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Archive for March, 2016

Michigan Business Law Update on Non-Competition Agreements.

March 29, 2016 Leave a comment

I received a question in response to a recent post on non-competition legislation. The question was: “are non-competition agreements unenforceable in Michigan?

I will give you the typical lawyer answer: “it depends“.

In theory, CNCs are enforceable in Michigan.

Under certain circumstances, they are not.

A February 18, 2016 unpublished Michigan Court of Appeals decision is helpful to illustrate when a CNC may be enforceable and when it may not be.

The Case:     Mid Mich. Med. Billing Service. v. Williams

Facts:

  • Plaintiff, Mid Michigan Billing Service, Inc. (“MMBS”) provides medical billing services in Flint, Michigan (another topic for another day).
  • Defendant, Lindsey Williams (“Williams”) was employed as an office manager for MMBS between 2002 and 2013″ Check out the opinion here. Mich. Med. Billing Serv. v. Williams, 2016 Mich. App. LEXIS 319, *1-2 (Mich. Ct. App. Feb. 18, 2016).
  • “One of Williams’ responsibilities was overseeing client relations.” (important detail).
  • Williams signed an employment agreement and employee handbook that contained a 12 month covenant not to compete, and not to solicit (indefinite).
  • In May 2013, Williams voluntarily left her employment with MMBS and began her own  medical billing business out of her home. One of her clients was a former client of MMBS.
  • On August 14, 2013, MMBS filed a complaint and motion for a preliminary injunction, alleging a breach of contract claim based on the noncompetition provisions in the employee handbook and the employment agreement.
  • In particular, MMBS alleged that Williams violated the terms of the noncompetition provisions by performing medical billing out of her home, by contacting and soliciting the business of MMBS’s clients, by performing “medical billing for one of [p]laintiff’s current clients,” by employing one or two former employees of plaintiff, and by inducing others to terminate their employment with plaintiff.

II. The Trial Court decision:

After trial, the Court ordered Williams, “to pay damages and enjoin[ed her from] from (1) “engaging in any conduct . . . competitive with a service provided by Plaintiff . . . within 50 miles of Plaintiff’s principal place of business . . . for a period of one year” from the entry of the September 10, 2013 interim order; and (2) “from obtaining employment, either directly or indirectly, from any current or previously contracted client of [plaintiff],” regardless of geographic distance or duration.” (Emphasis added). Id. pg 5-6.

Williams appealed. She did not challenge the fact that she signed the non-compete documents and agreed to be bound. Rather, Williams argued that the Judge failed to inquire and determine whether the restrictions were reasonable.

Question to ask yourself: Is it reasonable to limit a former employee of yours from soliciting your customers, past or present, forever? (hint…answer below).

III. The Court of Appeals: CNCs need to be Reasonable.

The Court of appeals found that “A Court must assess the reasonableness of a noncompetition clause if a party has challenged its enforceability.” Id. Citing Coates v Bastian Bros, Inc. 276 Mich App 498 (2007).

Whether or not a clause is reasonable and enforceable is a “fact specific inquiry”. Id.

The relevant question: “whether the noncompetition provision protects an employer’s “reasonable competitive business interest” in the context of [the employer’s] specific business.”  Medical Billing, supra. pg 8.

Reasonable  = more than merely preventing competition.

The Court goes on state that if a CNC is going to be “reasonable” “an employer’s business interest justifying a restrictive covenant must be greater than merely preventing competition.” Id. at pg 10.

Reasonable = prevent an employee’s unfair advantage.

In order to be reasonable the CNC “must protect against the employee’s gaining some unfair advantage in competition with the employer, but not prohibit the employee from using general knowledge or skill.” Id. citing Coates.

The Court held that MMBS could “place reasonable restrictions on [Williams’] use of plaintiff’s client information and relationships.”  However, the Court found it “unreasonable to permanently prohibit her from pursuing employment opportunities, directly from any…client of plaintiff.” Id.

The Court affirmed in part the trial court’s grant of the non-competition, but reversed on the issue of the non-solicitation, finding that it was not reasonable to permanently enjoin a former employee from soliciting customers of former employer.  (“restrictive covenant must be reasonable as between the parties, and it must not be specially injurious to the public.”) Id. at pg 12, citing Coates

.It is injurious to the public if, at some level, you do not let them choose who they can get services from.

Takeaways:

1. CNCs may generally be enforceable in Michigan.

2. CNCs must be reasonable.

3. Courts will reform a CNC to make them reasonable if they are not reasonable.

4.  It is reasonable to protect a former employee from using confidential information to gain an unfair advantage in competing.

5. It is not reasonable to prohibit a former employee from using “general knowledge or skill”.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

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Business Litigation News: Dispute Resolution…Online?

March 21, 2016 Leave a comment

The ABAJournal reported on “Online Dispute Resolution” (“ODR”) Is online dispute resolution the wave of the future?

