1. Texas Legislature Takes Step Toward Business-Friendly Usury Law

The 79^th Texas Legislature recently passed omnibus legislation that touches nearly every aspect of state-regulated financial practices. Amending no less than 27 chapters of the Texas Finance Code (effective September 1, 1997) (Fin. Code), House Bill 955 (HB 955) makes several significant changes to rules governing consumer and commercial lending, including rules that take a more business-friendly approach to setting rates of interest considered to be usurious under Texas law.

*Terms to Know: In Texas, "Interest" means compensation for the use, forbearance, or detention of money. The term does not include time price differential, regardless of how it is denominated. "Usurious interest" means interest that exceeds the applicable maximum amount allowed by law. Fin. Code §§301.001(4) and (17).

HB 955 is the result of an interim study conducted by the Texas Legislature to identify those portions of Texas law, such as cumbersome usury rules, that discourage major lending institutions from locating in Texas and discourage commercial lending by Texas-based institutions. Texas is one of very few states that regulates interest rates for commercial loans among sophisticated parties. According to the study, most states have no effective commercial usury laws for large commercial loans, and only five other states cap interest rates for these loans. See: Senate Committee on Business and Commerce, Interim Report to the 79th Texas Legislature on Texas Usury Laws and Credit Counseling Services dated December 1, 2004 (at p 4).

Constitutional Changes Required

While most of HB 955’s provisions were effective as of September 1, 2005, the commercial lending rules involving usury require amendments to the Texas Constitution. “Proposition 5”, which passed also as Senate Joint Resolution (SJR) 21 during the 79^th Regular Session, has been placed on the November 8, 2005 statewide ballot. Proposition 5 would authorize the Legislature to exempt commercial loans from state usury laws that set maximum interest rates.

*Technical Point: "Commercial loans" are loans made primarily for business, commercial, investment, agricultural, or similar purposes and not primarily for personal, family, or household purposes. Proposition 5 (SJR 21) reads proposes a “…constitutional amendment allowing the legislature to define rates of interest for commercial loans." Currently, the Texas Constitution authorizes the Legislature to define interest and fix maximum rates of interest, but does not provide the Legislature with the authority to create outright exemptions from the maximum rates. Texas Constitution, Article XVI, §11. Several provisions of HB 955 depend upon approval of Proposition 5 by Texas voters. If Proposition 5 fails in November, the commercial loan usury reforms in HB 955 will become null and void.

Industry Interest

Changes to usury laws are of interest to the equipment leasing and finance industries because Texas courts often are asked to determine whether a lease arrangement is a “true lease” or a “lease intended as security”. See: Beating True Lease Challenges: A Lessor's Guide to Structuring and Defending True Leases, by David G. Mayer, LNJ’s Equipment Leasing Newsletter (Aug. 2004).

Generally, a true lease will not be subject to interest rate usury provisions of the Finance Code, as payments under the lease will be treated as rent and not interest. See, e.g., Transamerica Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472 (Tex. 1979). However, certain provisions of a lease may be subject to the usury provisions of the Finance Code. See, e.g., Whitehead Utilities, Inc. v. Emery Fin. Corp., 697 S.W.2d 460 (Tex. App.-Beaumont 1965) (applying usury limitations to provision(s) requiring interest for past due rental payments). By contrast, a lease intended as a security interest or secured loan may be subject to the usury provisions and to differing applicable rates of interest limits depending on the use or purpose set forth in the loan or lease agreement. The economic terms of the agreement at the inception of the transaction will generally dictate the treatment of the lease.

