NFIB Legal Center Defends Entrepreneur in 54 Million Dollar Personal Liability Claim

The NFIB Small Business Legal Center recently announced that it was coming to the defense of an entrepreneur in his lawsuit against the federal agency that destroyed his company and then came after his personal assets—despite the fact he was never accused of a crime. At the center of the case is Craig Zucker, co-founder of Maxfield Oberton and inventor of its novelty product, Buckyballs.  They are little magnetic balls that can be manipulated into various formations—often bought as gift for executives and office workers as a harmless distraction.

Of course, they are not harmless if swallowed by children. For this reason, they drew the attention of the U.S. Consumer Product Safety Commission (CPSC). In response to the Commission’s concerns, Maxfield Oberton made changes to the product’s label. The company even offered to sell the product in childproof containers, and to give the Buckyballs a bitter taste to discourage children from putting them in their mouths. But the CPSC never seriously considered those measures. Instead the Commission took the unusual step of ordering a total recall, and banning the sale of Buckyballs. This quickly led to the demise of Maxfield Oberton, which had previously thrived on the sale of Buckyballs.

The company soon went out of business. That is when CPSC turned its eye to Craig Zucker. The Commission brought an action against him seeking to hold him personal liable for the costs of the recall—an estimated 54 million dollars.

“There’s a bright, bold line between regulatory enforcement and regulatory abuse, and in this case the federal government crossed it without slowing down,” said Karen Harned, Director of the NFIB Small Business Legal Center.  “The government acted so aggressively, so abruptly, so inflexibly and so arbitrarily that the company was destroyed.  Then it took the highly unusual and, we believe, unlawful step of filing a personal lawsuit against Mr. Zucker even though no one, including the CPSC, ever accused him of committing a crime.”

“You read the news every day and find another tragic story about kids being injured by common products that the CPSC hasn’t recalled or banned,” said Harned.  “But for some reason it treated this company differently and it did so with very little justification.”

Even more dangerous for entrepreneurs, said Harned, was the agencies attempt to hold Zucker personally responsible for the cost of the recall.  “That kind of dramatic action is permissible under the law only when a corporate officer is accused of criminal wrongdoing, or where the company is clearly set up as a sham,” she said. 

Zucker is now suing the CPSC, seeking a court order preventing the Commission from going after his personal asserts. NFIB filed a motion in the U.S. Federal District Court of Maryland last week voicing small business concerns over CPSC’ conduct, and cautioning the court against accepting the Commission’s expansive veil piercing theory. As NFIB Legal Center frequently argues to the courts, it is important that judges respect corporate formalities.

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The State of Small Business in New York

Last week I had the chance to talk about the recently enacted state budget and the “state of small business” here in New York.  I appreciated the time with WCNY TV and the conversation.

The entire segment is worth a watch and you can hear some of the varied perspectives on whether folks feel New York is a better place to own and operate a business.

The State of Small Business in New York

 

 

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Taking the Fight for Fair Compensation to the California Supreme Court

As part of the NFIB Legal Center’s Just Compensation Project, we are stepping up our efforts to defend the right of small business owners to receive full and fair compensation for eminent domain takings. This is a nationwide effort. In March we filed in an eminent domain case out of Westerville, Ohio. Now our fight for full and fair compensation takes us to the California Supreme Court in Stamper v. City of Perris.

Here the government is raising a down-right Orwellian argument in justification for a low-ball compensation award. The City of Perris initiated eminent domain proceedings to take a strip of land across a commercial property, but it is insisting that it should only be required to value the land in question as if it were used for agricultural purposes. That would be one thing if that was the only potential use for the property; however, in this case the owners could have sought to develop the property—which means the property should be valued substantially higher.

