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Archive for July, 2014

Business Law Update: Michigan Supreme Court’s July 15, 2014 Shareholder Oppression Decision

July 28, 2014 1 comment

Happy Monday!

 

On July 15th the Michigan Supreme Court came out with its much anticipated (at least in the legal community) decision in Madugula v Taub, dealing with the Michigan shareholder oppression statute.

 

This decision was much needed to clarify some vague areas in the statute, including:

 

Is a shareholder entitled to a Jury Trial if he sues under the Act?

 

Is a shareholder’s breach of the Bylaws just a “breach of contract” claim, or can it be evidence of “oppressive” conduct?

 

Is there oppression when a shareholder has been fired from his employment, but still retains a seat on the board of directors?

 

See my guest blog post from Grand Rapids Area Professionals for Excellence on this topic by going to the link here

 

Questions? Comments”

Email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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Can Lobbyists be Trusted?

As a lawyer, I am always interested in legislation – what new laws are enacted, and what laws are being proposed.  Just check out my last blog post about a new proposed bill affecting business

 

Lobbyists certainly play a role in legislation. But what do they do?

 

In a nut shell, lobbyists are advocates for interest groups, individuals, or businesses who represent their interest to government. State, local, and/or Federal.

 

 

One thing is for sure, if you know anything about Lobbyists you know that:

 

Lobbyists get a bad rap.

 

If you perform a simple google search, you can see many articles asking the question: is lobbying bribery?

 

Can Lobbyists Be Trusted?

 

Some of the bad press given to lobbyists seems to clearly be warranted, just look at a news headline that came out just today regarding  New York Governor Andrew Cuomo.

 

 

The Huffington Post Reports that the Mayor is Under Fire for Meddling in the Anti-Corruption Panel that HE created.

 

One of the allegations seems to involve special treatment for lobbyists. In the panel’s opinion, one allegation  warrants “deeper investigation” is that the Governor provided:

 

a carveout from the minimum wage law for one retailer, an exemption from an independent contractor law for a favored company and a series of laws tailored to benefit the clients of one lobbyist.

 

One Harvard Law Professor recently expressed his opinion  that if the allegations are true, the governor should resign. See his blog post here

 

So, can Lobbyists be trusted?

 

The answer is:  the right ones can.

 

This provides me an opportunity to unabashedly promote a man whose character I respect enough to put him in my blog post, my father-in-law, Jeff McAlvey, founding partner of McAlvey Merchant & Associates, a Michigan lobbying firm located in downtown Lansing.

 

Jeff worked  nearly 14 years with Governor John Engler, starting in 1984 when Engler began serving as Senate Majority Leader.When Engler was elected Governor in 1991, Jeff assumed the role of the Governor’s Director of Legislative Relations. In that position, he coordinated all of the activities of the Engler Administration in the Michigan Legislature. This included the development of the Governor’s initiatives into legislation and the planning and execution of the strategies necessary to secure the successful passage of that legislation.
Jeff was basically Engler’s lobbyist to the legislature.

 

When Jeff left Engler’s office,  Governor Engler had this to say about him:

 

For the past 14 years, Jeff McAlvey has faithfully served me,”  “He was a close friend and advisor and an invaluable employee. His reputation as a legislative strategist and negotiator was unparalleled. His impressive skills will serve him well as he makes the transition to the private sector. I will miss him, and I wish Jeff, Carole and their family continued success.”

 

A high praise from Gov. Engler speaks volumes.

 

 

One of the sources that I found a good snapshot is a blog interview that Jeff did through The Gospel Coalition

 

In that article, Jeff talks about what he loves about being a lobbyist.

I get to be actively involved in public policy, which I have a passion for. I enjoy and feel good about the policy I am able to push for since my partner and I have carefully refused to represent anyone who we believe would lead us to lobby for anything that we would ethically disagree with or that would hurt our witness. Another blessings is that I get to meet and work with lots of different people for all over the state with many different backgrounds.

 

Final thoughts:

 

Lobbyists are like lawyers in a lot of ways – we are advocates for our clients.

 

Those roles can be abused, as the Governor Cuomo news, if true, demonstrates.

 

Character matters. 

 

And advocates that you can trust are indispensable.

 

 

So if you are business, non-profit, or other interest group and need an advocate for your interest at a governmental level, consult a lobbyist.

 

 

Just make sure they are people of high character and integrity, like Jeff McAlvey.

 

 

 

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

 

 

 

 

 

via @tgc

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Business Law Update: Proposed Michigan Bill To Limit Non-Competition Covenants.

July 21, 2014 1 comment

 

A Michigan Bill proposes amending the Michigan Antitrust Reform Act to narrow the scope of when covenants not-to-compete are enforceable in Michigan.

You can look at the June 12th proposed amendment, here

 

The Narrowing of  the Covenants Not-t0-Compete (CNC) will do as follows:

1. Make CNC unenforceable if the employee is terminated (CNC would only apply if an employee resigns)

 

2. Make CNC unenforceable unless the employer does the following:

a. at the time of the initial offer of employment notifies employee in writing that employment is conditioned upon entering a CNC; and

b. give the same notice to applicants in any job posting.

 

 

The Bill was referred to the committee on commerce – and that is where it has been for the last few weeks.

 

This Bill does not affect other covenants that protect legitimate business interests such as:

 

  • Covenants not to solicit; (employees, vendors, clients, etc…)

 

  • Confidentiality Covenants (protect trade secrets, customer lists, files, etc…)

(which are typically easier to enforce in court, anyway)

 

 

questions? Comments?

 

Email me: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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Dreaded Words for Business Owners: “Personally Liable”.

I just read an interesting article on the ABAJournal about the co-founder of “Buckyballs”

 

Evidently this product has caused serious harm to children and not only has the product been recalled, but personal liability has been assessed to a co-founder.

 

That is a big deal!

 

The ABA Journal reports the story here:

 

The Company that produced Buckyballs, Maxfield & Oberton Holdings, LLC, filed for a dissolution at the end of 2012.

 

That a shareholder in a company would be held personally liable for the debts/liabilities of a dissolved  company is is an usual outcome for sure.

 

Even in dissolution, under Michigan law, the members are not anymore personally liable for the obligations of the Company than they would otherwise have been. See MCL 450.4805, applied to limited liability companies:

(2) The members or managers that are winding up a limited liability company’s affairs shall continue to function, for the purpose of winding up, in accordance with the procedures established by this act, the articles of organization, and operating agreements, shall not be held to a greater standard of conduct than that described in section 404,1 and are not subject to any greater liabilities than would apply in the absence of dissolution.

In summary of some of the previous items I have hit on in prior blog posts regarding personal liability of corporate debts, business owners should make sure to:
1. Comply with all corporate formalities, operating agreement/bylaws, make sure company is and remains in good standing with the State of Michigan; 
2. Don’t commingle business/personal assets; and
3. Personal Guarantees = Personally Liable
4. If you dissolve your company – you are entitled to take actions to “wind up” the company.  However, if you continue to do business under the company name you are opening yourself up to be held personally liable.  You may be operating under the name of the company, but you are most likely acting as a sole proprietor now.
Questions? Comments?
Email: Jeshua@dwlawpc.com

 

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Great Lessons for Real Estate Professionals From Unfortunate Local Construction News and Recent Case Law

Court cases and local headlines have a way of grabbing our attention – they also provide useful lessons.