Certain Charges Not “Interest”

HB 955 limits the application of usury rules. It does so by stating that creditors are authorized to charge “all reasonable expenses and fees incurred in connection with making, closing, disbursing, extending, readjusting or renewing a loan not secured by real property, whether or not those expenses or fees are paid to third parties. See: §2.03 of H.B. 955, adding a new §303.017 to the Finance Code. HB 955 also clarifies that prepayment premiums, make-whole premiums or other similar charges do not constitute “interest” for usury calculations. §2.12 of H.B. 955, amending §306.005 to the Fin. Code. Furthermore, HB 955 declares that a commercial obligor’s assumption, payment or guaranty of another person’s obligations does not constitute “interest” to the obligor. §2.14 of HB 955, adding a new §306.007 to the Finance Code. This provision is a response to the Texas Supreme Court’s opinion in Alamo Lumber Co. v. Gold, 661 S.W.2d 926, 928 (Tex. 1983). In that case, the court held that a bank can be liable for usury when, as a condition to making a loan, the bank required a debtor to assume third party debt. The debt is treated as interest for purposes of the usury law and may cause a usury violation.

Interest Rates Generally

In general, unless other provisions of Texas law govern the transaction, a creditor may charge six percent (6%) interest on loans where the creditor and borrower have not agreed upon an interest rate. Fin. Code §302.002. If a borrower has agreed to pay to a creditor any compensation that constitutes interest, the borrower is considered to have agreed on the rate produced by the amount of that interest, regardless of whether that rate is stated in an agreement. Furthermore, if the intent of the parties is to apply the optional rate ceilings applicable under the Finance Code, the maximum rate could range from 24% to 28% depending on the rate selected.

Usury Exemptions

HB 955 affects transactions “in which one or more persons as part of the same transaction lends, advances, borrows, or receives, or is obligated to lend or advance or entitled to borrow or receive, money or credit with an aggregate value of …(B) $500,000 or more if the commercial loan is not primarily secured by real property.” Such a loan is defined as an “exempt commercial loan” and has no usury cap under HB 955. §2.09 of HB 955, adding a new §306.001(9)(5-a)(B) to the Fin. Code. Further, Section 2.09 of HB 955 states that any transaction similar to the “Exempt commercial loan” (or renewal of the loan) that involves an amount of between $100,000 and $500,000 and is not primarily secured by real property, may be treated as a “Qualified commercial loan.”

*Tip: To gain commercial loan status, the loan or lease documents (including any renewal/extension documents) should contain a written certification from the borrower/lessee to the following effect (with some different rules for motor vehicles): (1) the borrower/lessee has been advised by the lender to seek the advice of an attorney and an accountant in connection with the commercial loan; and (2) the borrower/lessee has had the opportunity to seek the advice of an attorney and accountant of the borrower's choice in connection with the commercial loan. Lenders and lessors should consider adding this language as a precaution in all but the clearest true lease transactions.

Courts presume that parties intend to enter into non-usurious contracts. Under Texas law, a party claiming damages against one that “contracts for” usurious interest must show that the contract, as construed, is usurious on its face. See: Coastal Cement Sand, Inc. v. First Interstate Credit Alliance, Inc., 956 S.W.2d 562 (Tex. App. – Houston [14^th Dist.] 1997).

*Technical Point: However, a creditor need not have the specific intent to charge usurious interest in order to violate the usury statutes, but must only intend to charge the rate actually charged. William C. Dear & Assocs., Inc. v. Plastronics, Inc., 913 S.W.2d 251, 254 (Tex. App. – Amarillo 1996, writ denied).

HB 955 provides the creditor a 60-day correction or cure period after actually discovering the violation.

*Technical Point: A violation is “actually discovered” at the time of the discovery of the violation in fact and not at the time when an ordinarily prudent person, through reasonable diligence, could or should have discovered or known of the violation. Tex. Fin. Code Ann. §305.103(b) (Supp. 2005). This cure includes correcting the violation by taking any necessary action and making any necessary adjustment, including the payment of interest on a refund. Because usury statutes are penal in nature, they must be strictly construed, and if there is any doubt as to legislative intent to punish the activity complained of under usury statutes, the doubt must be construed in the favor of the lender (creditor). See: Domizio v. Progressive County Mut. Ins. Co., 54 S.W.3d 867 (Tex. App. – Austin 2001, no writ) (no reduction in liability in the event the creditor corrects the violation after the 60-day window period).

Savings Clauses – Not So Safe

When a transaction is unambiguously usurious, a creditor may not dodge a claim by virtue of a contract clause stating that the parties did not intend to violate the usury laws and any excess interest should be remitted to the debtor. In addition, a savings clause may supply a reason for a court to select an interpretation of ambiguous transaction terms that avoid violation of the usury laws.

Warning: A savings clause directly contrary to the explicit terms of the contract may be ineffective. See: Pentico v. Mad-Wayler, Inc., 954 S.W.2d 708, 714 (Tex. App. – Corpus Christi 1998, pet. denied); Coastal Cement Sand, Inc. v. First Interstate Credit Alliance, Inc., 956 S.W.2d 562, 571-72 (Tex. App. – Houston [14^th Dist.] 1997, pet. denied). This rule prevents a creditor from freely contracting for usurious interest knowing that, for the few debtors who do complain, the creditor will escape penalty by simply referring to a boilerplate amount. See: Terry v. Teachworth, 431 S.W.2d 918, 926 (Tex. Civ. App. – Houston [14^th Dist.] 1968, writ ref’d n.r.e.). For those lenders or lessors who become subject to usury laws and lend as a “lender of last resort” or other high-rate lender, the usury laws in Texas may pose a substantial risk if or when the debtor challenges the transaction as usurious. See, e.g., Kaplan v. Tiffany Development Corp., 69 S.W.3d 212, 219-20 (Tex. App. – Corpus Christi 2001, no pet. h.) (where evidence showed that effective interest rate ranged from 37.54 to 45.88 percent).

Bright Future For Commercial Loans/Lease

Despite the apparent complexity of the usury laws in Texas, HB 955 could—and if the Constitutional amendment in Proposition 5 passes, HB 955 should—ease restrictions on lending and financing leases in Texas. Lenders and lessors complete millions of dollars of business each year in Texas without any major concern about the current usury laws. For creditors and commercial debtors, the passage of Proposition 5 will open the pathway to more and larger deals that will be free of most usury restrictions.

Thanks to Rafael Anchia for contributing this article. Rafael serves as the Texas State Representative for District 103. He is a member of the Corporate Finance, Public Finance, and Public Policy and Lobbying practice groups at Patton Boggs LLP in the firm’s Dallas office.

2. Vehicle Lessors Get Back to Business Under New Vicarious Liability Law

Vehicle leasing started to vanish in the last year or so because lessors faced vicarious liability arising out of rental or leases of cars, trucks and other vehicles. This archaic rule was a mutli-million dollar thorn in the side of the leasing industry. See: Federal Highway Bill Bans Vicarious Liability of Car Leasing Firms, Insurance Journal (Aug. 1, 2005).

With his signature on August 10, 2005, on H.R. 3, President Bush enacted into law federal legislation “[t]o authorize funds for Federal-aid highways, highway safety programs, and transit programs.” The law included a provision that federal law preempts state law from imposing vicarious liability on lessors of vehicles when the owner is not at fault.

Rep. Sam Graves (R-Mo.) inserted the provision by an amendment to H.R. 3. The amendment is intended to eliminate liability under state law for owners of motor vehicles or their affiliate who is engaged in the business of renting and leasing motor vehicles, provided there is no negligence or criminal wrongdoing on the part of the motor vehicle owner or affiliate. The owner or affiliate must maintain the required state limits of financial responsibility for each vehicle in accordance with the laws of the states where the vehicle is registered.

*Term to Know: Vicarious liability is a well-established legal doctrine that imposes liability on an owner of an asset for the negligence of the user or operator of the asset. Often seen in the context of automobile leasing, vicarious liability rests on a public policy that third parties should be protected by an owner for the wrongful acts of a user of an asset who can't pay for the harm he or she causes. Vicarious liability is sometimes used in the employment principle of “respondeat superior” —the employee’s superior responds and pays for the acts of the employee, though wrongful, within the scope of his or her employment.

The new highway bill should lower the cost of commercial leasing by reducing the potential for owner/lessor liability under circumstances in which the owner is at fault. Although the new law leaves potential liability with lessees/renters, advocates have argued that the renter is the person most capable of avoiding the risks and taking direct responsibility for his or her actions.

*Tip: Lessors can take steps to distance themselves from liability under, and comply strictly with, the provisions of the new law. For example, a lessor should:

• Obtain a written acknowledgment from the lessee/renter in a lease or rental agreement that the lessor is a passive owner with no care, custody or control of the vehicle during the lease/rental term;

• Maintain vehicles in accordance with manufacturers recommended standards and keep records of maintenance;

• Avoid any act or omission to act regarding any vehicle subject to a lease that could enable a user to allege criminal conduct or negligence on the part of the owner; and

• Meet or require the renter/lessee to meet, as appropriate, the financial responsibility laws in the state in which the rental/lease of the vehicle occurs.

The legislation is expected to bring vehicle leasing back to New York. Chrysler announced its return immediately on August 10, 2005. Other states will likely follow New York’s lead and lessors will probably also jump back into the market behind Chrysler. That’s good for leasing and good for driver responsibility. Lessors and lessees alike would be well advised to pay attention to their respective responsibilities on the road.

3. State and Local Governments Rely on Tax-Exempt Leasing to Manage Budgets

Over the last few years, the level of activity of lease financing for the benefit of states and political subdivisions has grown substantially. This increasing interest in lease financing for governmental units reflects a number of significant factors that show the fundamental value of leasing in managing municipal and state budgets.

Lease Financing - Appealing Alternative

Lease financing provides an appealing alternative for many states and local governments that face fiscal or budgetary limitations. In a growing number of states, local governments are prohibited from incurring multi-fiscal year obligations without the prior approval of its electorate. This limitation has made the traditional route of general obligation or other bond financing more challenging as taxpayers begin to resist increases in taxes and spending. In most states, lease financing is not treated as a multi-fiscal year obligation of a state or its local government. See e.g., Colorado Constitution, Article X, §20; Constitutional Tax and Expenditure Limitation in Colorado: The Impact on Municipal Governments Public, Budgeting and Finance, Vol. 20, Issue 3, Page 29 - Fall 2000.

If structured properly, a lease financing will not trigger the requirement of electoral approval or otherwise constitute a multi-fiscal year obligation for states and local governments. This result makes lease financing an appealing alternative for capital projects for many states and political subdivisions.

In addition to legal limitations on state borrowing and financing, many states and local governments have seen economic pressures limit their budgetary capacity. Stagnant tax collections and rising operating costs have made capital projects more difficult to fund for many political subdivisions. See: “Report on Local Finance,” Government Finance Officers Association. To acquire an asset by purchase, whether or not involving a borrowing, necessitates a budgetary expenditure for the full value of the asset in a current fiscal year. In times of economic stress, this requirement limits the ability of local governments to acquire needed capital assets. Lease financing involves a series of periodic expenditures by the political subdivision over the life of the lease. Thus, the full capital cost of the asset is not treated as a budgetary expenditure in the current fiscal year for budget and appropriations purposes.

Tax-Exempt Interest - A Significant Element

An additional important element of lease financing is the ability to access tax-exempt interest for a state or local government. See: §103(a) of the Internal Revenue Code of 1986, as amended (IRC). The exemption from federal income taxation of the interest component payable under a lease means that the asset can be acquired at a substantially lower cost. Tax-exempt financing normally carries an interest rate of 150 basis points or more below a comparable taxable expenditure. The availability of a federal and state tax exemption for interest on a lease obligation is perhaps the most valuable element of a state or local lease obligation, and hence the best marketing tool for the industry. To achieve the desired tax exemption on a lease obligation, the IRC imposes requirements applicable to the nature of the lessee, the structure of the lease, and the type of project that is financed and how lease proceeds and other moneys are invested.

Tax-exempt interest is only available for obligations (including lease obligations) issued by or on behalf of a state or one of its political subdivisions. IRC §103(a). The lessee must be a state or a political subdivision. Some governmental entities that lack powers of taxation or condemnation, or which do not posses police powers, typically do not qualify as political subdivisions. In some circumstances, entities such as nonprofit corporations or joint powers or other authorities, which are not political subdivisions, may nonetheless have such a close relationship with a governmental entity that they are treated as agents or instrumentalities of a political subdivision and therefore may enter into tax-exempt leases on behalf of the political subdivision. See. IRC Rev. Rul. 63-20, 1963-1 C.B. 24.

Not all leases can qualify for tax-exemption. Only leases that constitute “financing leases,” in the sense that they involve an accumulation of equity in the financed asset, can qualify for tax-exempt treatment. As a result, under most lease transactions the state or political subdivision is entitled to acquire the property at the end of the lease term for no additional consideration.

Like all tax-exempt obligations, lease financings involving local governments must comply with federal tax limitations concerning the involvement of private parties. See: IRC §142. These rules can be complex. Generally, a political subdivision must use the asset to be financed. Further, its use of the asset must not operate to convey special benefits to one or more categories of private entities.

*Technical Point: In this area, the IRS has adopted rules allowing certain “qualified management contracts” as vehicles for involving private management of financed property without losing tax-exemption for the financing. See: Rev. Proc. 97-13, as modified by Rev. Proc. 2001-39, 2001-2 C.B. 38 (management contracts); and Rev. Proc. 97-14, 1997-1 C.B. 634 (research agreements).

Other Requirements

Other requirements imposed by the IRS include reporting requirements, prohibitions on federal guarantees of the lease obligation, limitations on refinancing and other structure requirements. A particular benefit available to lease financing for local governments is the ability to allow banks to acquire lease obligations without suffering a reduction in their cost of deduction for their own tax reporting purposes.

*Technical Point: This special treatment is available for lease obligations with a political subdivision that do not incur more than $10 million of tax-exempt obligations in a calendar year. See: IRC §265.

Dramatic Increase to Continue

Lease financing for local governments has seen a dramatic increase in recent years. While requirements and limitations in state law vary from jurisdiction to jurisdiction, most political subdivisions have the authority to enter into lease financings in a manner that gives them the ability to acquire assets more easily and at a substantially reduced cost than a direct acquisition.

*Opportunity Point: These attributes of lease financing make states and local governments an ideal opportunity for leasing enterprises.

Thanks to Greg Johnson, a public finance lawyer at Patton Boggs LLP and a Partner in the Business Transactions Department, for contributing this article to BLN. Greg is also a member of the Municipal Leasing Committee of the Equipment Leasing Association and will be speaking at the Municipal Leasing Forum on September 26-28, 2005, in Miami, at the Trump International Sonesta Beach Resort in Sunny Isles Beach (Miami), Florida.

4. Leasing 101: What is "Software” in the Real Deal?

Under Section 9-102(a)(75) of the Uniform Commercial Code (UCC), “Software” is a computer program that includes related supporting information. However, software embedded in goods (“that consist solely of the medium in which the program is embedded”) is not software. In other words, software that is customarily viewed as a part of the goods will be deemed a part of the goods rather than software under the UCC. For example, equipment, which is a subcategory of goods, often contains programming in the nature of software for brakes in a truck or built-in controller software for production equipment.

Many different types of software rights exist, but from a business viewpoint, lessors and lenders should understand that software can increase residual or collateral value if functioning properly and licensed to, or owned by, a lessee or borrower. Stand-alone or even embedded software may have a life longer than the equipment in which it is used, possibly giving the software rights independent value. But equipment with installed or embedded software may have little or no value without the software remaining in place and functional. For example, if a lessee removes all operating or enterprise software before returning a computer system at the end of a lease term, that system will undoubtedly have a lower residual value when returned to the lessor than comparable equipment with software installed and working. See: As Technology Investment Grows, Lessors and Lenders Focus on Software Rights, by David G. Mayer, Business Leasing News (Oct. 2003).

*Tip: To obtain rights in a software license or in software, vendors often require that you obtain their consent and possibly pay fees for the privilege. Don’t be surprised if a vendor refuses to consent because they may lose a sale if you get free rights to their software or continued software licensing rights for a nominal cost.

Lessors and lenders can and should perfect their respective interests in software or software licensing rights to protect their interests under their leases and loan agreements. It is feasible to obtain a collateral security interest in software rights. These rights arise in part through a proper grant of a security interest. In addition, Section 9-408 of the UCC renders ineffective any restriction on or prohibitions of the creation, attachment and perfection of a security interest in rights to a software license.

*Warning: Consider whether the grant of a security interest (allowed by the UCC) will nonetheless cause a lessee or borrower, as licensee, to violate its agreement with the licensor and trigger defaults in the software, leasing and loan agreements. Equipment leases typically contain precautionary grants of a security interest in the equipment. Such a grant may not suffice to grant a security interest in software rights. Consider drafting a present (not precautionary) grant of a security interest in any lease to software rights and ask counsel how to properly perfect your interests. You may have to file under the UCC or at the United States Copyright Office to perfect your security interest in software. Generally, if you get a security interest in an unregistered copyright of software, you should perfect your security interest by filing a financing statement as required under the UCC. However, to gain a security interest in a copyright registered at the US Copyright Office, you must properly record notice of the security interest with the US Copyright Office. It is crucial to file evidence of a security interest in the proper place to properly perfect your security interest in software. See: In re Aerocon Engineering Inc. v. Silicon Valley Bank, 244 B.R. 149 (Bankr. N.D. CA 1999), affirmed on appeal (9th Cir. 2002).

Courts have not clearly determined whether you can enter into a true lease of software. As a result, obtaining a grant of a security interest in software is an important aspect of any asset-based transaction involving software as an asset of the borrower or lessee. See: BLN Case & Comment: Software Lease Fails - In Re CNB International, Inc., by David G. Mayer, Business Leasing News (June 2004).

Thanks to Tom Kulik in our Intellectual Property Practice Group for commenting on this article.

5. Case & Comment: The Fed Rules in Preemption Cases: Wells Fargo Bank v. Boutris

Federal law preempts California investigative and licensing authority over “operating subsidiaries” of national banks under the National Bank Act, 12 U.S.C. §21 according to Wells Fargo Bank, N.A. v. Boutris, No. 03-16194, 05 C.D.O.S. 7154 (9th Cir., Aug. 12, 2005).

BACKGROUND: Wells Fargo Bank (Wells) and National City Bank of Indiana (National City) engage in the mortgage lending business through their respective subsidiaries, Wells Fargo Home Mortgage Co. and National City Mortgage Co. This case arose when California regulators required these subsidiaries to audit their records to determine if they had underestimated settlement fees and improperly calculated per diem interest for their customers in violation of California law. Wells Fargo argued that the National Bank Act, Section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C. §1735f-7a (DIDMCA) and the Office of the Comptroller of the Currency (OCC) regulations preempted state law.

ISSUE: Does federal law preempt state licensing law under the Bank Act, DIDMCA and OCC regulations within the facts of this case?

OUTCOME: Yes under the National Bank Act, but the per diem loan-interest statute is not preempted under the DIDMCA.

DISCUSSION: Although the Bank Act is silent on bank operating subsidiaries, the law still gives the OCC “incidental powers” needed to carry on business, including the operating of banking functions through subsidiaries. The court held that “… the Commissioner is preempted from ordering regulatory audits of national bank operating subsidiaries such as WFHMI …, and that the injunction issued by the district court is valid insofar as it precludes the Commissioner from doing so.” (Opinion at p. 10478). Consequently, Well Fargo Mortgage Co. did not need a license under the California Residential Mortgage Lender Act (Cal. Fin. Code §50000 et seq.) or under the California Finance Lenders Law (Cal. Fin. Code §22000 et seq.).

LAW: The court in Boutris afforded “deference” to the OCC’s 2001 “operating subsidiary” regulation, which states: “Unless otherwise provided by Federal law or OCCD regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.” (12 C.F.R. §7.4006). Consistent with the holding of the Second Circuit’s recent preemption decision in Wachovia Bank, N.A. v. Burke, No. 04-3770-CV (2d Cir., July 11, 2005), the Boutris court held:

Allowing national banks to conduct business through operating subsidiaries is therefore a permissible construction [by the OCC] of those banks’ incidental powers under the Bank Act. We hold that the OCC’s interpretation of 12 U.S.C. §24 (Seventh) as authorizing it to allow national banks to conduct business through operating subsidiaries is a permissible one. (Opinion at p. 10471).

*Comment: The question of whether a lessor or equipment lender needs a lender’s license in California and in other states often creates time-consuming and expensive efforts on the part of leasing companies. Although non-national bank leasing subsidiaries don’t have a basis to rely on Boutris, the Boutris and Burke cases raise the question of whether national bank leasing companies can avoid lender’s licensing in California and other states due to licensing preemption under the OCC or other federal banking law to the extent laws exist under the National Bank Act on the same licensing issues. At least in the Boutris case preemption worked for Wells and National City to push back the persistent California state regulators who will, in regard to the subject of that case, have to stick to state regulated financial institutions in the mortgage business.

6. About Patton Boggs LLP and Our Law Practice; Publications; October 21st Aviation Briefing

Patton Boggs LLP is a law firm of more than 400 lawyers located in five offices in the United States and internationally in Doha, Qatar. The firm has extensive capabilities in four major practice areas: Business Transactions, Intellectual Property, Public Policy and Litigation. I am a member of the Business Transactions Group. This group includes over 100 lawyers with a broad array of skills in equipment leasing and finance, corporate finance, secured transactions, syndications, wind power and other project finance, oil and gas transactions, mezzanine financing, hedge fund work and related creditors rights/bankruptcy, real estate and technology law. We regularly work in cost-effective teams to meet our clients’ needs.

Our leasing, secured transactions and equipment finance practice entails a full range of transactions relating to aviation/transportation assets, energy/wind power, technology/software/hardware and project development and finance. We engage in corporate finance matters with a full range of companies. We have specific teams for aviation, infrastructure/power, health care, federal leasing/finance/marketing, municipal leasing/finance and more.

We work with our clients from the “front-end” to the “back-end” of a variety of transactions. For example, we can assist in the development, construction and financing of infrastructure and power projects, structure and close securitizations, syndications and asset sales, and complete large asset-based company financings. We also restructure troubled credits, handle large bankruptcy cases and act for our clients in such routine matters as repossessions, lift stay actions, true lease contests, workouts and forbearance arrangements. We provide extensive litigation resources with a record of proven success.

You are welcome to call me at 214.758.1545 or e-mail me at dmayer@pattonboggs.com. We value your contact with us on any topic, including questions arising from BLN articles or about our law practice.

Publications; Aviation Briefing October 21^st

Here are two recent publications covering the U.S. and Canada:

• Wind Power Financing In Canada And The U.S., by Vern Kakoschke and David G. Mayer, North American Wind Power (July 2005).

• Norvergence Strikes Again – Problems With Forum Selection Clauses, by David G. Mayer, The Monitor at page 26-27 (May 2005).

