organization B.

Later Organization B asks for your help completing its tax exemption application.

Can you help B? Do you need a waiver from A?

CAL 1984-84

May an attorney represent a client in a proceeding adverse to one person who consulted the attorney in connection with another matter?

DIGEST:An attorney may represent a client adverse to one who consulted the attorney in connection with another matter except where in doing so he would be violating a legitimate expectation of confidentiality with respect to information provided during the consultation. The consulting person is a "client" for purposes of analysis and the attorney is prohibited from disclosing his secrets or undertaking another representation where he might be called upon to use information obtained in confidence against the consulting person.

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=JRZo8DFez5I=&tabid=841

CAL 1984-84

Indeed, it is our opinion that certain categories of confidential information obtained in a prior matter or relationship and not related in the usual sense to the matter of the subsequent employment, are inherently likely to have the potential for adverse use in any contested matter. Such information includes, but is hardly limited to, the former client's financial and emotional ability to withstand litigation, past settlement patterns, and the priority of certain of his or her needs over others (e.g., cash flow, emotional satisfaction, tax deferral, etc.). (See e.g., Cal. Formal Op. 1980-52.)

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=JRZo8DFez5I=&tabid=841

Back to the hypo…

What if A later comes and asks for help renewing the lease?

It’s awkward.

"It is the duty of an attorney: to maintain inviolate the confidence and at every peril to himself to preserve the

secrets of his client." (Bus. & Prof. Code, 6068, subd. (e).)

How to Explain that you Have a Conflict

From SELC’s Intake Form:

□ Please check here if we may list your organization or business on our website, grant applications, and other materials, in order to showcase the range of interesting clients that come to the Legal Cafe. Thank you!

Waiving Confidentiality About Identity of Client

Blanket waivers may be enforceable, but are tricky…

CAL 1989-115“Execution of an advance waiver of conflict of interest and confidentiality protections is not per se improper; that to the extent that the waiver of confidentiality is ‘informed,’ it is valid; that to the extent that a potential conflict ripens into an actual conflict, the advance waiver may or may not be sufficient depending upon the degree of involvement and the nature of the subsequent conflict.”

Waivers

What to put in the waivers

Organization as Client

See Rule 3-600

In representing an organization, a member shall conform his or her representation to the concept that the client is the

organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular

engagement. [….]

Under rule 3-600 of the California Rules of Professional Conduct and case law, a lawyer represents the partnership itself acting

through its highest authorized partner or other constituent overseeing the representation. A lawyer should follow the direction of the partner or other person or entity who is

authorized to direct the actions of the partnership's lawyer. Where there is a dispute among the partners about who may

oversee the lawyer's representation of the partnership and/or it is unclear whose instruction the lawyer should follow, the

lawyer should work with the partners to resolve the dispute, while explaining the likely consequences to the partnership if the dispute is not resolved. If the dispute is not resolved, the lawyer

may, and in some cases will, be required to withdraw.

Representing Entities Where Members Are in Conflict

Ugg: Note the sticky situation that comes up with entities that have consensus by unanimity.

CAL 1994-137“the lawyer is in a position where he or she cannot follow

one partner's instruction without violating the other partner's instruction. It is not a conflict of interest, because

the lawyer has only one client, the partnership. It is, instead, a conflict of authority within the partnership over who

oversees and instructs the partnership's lawyer.”“A lawyer in this situation is adrift in perilous waters.”

Working collaboratively with an attorney on the other side of the transactions

Pitfalls of working with another attorney:

•How it can double or triple legal fees•How malpractice by other attorney could result in malpractice for you

Drawing from the field of Collaborative LawLearn more: International Academy of Collaborative Professionals (IACP)

Multiple Representation and WaiversA conflict exists when there are “conflicting objectives of the clients in which the lawyer cannot effectively advance one client’s objective without detrimentally affecting another client’s objective.” - - CAL. 1999-153.

