Andrew Alper, an attorney who has represented banks, lenders, equipment leasing companies, funding sources, mortgage servicers, credit corporations and secured creditors for almost 35 years, reflects on the changes that had the most impact on the legal environment in relation to the leasing and lending industries.
The bad times also meant the demise of many financial institutions and takeover either by the Federal Deposit Insurance Corporation, Resolution Trust Corporation or state receiverships. There were also mergers and consolidations of financial institutions and the acquisition of portfolios at a substantial discount from failing financial institutions or institutions that had to raise capital. Some of these takeovers were even supported by the government, which some financial institutions now live to regret. From a legal perspective, in good times there are fewer defaults and more transactions to document. In bad times, there are fewer transactions to document because credit is tight and loans are not being made, more workouts, forbearances and litigation. In the bad times, major bankruptcies have occurred. Even cities and counties are now filing bankruptcies. This was unheard of 34 years ago.
Over the last three decades, I have seen the American Association of Equipment Lessors become the Equipment Leasing Association of America, which became the Equipment Leasing and Finance Association. The Western Association of Equipment Lessors became the United Association of Equipment Lessors with the Eastern Association of Equipment Lessors merging therein. This organization then became the National Equipment Finance Association. Brokers formed the National Association of Equipment Leasing Brokers. And throughout that evolution, we saw the graying of this industry with very slow inclusion of younger participants. In any event, this is the backdrop upon which we look at some of the major events which have transpired over the last 34 years affecting the legal industry.
Legal Changes Since 1974
Certainly, there have been many legal changes in the last 40 years. For example, in 1978, the Bankruptcy Act became the Bankruptcy Code. The Bankruptcy Code has been amended multiple times since 1978. Chapters on municipalities and family farmers and family fishermen have been added to the Bankruptcy Code. The Uniform Commercial Code has been amended multiple times. For example, in California, the Uniform Commercial Code was adopted in 1963, and it was the 28th state to do so. Every state except Louisiana adopted the Uniform Commercial Code. In the world of personal property leases, Article 2A (Article 10 in California) was adopted in 1988. This Article codified the law of personal property leases. Article 9 of the Uniform Commercial Code was also changed on multiple occasions. Starting in 1990, the Permanent Editorial Board for the UCC with the support of its sponsors, the American Law Institute and the National Conference of Commissioners on Uniform State Laws, established a committee to start Article 9 of the UCC. However, it took years to arrive at the first major amendment of Article 9 of the Commercial Code in California, which did not occur until 1999 and was not operative until July 1, 2001. Article 9 is still undergoing changes today.
In California, because of the lending crisis, which has largely been blamed on Wall Street and banks, there are new laws with respect to liens on consumer real property loans. There is an extensive body of law setting forth various conditions precedent which have to be met before a lender can foreclose on real property considered to be residential real property containing no more than four dwelling units. Lenders must follow “foreclosure prevention alternatives,” which include allowing a borrower to submit an application for loan modification. The law has significantly changed a lender’s ability to foreclose on such real property and also obtain timely payment on a defaulted debt.
Despite changes to the lending environment and important statutory changes, there are two changes in particular which I believe have impacted the legal environment. One of the changes clearly affects every state in the United States and the other change affects California.
Certainly, the biggest change in the legal industry over the last 34 years has been technology. When I started practicing law, we were handwriting our legal papers, which were typed on IBM Selectric typewriters. We were still using carbon paper or memographing copies. Unless the recipient of the legal papers was in our general vicinity, delivery was always by U.S. Mail. Some believe that the delay in preparing and responding to communications and briefs was a good thing. This is because the lawyer had time to respond and to think about what to say. That is not true in today’s world.
Dictation machines followed by facsimile machines and overnight mail changed the environment as to how quickly lawyers would be able to serve and respond to litigation papers and communications. But this was nothing like the age of computers. Computers and advanced technology changed the legal environment more substantially than anything else. Lawyers stopped talking on the telephone and communicated mostly by e-mail. All communications were immediate. It can be argued whether this is a good or bad thing because hitting a send button can result in a miscommunication, a communication given without proper thought or a communication meant for the lawyer’s client that accidently is sent to an opponent.
