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Real Estate Law Update: Published Court Case: the Scope of a Construction Lien and consequential damages.

September 11, 2019 Leave a comment

I took this photo today – flags at half mast in downtown Grand Rapids.

I will #NeverForget where I was – at the cafeteria in McDonel Hall @michiganstateu watching the horror on the T.V.

Thank you all who gave their lives and prayers to all who lost loved ones 18 years ago today.

Flags at half mast outside of DeVos Place, Downtown Grand Rapids, Michigan

Yesterday a published court decision came out that affects the scope of a construction lien. Check out TSP Services, Inc. v National Standard Company, et al

Update: On September 17, 2019 the Court Vacated its Prior decision and issued a new decision – see here

This case involves a breach of contract claim and a construction lien foreclosure claim.

The case went to arbitration and, according to the Opinion, “the arbitrator approved a lien for $782,469.05, which is $641,386.05 greater than the unpaid balance under the contract.” –

Wow!

The very first page of the Opinion gives you much of the information you need to know to understand the holding:

” Michigan law limits a construction lien to the amount of the contract less any payment already made. Although a party suing for breach of contract might recover consequential damages beyond the monetary value of the contract itself, those consequential damages cannot be subject to a construction lien. “

The construction lien act provides: “Each contractor, subcontractor, supplier, or laborer who provides an improvement to real property has a construction lien upon the interest of the owner or lessee who contracted for the improvement to the real property.” MCL 570.1107(1).

“A construction lien acquired pursuant to this act shall not exceed the amount of the lien claimant’s contract less payments made on the contract.” MCL 570.1107(1)

“Michigan’s construction lien act authorizes a lien up to the unpaid balance of the amount contracted. A lien that includes an amount for consequential damages flowing from, but otherwise outside of the four corners of the contract, exceeds the authorized amount of the act. “

To summarize – consequential damages are not allowable under a construction lien.

consequential damages are a permissible damage under contract law – but you won’t get them added to your lien to foreclose on. You will need to find some other way to recover under a judgment.

A good question to ask: what happens if you file a lien and indicate too much?  Is your lien void? Typically. no.

In order to void a construction lien that is filed in an excessive amount a showing of bad faith is required.  Tempo Inc v Rapid Elec Sales & Services, Inc, 132 Mich App 93; 347 NW2d 728 (Mich Ct App 1984).  “A lien is not lost because the amount claimed is excessive, unless the claim was made in bad faith. In such instances, the proper remedy is to reduce the amount of the lien to the correct amount.” Id

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

http://www.dwlawpc.com

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Business Law Update: Business Owners: Bill Would Restrict Non-Competition Agreements with Employees.

September 9, 2019 1 comment
Cedarville, Michigan

I hope you all had a great Labor Day Weekend. I spent the long holiday weekend with my family in Michigan’s Upper Peninsula.

On September 4, 2019, Senate Bill 0483 was introduced in the Michigan Senate.

If passed it would limit the enforceability of a non-competition agreement signed between an employer and an employee.

In my opinion – in some pretty significant ways.

I have spent several articles discussing the legal consequences/enforceability issues of non-competes.

It appears the Legislature is wrestling with the question posed by Nick Manes previously with MIBiz in an article a few years back: “Are noncompetes a barrier to growth?

You can check out the text of the bill here

The Bill was referred to the committee on Government Operations.

The Bill has a few key components to it:

1. Require Employers to follow a Specific Procedure prior to executing a non-compete.

The Bill would only permit Employers to execute a non-competition agreement if the Employer followed a procedure intended to notify the Employee of the requirement of signing a non-compete as a condition of employment.

(A) INFORMED THE PROSPECTIVE EMPLOYEE IN WRITING OF THE REQUIREMENT AT OR BEFORE THE TIME OF THE INITIAL OFFER OF EMPLOYMENT.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

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(A) Informed the prospective employee in writing of the requirement or before the time of the initial offer of employment;

(B) Disclose the Terms of the Non-Compete in writing; and

(C) Post the Text of the Law at the Worksite in a CONSPICUOUS LOCATION

2. Non-Compete unenforceable if the Employee is a “low wage” worker.

Defined generally as $15.00/hr or $31,000 annually.

3. Voids Certain Provisions in a Non-Compete – shifts the burden to Employer.

The Bill also has some teeth in it for Employees, including:

  1. Prohibits an Employer from including a clause that states a different state’s laws control the Agreement – this would be an obvious attempt to circumvent the prohibition of non-compete against “low wage” workers;
  2. Gives the Attorney General power to prosecute a violation of the Act;
  3. Automatically places the Burden on the Employer to prove that the Non-Compete was reasonable, as to “scope, duration, time limit.”
    1. Moreover, if a Court limits the non-compete in any respect, the employee is entitled to recover attorney fees.