I had a builder client come to me recently about concerns with their construction contract.
The owner that my builder was beginning a job for had a question about the indemnity provision in the contract (which I drafted).
Basically, the owner looked at the contract and asked: how does this indemnity clause protect me?
The short answer was, it doesn’t.
Contracts are all about “risk allocation” – how much risk is each side willing to bear?
Since my client had me draft the contract, naturally, I am going to be looking out to protect my client where I think its business most needs to be protected, in the event worst case scenario happens.
Lamar Construction’s Shutdown
I look at the unfortunate, and quite unexpected, news about the shutdown of Lamar Construction 
Many Affected.
Many relationships are affected by this shutdown, least of all the couple hundred employees.  By the way, great job by the Associated Builders and Contractors, Inc. for offering help to place the many displaced Lamar employees into new jobs.
The Landlord for Lamar Construction is filing to evict Lamar. This is not surprising. What is surprising to me is that they are doing so after Lamar getting behind over $45,000 in past rent.
Suppliers are affected. Those who have supplied materials to projects lead by Lamar and now have no ability to get their supplies back, or get paid what they are owed.
Subcontractors are affected. Those who also have purchased materials, provided labor and will not get paid.
Since Lamar filed bankruptcy, where are they left standing?
All creditors who don’t have a secured interest will stand in line and share pro-rata with all the other unsecured creditors.
Some options for suppliers or contractors might be to record a claim of lien on projects. However, this isn’t ideal for several reasons, one of which is that likely anyone else who wasn’t paid on a Lamar project will likely file a lien as well. There will be more “standing in line” with everyone else who is owed.
Further, they are likely all standing behind the first mortgage on the project, filed by Lamar’s (previous) lender.  Likely, the Bank will cover it’s losses first.
The legal battles have already begun, as the news articles have highlighted – from the landlord, to the bankruptcy action to a federal class action lawsuit.  Yes, this will be a messy ordeal.
How This Ties In to Indemnity Clauses
It doesn’t, directly. But it proves my point: Lawyers are here to protect our clients from worse case scenarios:  Like Lamar’s shutdown.
A recent Michigan Court of Appeals case decided in April of this year provides a good example of the place of indemnity clauses in development contracts.
The case is Sachse Const & Dev Co, LLC v AZD Assoc, Inc, No. 310026, 2014 WL 1351397 (Mich Ct App April 3, 2014)
Law of Indemnity: “Common-law” v.s. “Contractual”
Common law Indemnification…springs from equity: namely, that an innocent party should not be liable for the wrongful acts of another.5 Lakeside Oakland Dev, LC v. H & J Beef Co, 249 Mich.App 517, 531; 644 NW2d 765 (2002).
It is intended “only to make whole … a party held vicariously liable to another through no fault of his own.Peeples v. City of Detroit, 99 Mich.App 285, 292; 297 NW2d 839 (1980).  Sachse Const & Dev Co, LLC v AZD Assoc, Inc, No. 310026, 2014 WL 1351397 (Mich Ct App April 3, 2014)
to prevail on a claim for common-law indemnification, the party seeking indemnification must show that:
(1) it has been held liable for the acts of another; and

(2) it is free from fault in the underlying wrongful act that gave rise to the liability at issue

Sachse Const & Dev Co, LLC v AZD Assoc, Inc, No. 310026, 2014 WL 1351397 (Mich Ct App April 3, 2014)
Common-law indemnification is different than “contractual” Indemnification, which is an agreement to indemnify that springs from the parties contractual agreement. (essentially, the language that lawyers like me put in our clients’ contracts to protect them).  This language is typically much broader, and protects the client more fully.
In Sachse, the owner of a condominium project claimed there were many defects in the project. Contractor, likely did not have a contractual indemnity agreement, and so it sued the other parties to the project for common law indemnity.
The Court held that the owner of the project was only attempting to hold the contractor, Sachse, responsible for its own direct damages, and therefore the Court denied Sacshe’s claim for common law indemnity.
Lesson:
  • Lawyers protect our clients from worst case scenarios. This is particularly important in the real estate industry where multiple layers of contractual relationships exist.
  • Lamar Construction provides an example of worst case scenario and the multiple relationships that it affects.
  • One of the ways to protect yourself is to have a contractual indemnity provision – so that you aren’t left like Sachse, trying to unsuccessfully rely on common law indemnity.
Email: Jeshua@dwlawpc.com
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Michigan Businesses: Before Jumping Into a Lawsuit Consider Kesler Assoc. Inc v Wellman Plastics Recycling, LLC

“You will be hearing from my Lawyer!”

