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Lesson in Business Contracts: Those Tricky “Terms and Conditions”

November 29, 2013 1 comment

I have had several business clients come to me about a dispute they were having with some type of service provider.

After hearing their story, invariably my first question is always the same “what does your contract say?”

They usually send me over a one page document.

Pretty simple, right?

Not necessarily.

In standard business relationships the contract governing the parties’ relationship is often a simple Purchase Order or invoice. However, often the one page contract incorporates a separate “Terms and Conditions”.

These terms and conditions are truly the heart of the agreement- they govern what you can (and cannot) do in a dispute.

Two general comments about “TnCs”

1. The “TnC” document should be reviewed carefully before you decide to enter into the business relationship. Like all contracts, the “TnC” allocates risk. You need to think prospectively – ask yourself “in the event something goes wrong in the business relationship am I willing to accept the terms proposed in order to resolve the dispute?”

2. If your business has standard purchase orders, consider incorporating a “TnC” document. For example, do you transact business in other counties, states, or countries? If so, you may want to include a jurisdiction and venue clause.

Extreme Example: non-disparagement provision.

I recently read an article in the ABA journal about a web retailer’s terms of use- see the article: http://www.abajournal.com/news/article/customer_zapped_with_3.5k_charge_for_critique_of_web_retailer_its_terms_of_/

Apparently, the customer did not read the business’ terms of use. That turned out to be a mistake.

Customer was dissatisfied with the product and posted a negative review online.
When she went to complain about the product, she was hit with a claim for damages for violating the

non-disparagement provision

in the terms of use.

This article raises a lot of unique legal questions, but it certainly reinforces my two comments above:

1. Read the terms of the agreement before accepting. You might find yourself agreeing to some condition that you otherwise never would have agreed to.

2. If certain terms are important to you, include them in your own “TnCs”

Questions? comments?

Email: Jeshua@dwlawpc.com
Website

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The $100 Million Lawsuit: Estate Sues Hospital That Housed Heiress For Decades

November 25, 2013 Leave a comment

 

Huguette Clark left a $300 million estate when she passed away in 2011 at the age of 104.

 

She had no close relatives when she passed away.

 

Can you sense the imminent battle over that money, just based on those facts alone?

 

 

Now her estate has filed a lawsuit seeking $100 million from Beth Israel Medical Center and Dr. Henry Singman. See ABA Journal Article: http://www.abajournal.com/news/article/100m_suit_says_hospital_and_doctor_didnt_discharge_heiress_for_decades/?utm_source=maestro&utm_medium=email&utm_campaign=daily_email

 

The Gist of the Lawsuit:

The Lawsuit alleges that the Hospital and Dr. Singman allowed the Heiress to live at the hospital for 20 years until she died there, even though there was no medical need for hospitalization most of that time, in order to obtain millions of dollars in rent payments, fees and gifts.

 

The People Who Benefited:

The lawsuit further alleges that Clark gave:

  • over $30 million to the nurse who provided most of her care,
  • $4 million to the hospital and
  • $800,000 to Singman and his family, among some $40 million in gifts.

The public administrator’s office is overseeing the estate because the original administrators were removed for allegedly wasting assets, the New York Daily News reports.

 

A lot of complications arise when someone dies and leaves $300 Million.

 

The Legal Claims:

The suit charges that the hospital and its staff violated state law and facility policies that say prohibited caregivers from accepting gifts and required the discharge of a patient who had no medical need for hospitalization. It also argues that Singman should have arranged for a psychiatric evaluation and possible treatment of any condition that made Clark reluctant to leave.

To avoid discharging the lucrative patient, Beth Israel “deliberately violated state law and internal protocols, falsified records, and hid Huguette’s existence from the hospital’s legal department and outside regulators,” the suit says, contending that employees were told to hide Clark’s 20,000-page file from regulators when they reviewed the facility to keep her presence there a secret.”

For more own this story also see: http://www.newcanaannewsonline.com/news/us/article/Copper-heiress-estate-sues-NYC-hospital-doctor-4998973.php

 

 

My Three Take Away Points:

 

1. Talk with a Lawyer – You can’t take your stuff with you when you die!

Trust me, People will fight over much less than $300 Million. You need to have your wishes properly memorialized. Not to harp on the “death issue” – but it happens to all of us. As I’ve heard it said “Nobody is getting out of this thing alive!”

 

 

2. Clearly Communicate Your Estate Plan Wishes to Your Loved Ones

Since the laws of nature tell us that “you can’t take the $300 million with you when you’re dead” it is important to get your estate plan in order and make sure that it is clearly communicated to those who care about you.