1. Can you competently and diligently represent the needs of two or more people at once? Consider symmetry of interests.

2. Would your clients be willing to seek counsel of multiple attorneys? If not, would it be a disservice to refuse multiple representation?

3. How to waive the conflicts initially and on an ongoing basis.

See rule 3-310 Avoiding the Representation of Adverse Interests

From Janelle’s Waiver, Part 1:

JOINT REPRESENTATION: Generally, professional ethics rules require that attorneys represent only one party to a transaction, so that each party may have her own advisor and advocate. However, exceptions can be made when the interests of parties are closely aligned. For example, it is typical for an attorney to jointly represent domestic partners and/or married couples when they purchase a home together. In your case, I believe the three of you have a similar vision and goals, which makes joint representation possible. Nevertheless, I must advise you that having separate attorneys is traditionally considered the most effective way to ensure that each party’s interests are protected. At any time, if you feel that you would benefit from each having your own attorney, you may end our attorney-client relationship and seek separate representation. In the meantime, it is important for me to explain a couple matters that come up when an attorney represents multiple parties:

From Janelle’s Waiver, Part 2:

CONFIDENTIALITY: In representing all three of you, matters that one of you might discuss with me would not be protected from disclosure to the others of you. While anything that any of you discusses with me is confidential with respect to third parties, I am prohibited from agreeing with any of you to withhold information from the others.

From Janelle’s Waiver, Part 3: CONFLICTS OF INTEREST: In addition, ethical rules require that I obtain a written waiver of actual or potential conflicts that may arise out of my simultaneous representation of two or more clients in the same matter. To work with potential conflicts and for your co-ownership arrangement to be successful, it is important to openly discuss any imbalances in your transaction, and to acknowledge how decisions you make could affect each of you differently. For example, if applicable, we should examine the implications of:

• Any situation where one party is contributing substantially more money than the others, or receiving property of substantially different value;

• Any significant differences in your financial statuses or credit ratings;• Any situation in which one of you has different financial goals than the other.

(An example would be a situation in which one of you is thinking of this purchase as a short-term investment, while another is envisioning this as a long term home);

• Any situation where joint ownership may subject one party to risk as a result of the other party’s liabilities (such as a pending lawsuit against one party);

• Any other situation that demonstrates that your goals are significantly divergent.

From Janelle’s Waiver, Part 4: In your particular case, I have already noted at least two potential conflicts that are important to be aware of. First of all, Irene has indicated that she plans to do a significant amount of work on her portion of the property, much more so than the other two of you.Irene’s additional investment of time and resources in the property means that you have important decisions to make about how to compensate co-owners for their improvements, and the decision you make will likely have different impacts on each of you.

Second, you have acknowledged that Mark has a poor credit rating, which could affect your ability to get ideal loan terms. Thus, you will have some decisions to make regarding your approach to obtaining a loan, and the decision you make could affect each of you differently.

As potential conflicts such as these come to the surface, I can point out the pros and cons of such differing opinions and help you determine how your course of action will affect each of you. However, as the attorney for all of you, I cannot advocate one of your positions over the others.

If significant conflicts arise between the three of you, and those conflicts are not resolved through our discussion process, it would become necessary for me to withdraw as your joint attorney, at which point I would advise each of you to obtain another attorney.

Lawyers as Mediators

Can you be both at the same time?

Can you be a lawyer for a group and then become their mediator?

Can you be a mediator for a group and then become their lawyer?

