Jeff C.D. Brecht has joined the Long Term Care and Seniors Housing Client Service Team at Lane Powell‘s Portland office. He previously was part of the Health Care Practice Group at Sussman Shank LLP.

Brecht, who received his law degree from North Illinois University, joins Lane Powell as Counsel to the Firm. He has more than 18 years of trial experience representing business and individuals in state and federal courts. His trial and litigation expertise includes representing assisted living providers, nursing homes and other long-term care provides in a range of regulatory, licensure, contract and collection lawsuits and administrative hearings. He also has experience in trade secret and trademark protection, trade and estate disputes, and contract disputes.

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Gabriela Sanchez has joined the Long Term Care and Seniors Housing Client Service Team at Lane Powell‘s Portland office. She previously was part of the Health Care Practice Group at Sussman Shank LLP.

Sanchez received her law degree from the University of Oregon  School of Law. She joins Lane Powell as a shareholder representing long-term care, senior housing, home health and hospice provides in business, regulatory and litigation matter. A frequent presenter and author for the Oregon Health Care Association, she counsels providers in HIPAA/HITECH compliance in jurisdictions that include Oregon, Washington, Nevada and Arizona. She also advises facilities in insurance payment disputes and recoupment issues

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With the recent passage of Measure 91, the sale of marijuana for recreational use will soon be legal in Oregon under state law. As when any new market emerges, even businesses with no existing connection to the marijuana industry will be eager to identify new ways to make money. Some landlords, for example, will be interested in leasing property to marijuana producers or distributors, who may be attractive lessees with steady cash flow and few tenant improvement requirements.

Banks and private lenders may find marijuana growers and dispensaries, with high profit margins and a ready market for their product, to be worthwhile credit risks. However, doing business with marijuana producers or distributors necessarily involves unique risks and considerations, including the fact that marijuana remains an illegal controlled substance under federal law. As a result, certain creditors’ remedies created by federal law – such as involuntary bankruptcy proceedings and federal court receiverships – are unlikely to be available to creditors of marijuana businesses. Landlords and lenders should seek competent counsel to fully understand these special risks involved, and others, before leasing or providing financing to a marijuana business.

As a general rule, when businesses experience financial difficulties, one of the first considerations for debtors and creditors alike is the possibility of bankruptcy. However, the emerging trend among bankruptcy courts (federal courts that apply federal bankruptcy laws) is to refuse to allow marijuana-related businesses (including those that lease property to marijuana operations) to avail themselves of bankruptcy protection on this basis.

For example, a federal bankruptcy court in Oregon recently refused to confirm a bankruptcy plan that would have relied on rental income from a medical marijuana business as well as profits from its own marijuana grow operation to pay creditors. In Colorado (which also has legalized recreational marijuana), a federal bankruptcy court took an even harder line, summarily dismissing both a business and an individual bankruptcy case because the debtors in each instance derived income from marijuana operations (one was a landlord, and the other was a grower).

Other federal remedies are also likely foreclosed.  For example, although no federal courts seem to have addressed the issue yet, creditors are unlikely to be able to place marijuana debtors into federal receiverships, for the same reasons that bankruptcy courts are unwilling to preside over such cases.

Landlords and lenders (and any other parties owed money by marijuana businesses) are therefore probably unable to force marijuana business debtors into involuntary bankruptcy proceedings or federal receiverships. Landlords whose tenants are engaged in marijuana businesses may also find themselves barred from seeking relief in federal bankruptcy courts. Thus, doing business with a marijuana producer may limit not only a landlord’s remedies against that party, but may also have far-reaching consequences for a landlord’s own ability to file for federal bankruptcy protection, should the creditor seek to do so.

Creditors will need to look to options in state courts and through self-help remedies available under state law with options in federal court limited. One option available to a secured creditor is to foreclose on the business’ assets and liquidate them, or even operate the business itself. Oregon’s new marijuana law explicitly provides for foreclosure of security interests in marijuana, and for the operation of a marijuana-related business for a secured party for a “reasonable period” after a debtor’s default.

Most secured creditors are not likely to want to take possession of the marijuana-related business because of the numerous potential risks, including knowingly engaging in a business that is illegal under federal law. Alternatively, a creditor may seek to reorganize or liquidate an insolvent marijuana business by suing for appointment of a state court receiver.

Until the Oregon Liquor Control Commission (which will regulate marijuana businesses) provides specific rules for marijuana licenses, it is unclear what conditions would have to be satisfied to appoint a receiver for a marijuana-related business. Even after such rules are established, however, it still is not clear whether many receivers and turnaround managers will be willing to take the risks associated with operating marijuana businesses or if their insurance and bonding companies will permit them to do so. But it seems likely that if enough landlords and lenders need their services in this context, some receivers will find a way to serve those needs.

It is also not clear whether state court judges will be willing to oversee marijuana receiverships, notwithstanding the passage of Measure 91, but clear rules from the OLCC or amendment to the law could provide state court judges with the necessary guidance to do so.