 

 

 

3. Don’t Forget to Update Your Estate Plan as Time Goes On

According to the reports, Ms. Huguette had an estate plan, or a few of them. She died at the age of 104. Her last 20 years, if you take the allegations in the lawsuit as true, were spent giving millions in gifts to those who took care of her at her end. Although there is nothing wrong with her giving money to whomever she pleased, since it was her money (although it is another question altogether whether or not ethic rules would allow the professional to keep such gifts…) best practice would have been to clearly communicate her intended wishes to her loved ones.

 

 

Questions? Comments?

Call or email me.

Jeshua@dwlawpc.com

(616) 454-3883.

http://www.dwlawpc.com

 

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Michigan Construction Liens and Sworn Statements: Case Law Update

November 20, 2013 Leave a comment
Someone asked me the other day what I liked to read for fun… I had to admit that I am a nerd.
I read case law for fun.
I am always interested in whenever a new appellate decision comes out, one of my particular interests is in the area of construction lien law. This area of the law can be nuanced, and any case that can provide clarity on a business/real estate client of mine’s unique situations is always welcomed.
Construction liens can be an effective tool for businesses that work in real estate development to get paid for monies owed for improvements provided to real estate.
Clients of mine in the real estate industry, whether subcontractors, general contractors, suppliers, sometimes run into the following unfortunate scenario:
They provide services for the improvement to real estate, and they do not get paid.
Often times, that is when they come to  me and tell me to “file a lien” and hope the threat of foreclosing on a lien is sufficient to convince the owner to pay them what is owed, and thereafter discharge the lien and move on to the next job.
But in those instances where the property owner (or some other party up the chain of command) refuses to pay, for whatever reason, they are forced with two options: 1. let the one year statute of limitations period run, or 2.  foreclose on the lien.
This decision must be thought through well, because:
Construction Liens can be tricky.
Is it even worth the trouble of recording a construction lien?
Before answering that question, I note that there are many problems that could arise resulting in a contractor considering filing a construction lien  –  contractors, suppliers, subcontractors know these problem areas all too well –
  •                     the multiple layers of business relationships involved in a project (Owner – GC – multiple subs – multiple suppliers);
  •                     the sometimes lack of discipline/precision in documentation of the contractual relationships of all the parties,                                 (e.g. verbal and/or poorly documented change orders)
  •                      and let’s face it, sometimes people just make mistakes.
All three of these problem areas were present in an October 24, 2013 Michigan Court of Appeals decision.
The case is Rogers Excavating, Inc. v. Mana Properties, L.L.C., 308514, 2013 WL 5763028 (Mich. Ct. App. Oct. 24, 2013)
This case provides a general background in answering the question:
what must a contractor do in order to be entitled to foreclose on a lien?
The Answer:
Generally, substantial compliance with the Construction Lien Act is what is required.
Michigan Construction Lien Act, Generally, Requires That a Lien Claimant Substantially Comply with the Act.
The Michigan legislature understood that problems could arise with builders, subs, suppliers. That is why they clearly outlined the purpose of the Construction Lien:
 MCL 570.1302(1), provides:

This act is declared to be a remedial statute, and shall be liberally construed to secure the beneficial results, intents, and purposes of this act. Substantial compliance with the provisions of this act shall be sufficient for the validity of the construction liens provided for in this act, and to give jurisdiction to the court to enforce them. [Emphasis added.]

Facts of Rogers v Mana Properties
These facts are numerous and complex, for the sake of brevity, below is a cliff notes’ version:
  • Defendant Mana owned real property in Southfield, Michigan, upon which it planned to construct a daycare facility.
  • In May 2007, Mana executed a construction management agreement with McQuillan.
  • McQuillan was to serve as the construction manager with respect to the project to build the daycare facility.
  • McQuillan was required to “supervise the completion of the [c]onstruction” under the agreement.
  • Ken McQuillan, the sole member of McQuillan, informed  Carroll Rogers, the sole shareholder of Plaintiff Rogers, about the construction project and asked Carroll to submit a bid.
  • Rogers was a construction company that engaged in excavation work
  • Rogers submitted a proposal to Mana, which was subsequently accepted and formalized into a contract in October 2007.
  • The contract expressly indicated that it was between Mana and Rogers, contract price was approx. $120,000.
  • The contract was signed by Carroll Rogers on behalf of his company and by Mack Allen, who, along with his wife, were the sole members of Defendant, Mana.
  • Ken McQuillan signed the contract as a witness, but he also placed his initials on all of the remaining pages of the contract where it called for the developer’s initials
  • During construction the price was increased on the basis of five change orders and the cost of a permit, bringing the price to $170,976, which included $2,832 in late fees.
  • Rogers was paid $71,950 during the course of its work, leaving a total amount due of $95,824.
  •  McQuillan conceded that it received loan draws totaling approximately $130,898 on Mana’s construction loan with Stearns Bank that were earmarked for payment to Roger

    Rogers Excavating, Inc. v. Mana Properties, L.L.C., 308514, 2013 WL 5763028 (Mich. Ct. App. Oct. 24, 2013)
Note  – although hindsight is 20/20 – you can already spot the problem areas in this business relationship –
1. multiple business relationships involved,
2. multiple change orders, and
3. mistakes in execution of documents.
Rogers sued Defendant, Mana for breach of contract and for foreclosure of its construction lien
Defendant, Mana, argued that Rogers’ failure to provide Mana with sworn statements as required by the CLA effectively defeated any claim of lien.
After trial, the Court found the construction lien invalid, finding that Rogers was not entitled to a lien for failure to comply with certain requirements of the CLA.
The Court of Appeals reversed.

Substantial Compliance with the CLA is all that is required.
The Court of Appeals disagreed that the mere fact that the Sworn statement provided to Mana was in the exact statutory form required by the CLA invalidated the lien.
The Court held:
“With respect to the failure of Rogers to provide sworn statements in the exact form specified in MCL 570.1110, not only does MCL 570.1302(1) require us to employ a substantial compliance test, MCL 570.1110(4) itself expresses that a sworn statement must be “substantially” in the form of the sworn statement set forth in the statute.”Rogers Excavating, Inc. v. Mana Properties, L.L.C., 308514, 2013 WL 5763028 (Mich. Ct. App. Oct. 24, 2013)

Rogers provided statements in “substantially” the form required by the CLA.  The trial court got it wrong when it held Roger’s sworn statement wasn’t good enough.
My Take away:
Construction Relationships can be complex, and the pitfalls numerous. It is a good thing that the Legislature, in its wisdom, did not generally require a “strict compliance” standard in order to recover under a claim of lien.
Questions? Comments?
Email: Jeshua@dwlawpc.com
Ph: 616 454-3883
Categories: Uncategorized

Michigan Businesses: Eliminating The Personal Property Tax on Your Equipment

November 11, 2013 Leave a comment

Today I attended an Executive Briefing co-hosted by the Grand Rapids Area Chamber of Commerce http://www.grandrapids.org

and the Michigan Manufacturers Association www.mma-net.org/.

The GRACC and MMA teamed up to bring Governor Rick Snyder to Grand Rapids to discuss a ballot initiative that will be decided by voters – on August 5, 2014 – to phase out the Personal Property Tax in Michigan.

The Executive Summary that was provided to all those in attendance cited:  “[f]or decades, Michigan has unfairly double taxed small business through the PPT on all of their equipment.” and “they pay an additional personal property tax on their equipment just for owning it- that tax never goes away, no matter how old the equipment is.”

– as an anecdotal note, I’m writing this post from my just purchased laptop computer – I know I had to be a sales tax on it, I’m glad (hopeful) that I’m not paying an additional tax every year just because I own it…

The initiative would call on voters to vote “YES” to eliminate the PPT in order to: “provide an immediate tax cut for small businesses by ending the unfair double tax on personal property that businesses in other states do not have to pay.”

The initiative cites that the proposal would “make Michigan more competitive, which will help local communities attract more businesses and create more local jobs.

August 5th 2014 is a long ways away  – but I would encourage business owners and people who care about the business community to contact the GRACC, or the MMA to learn more about this prospective ballot initiative.

 

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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Businesses: So You Want to Limit Your Personal Liability? Not so Fast.

November 5, 2013 Leave a comment

I have a business client was concerned about liability – and what could he do to limit his liability?

 

 

That is certainly why a business would create a business entity –  to ensure that the owners of a company are not liable for the debts of the Company. The Michigan Limited Liability Act provides at MCL 450.4501 that:

“Unless otherwise provided by law or in an operating agreement, a person that is a member or manager, or both, of a limited liability company is not liable for the acts, debts, or obligations of the limited liability company.”