Mediator Turns Lawyer

ABA Model Rule 2.4(b): (b) A lawyer serving as a third-party neutral shall inform unrepresented parties that the lawyer is not representing them. When the lawyer knows or reasonably should know that a party does not understand the lawyer's role in the matter, the lawyer shall explain the difference between the lawyer's role as a third-party neutral and a lawyer's role as one who represents a client

The ABA Section on Dispute Resolution has adopted the following principle in a 2002 Resolution: “Mediation is a process in which an impartial individual assists the parties in reaching a voluntary settlement. Such assistance does not constitute the practice of law. The parties to the mediation are not represented by the mediator. […] In disputes where the parties’ legal rights or obligations are at issue, the mediator’s discussions with the parties may involve legal issues. Such discussions do not create an attorney-client relationship, and do not constitute legal advice, whether or not the mediator is an attorney.”ABA Section on Dispute Resolution, “Resolution on Mediation and the Unauthorized Practice of Law,” Adopted by the Section on February 2, 2002

ABA Section on Dispute Resolution has provided the following guidance on drafting the mediation agreements:

“When an agreement is reached in a mediation, the parties often request assistance from the mediator in memorializing their agreement. The preparation of a memorandum of understanding or settlement agreement by a mediator, incorporating the terms of settlement specified by the parties, does not constitute the practice of law. If the mediator drafts an agreement that goes beyond the terms specified by the parties, he or she may be engaged in the practice of law. However, in such a case, a mediator shall not be engaged in the practice of law if (a) all parties are represented by counsel and (b) the mediator discloses that any proposal that he or she makes with respect to the terms of settlement is informational as opposed to the practice of law, and that the parties should not view or rely upon such proposals as advice of counsel, but merely consider them in consultation with their own attorneys.”ABA Section on Dispute Resolution, “Resolution on Mediation and the Unauthorized Practice of Law,” Adopted by the Section on February 2, 2002

Lawyer Turns Mediator?

When does something officially become mediation? The Uniform Mediation Act adopted by the National Conference of Commissioners on Uniform State Laws, Section 3, recognizes that something is a mediation if “the mediation parties use as a mediator an individual who holds himself or herself out as a mediator or the mediation is provided by a person that holds itself out as providing mediation.” In essence, if I tell people that I’m mediating, then it’s a mediation. My solution: Tell client it’s not mediation.

"Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how

the nominal winner is often a real loser---in fees, expenses, and waste of time. As a peacemaker the

lawyer has a superior opportunity of being a good man. There will still be business enough."

The Collected Works of Abraham Lincoln edited by Roy P. Basler, Volume II, "Notes for a Law Lecture" (July 1, 1850), p. 81.

Discouraging Litigation?

See: CAL 1984-77“On any matter which requires client understanding, the attorney must

take all reasonable steps to insure that the client comprehends the legal concepts involved and the advice given, irrespective of the mode of communication used, so that the client is in a position to make an informed decision. Appreciation of the client's language may have a substantial bearing on the capability of the attorney to communicate with the client concerning such facts, legal concepts and advice. The

attorney may need to communicate in a particular language or dialect and for this purpose may need to use an interpreter skilled in a

particular language or dialect. Other means reasonably available to counsel, such as a person skilled in sign language or in translating a written document, may need to be used in order for counsel to act

competently in a particular case.”

Representing Non-English Speakers

http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=hQaC_moHrkc=&tabid=841

Men have a right not only to be well governed, but to be cheaply governed—as cheaply as is consistent with the due maintenance of that security, for which society was

formed and government instituted. -- Sharswood p. xxii

Note that most lawyers oaths from the 12-14th centuries focused heavily on the fact that lawyers should charge reasonable fees, and that they should serve the poor.

(“Standards of Conduct for Lawyers: An 800-Year Evolution” Carol Andrews, University of Alabama - School of Law, Southern Methodist University Law Review, Vol. 57, p.

1385, 2005)

Accessibility of Lawyers

David Hoffman’s 50 Resolutions:

18. Those who can afford to compensate me, must do so; but I shall never close my ear or heart because my

client's means are low. Those who have none, and who have just causes are, of all others, the best entitled to

sue, or be defended; and they shall receive a due portion of my services, cheerfully given.

