Legal Hypothetical - Opening a Gym (Not Really Going to Happen)

[The Minsky Moment]

Exactly how expensive is liability insurance on a climbing gym, anyways?

[Rasputin]

At AR,

As judgment creditor's counsel, I wouldn't try operating your gym, I'd just garnish Company C's bank accounts, garnish its customers and then institute proceedings supplementary to execution against its officers and directors and companies a and b for fraudulent transfers and piercing the corporate veil. Once I had judgments against Company a and b, I'd own the building and the gym equipment.

Your corporate scheme creates hurdles not road blocks. There is a reason why people buy liability insurance. This is that reason.

[crazy canuck]

Also, here I would equitably trace all funds going from all three companies to the shareholders or any third parties.  Unless they can demonstrate they are arms length non fraudulent transactions all those assets become my client's as well.

I like your idea of invoking the merger doctrine.  Here we may have a easier hurdle of establishing the directing mind which could also create personal liability (including in conspiracy) for creating what might be established to be a fraudulent structure intended to deceive the patrons of the gym.

So many ways to get at this sort of attempt to avoid liability.

[Rasputin]

At cc we are on the same page. It's too clever by half and is an impediment but not an effective shield.

[alfred russel]

Opening a climbing gym is my dream in life, but it won't happen because dreams are things that only children believe can come true. Finding out that dreams don't happen is a milestone in growing up, sort of like learning that santa claus isn't real.

"Opening a climbing gym" isn't exactly a crazy dream.  It's not like my six year old saying he wants to be an astronaut and make movies when he grows up.

Rather than looking at it as a scam, why not look at it as a straight business proposition?  After all you said in your opening post:

Climbing has exploded in popularity, and gyms are getting absurdly crowded. At the same time, their insurance costs are supposedly obnoxiously high and going up (gyms are increasing prices, and attributing it to this, though I suspect it is more supply and demand).

The requirements of insurance are obnoxious beyond the cost. Some examples:

-Looking at insurance requirements, some require helmets for indoor climbing, which is preposterous.
-Other insurance requirements require all staff to be CPR certified (along with other training), which is silly when most workers are part time minimum wage high school and college students with after school jobs.
-The gym I go to has 60 foot walls. In parts of the wall designed for solo climbers (with auto belay devices), they now limit climbing to 30 feet (no holds above that), for insurance reasons.
-The manager of the gym I go to recently told me that the way I was belaying was unacceptable. It is the recommended method by the Swiss Alpine Guiding Association, and one other European association (I can't remember if it is the French or Italian). Apparently their insurance policy wants them to monitor that everyone is belaying with a single acceptable method.

Contrast that with the largest climbing gym in Vienna that I visited...they don't test anyone's skills before they can climb, and they don't even have staff watching climbers. It is 100% climb at your own risk. Also, the floors are hard (zero padding). I asked why they don't have cushioned floors, and the staff person said, "it is better this way; in the event of a fall the screaming will stop much sooner."

[The Brain]

Opening a climbing gym is my dream in life, but it won't happen because dreams are things that only children believe can come true. Finding out that dreams don't happen is a milestone in growing up, sort of like learning that santa claus isn't real.

"Opening a climbing gym" isn't exactly a crazy dream.  It's not like my six year old saying he wants to be an astronaut and make movies when he grows up.

Rather than looking at it as a scam, why not look at it as a straight business proposition?  After all you said in your opening post:

Climbing has exploded in popularity, and gyms are getting absurdly crowded. At the same time, their insurance costs are supposedly obnoxiously high and going up (gyms are increasing prices, and attributing it to this, though I suspect it is more supply and demand).

The requirements of insurance are obnoxious beyond the cost. Some examples:

-Looking at insurance requirements, some require helmets for indoor climbing, which is preposterous.
-Other insurance requirements require all staff to be CPR certified (along with other training), which is silly when most workers are part time minimum wage high school and college students with after school jobs.
-The gym I go to has 60 foot walls. In parts of the wall designed for solo climbers (with auto belay devices), they now limit climbing to 30 feet (no holds above that), for insurance reasons.
-The manager of the gym I go to recently told me that the way I was belaying was unacceptable. It is the recommended method by the Swiss Alpine Guiding Association, and one other European association (I can't remember if it is the French or Italian). Apparently their insurance policy wants them to monitor that everyone is belaying with a single acceptable method.