 
Therefore, for my business client I set up its articles of organization and created the Operating Agreement among the members of the Limited Liability Company and there we go – liability is limited…

 

 

but are members (owners) of a limited liability company really free from all liability while acting on behalf of the company?

 

 

 

The answer is “no“.

 

 

 

To this point, this past week I attended a Business Law Seminar put on by the Business Law Section of the State Bar of Michigan – one of the excellent practitioners who presented was Jeff Ammon, a partner at Miller Johnson. Jeff directed our attention several case law decisions – one such case was  Dep’t of Agric. v. Appletree Mktg., L.L.C, 2010 a Michigan Supreme Court decision – it is definitely worth expounding on.

 

 

 

I. Facts of Appletree Mktg

Defendant Appletree Marketing, L.L.C. (Appletree), was an apple distributor managed by defendant Steven Kropf, Appletree’s sole member. Although Appletree collected assessments for 2004 and 2005, it failed to remit any funds to the Committee. Instead, Appletree used the money to pay the company’s other debts. Dep’t of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 5, 779 N.W.2d 237, 240 (2010).

one of the two questions presented to the Supreme Court was:
 whether, under the circumstances of this case, the plaintiffs may pursue claims for common-law and statutory conversion against Appletree’s principal, Steven Kropf.” Id. at Page 6.
 –  Defendant, Kropf’s argument was essentially “I formed a business entity to limit my personal liability, so I shouldn’t be able to be sued personally – if there is any liability for my actions, only my business should be found liable.”
–   Kropf evidently did not understand that his limited liability company did not protect him from liability as to his own personal intentional wrongdoing.
II. Law
Corporate Officials may be Personal Liable for their individual bad acts
“Michigan law has long provided that corporate officials may be held personally liable for their individual tortious acts done in the course of business, regardless of whether they were acting for their personal benefit or the corporation’s benefit. Moreover, as Michigan courts have recognized, “[o]fficers of a corporation may be held individually liable when they personally cause their corporation to act unlawfully.” Dep’t of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 17-18, 779 N.W.2d 237, 246-47 (2010).
The Court held that if the facts show Kropf committed a “conversion” while acting on behalf of the Company,  “Kropf can be held personally liable and may not hide behind the corporate form in order to prevent liability for his active participation in the tort.” Dep’t of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 18-19, 779 N.W.2d 237, 247 (2010).
III. Lesson
Business owners and those in charge should understand what actions can make them personally liable (intentional wrongdoing and personal guarantee of business obligations), and what actions will limit their liability (See MCL 450.4501, referenced in part above).
Questions? Comments?
email: Jeshua@dwlawpc.com
Categories: Uncategorized

Businesses: Be Careful When Providing a Personal Guarantee of a Business Contract

November 1, 2013 1 comment
I just read an opinion decided October 28, 2013 issued from the Eastern District of Michigan concerning a business guarantee.
The case is Wells Fargo Bank, Nat. Ass’n v. Canal Crossing Phoenix LLC, 13-10121, 2013 WL 5785793 (E.D. Mich. Oct. 28, 2013).
There, the Defendants attempted to dispute personal liability on a guarantee.
It appeared they tried to argue that an ambiguity existed, where one did not really exist.
The Court found the guarantee to be clear and unambiguous – relying on a prior case law that held “the plain language of the repayment guaranty to be clear and unambiguous, and acknowledged the repayment guaranty as an independent obligation owed by defendant to plaintiff” See also Angelo Iafrate Co. V. M & K Development Co., 80 Mich.App. 508, 264 N.W.2d 45, 48 (Mich.App.1978).
It is well settled that “if the language of a contract is unambiguous, the language is reflective of the parties’ intent as a matter of law.” Burton, 373 F.Supp.2d at 718 (citing Quality Prods. and Concepts Co. v. Nagel Precision, Inc., 469 Mich. 362, 666 N.W.2d 251 (Mich.2003)).  The Court found the guarantee language to be  “clear and unambiguous, and authorizes Wells Fargo’s decision to pursue repayment under the Repayment Guaranties without prior foreclosure on its collateral.”

Lesson:
If a personal guarantee is clear – the Court will apply the plain language of the contract and hold the individual personally liable for the debt.
Therefore business owners – make sure you understand the ramifications of a personal guarantee – you don’t want to end up in court hiring your attorney to attempt to argue that the guarantee is “ambiguous”.
Lesson to creditors – make sure your contractual language is clear; you do not want an ambiguity to preclude you from recovering what you are owed.
Questions? Feel free to contact me:
email:  Jeshua@dwlawpc.com
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