27. I will charge for my services what my judgment and conscience inform me is my due, and nothing more.

Excessive fees – not a new problem in the world:

In 1605, Parliament acted to cure fee and collection abuses in “An Act to Reform the Multitudes & Misdemeanors of Attorneys & Solicitors at Law, and to Avoid Unnecessary suits and Charges at Law.” The 1605 Act complained of “abuse” of clients through “excessive fees” and “extraordinary delays” by lawyers to extract those fees. The act therefore required lawyers to submit “subscribed tickets” and “true bills” for all charges.” – (“Standards of Conduct for Lawyers: An 800-Year Evolution” Carol Andrews, University of Alabama - School of Law, Southern Methodist University Law Review, Vol. 57, p. 1385, 2005)

Fee regulation relaxed considerably in the early nineteenth century due to increasing

recognition of the independence of contract between attorney and client

Hmmm…

But the concept of independence of contract has been debunked in a lot of contexts, such

as employment law.

Rule 4-200(B) Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into except where the parties contemplate that the fee will be affected by later events. Among the factors to be considered, where appropriate, in determining the conscionability of a fee are the following:(1) The amount of the fee in proportion to the value of the services performed.(2) The relative sophistication of the member and the client.(3) The novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly.(4) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the member.(5) The amount involved and the results obtained.(6) The time limitations imposed by the client or by the circumstances.(7) The nature and length of the professional relationship with the client.(8) The experience, reputation, and ability of the member or members performing the services.(9) Whether the fee is fixed or contingent.(10) The time and labor required.(11) The informed consent of the client to the fee.

A lawyer’s time and advice is [his/her]

stock in trade.

What to charge?

Hmmm…I was thinking…If a lawyer’s primary role is to assist someone in their effort to earn a lot of money, then it sorta

makes sense for the lawyer to earn a lot of money also…

But in the new economy, many of our clients aren’t trying to earn a lot of money; they are trying to generate sustainable wealth for a

community. What should we charge for that?

Hoffman’s #49. Avarice gradually originates every species of indirection. Its offspring is meanness; and it contaminates every pure and honorable principle.

It cannot consist with honesty scarce a moment without gaining the victory. Should the young practitioner, therefore, on the receipt of the first fruits of his exertions, perceive the slightest manifestations of this vice, let him view

it as his most insidious and deadly enemy. Unless he can then heartily and thoroughly eradicate it, he will find himself, perhaps slowly, but surely, capable of unprofessional, means, and, finally, dishonest acts which, as they cannot be long concealed, will render him conscious of the loss of character; make him

callous to all the nicer feelings; and ultimately so degrade him, that he consents to live upon arts, from which his talents, acquirements, and original

integrity would certainly have rescued him, had he, at the very commencement, fortified himself with the resolution to reject all gains save those acquired by the most strictly honorable and professional means. I am, therefore, firmly resolved never to receive from any one a compensation not

justly and honorably my due, and if fairly received, to place on it no undue value, to entertain no affection for money, further than as a means of

obtaining the goods of life; the art of using money being quite as important for the avoidance of avarice, and the preservation of a pure character, as that

of acquiring it.

Let’s try being average people!

What Form Should Fees Take?• Flat fee versus hourly? • Sliding scale• Bartering • Alternative currencies, barter networks, time banks• Gifts? Rule 4-400 – Gifts from Clients: A member shall not induce a client to make a substantial gift, including a testamentary gift, to the member or to the member's parent, child, sibling, or spouse, except where the client is related to the member.

• Collaborating with other attorneys• See Rule 2-200: (A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless: (1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division; and (2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.

Rule 4-400 – Gifts from Clients: A member shall not induce a client to make a substantial gift, including a testamentary gift, to the member or to the member's parent, child, sibling, or spouse, except where the client is related to the member.