 

Many a lawsuit begins with those parting words.

 

I will occasionally get a call from a business client who is a little fired up (if you’re reading this and you are a business client of mine, I’m definitely not talking about you :)). Maybe he or she got off the phone with a vendor, customer or a business parter, or maybe the client just sent the last shot in a string of e-mail exchanges over a contract dispute.

 

Regardless, my first goal in advising a business client on a dispute is to help them make a good business decision and resolve their conflict as quickly and as cost-effectively as possible.

 

This usually means NOT jumping into a lawsuit.

 

Why?

 

One particular reason – lawsuits are expensive.  Lawyers are expensive.

 

Lawsuits are much more expensive if you have to end up paying the opposing party’s legal fees as well as your own.

 

Legal Fees and the AMERICAN RULE

 

Generally, the “American Rule” does not allow for the recovery of attorney fees from the losing party, in a lawsuit unless there is an exception carved out by statute or court rule. Haliw v. City of Sterling Hts., 471 Mich. 700, 707, 691 N.W.2d 751 (2005).

So if you find yourself in a lawsuit, regardless of whether or not you initiated it, you are expected to bear your own legal fees.
This could change if:
1. You entered a contract that the prevailing party to a lawsuit will get their attorney fees paid for (some examples –  a business operating agreement in an LLC, or by laws in a corporation if the dispute is between a shareholder and the company, a non-disclosure agreement between an independent contractor and a company, or maybe a commercial lease agreement;
2. You are in a case evaluation and you reject the case evaluation recommendation (if you want to learn more about case evaluation, feel free to shoot me an e-mail), and the opposing party accepts; or
3. There is a specific statute that could allow for the recovery of attorney fees.

 

Exceptions 1 and 3 should give you pause before filing a lawsuit. Exception 2 is a point to consider at some time while you are engage in litigation.

 

 

The March 2014 Decision of Kesler Assoc v Wellman Plastics.

I was reviewing a recent order from a long-drawn out business lawsuit in the federal courts for the eastern district of Michigan.

 

In that case, I am sure the Plaintiff looks back and wishes he never filed suit.

 

The case was in litigation for 4 years. It involved a dispute over commissions allegedly owed. Basically, Plaintiff claimed it was owed commissions by the Defendant.  Defendant claimed it owed no amount to Defendant.

 

After 4 years of litigation and a 10 day bench trial the jury found in favor of Defendant – Plaintiff recovered nothing.

 

Bad? Yes. Not only did Plaintiff not recover anything, but it had paid, likely, six figures in legal fees.

 

Then it got worse…

 

Plaintiff sued Defendant under a statute that granted the prevailing party attorney fees. Defendant was the prevailing party. Defendant was entitled to have Plaintiff pay its attorney fees.

An excerpt from the Court’s opinion:
Defendant argues for attorney fees and costs under Mich. Comp. Law § 600.2961(6) (2013) because it was the “prevailing party” in the lawsuit. SCRA awards attorney fees and costs to the prevailing party. The Defendant has provided the Court with itemized documentation addressing the reasonableness of attorney fees and costs. Petterman v. Haverhill Farms, Inc., 125 Mich.App. 30, 33, 335 N.W.2d 710, 712 (1983) (“The party requesting fees, the prevailing party, has the burden of proving the reasonableness of attorney fees.”). The Plaintiff has not filed a response opposing the motion for attorney fees.” Kesler Assoc, Inc v Wellman Plastics Recycling, LLC, No. 10-CV-13390, 2014 WL 897357 (ED Mich March 6, 2014)
The Court ordered Plaintiff to pay Defendant’s attorney fees, which amounted to over $100,000.
Lesson: 
Disputes happen in business. Before you run into a lawsuit, take a breath and work through all of the possible solutions to your dispute. Also, make sure you review any contracts and statutes that your dispute could implicate and determine whether or not there is an attorney fee provision that could potentially result in you paying all attorney fees.
questions? comments?
email me: Jeshua@dwlawpc.com
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