Furthermore, documents and information are now stored on computer rather than having hard copies. Pleadings are now “e-filed” rather than hand filed. Once again, a good and bad thing. Various courts have different rules regarding what can be e-filed, when they need hard copies and other limitations and therefore litigation attorneys have to be very careful that they follow local rules. Legal research is now done more online than in hard books. For some of us more aged lawyers, this takes some getting used to, since we older lawyers tend to want to see and read what they are familiar with — books. There is also a new field of intellectual property as a result of massive technology changes. People have to be wary of social media concerns. On the other hand, many businesses including law firms use social media and the Internet to market. Books and newspapers are becoming obsolete. Thus, we all have to become accustomed to the new world of technology and how it affects our lives both from a business and personal standpoint. To me, the use and/or abuse of technology is the greatest change in the legal environment.
In California, and certain other states, the economy is so bad that it has taken its toll on the court system. Staffing in California courts has been cut back dramatically. Courthouses have been shut down. Judges have been terminated. Thus, the hearing that was to be heard in 16 court days now takes six months to have even the most simple motion heard. In one county in California, the simple filing of a summons and complaint may take a month in order to get the summons issued so a defendant can get served. The summons should be issued when the lawsuit is filed so it can be served immediately. In the meantime, the case languishes. It is a constant fight to get motions heard before trial. The quality of the bench has suffered because judges are encumbered with a heavy case load and have insufficient assistance.
Moreover, it is difficult for a judge who was a personal injury or criminal lawyer to properly focus on a complex commercial dispute and understand the law. As a result, many attorneys in California counsel their clients either to use arbitration or use a “judicial reference.” Contractual arbitration is a process whereby parties voluntarily agree to submit their dispute to one or more impartial third persons outside of the courts. The parties are bound by the arbitration award and the prevailing party then petitions the court to confirm the award and enter judgment thereon. Some of the significant disadvantages of contractual arbitration, if not previously agreed in writing as part of the loan documentation, are the lack of the same appellate rights as if a case went to trial in court. There is no guarantee that the arbitrator will correctly apply the rules of law and an arbitrator’s error in the application of law, no matter how gross, is generally not grounds for challenging the arbitrator’s award.
On the other hand, using a judicial reference proceeding, in which the parties select a judge out of court who acts like a trial judge in court, has significant advantages. There are no limited appeal rights. The major disadvantage of the judicial reference proceeding is the cost, because your private judge will review every aspect of the case, serve as the trial judge for the case and charge his or her hourly rate accordingly.
There are significant reasons why lenders and lessors prefer to use private judges rather than the court system. First, with either arbitration or judicial reference there are no juries. In states where jury trial waivers are enforceable, this may not be much of a concern. It is in states such as California, which does not allow contractual pre-dispute jury trial waivers, where it is a huge concern. Juries tend to disfavor lenders in court because it is perceived that lenders have caused the current economic crisis and the lender or lessor is the big guy taking advantage of the small guy borrower or lessee. Therefore, avoiding a jury is a significant benefit with either arbitration or judicial reference. Second, the attendant delays combined with a depleted and overworked judiciary results in lenders and lessors choosing to proceed with private judging and paying the fees and costs rather than using the court system.
I believe that most attorneys would tell you that even with the significant technological advances, it is harder to practice law in 2013 than it was in 1974 when the Monitor was first published. The Monitor keeps lawyers abreast on legal developments in the industry, business aspects of the financial services industry, and lawyers have come to rely on the Monitor as a great source of business, marketing and legal instruction. I congratulate the Monitor on its 40 years in business and hope it continues to thrive.
Andrew K. Alper, who has been a regular Monitor contributor for more than 20 years, is a partner with the law firm of Frandzel Robins Bloom & Csato in Los Angeles. Alper has been representing equipment lessors, funding sources and other financial institutions since 1978. He obtained his Bachelor of Arts degree in political science, magna cum laude, from the University of California at Santa Barbara and received his Juris Doctor from Loyola Marymount University School of Law.
Chief Digital Officer,
The equipment finance industry “owns the invoice,” putting lessors at the nexus for helping customers connect among a growing list of sectors. Scott Nelson details the steps necessary for defining the good, the bad and the ugly for invoice methods and techniques.