CAL 2011-180[…] in deciding whether a gift is “insubstantial,” one must consider the financial situation of both the client and the lawyer. “To a poor client, a gift of $100 might be substantial, suggesting that such an extraordinary act was the result of the lawyer’s overreaching. To a wealthy client, a gift of $1,000 might seem insubstantial in relation to the client’s assets, but if substantial in relation to the lawyer’s assets, it suggests a motivation on the part of the lawyer to overreach the client-donor. Under either set of circumstances, the lawyer violates the client’s rights by accepting such a gift.”

Gifts from Clients

Fee Agreements• Legal requirements: See Business & Professions Code 6146-6148• Business and Professions Code Section 6148: (a) In any case […] in which it is reasonably foreseeable that total expense to a client, including attorney fees, will exceed one thousand dollars ($1,000), the contract for services in the case shall be in writing.• Rule 3-410: A member who knows or should know that he or she does not have professional liability insurance shall inform a client in writing, at the time of the client's engagement of the member, that the member does not have professional liability insurance whenever it is reasonably foreseeable that the total amount of the member's legal representation of the client in the matter will exceed four hours.• The State Bar has samples, but they are LONG: http://www.calbar.ca.gov/Portals/0/documents/mfa/Sample-Fee-Agreement-Forms.pdf

http://www.calbar.ca.gov/Portals/0/documents/mfa/Sample-Fee-Agreement-Forms.pdf

Hoffman’s #48. The ill success of many at the bar is owing to the fact that their business is not their

pleasure. Nothing can be more unfortunate than this state of mind. The world is too full of penetration not to

perceive it, and much of our discourteous manner to clients, to courts, to juries, and counsel, has its source in

this defect. I am, therefore, resolved to cultivate a passion for my profession, or, after a reasonable exertion therein, without success, to abandon it.

It is Your Duty to Have Passion for Your Work!

Hoffman’s # 50. Last resolution: I will read the foregoing forty-nine resolutions twice every year during

my professional life.

Constantly Re-Examining Our Work and Ourselves

“[Make] your Skill in the Law a Blessing to your Neighborhood.”

– Cotton Mather (1700ish)

Extra slides I’ll use only if it comes up in conversation

What about laws that are designed to regulate the availability of essential

goods and services, or to regulate the viability of a type of work/enterprise?

•Inclusionary zoning•Taxi cab medallions•Public utilities laws

Ways to calibrate the regulations:•Limiting number of nights: To lower impact on neighborhood and affordable housing supply•Limiting amount of income: Set income cap at a level so that people can’t earn more money than they could if they rent out a room or unit to a regular tenant•Require presence of host: So that neighbors aren’t stuck with random strangers throwing a party next door•Allow people to rent out whole unit for three weeks per year: Assuming that everyone travels and it makes sense to be able to share your unit for periods when you are away.•Require safety measures: Exit signs, fire safety, local contact number.

Ways to calibrate the regulations:• Limit amount of income per mile: To allow people to carpool and

share costs, but not to operate a taxi. • Require similar rules to taxis: If people are driving to make

money, then require that the licensing hurdles be similar to those of taxi drivers, in order to prevent unfair competition

• Limit income to third parties: I.e. platforms like Lyft should not be allowed to profit limitlessly, since the profit drive could lead Lyft to manage the marketplace in ways that maximize its profits, not that maximize earnings and good working conditions for drivers.

• Require more insurance: To ensure that no one is left uncompensated for an accident.

Tips for Consumer Cooperatives and Intentional Community Member Work Contributions:

•Call it “chores” and “maintenance,” not “work” or “labor.” Perhaps don’t call it “contribution.” Rather than “labor contribution,” call it “shared chores program.” (Less like “work.”)

• Do not make work an obligatory part of the cooperative; make it something that the group agrees on separately and collectively. (More like a partnership.)

• Do not tie work hours to any discounts on member dues or to other material benefits. (Less like “work.”)

• Allow people considerable latitude in when and how they do a task. Don’t require a minimum # of hours. Assign tasks, not hours. Don’t have a supervisor that dictates how things must be done. (More like independent contractor.)

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