Contrast that with the largest climbing gym in Vienna that I visited...they don't test anyone's skills before they can climb, and they don't even have staff watching climbers. It is 100% climb at your own risk. Also, the floors are hard (zero padding). I asked why they don't have cushioned floors, and the staff person said, "it is better this way; in the event of a fall the screaming will stop much sooner."

Solution: open your gym in a country that isn't retorted.

Mind. Blown.

[The Minsky Moment]

I was CPR trained as a teenager (so I could teach swimming at a summer camp) it's not that big a deal.  As manager of your gym you would be free not to enforce a specific belaying technique.

But to the extent you avoid doing things that are accepted as common practice in climbing gyms AND eschew insurance, you would be painting a big personal liability target on your back.

[Eddie Teach]

Opening a climbing gym is my dream in life, but it won't happen because dreams are things that only children believe can come true. Finding out that dreams don't happen is a milestone in growing up, sort of like learning that santa claus isn't real.

Meh, it's one you could do easy enough. Just don't try to cut legal corners doing it.

[DGuller]

My apologies on behalf of my industry, AR.  Commercial liability insurance is still in the dark age, and that means that we can't price risks well.  When we can't price risks well, we have to practice excessive risk aversion.

[alfred russel]

Opening a climbing gym is my dream in life, but it won't happen because dreams are things that only children believe can come true. Finding out that dreams don't happen is a milestone in growing up, sort of like learning that santa claus isn't real.

Meh, it's one you could do easy enough. Just don't try to cut legal corners doing it.

I'm trying to understand what legal corners are being cut...

Lets step back and take a common scenario...

I lease the use of commercial land and building from an unrelated third party and put a climbing gym inside.

Presumably whatever company I've leased the land and building from will not be liable if I don't have adequate insurance and there is a climbing accident unrelated to any defect in the building?

[crazy canuck]

Not necessarily.  There is a reason leasehold agreements have indemnity and confirmation of insurance clauses.

[alfred russel]

Not necessarily.  There is a reason leasehold agreements have indemnity and confirmation of insurance clauses.

Yeah I get that you can answer not necessarily to any question, but obviously in the scenarios being discussed the indemnification provisions would include maximum protections for the lessor with as many risks as possible transferred to the lessee.

[alfred russel]

So this is a straightforward way it would work...I'm going to exclude debt and only 1 other investor to keep things simple. The idea is the other investor (lets say my out-of-gstate father) will put up 2/3 of the money with the expectation of getting 60% of the profits (as the operator I'd get a slightly disproportionate share).

We estimate that we need $3 million to start, with the investment as follows:

Land/Building: $1.5 million
Installed Equipment: $0.4 million
Initial Business Capital: $1.1 million.

My father initially contributes $2 million and I contribute $1 million.

My father's contribution goes for the land, building and equipment, giving him 100% of company A & B for $1.9 million.

I contribute $1 million to the initial business capital, giving me 100% of company C.

In addition, my father pays $100k for an option in Company C that becomes exercisable if the company becomes profitable and has been able to pay past liabilities. The option (if exercised) would provide him with 60% of the shares in the company, though these would be nonvoting.

Fair market value of leased property is determined to be 10% - so the combined income for my father from his leased land is $190k. My salary is set to $120k (this is approximately a 60/40 split). If and when the company is able to pay this amount (including an amount in arrears), my father can exercise his option.

[Barrister]

As a silent investor compared to the hands-on, day to day manager, I would've thought you'd be entitled to a bigger split than 40/60.  Sweat equity is a real thing.

[The Minsky Moment]

Is the idea that you are willing to expose yourself to unlimited tort liability but you want to protect Dad?