In the past, I’ve posted about the benefits of alternative dispute resolution for businesses.

The primary benefit:

litigation is expensive!

 

According to the ABAJournal, Colin Rule, the founder of an online dispute resolution software, Modria, had this to say about ODR:

There will always be cases that require the attention of skilled individuals…But we know we have crisis of access to justice. Technology may be a way we help solve that problem.”

Indeed, there is an access to justice problem for consumers, start-up businesses.  This article to me points out that ODR may be a “wave of the future” as it relates to individual disputes; but complex business disputes may stay in the realm of person-to-person dispute resolution.

At least for the time being.

My thoughts – the benefits of alternative dispute resolution are – efficiency, privacy, and cost-effective. ODR seems, at first glance, to enhance those benefits.     Seems like a good idea.

 

Thoughts?

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

twitter: @JeshuaTLauka

Drunk Driving Shatters Lives: Statewide Crackdown on Drunk Driving Begins Today.

March 16, 2016 Leave a comment

Today, the Michigan State Police along with 150 other police agencies begin acrackdown on drunk driving that will extend through April 4th.  The effort is coordinated by the Office of Highway Safety Planning and is supported by federal traffic safety funds.

Drunk Driving Shatters Lives.

My friend, Michael Mayes, lost two sisters, Shannon and Heather, in 2000. Yesterday, during a press conference at the Michigan State Police Tri-City Post in Williams Township, Mike’s dad, Ron Mayes shared the gut wrenching details of how he first learned he lost his daughters.

I can’t help but tear up reading the article.  The Mayes’ family will never be the same because of the senseless decision of a 20 year-old to drive drunk.  My prayers are always with the Mayes’ family.

 

Statistics From Past Drunk Driving Enforcement Matters.

Some staggering statistics on drunken driving in Michigan provided by the OHSP:

  • During the same grant-enforcement period in 2015, extra police patrolsarrested 538 drunken drivers. Of those, 78 were charged under the state’s “super drunk” law, of having a blood alcohol level of 0.17 or higher. In Michigan, a person is legally intoxicated when their blood alcohol level is at 0.08 or higher.
  • Throughout the state in that same period in 2015, police arrested a total of 2,182 drunken drivers. Of those, 672 were charged with being super drunk.
  • In all of 2014, police arrested 35,060 intoxicated and impaired motorists, or 96 per day.
  • Also in 2014, 319 people were killed as a result of alcohol- and/or drug-involved traffic crashes, a 9 percent increase from 2013.

Michigan State Police cited St. Patrick’s Day celebrations, the onset of spring, spring breaks, and the NCAA basketball tournaments as being likely contributors to this uptick.

 

New Proposed Michigan laws to combat driving under the influence.

A Bill has been passed by the Senate that would authorize the Michigan Department of State Police (MSP) to establish a one-year pilot program in five counties for roadside drug testing to determine whether an individual was operating a vehicle while under the influence of a controlled substance.

You can check out the status of that bill here.

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

Categories: Uncategorized

Small Business, Social Entrepreneurs and Crowdfunding

Just a few days ago I posted on the Michigan House Resolution supporting Equity Crowdfunding.

This morning I read an article on CrowdfundInsider on the topic of financing for small businesses.

Access to Capital: What are the Options for Small Company Finance?

Candace Klein Chief Strategy Officer at DealStruck was Interviewed and talked about how small business might benefit from crowdfunding. She had this to say, in part:

“Most businesses are community-based, and have an immediate impact for those in their community, whether geographic or industry-based.  Crowdfunding brings these companies together with the everyday investors in their communities.”

 

I agree. As I’ve previously written about, crowdfunding appears to be a viable tool for community based businesses.

People are willing to invest in projects that will enhance their local community.

This is what makes local equity-based crowdfunding attractive for social entrepreneurs.

Comments? Questions?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Entrepreneurs and Start-ups: House Resolution Supports Crowdfunding for Start-up Businesses

March 8, 2016 1 comment

On March 3,  Representative Tom Barrett introduced House resolution 235 (HR 235).  Today HR 235 was on the agenda for the Commerce and Trade Committee Meeting.

HR 235 is a  “resolution to support the United States Securities and Exchange Commission’s recent adoption of rules pursuant to Title III of the JOBS Act which are designed to facilitate small and start-up companies’ access to capital raised through crowdfunding.”

The resolution supports crowdfunding as viable tools for start-up businesses.

The resolution acknowledges:

Businesses in Michigan have greatly benefited from the opportunities created by the…Michigan Invests Locally Exemption (MILE) program. MILE has allowed everyday Michiganders, referred to as unaccredited investors, the ability to play a larger role in growing Michigan’s creative business ventures through Michigan-based crowdfunding platforms while still enjoying investor protections and security in their investments” (Emphasis added.)

HR 235 ends by stating that:

“we support the United States Securities and Exchange Commission’s recent adoption of final rules pursuant to Title III of the JOBS Act which are designed to facilitate small and start-up companies’ access to crowdfunding capital, fostering entrepreneurial growth and continued job creation in the state of Michigan and across the United States”

Entrepreneurs and Start-ups:

Although the resolution has no real significant legal effect, Michigan legislators want you to know that they are on your side.

A key point addressed in the resolution is the balance between allowing startups access to capital, all the while ensuring adequate “investor protections” for the unaccredited investor.

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

Lawsuit Puts ‘Homeless Alcoholics’ in the Spotlight.

I read an article this morning from the ABAJoural entitled: Civil rights suit says Virginia ‘drunkard’ law criminalizes those who are homeless alcoholics.

According to the article, a federal civil rights suit filed Thursday in Roanoke, Virginia says two cities are unconstitutionally jailing homeless alcoholics.

fact sheet provided by the attorneys representing the individuals stated:

“As a result, our clients are repeatedly arrested and jailed. While incarcerated, our clients are not guaranteed treatment for their alcoholism.”

There’s got to be a better way to treat homeless suffering from addictions than to just jail them.

It can be easy to dehumanize the individual who is homeless, alcoholic, and standing on the sidewalk with a sign.

But for the grace of God, there go I.”

Every such individual has inherent value.

Every such individual needs help.

My hope is that regardless of the outcome of this case, it will encourage more collaboration between municipalities and local agencies, including Rescue Missions in efforts to, as stated in the Vision Statement of Mel Trotter Ministries:

“to end homelessness, one life at a time”.

Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

Business Startups: Don’t make these mistakes.

March 4, 2016 1 comment

Happy Friday!

I love reading Michigan Court of Appeals decisions.

Even if it is not a significant decision related to a novel legal issue, cases usually do a good job of demonstrating pitfalls for people to watch out for.

Take for instance, the Phillips v TruFit case decided on February 9th of this year.

This case provides helpful advice for start up businesses and Commercial Landlords.

Facts:

Trufit Fitness Studios, LLC was a startup business that, as a tenant, entered into a commercial lease with Phillips-Johnson Properties, LLC, as a landlord, to operate a commercial gym.

“Defendant Tyler Koronich was Tru Fit’s sole shareholder and manager. Koronich signed the lease on behalf of Tru Fit I, but did not execute a personal guarantee.” (Landlord’s mistake. We’ll get to Tenant’s mistake soon enough).

Koronich also executed a security agreement in favor of Landlord.  Phillips-Johnson Props. v. Studios, 2016 Mich. App. LEXIS 229, *1-2 (Mich. Ct. App. Feb. 9, 2016)

 

Unfortunate realities common to many startups: lack of cash flow.

Like many startups, Trufit inevitably was having cash flow problems and fell behind in payments rather quickly.

Trufit dissolved.

It had its attorney send a letter to Landlord notifying of dissolution, and Landlord’s right to make a claim against the LLC.

Enter: Successor Company – Trufit 2.

Around this same time, “Tru Fit Fitness, LLC (“Trufit 2”) was formed. It purchased Trufit’s website and other assets, and leased space near Trut Fit’s former premises and began operating a gym.  Id. at Page 2.

(Note to Startups – for reason that you will see below, not necessarily the best idea.)

Obviously, landlord did not like this development. Landlord sued Trufit, Trufit 2, and the owners of both, Koronich and Lankford for a host of claims including:

“foreclosure on security interest, fraud, unjust enrichment, piercing the corporate veil, successor liability, conversion, and tortious interference with a contract and business relationship.”

yikes.

The Trial Court produces a Strange Result.

After several motions were filed and argued the trial court found in favor of tenant (yes, that’s right, the tenant, Trufit).

The court found that the Landlord was limited to its claim against the LLC – the only assets of the LLC totaled $1,655.73 – and that’s all that Landlord could recover.  

the Court was not convinced that any “fraud” occurred.

Frivolous?

Moreover, the Court, chastised the landlord for not getting personal guarantees when it could have done so.   The Court found that landlord’s fraud claims werefrivolous. 

The Court of Appeals reversed.

The Court of Appeals went into a long explanation of the legal doctrine ofsuccessor liability.

A while back I wrote a post about successor liability.  Essentially, a successor entity will be found liable for the debts of the old company, among other reasons, “where a new corporation is a mere continuation or reincarnation of the old corporation.”

Here, the facts, if proven true at trial, could show that Trufit 2 was a successor entity of Trufit – and could be held liable for the obligations of Trufit.

Takeaways:

1. Start up businesses – take advantage of your limited liability protection, but do not think you can avoid your debts simply by starting up a new business entity that is a mere continuation of one you dissolved.

2. Property owners/landlords – get a personal guarantee for your tenants. 

3. Litigation should be a last resort. Besides the fact that it is an expensive process, judges and juries can rule in unpredictable ways producing unforeseen outcomes.  

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

www.dwlawpc.com