Wow. This bill has a lot of bite to it – particularly the fee shifting mechanism if a court limits a non-compete in any respect. My first thoughts – if this Bill does come out of Committee, I can’t imagine it will look the same as its current version.

I understand the legislature’s interest in protecting “low wage workers” from unreasonable restrictions. Check out my prior post on the subject of Jimmy John’s non-competes.

However, in my opinion the restrictions as written places an enormous burden on the employer to narrowly tailor the non-compete, to a judge’s definition of “reasonableness”. Otherwise, like I said, the fee shifting provision is a huge penalty.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

http://www.dwlawpc.com

Michigan Business Law Update: Bill Stuck in Committee that would Allowing Single Member LLCs To Evict Tenants without Legal Representation

December 11, 2018 1 comment

Once again, we are reaching the end of the year. One of the signs that the year is ending:

december

Rosa Parks Circle becomes an ice rink.

See the photo I took from a few days ago.

Another sign that the year is ending, interest groups are pushing to get legislation pushed through the legislature before they die in committees.

One such Bill would give Certain Landlords who own their real estate in a Limited Liability Company the ability to evict tenants without retaining an attorney

 

 

Today

Kent County Rental Property Owners Association  published a post pushing constituents to contact their State Senators to push this bill out of committee.

This Bill was passed by the Michigan House and since September of 2017 has been sitting in the Senate Judiciary Committee

As the RPOA indicates:

 

“For the first time in two decades, the “LLC bill” has a chance of passing.  The bill, HB 4463, would enable single-member LLC’s and LLC’s owned by married couples to handle their own evictions in court without an attorney.  The cases would be limited to the amount of small claims cases—which is the majority of all landlord-tenant eviction cases”

 

History Behind the Bill…

As background, a common scenario in my legal practice:

Investor purchases property in an LLC. Investor locates a tenant. Tenant falls behind in rent. Investor hires attorney to evict Tenant.

 

Why hold real estate in an LLC?

Most of my investor clients own investment real estate in a Limited Liability Company.

This is for liability protection.

Once a limited liability company comes into existence, limited liability applies, and a member or manager is not liable for the acts, debts, or obligations of the company. “Duray Dev., LLC v. Perrin, 288 Mich. App. 143, 151 (2010).

 

Why not hold real estate in an LLC?

Some investment property owners decide not to do so. The primary driving reason from my experience is cost.

Cost associated with setting up the LLC; and

Cost associated with hiring an attorney and evicting non-paying tenants.

Some landlords don’t want to hire an attorney to evict a tenant.

Under current Michigan law, since an LLC is a separate legal person independent of the actual owners of the LLC, unless such owner is a licensed attorney, an owner of an LLC cannot file a lawsuit on behalf of the LLC.

To do so would be the unauthorized practice of law.

You can practice law on your own behalf – just not on behalf of someone else.

Although, the saying goes – he who is his own lawyer has a fool for a client.

 

House Bill 4463 – Would Allow LLCs to Evict without Legal Representation.

House Bill 4463 was introduced in March 2017 and referred to the  committee on law and justice. It has been passed by the House and sent to the State Senate.

The Bill would allow owners of a single-member LLC (or a married couple under certain conditions) to file their own eviction actions on behalf of the LLC without the need for legal representation.

If the Landlord is seeking money damages, the amount, not including taxable costs, must be under the small claims Court maximum.

I commented that I would be surprised if this bill passes, although other states have similar laws. The Kent County RPOA mentions in its post that it is the closest in over decade that such a bill has come to passing – so the RPOA is pushing hard to get this Bill out of committee.

 

As mentioned, the Bill  came out of the committee on law and justice and a substitute bill was referred for a second reading.  The Bill was passed by the House and sent to the Senate Judiciary Committee over a year ago.

 

The Major Difference in the Substitute Bill

The major revision that came out of the committee affects property managers.

The Bill as introduced would have allowed property managers or agents to represent the LLC under certain circumstances – e.g. – having personal knowledge of the relevant facts related to the Property and tenancy.

That language was removed from the first version of the bill.

Under the substitute bill, Property Managers or other Agents would not be allowed to represent the LLC.

Further, this is a “burden shifting” mechanism in the substitute bill – the law would place the burden on the LLC owner to prove he or she is in compliance with the statute. That makes sense – since the legislature would be creating an exception to the rule – only lawyers practice law.

 

It looks like this Bill will die in committee unless constituents can convince their local state Senators to do something about it.

 

 

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Legal Update on Michigan Bcorps and Purpose Driven Business.

October 9, 2018 Leave a comment

Happy Tuesday, all.

I recently took this photo of the Grand River that flows through downtown Grand Rapids.

Today I read an article in the Grand Rapids Business Journal by Local First President

2018-09-30 13.46.51Elissa Sangalli Hillary on how to build a “Purpose Driven Business“.