Another strategy that may provide some measure of protection to a landlord is to create a special purpose entity to engage in marijuana-related business. However, doing so will not expand the remedies available to such an entity in the event of the lessee’s default.

Finally, any secured creditor should keep in mind that civil forfeiture of the debtor’s collateral under federal law is also a possibility. The Justice Department has provided guidance as to when it will pursue federal charges against businesses selling or distributing marijuana in ways that are otherwise legal in the laws of their states. But that guidance expressly states that it is subject to change at any time, and there is no guarantee that this administration, or any subsequent one, will continue the present policy.

In sum, lenders and landlords considering entering into business relationships with marijuana producers or distributors must understand that, in addition to the potential benefits of such business relationships, there are significant and unique risks in the event the marijuana business falters – especially in terms of available remedies. Based on the complexity and relatively untested-nature of this area of the law, and the likelihood for additional developments on both the state and federal levels, it is extremely important to consult with competent legal counsel before entering into any business relationship involving marijuana.

Victor J. Roehm is a partner in Sussman Shank‘s business group with more than 10 years of experience in finance, real estate and corporate transactional work. Contact him at 503-227-1111 or vroehm@sussmanshank.com.

Timothy A. Solomon is an attorney in Sussman Shank’s bankruptcy and creditors’ rights group with more than 12 years of experience in bankruptcy, corporate restructuring and receivership matters. Contact him at 503-227-1111 or tsolomon@sussmanshank.com.

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For many Oregon employers, arbitration is preferred over litigation to resolve employment disputes. Arbitration can streamline dispute procedures and often proceeds more quickly than in court; it also can save the parties attorneys’ fees.

Arbitrators may also be more likely than jurors to apply the facts to the law without emotion or bias. Arbitration can keep a dispute private and prevent it being tried in the press. Depending on the facts (or allegations) of the dispute, this may be the key advantage to arbitration for an employer. Also, arbitration may more efficiently limit so-called “scorched earth” discovery in a manner that employers appreciate since they tend to have most of the employment-related records.

Lastly, arbitration decisions are usually final (aka “binding”), and can be appealed in very limited circumstances. Under binding arbitration, an employee unhappy with an arbitrator’s decision will not get a second bite at the apple before the appellate court; however, neither will an unsatisfied employer.

Oregon state and federal courts typically enforce employment arbitration agreements. Case in point: In August 2014, the United States District Court for the District of Oregon enforced an employer/employee arbitration agreement in Anderson v. Xerox Corp.

In the case, the employee filed a discrimination complaint against his employer, Xerox Corp. Thereafter, Xerox filed a motion to compel arbitration and dismiss the complaint. Xerox argued that when the employee had applied for employment in 2007, he had “electronically” initialed acceptance of Xerox’s Dispute Resolution Plan (DRP), and that Xerox had provided the employee with an amended version of the DRP that states: “Employment, consideration for employment, or continued employment, and other valuable consideration after the applicable Effective Date of the DRP constitute consideration and consent to be bound by the DRP, including its mandatory arbitration provisions, by the Applicant and/or Employee, on the one hand, and the Company, on the other hand, during and after the employment relationship.”

The employee argued he never agreed to arbitrate anything. The District Court disagreed with the employee, reasoning that because the employee did not dispute that he received the employer’s written materials that explained the DRP and its related arbitration provisions, and because the employee continued to work for the defendant, the employee “was aware of and accepted defendant’s employment term that all disputes concerning his employment must be resolved via arbitration.”

The court not only enforced the arbitration agreement, but also dismissed the employee’s complaint. This was obviously a very good result for the employer.

Oregon employers who want to take advantage of the benefits of arbitration should keep the following information in mind: 1, ORS 36.620 provides that an employment arbitration agreement is not enforceable unless it is provided to the employee at least 72 hours before the first day of employment (or upon a bona fide advancement) and the employee signs an acknowledgement containing the language set out in the statute; 2, Draft the arbitration agreement so that it will be clear to any court that reviews it that employees knowingly waived their right to a jury trial; 3, Expressly state that employees have the right at arbitration to be represented by counsel; 4, Include a process for permitting reasonable discovery, such as the exchange of documents and depositions, at arbitration; 5, Give employees the chance to equally participate in selection of an arbitrator; 6, Agree that the employer will pay arbitration costs that would be greater than the employee would have to pay in court, such as arbitrator fees; 7, Agree that employees who agree to arbitrate their disputes will have the same potential remedies that would be available in court under the applicable law; and 8, Make sure the agreement to arbitrate is not lopsided in favor of the employer.

The extra care needed to ensure that an arbitration agreement is enforceable is well worth the effort.

Jeff Brecht is an attorney with Portland law firm Sussman Shank LLP and a member of its litigation and labor and employment law groups. Contact him at 503-243-1652 or jbrecht@sussmanshank.com.