Aviation Briefing - October 21, 2005

On Friday, October 21, 2005, from 8:00 a.m. - 6:00 p.m., Patton Boggs LLP will present a complimentary briefing called The New Era of Business Aviation II at our Washington, D.C. office. Our unique line up of speakers will provide an insightful, succinct and interactive discussion of the hottest issues in business aviation. The discussion will include how to use Cape Town Convention in real deals, when you can lawfully use LLCs as special purpose owners of business aircraft, what are the newest developments under the new fractional shares rules, how to manage the IRS/SEC challenges to personal use of corporate aircraft, and much more. This is a second in a series of free briefings.

Our Aviation Team consists of:

• Rodney E. Slater, former Secretary of Transportation (DOT) in the Clinton Administration

• Gregory S. Walden, former Chief Counsel of the Federal Aviation Administration (FAA)

• Stephen McHale, former Deputy Administrator of the U.S. Transportation Security Administration (TSA)

• David G. Mayer, frequent writer and speaker on business aviation, Author of Business Leasing For Dummies, Founder of Business Leasing News and Aviation Briefing Chairman

Additional speakers from the firm include:

• Cheryl Moore, a senior securities litigation partner and Deputy Chair of the Litigation Department

• George Schutzer, a senior tax partner and Chair of our Tax Practice Group.

We will also have a special guest speaker, Barry Justice, a dean of the general aviation industry and Chairman and CEO of Leading Edge Aviation Solutions.

For more details, call Kathryn Meyer at (214) 758-1531, or e-mail her at kmeyer@pattonboggs.com. If you would like to attend, please request registration/invitation by contacting Kathryn. Limited space is available. Clients of the firm and BLN subscribers will be given preference to this invitation-only event. Look for your invitation soon. Hotel space is tight in DC on October 20-22; so respond quickly if you get an invitation as we have a limited block of rooms reserved until September 26. More information is available at http://www.pattonboggs.com/aviation2/.

7. A Message from the Founder, David G. Mayer

Some very important events occur quietly. Such is the case with the approval by Ireland on July 9, 2005 of the Cape Town Convention on International Interests in Mobile Equipment (Cape Town) and the related Aircraft Protocol (Protocol). This approval is particularly significant because Ireland is the location of the International Registry where the administration of the International Registry exists for registration of international interests in certain aircraft, engines and helicopters. The Government of Ireland deposited its instrument of accession to the Cape Town on July 29, 2005, and its instrument of accession to the Protocol on August 23, 2005. Ireland became the seventh Contracting State to the Protocol. See Unidroit News Release.

When one more country properly deposits its instrument of ratification, acceptance, approval or accession to the Protocol (Ratification), the clock will start ticking for subjecting virtually every new U.S. aircraft financing or leasing transaction to compliance with Cape Town and the Protocol (collectively, the Treaty).

As BLN stated last month in the lead article, Will Legal Opinions or Title Insurance Mitigate Risk Under the Cape Town Convention?, by David G. Mayer and Frank Polk, BLN (Aug. 2005), the effective date for the Protocol will be the first day of the month that occurs three months after Ratification by the eighth country. For example, if the eighth country ratifies on October 15, 2005, the Treaty will enter into force and apply to all U.S. transactions as of February 1, 2006.

Are you breathing a sigh of relief? Have we avoided a scramble at year-end to cope with the Treaty just as we wrap up 2005? It appears so because the Treaty will not take effect until at least January 1, 2006. Does that timing mean you can relax? Absolutely not. The time period from now until the effective date provides you the opportunity to prepare to compete under this new international framework; so use this time wisely because the United States produces about 70 percent of all business aviation transactions, not to mention commercial aviation!

To help you prepare, note that Patton Boggs LLP will be presenting a briefing on Cape Town and other hot topics in business aviation on October 21^st (described above).

Have a great month of September and thanks for reading Business Leasing News.