Elissa starts off the article by advising entrepreneurs to “start with your values”

“As an entrepreneur, you have an opportunity to start a business that’s founded on your values, morals and principles. Before you dive into your business plan, reflect on your core values and prioritize those you want as the foundation of your business.”

 

According to Elissa’s article, you can join her and other entrepreneurs at  Start Garden on Oct. 10 for a “Measure What Matters Workshop on The Social Justice Entrepreneur. This workshop is an opportunity to hear from entrepreneurs and their best practices for developing a meaningful business plan and leading a business with purpose.

 

Benefit Corporations – purpose driven business.

The option of forming a business entity using a “benefit corporation” legal structure is one way to formally memorialize at a fundamental level your company’s values morals and principals.

 

Why BCorps?

BenefitCorp.net describes the benefit of BCorps as:

“Benefit corporations expand the obligations of boards, requiring them to consider environmental and social factors, as well as the financial interests of shareholders. This gives directors and officers the legal protection to pursue a mission and consider the impact their business has on society and the environment. The enacting state’s benefit corporation statutes are placed within existing state corporation codes so that it applies to benefit corporations in every respect except those explicit provisions unique in the benefit corporation form.”

 

BCorps have gained Popularity since 2006.

Currently 34 States have enacted BCorp Laws.

Michigan is not one of those States.

Almost six months ago the State of Michigan House tantalized social entrepreneurs, once again, with the possibility of Bcorps becoming a viable legal option to do business in the State of Michigan.

House Bills 5867, 5868 & 5869 were introduced on April 24, 2018, that would allow BCorps to be formed under Michigan Law.

As of today, there is still no movement on these bills.

 

Back almost two years ago the legislature proposed similar legislation which died in committee. For a review of the Former BCorp Bills, the House Fiscal Agency issued a Fiscal Analysis, check it out here. 

The Analysis provides good background on what the legislation would do. This is helpful for those who are not overly familiar with BCorps in general.

 

I continue to wonder why year after year Michigan fails to catch up with the rest of the country concerning these social enterprise businesses for good.

As of March 2018 there have been 14 West Michigan businesses certified B Corporations – a third party sustainable good certification process, but not having the corporate BCorp Structure. That number is growing.

People want to do business with companies that exist for something besides making a profit. Certainly you don’t need the Bcorp legal structure in order to accomplish that.

However, there seems to be a demand for such a social enterprise entity in Michigan.

What is the legislature waiting for?

Questions? Comments?

Jeshua@dwlawpc.com

http://www.dwlawpc.com

Connect with me on Twitter: @JeshuaTLauka

 

 

 

Grand Rapids Combats the Affordable Housing Crisis through the Rental Assistance Center

September 20, 2018 2 comments

Today was my first day back mentoring my student at a local elementary school in the City of Grand Rapids.

MTM

I was excited to catch up with my student, what had changed over the summer?

One thing that changed, he had moved once again. Having to be concerned about where you will be sleeping at night, is a concern that no kid should have.

In fact, Mel Trotter Ministries reports that in Kent and Ottawa

County there are over 3,300 homeless school-aged children.

 

 

Yesterday evening was Mel Trotter Ministries’ Annual Season of Hope Event. There, once again, was presented the information on the above photo. People become homeless due to a lack of relationships.

Our community needs to come around those who are vulnerable. One way that our community is doing that, is through the public/private collaborations to address the affordable housing crisis in Grand Rapids.

 

There is an Affordable Housing Crisis.

As many of you know, Kent County, like much of the U.S. is experiencing a serious lack of Affordable Housing.

The City of Grand Rapids has made concerted efforts to address problem through an advisory board, which has come up with strategies for addressing the Affordable Housing Crisis

Last year I posted on one of those tools that I deal with fir

st hand in representing landlords, real estate investors and property management companies – the Kent County Eviction Prevention Program. You can check out a blog post I wrote about that here

I have seen firsthand that this program can be a useful tool to keep families facing temporary emergencies in housing.

The EPP was developed as a collaborative effort between the City of Grand Rapids, Salvation Army of West Michigan, The Kent County Court System, the Michigan Department of Human Services and with funding provided by Steelcase.

Why I like this program.

This program provides an opportunity to keep people in housing who are on the verge of being homeless. The fact is, families are experiencing homelessness in Grand Rapids every day.

 

 

City, Grand Rapids Housing Commission create Rental Assistance Center

 

Today I read that the City of Grand Rapids and the Grand Rapids Housing Commission have established a two-year pilot for a Rental Assistance C

enter for low-income households. Check out the complete press release here.

According to the press release:

“The Rental Assistance Center – approved by the City Commission on Tuesday – will connect households that earn 80 percent or less of the Area Median Income (AMI) with vacant rental properties and refer “rent-ready” applicants to landlords, increasing the efficiency of the rental search for households and landlords.”