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Dede and Jay were married with two daughters: Ella and Sophie. When Dede’s parents died, she inherited $400,000. Tragically, a few years later, Dede died and Jay inherited all of her assets. Jay remarried and had a son, Joe, with his new wife, Melissa. When Jay died, everything he had went to Melissa. Ultimately, when Melissa dies, Joe will inherit all of his mother’s assets – including what may remain of the $400,000 that Dede had inherited from her parents. By allowing for outright inheritance of assets according to state law, Ella and Sophie were effectively disinherited.

This could have been avoided with an inheritance trust. An inheritance trust allows people to identify who will receive their assets and also protects against other life tragedies, including divorce, serious illness, financial reversal and even taxes.

Trust beneficiaries

In an inheritance trust, the person who sets it up (the “settlor”) decides who receives the trust funds (a “beneficiary”). The settlor can be very specific in identifying who will be a beneficiary now, and later – after the initial beneficiary or beneficiaries die.

Most typically, the settlor designates their children as initial beneficiaries and their grandchildren as secondary beneficiaries at each child’s death. Sometimes, the settlor will name a child’s spouse as a beneficiary when their child dies, provided they were still married at the child’s death. The settlor can even give their child the power to decide who receives the trust funds when he or she dies.

In simple terms, an inheritance trust allows the settlor to make sure money and property stays in the family.

Creditor and spendthrift protection

An inheritance trust also protects against a beneficiary’s future creditors. When the settlor establishes a trust for beneficiaries, it includes “spendthrift provisions” that prohibit the trust from benefiting a creditor of the beneficiary.

Potential creditors can include a beneficiary’s business partners or tort victims (such as those injured when the beneficiary is driving a car). However, a beneficiary’s most likely future creditor is a divorcing spouse. An inheritance trust keeps the inherited assets separate from the marital assets. Although a family law judge can consider the inheritance trust when dividing marital assets, he or she cannot award the inheritance trust assets to the divorcing spouse.

Furthermore, an inheritance trust can restrict distributions to a beneficiary such that the beneficiary is not permitted to receive distributions unless that beneficiary complies with the provisions. For example, the settlor can provide that a beneficiary will no longer be a beneficiary of the inheritance trust if the person marries without the spouse signing a prenuptial agreement. An inheritance trust can also be crafted with provisions to protect against other potential problems, such as substance abuse.

In all these instances, because the beneficiary does not own the trust assets, the beneficiary cannot transfer or assign the trust assets to those creditors. The beneficiary’s lack of control over the assets can frustrate creditors. If it makes sense to settle with a creditor, this lack of control provides leverage to settle disputes at a discounted amount. The decision to settle or not settle a beneficiary’s dispute with a creditor is generally left to the trustee of the trust. The trustee is the person in charge of administering the trust based on the trust’s rules, which are drafted by an attorney at the direction of the settlor.

Controlling the trust: beneficiary as trustee

In many cases, the settlor wants his or her child to have access to the trust funds as if a trust did not exist. While certain powers must be limited or abandoned under certain circumstances, the beneficiary can generally serve as his or her own trustee. This gives the beneficiary the authority to make the discretionary decisions on when he or she receives money as the beneficiary.

One such circumstance that requires the beneficiary abdicate authority as trustee is if a creditor makes a claim against the beneficiary. In this instance, the trust generally provides for appointment of a co-trustee or a new trustee who will take on the discretionary authority of the trustee and deny the creditor’s claim against the trust assets.

As an example, if a beneficiary is getting divorced, the trust may provide that the beneficiary’s sibling becomes trustee. The beneficiary’s sibling, as trustee, would refuse to distribute trust assets to the beneficiary or to the beneficiary’s divorcing spouse. After divorce proceedings are finalized, the beneficiary can generally return as trustee of the trust.

If estate taxes are a concern for the beneficiary, then the settlor can impose limits on a beneficiary serving as trustee to protect against the trust assets being included in the beneficiary’s taxable estate at the beneficiary’s death. For each individual, the federal estate tax exemption is currently $5.34 million and the Oregon estate tax exemption is $1 million. By placing limits on the trustee’s power to prevent estate inclusion, the trust assets may pass to the next generation without being reduced by estate tax attributable to the death of the first beneficiary.

While some settlors may want to have their child serve as trustee, other settlors are worried about their child’s spending habits or generally question the child’s ability to manage significant wealth. In those instances, the settlor can select another family member or a professional to serve as trustee.

Establishing an inheritance trust can generally address three major concerns: 1, creditors receiving a child’s inheritance; 2, nonfamily members receiving a child’s inheritance; and 3, taxes eroding a grandchild’s inheritance. An inheritance trust should be tailored to each particular family’s situation to achieve the legacy desired by the settlor.

Unfortunately, an inheritance trust cannot be created after an inheritance is received. As such, potential settlors shouldn’t wait to engage in discussions about what can go wrong transferring wealth between generations as well as possible solutions.

Thomas Hackett is a member of Sussman Shank LLP’s business group. Contact him at 503-227-1111 or thackett@sussmanshank.com.

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