But this is where the curve-ball comes. The City argues that it would never approve a development permit for the property unless the owner agreed to dedicate the very land it is trying to take here. In other words, the City thinks that it should be able to get around the requirement to value the property in light of its most profitable potential uses by insisting that it would simply require the owners to give the government the property as a condition of getting a permit approval. Of course with that rationale government could systematically undercompensate landowners in eminent domain cases. Accordingly, we joined with Pacific Legal Foundation in an amicus brief urging the Court to reject the City’s Orwellian arguments. We believe this is important because other cities throughout the country will be taking note of what happens in the California Supreme Court here.

Be sure to follow the NFIB Blog and the NFIB Legal Center Facebook page for further updates.

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A Tale of Two Reports

Yesterday, the Tax Foundation praised the recently enacted tax reform in New York.  The lowering of the corporate tax rate has rapidly moved the state up the charts.  So mission accomplished right?  New York is now competitive and “open for business”!

Not so fast.

Also released yesterday was the American Legislative Exchange Council (ALEC) annual “Rich States, Poor States” business climate analysis.  Guess where New York ranks…dead last.  Now to be fair, this analysis is looking at 2013 and does not take into account the recently enacted tax reforms.  But as we stated repeatedly, a corporate only approach to tax reform was going to leave many small businesses clinging to an unaffordable status quo.

The tax cuts that the Governor and lawmakers enacted this year are pretty narrowly tailored for manufacturers and corporations, and while NFIB/NY supported the plan, this report from ALEC should be a reminder to Albany that we’ve got a long way to go before we’re really competitive.

Frankly, until our leaders in Albany recognize that punishing income means punishing work, we’re going to remain at the bottom.  Small businesses mostly pay the income tax, not the corporate tax, and on that side of the ledger we haven’t moved the needle.

A  real economic program would seek to reduce taxes for everyone instead of picking winners and losers.  Unfortunately for small business, Albany hasn’t positively impacted them much at all recently.

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Restoring Section 179 Expensing to Meaningful Levels will Boost Small Business, Reduce Unemployment

Rarely a day passes without news reports featuring pictures of long lines of unemployed people seeking jobs. More than 10.5 million Americans were without full-time work in March, according to the Bureau of Labor Statistics. Equally disturbing was the decline among owners who had plans to create jobs, falling to a seasonally adjusted net 5 percent from 12 percent a month earlier.

There’s no better time than April’s tax filing season for small-business owners to demand that Washington, D.C. policymakers get serious about meaningful tax reform before our economy gets worse. Perhaps there is no one simple solution, but it’s certain that few solutions to the current job-killing tax code will be found by continuing the us-versus-them political fray that exists today.

Rather than trying to repair the entire code in one fell swoop, why not focus on key areas that could have an immediate favorable impact on the nation’s most effective and efficient job-creating sector. Restoring meaningful expensing levels to the U.S. Tax Code’s Section 179 deduction could not only reinvigorate small-business growth but help reduce those long unemployment lines at the same time.

A victim of recent fiscal cliff negotiations, expensing limits for property such as machinery and equipment, storage facilities and off-the-shelf software, Section 179’s benefit to small business has been unfairly targeted. Although small firms could deduct up to $500,000 worth of qualified purchases for 2013, brace yourself for next year’s tax hit; the section’s original limits of $25,000 have been reinstalled and will be in effect for 2014 expenses. Also lost will be your ability to expense certain real property.

Restoring these limits to reasonable levels would allow small businesses to plan ahead—something they cannot do now in the current uncertain political environment–and it would also simplify accounting and free up cash that could be reinvested in small businesses eager to expand.

But rather than glaring at political opponents on “the other side of the aisle,” lawmakers should fix their gaze on those long lines of people who are desperate to work and imagine them enjoying regular paychecks as employees at small businesses whose jobs now go wanting.

Allowing small businesses to plan for the future, simplify their accounting tasks and recover available cash to create new jobs is a winning combination for all Americans. Contact your representatives and senators today and urge them to support job-creating Section 179 deductions.

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Employment figures ref: http://www.bls.gov/news.release/pdf/empsit.pdf

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Tax Reform: Only One Part of a Broad Plan

Earlier this month, the New York State legislature passed a budget that included several important tax reforms. NFIB/NY identified several of these measures as priorities in its 2014 Legislative Agenda, including reform of the estate tax, tax cuts for manufacturers, the repeal of the 18A energy tax and a rate reduction for businesses filing as corporations. The Department of Tax and Finance yesterday released a summary of provisions with a detailed description of the reforms and effective dates.

Tax reform is only one part of a necessary and critical plan to improve the outlook for small business in New York State. A breakdown of recently passed legislation showed that policies have negatively impacted small business far more often than they have helped. With only nine weeks left in the legislative session, what should  Albany do to start fixing its small business problem? Leave a comment below with your suggestions.

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Albany’s Small Business Problem

In a town where superlatives flow unabated, perhaps at no greater intensity than the days that follow a state budget deal, its time for a reality check.

Albany has a small business problem.

This is not a new problem that appeared overnight.   Frankly this is a long standing issue that has slowly simmered for decades and every now and then reaches a breaking point.

We are now close to that point.

When you look at the facts and examine the issues outside the proverbial vacuum, it becomes clear that for every legislative “achievement” aimed at reforming New York’s business climate or tax code, small businesses are receiving minimal benefits while being forced to deal with the maximum struggles.

This most recent escalation of Albany’s small business problem starts with the minimum wage increase last year.  While some of the bigger box stores and major manufacturer’s could absorb an increase, small businesses are dealing with the blunt impact of the hike.  Yes, it is going to be phased in and was not indexed to inflation, but minimum wage (labor costs) are a crucial cost driver that is hampering small business.

After the minimum wage debacle and perhaps as a counter to some constant criticism that Albany had yet to push a comprehensive business-centric initiative, Tax-Free or now Start UP NY appeared in the closing days of session last June.

No taxes?!  Albany is finally listening and cutting taxes?!  Hold the phones!!

Well, not really.  Albany must have found dealing with the current tax structure would be too complicated, so the push was to offer massive tax breaks for businesses not yet here in the comfy business confines of New York.  So while main street got handed a minimum wage hike, Albany is offering a major handout to entice entrepreneurs to move to New York.  Political simplicity at its finest.

Imagine how that sits with small businesses.

Albany then turned its attention to cutting taxes for businesses actually in New York in 2014.  Through public hearings, tax commissions, a budget process and no shortage of positive soundbites, what did we end up with? A very muddy mixed bag.

We have a property tax freeze (really a rebate check scheme) that may help some communities, will minimally help others and by the way, do absolutely nothing to help reduce property tax costs for small business.

Then we have a corporate tax cut which will reduce taxes for big business and some small businesses, but not the majority.  While this is positive, it holds scattered positive impact for mom and pop businesses.

A much needed estate tax reform.  Ok, I’ll give that one it’s proper due.  This is very helpful to family owned businesses and farms and perhaps the one small business specific reform in the entire package.

And finally, substantial tax reform/reductions for New York’s manufacturers.  Definitely a part of New York’s economy, particularly in upstate New York, that could use a infusion of cost reductions.

Now NFIB/NY supported three of those initiatives while strongly opposing the property tax scheme.   We also continuously called the plan incomplete and pushed to broaden the impact.  Perhaps it was deaf ears or maybe hubris, but the plan unfortunately remained largely as proposed. And while it is positive that Albany focused on cutting taxes and helping restore some fiscal flexibility for businesses, once again small business is left searching for the maximum impact of this reform.

This is where Albany’s small business problem is coming to a head.  Too often, particularly in an election year, small business is a popular soundbite.  What has Albany done specifically for small business?  Little.

Our members do not have time for soundbites.  They have heard them for far too long and seen far too little actual positive action.  Small business cannot continue to be the altar where progressive new mandates are laid upon while big business gets all the tax breaks.

Albany needs to understand that one out of five New Yorkers work for a business that employs twenty or fewer.  Albany needs to come to grips that for all the talk of righting the course for business in New York, there has not been much done for main street.  So for all the TV commercials and commentary that this is a “new NY” or that the trajectory is changed for business, the fact remains that while maybe true for some, it is false for small business.  This isn’t being negative for the sake of being negative.  This is being nuance free and offering a reality check.

To be fair, some lawmakers understand this and have pushed to reduce the tax and regulatory burdens on main street.  We know who they are and appreciate their efforts.

But the fact remains.

Albany has a small business problem and it is up to lawmakers to decide if it continues to boil these last two months of session.

 

 

 

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State Budget Is Better Than Last Year, But Not A Grand Slam

With the final votes cast less than twelve hours earlier, yesterday morning the Governor and legislative leaders held a celebratory press conference on the enacted state budget for 2014-15.  The message, in perhaps a nod to beginning of of baseball season, was that the budget was a “grand slam” for New York.

As our statement from earlier in the week indicated, this budget was a mixed bag for small business – definitely not a “grand slam” – but to be fair, not a fly out to center like last year was.

In further looking through the budget and dissecting the various components, one thing is definitely sure. This was an election year budget designed to mitigate broad dissatisfaction and provide something for the various special interests all across New York.

The biggest “something” for small business in the broadest sense is the estate tax reform.  The reform ebbed and flowed from the fire to the back burner as an issue on the Albany center stage.  The opponents, seemingly fixated on the connotations of “estate”, touted the reform as a hand out to the uber wealthy.

Throughout the debate we made the argument that this reform was essential to our family owned small businesses and farms.  Sustaining existing business and attempting to stem the tide of business and people leaving New York for more tax friendly environments are paramount to the fiscal and economic future of our state.

Critical to pointing out the numerous flaws in the anti-reform argument was the Empire Center for Public Policy’s report on the estate tax.  Through comprehensive factual and anecdotal data, this report was essential in painting a very different, and more accurate, picture of the issue.  The business community writ large embraced these findings and ultimately “won” the day.

Over the next few years, New York’s estate tax will be more, though not entirely, in line with the rest of the nation.  A much needed victory for small business!

Outside of this, the other tax reform components for business were targeted to corporations and manufacturers.  While we represent some small business that file their taxes as corporations and represent many manufacturers, main street was left out of the final deal in a broad sense.  Please note, we supported these reforms, but continued to push and offer solutions for more broad tax reform to fully capture the entirety of the small business community.  We are disappointed we were not successful.

Also enacted was the property tax “freeze”, or more accurately, the property tax rebate.  The Governor’s rhetoric on property taxes is spot on, it is unfortunate however that he choose to dig in his heels on this approach.  The rebate checks will come to most homeowners this and next fall (assuming local governments share services, etc.) in various amounts of money.  The administration touts rebates as high as $450, while some local leaders across New York have calculated the checks as low as $16.

Does that sound like reform?  What happens in year 3 when the freeze goes away?  The property tax burden is still there, as it is today, and your bill is going to be higher.

All this “freeze” represents is a two year detour from comprehensively addressing the unfunded mandates Albany has imposed on your schools and communities.  Until actual mandate relief is enacted, the property tax burden will remain a major impediment to creating a fair and equitable tax climate in New York.

Overall, the plan avoided placing new cost mandates on small business (think paid leave or minimum wage last year) and enacted a good package of tax cuts for business.  The flip side is small business broadly won’t receive those cuts and will continue to see the “new New York” TV commercials touting a better tax climate (or no taxes for businesses that don’t exist yet) that they do not necessary see.

This plan could have been a “grand slam” if the tax reform was more broad and the tax rebate program was replaced with mandate relief initiatives.  Does it move New York forward?  Yes, a good step, but not the leap main street was looking for.

 

 

 

 

 

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NFIB/NY Responds to Budget Agreement

“We are pleased that the announced budget agreement will continue the path of recently enacted fiscally responsible state spending plans. We also applaud the Governor and lawmakers for agreeing to substantial reform to the estate tax, providing essential financial peace of mind for our family owned small businesses and farms. We additionally are strongly supportive of the comprehensive tax reform targeted to New York’s manufacturers.

While we largely support the additional tax reforms in this agreement, we once again are forced to remind Albany that a corporate only approach largely ignores the tax struggles for small business. We also strongly oppose the property tax freeze which fails to effectively address the structural deficiencies caused by unfunded mandates which are plaguing our schools and communities.

We are encouraged that the discussions so far this session have focused on improving New York’s business climate and hope that the Governor and lawmakers not only continue these efforts, but be mindful of the needs and concerns of main street businesses across New York.”

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Sensible Regulations: Two different mindsets on hiring ex-felons

jailA lack of employment opportunities is often cited as a contributing factor to ex-felons ending up back in the prison system. Cutting down on the number of repeat offenders in the Corrections system is one way to reduce prison costs and restore offenders to a productive role in society.

Legislation currently pending in the Michigan House reveals two different approaches, the carrot and the stick, to address the issue.

First, the stick. This would make it unlawful for an employer to inquire about, or require an applicant to disclose, any criminal convictions during the application process and interview. These efforts have been called “ban the box,” as they would require removal of a common check box on many job applications that ask if an applicant has a previous criminal conviction.

The legislation would also prohibit any oral questions regarding an applicant’s criminal history during the interview process. Background checks, including a criminal history check, could only occur after the interview process.

This approach creates difficulties for employers in a number of ways. Under current practice, an employer can eliminate an applicant for a cashier position who has a theft conviction. The new restrictions in the proposed “ban the box” legislation would force the business owner to incur the expense of a background check after the interview. Many employers will be discouraged from considering criminal history for fear of potential litigation. This may put employers in a difficult position because they have a responsibility to ensure a safe environment for employees and customers alike, yet could be subject to costly litigation for a negligent hiring decision. This “Ban-the-box” legislation has been introduced by State Rep. Fred Durhal Jr., D-Detroit, as House Bill 4366.

Other legislation being considered by the state House would take more of a carrot” approach. This bipartisan package of bills seeks to encourage employers to hire former prison inmates, with incentives and protections for doing so. The legislation would allow the Michigan Department of Corrections to issue “certificates of employability” to inmates who take part in educational programs and who the department determines are suitable for employment upon release.

If a former prison inmate with the certificate demonstrated after being hired that he or she was a danger to individuals, the employer who hired the individual would not be liable in a civil action unless it could be proven that the employer had knowledge that the person was dangerous. So the employer receives the benefit of a prospective employee that has documented skills and is protected from liability if that person creates a problem with employees or customers after being hired.

The bills in this package are HB 5216, HB 5217 and HB 5218 and the bills’ sponsors are Reps. Klint Kesto (R-Commerce Twp.), John Walsh (R-Livonia) and Harvey Santana (D-Detroit) respectively. This week the Legislature moved forward on these bills and reported them out of the House Commerce Committee. The stick bill, Durhal’s HB 4366, is stuck in committee, where it deserves to stay.

The “command and control” regulatory stick approach to business regulation is the least productive way to encourage desired behavior and outcomes. It is the method currently being employed by the White House and the “off the leash” federal agencies like the NLRB, EPA, OSHA and the other alphabet soup departments that are smothering the economy. It is no wonder the nations job market is in a shambles when employers are faced with uncertainty at every turn because of this style of public policy by bureaucracy.

The difference in approach illustrated by the bipartisan efforts of these Michigan lawmakers serves as a valuable lesson to Congress and the administration on how things should be done if they really care about jobs more than just as a sound bite for reelection speeches.

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