Further – households who are “not rent-ready” “who – do n

ot meet established landlord criteria – will be referred to a resident service coordinator who can help them overcome barriers to secure rental housing.”

 

 

Housing is a community problem. It is encouraging to see the great collaboration between government, private sector, non-profit sector.

We all have a role to play. I hope you can find yours.

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

Today OCC Begins Accepting National Bank Charter Applications From FinTech Companies

It’s Tuesday in Grand Rapids. Beautiful mid-70s, a bit overcast and if you look carefully you can see the reflection of my shirt as I took the photo from my office window…

Today, the Office of the Comptroller of the Currency (OCC) announced it will begin accepting applications for national bank charters from fintech companies.

7.31

 

Joseph M. Ottin, Comptroller of the Currency gave the following remarks concerning Fintech Companies:

“The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy,” 

Mr. Ottin also commented that accepting applications from Fintech Companies:

helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.”

 

You can read the full press release here.

Fintech recap…

The prior OCC, Thomas Curry announced last year that OCC would move forward with considering applications from financial technology (fintech) companies to become special purpose national banks.

 

“The OCC published a paper discussing the issues and conditions that the agency will consider in granting special purpose national bank charters.” You can check that paper out here

What’s made clear from the press release is that “[e]very application will be evaluated on its unique facts and circumstances.

 

Fintech Charter: Praise, Debate, Criticism and a Lawsuit.

The propriety of a Fintech charter has been supported by the Fintech community in general.

 

As previously reported by Crowdfund InsiderBrian Peters, Executive Director of Financial Innovation Now  “a public policy coalition comprised of Amazon, Apple, Google, Intuit and PayPal” stated;

“FIN believes that payments and lending regulation needs streamlining for the modern era. We commend the

OCC’s leadership and vision in driving this regulatory discussion. The OCC has rightly concluded that its approach must evolve to ensure that all American consumers and small businesses are empowered with better access to the benefits of financial technology.”

According to Crowdfund Insider  “Fintech Charter could benefit innovative financial firms that can provide superior services at a lower cost for both consumers and businesses.”

That being said, the propriety of such action by the OCC has been questioned by others, and officially sued by the Conference of State Bank Supervisors as an “unprecedented, unlawful expansion of the chartering authority”- check out the Press Release from the CSBS back in April of last year.

 

 

Why Fintech Intrigues me – Purpose Driven.

 

I’ve previously talked about why fintech is so intriguing.

I’ve highlighted some fintech companies doing unique things in the past, like Lemonade.

a. taking a risk doing something different (being an innovator);

b. disrupting business as usual;

c. for the good of others (being mission driven).

 

That’s social entrepreneurship at its finest.

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Non Profit Corporations: 2018 Annual Statement Filing Deadline is October 1. Stay in Good Standing and Maintain your Corporate Formalities.

Good morning, all. I hope you are enjoying the summer. It is most definitely my favorite time to be in Michigan.

Today I received an e-mail from The Michigan Department of Licensing and Regulatory Affairs(“LARA”) reminding that all annual statements and reports for Non Profit Corporations are due October 1, 2018.

2017-09-01 18.01.03

 

At the end of last year LARA transitioned to an

electronic filing system – and disposed of the fax filing. This caused a significant delay in business filings – many of my clients experienced this headache first hand. See my post on this delay.

 

Per LARA’s announcement:

“There are a total of 62,202 Michigan nonprofit corporations and 1,582 foreign corporations that are receiving 2018 reports.”

 

 

“Annual reports must be filed no later than October 1 of each year and can be filed online at www.michigan.gov/corpfileonline. ”

For more information about LARA, please visit www.michigan.gov/lara

 

Consequences for Failing to File:

LARA also reminds that:

“Section 922 of the NPA provides that if a domestic nonprofit corporation neglects or refuses to file a report or pay a fee required by this act for two years, the nonprofit corporation will be automatically dissolved.

It also provides that if a foreign nonprofit corporation neglects or refuses to file a report or pay a fee required by this act for one year, the nonprofit corporation’s certificate of authority is subject to revocation under section 1042.

“A nonprofit corporation that has been automatically dissolved or certificate of authority revoked is not entitled to a certificate of good standing; its corporate name will be available for use by another entity, and no document will be filed on behalf of the corporation.”

Is your Corporation in Good Standing?

Occasionally I will have a business client come in and I will ask – just to make sure – “is your business still in good standing?”

The common answer is “I think so.”

And of course, after I perform a quick internet check

with the State of Michigan it is all too common that I discover that either the Company is “not in good standing” or worse, the company has been dissolved automatically for failure to file annual statements.

In Conclusion:

Business owners, if you get these annual statements from the State of Michigan, or from your attorney – do not disregard them! Ma

intain your Corporate Formalities.

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka