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Removing Employment Barriers For the Most Vulnerable. Work To Be Done.

August 11, 2017 Leave a comment

Today I read an article from the ABA JournalNY District Attorney’s efforts resulted in some $644,000 of minor offenses being dismissed. Check out the article here.

In making his argument in support of the massive dismissals, the District Attorney explained to the Judge that:

“New Yorkers with 10-year-old summons warrants face unnecessary unemployment risk, housing and immigration consequences,”

 

Such unintended consequences are not unique to New York City.

In West Michigan, our community development organizations see firsthand that outstanding warrants cause significant barriers to employment and housing. Immigration is an ever increasing topic of local and national concern.

 

Indeed, the ABA Journal had noted several years ago that Post-conviction consequences make it difficult for ex-offenders to find jobs – here

The ABAJournal noted that: “The U.S. economy loses up to $65 billion in output each year because of fewer job opportunities for convicted felons, according to a 2010 study by the Center for Economic and Policy Research.

The Small Business Association of Michigan – has previously reported that:

Convicts leaving incarceration often have a difficult time re-entering the working world because, according to one survey, 65 percent of employers would never consider hiring someone with a felony record.

 

Michigan’s Role..

Michigan government has taken steps to remove such employment barriers. The Work Opportunity Act was introduced in the Senate back in February to further incentive businesses in hiring former convicted felons.  You can check out my previous articles on the matter here.

More Locally…

Check out Mel Trotter Ministries and their Community Outreach Court – formerly “Street Court” initiative.

mel-trotter-ministries-1122_20111229171415_320_240

An older  press release (here) details how MTM, Degage Ministries and Heartside Ministries help the homeless with criminal backgrounds.

I’m thankful for the work that Mel Trotter, Degage, Heartside, and other organizations are doing to help the homeless in West Michigan clear up outstanding legal issues that are just another obstacle between them and employment..

Also Worth Praising their Efforts….

There are a number of great companies who reach out to support putting Michiganders with certain barriers to work.  Goodwill Industries of Greater Grand Rapids lead by CEO Kathy Crosby does a fantastic job of equipping this demographic and putting them into long term employment.

Some West Michigan companies who do a great job of reaching out to hire/place those with employment barriers are Cascade Engineering and its Founder Fred Keller. Others include Lacks EnterprisesKentwood Office Furniture and Express Employment Professionals of Grand Rapids lead by Janis Petrini to name a few.

These community partners deserve praise for their work putting to work the “unemployable” and the vulnerable in our local community.

To conclude:

there’s work to be done.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

Twitter: @JeshuaTLauka

Business Law Update: Lessons From Court on Deadlock Between Business Owners.

July 12, 2017 2 comments

This morning was rainy and gray in Grand Rapids.

It is one of those days that prompted me to write on a topic that can be downright depressing – when relationships between shareholders go bad.

I had a client come in recently and ask me to set up an LLC for him.

rainy dayClient planned on owning the LLC 50/50 with a business partner. Someone he trusts (right, because no one goes into business thinking it will end in a lawsuit.) Regardless of the best intentions between these business partners, The 50/50 ownership can be problematic.

For an example, look no further than the May 11, 2017 Court of Appeals Decision in Shamee Catwilmat, LLC v Shamee Development Company, LLC et al.

The Shamee case originated out of Kent County’s Business Court Docket. (A little pride here, for our esteemed business court).

 

Shamee was a convoluted case regarding default on a Note, Mortgage and collateralized business assets – and ended in a mess for both sides. In essence, the Bank erroneously  foreclosed on only a portion of the Property that was otherwise secured by the mortgage.

However, of particular note for the purpose of this post is how the LLC was owned and the resulting problems:

50/50 ownership between members – Shah and Mead.

According to the Court:

“At some point, Shah and Mead began to disagree about the management of Shamee Development. Unable to reconcile their conflicting viewpoints, they reached a “membership deadlock” that prevented Shamee Development from continuing to service its debt to the Bank and from taking the necessary steps to refinance or renegotiate such debt. After Shamee Development failed to make payments as agreed, the Bank accelerated the debt, including the mortgages, and instituted this action against
defendants.”

 

Thus, one equal member had the power to halt business operations, fail to service its debt, and the result was this lawsuit foreclosing on real estate and an appeal.

There are several ways the members could have avoided this scenario, here are just a few:

  1. Create an Operating Agreement that contained a deadlock provision.  This provision could call for mediation/arbitration, or even a buy-out in the event that equal owners halt the business from making key business decisions.  Going back to my client mentioned above, that was my solution for him. Creating a deadlock provision in his Operating Agreement.
  2. Negotiate different ownership prior to forming your business: someone  has majority control, someone has minority.
  3. Set up the LLC as a manager-managed LLC – give certain powers to a single manager to take care of the daily business affairs of the Company – and retain some of the “major” decisions, such as amendment of operating agreement, admission of new members, dissolution, etc… to the members.

 

Lesson:

When setting up a business, you should always have the end in mind. How does a business owner get out of the business?  You should also make sure that one member does not have the power to halt business operations, like in the Shamee case.

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

 

 

Business Law Update: When are Non-Competes Enforceable?

March 20, 2017 2 comments

Welcome to Spring! I took this photo from my office, the first day of Spring. It is fitting that the ice rink in Rosa Parks’ circle is melting.

With spring comes new opportunities – including employees leaving their jobs.

What happens if the employee signed a non-competition agreement during the course of employment? Are non-competes enforceable?IMG_1456

 – it depends.

 

A few years back I posted on an article written by Above the Law titled – Jimmy John’s Serves Up Sandwiches And Oppressive Non-Compete Agreements.

See the link from the “Above the Law Blog”

In Michigan, Non-Competes are enforceable to protect legitimate busines
s interests.

MCL 445.774a provides:

“1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests…”
Further the Agreement must be reasonable:
  • “as to its duration,
  • geographical area, and
  • the type of employment or line of business.”

In November I posted an article about a possible change to Michigan covenants not-to compete statute, you can see that article here – no new movement on th
at HB. It appears that it got stuck in committee and left to die…

Of note, a bill was proposed earlier this month that would require employers to offer Paid Sick Leave

At any rate, going back to the topic at hand…

The question posed by the Above the Law article is a good one – ok, Jim
my Johns, you have a non-compete agreement, that may be valid…so,

to what end?

What is the point? What type of legitimate business interest is Jimmy Johns trying to protect here?

Going back to the initial topic of this post – when can a business enforce a non-compete?

One Answer:

When a business has a legitimate interest to protect.

 

A recent Michigan Court of Appeals on the topic of Non-Competition Agreements provides some illustration on this point.

BHB Investment Holdings v Ogg

I won’t delve into the details, but the first paragraph of the Opinion is telling:

“Steven Ogg took a job with Aqua Tots Canton after being terminated by its competitor, Goldfish Swim School of Farmington Hills. Ogg’s actions breached a noncompetition agreement he signed with the Goldfish franchisee, BHB Investment Holdings. BHB sought to preliminarily enjoin Ogg from working with Aqua Tots, but presented no evidence of irreparable harm. BHB later failed to establish that the agreement protected a legitimate business interest to support the issuance of a permanent injuncti
on. Nor did BHB substantiate that it suffered any damages as a result of the breach.”

 

Is restricting a former employee from swim instruction a legitimate business interest?

The Court on page 3 recognized a number of factors in the analysis in denying enforcing the non-compete, including:

  1. the position was a low-level position;
  2. employee had no access to confidential information;
  3. employee didn’t take any information;
  4. employee didn’t solicit customers;
  5. interestingly, the employer didn’t previously enforce the non-compete when other employees left.

One other interesting piece of information – the Court rejected the employer’s allegation that its swimming lessons were proprietary information. The Court’s rationale?

the employer “placed its methods in the public domain because this was a public building and the students parents, as well as any member of the public, could watch the lessons and glean the methods.” pg 8.

Having no proprietary information, the employer “could not establish a legitimate business interest it needed to protect.” Id.

 

Lessons:

  1. Non-competes will not be enforced unless they protect a legitimate business interest.
  2. Non-competes are less likely to be enforceable against low-level positions with no access to proprietary information.
  3. If you are going to seek an injunction in court, it helps to have some evidence that your former employee is unfairly competing.

 

questions? comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Business Law Basics: “For Want of a Comma” The Words You Use Can be Costly.

March 16, 2017 Leave a comment

Disclaimer: The photo below has nothing to do with this post. It is simply my way of recognizing that I am sick of winter and looking forward to the 15 hour drive to Florida in a few weeks…

 

Today I read an article posted by the ABAJournal that illustrates the profound impact on word and grammar usage in contracts and legislation.

Oxford comma issue benefits drivers in overtime case  

2016-01-09 12.56.14

Photo I took of Clearwater Beach, FL

“FOR WANT OF A COMMA”

As the ABA Journal reports:

Ambiguity caused by lack of a comma in a law on overtime pay has benefited Maine dairy delivery drivers.”

“The Boston-based 1st U.S. Circuit Court of Appeals pointed out the issue in the first sentence of its March 13 decision (PDF). ‘For want of a comma, we have this case,” the court said in an opinion by Judge David Barron.

Because the statute was ambiguous, it should be interpreted in favor of the dairy workers who distribute milk but do not pack it, the appeals court found.

 

A SINGLE WORD CAN BE LEGALLY SIGNIFICANT TO SHIFT RISK

Last year I wrote about how the words used in a contract dispute significantly impacted the rights and obligations in a business dispute, based upon the Michigan Supreme Court’s interpretation.

The Michigan Supreme Court made a distinction between the inclusion of the word “in” in a Title Company’s Closing Protection Letter in a prior case, and the “exclusion” of the word “in” in that instant case. In the Court’s determination:

“Although the distinction is slight—the only difference is the word “in”—the distinction is legally significant.”

Words Matter.

E-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

Business Case Law Update: Set up Your business agreement with the End in Mind.

February 17, 2017 1 comment

It is a beautiful Friday afternoon in downtown Grand Rapids – which is why I took a picture of Rosa Parks Circle. You can see the zamboni is out on the rink. I can’t imagine the ice will last, since the weather is supposed to get in the upper 50s this weekend…

img_1417

 

I often tell my clients that lawyers see the worst case scenarios.  Yes, in business, you can usually rely on your relationships to go as they should – (you send an invoice for services and typically you will get paid).

Lawyers see the relationships that go wrong.

We often have clients come to us to protect against disasters, yes, but also to guide our clients after  a disaster has happened.

For instance – when a dispute has erupted between business partners. Someone wants out of the business.

It is much easier to protect a client on the front end. That is particularly why when setting up business partnerships – whether through an LLC, corporation, or some other joint venture, it is crucial to have “the end in mind.”

How do the partners exit their relationship?

A recent court case provides lessons to business owners exiting such relationships.

Since the most common business entity formed in my practice is a limited liability company, I am always looking to read the latest court decisions that come out on LLCs.

There are relatively few court opinions covering the Michigan Limited Liability Company Act, which is why I was excited to read the August 18, 2016 unpublished decision of Joby Clark v Butoku Karate School, LLC – and it just so happened that the facts of this case are somewhat interesting.

The facts of this case seem to be somewhat publicized – at least in Macomb County.

The relevant facts:

  1. Butoku Karate School, LLC, a limited liability company in which Clark and John Wasilina were the only members.
  2. Plaintiff and Wasilina formed the company in 2002 for the purpose of operating a karate school, and together operated the school until plaintiff left the company in January 2011
  3. Rumors that Plaintiff was involved in an inappropriate and illegal relationship with a minor surfaced,
  4. On January 5, 2011, plaintiff and Wasilina together went to the bank and withdrew $100,000 from the company’s account,
  5. Plaintiff and Wasilina each received $50,000 of the proceeds of the account.
  6. On January 12, 2011, Wasilina met with plaintiff and requested that plaintiff sign two documents. The first document was entitled “Notice of Dissolution
  7. The second document was entitled “The Consent of the Members” – which, among other things, extinguished Clark’s membership interest in the Company.
  8. Both plaintiff and Wasilina signed the documents on January 12, 2011.
  9. Thereafter, Plaintiff argued “we agreed my withdrawal was temporary.”
  10. Plaintiff sued alleging three counts arising from the dissolution of the business relationship, fraud, failure to distribute, and conversion.

LAW:

IF YOU DO NOT WANT THE DEFAULT RULES UNDER THE MICHIGAN LIMITED LIABILITY COMPANY ACT TO CONTROL YOUR RELATIONSHIP IN THE LLC THEN YOU MUST “CONTRACT OUT” OF THOSE RULES.

I’ve previously written about why an operating agreement matters. A business relationship agreement should be drafted with the end in mind: how do the parties get out of the business relationship?

It is a relatively simple concept:

If you, as an owner in an LLC, do not want to leave your relationship with the other members of the LLC completely subject to the default rules under Michigan law – get your agreement in writing.

In the Butoku Karate case, the Court of Appeals cited the Michigan Limited Liability Company Act regarding the rights of a Member to withdraw from an LLC:

“MCL 450.4509 provides: (1) A member may withdraw from a limited liability company only as provided in an operating agreement….”

MCL 450.4305 provides: Until the effective date of withdrawal, a withdrawing member shall share in any distribution made in accordance with section 304. An operating agreement may provide for an additional distribution to a withdrawing member. If a provision in an operating agreement permits withdrawal but is silent on an additional withdrawal distribution, a member withdrawing in accordance with the operating agreement is entitled to receive as a distribution, within a reasonable time after withdrawal, the fair value of the member’s interest in the limited liability company as of the date of withdrawal based upon the member’s share of distributions as determined under section 303.”

As the Court noted:

“Pursuant to MCL 450.4509, a member’s withdrawal from a limited liability company is governed by that company’s operating agreement. Only if an operating agreement is silent on the subject of additional distribution to a withdrawing member is distribution to a withdrawing member governed by §305”

In this case, the Parties Operating Agreement was clear.

Further, the Parties signed a Consent Resolution concerning the Plaintiff’s withdrawal – that agreement was also clear.

The Court found that “the clear language of the Consent of the Members states that plaintiff relinquished any potential right to additional payment that he may have had previously.”

A few take aways:

If you are going into business with a business partner there are a few things you want to remember:

  1. Execute an Operating Agreement (all parties need to sign it); and
  2. Make sure that you have thought through how a member may withdraw – in what instances and under what conditions?
  3. Any revision to that relationship must be signed in writing.
  4. A Court will uphold an agreement signed by all LLC members (absent a clear showing of fraud or other exigent circumstances)

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

 

Reminder for Michigan Limited Liability Companies on Upcoming Filing Deadline. Stay in Good Standing and Maintain your Corporate Formalities.

February 9, 2017 Leave a comment

Happy #ThrowbackThursday.

 

Some (maybe all of you) may be wondering about my choice of including this photo – 2016-09-22-07-53-56it is me, years ago, dressed as Sparty for the MSUvUofM game. I thought it pertinent, given the topic of this e-mail is maintaining your business “liability shield” and as everyone knows, Sparty is the greatest warrior/mascot of all time. (You have to admit, there’s at least a loose connection.)

Today I received an e-mail from The Michigan Department of Licensing and Regulatory Affairs (“LARA”) reminding that all annual statements and reports for LLCs and PLLCs are due February 15, 2017.

Per LARA’s announcement:

“Annual statements and annual reports can be filed online at www.michigan.gov/fileonline.

The statements and reports must be filed online by February 15, 2017, or if mailing instead, received by February 15, 2017. Late filing penalties will be assessed for 2017 annual statements and annual reports for professional limited liability companies received after February 15, 2017.”

Consequences for Failing to File:

LARA also reminds that:

“Section 909(2) of the Michigan Limited Liability Company Act, 1993 PA 23, provides that if a domestic or foreign professional limited liability company does not file the annual report by February 15, then in addition to its liability for the fee, a $50.00 penalty is added to the fee.”

Is your LLC 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 LLC is “not in good standing” or worse, the company has been dissolved automatically for failure to file annual statements.

A Word on Resident Agents:

My law firm is happy to provide our business clients with resident agent services. One of the benefits of an LLC is that it provides its owners a level of privacy protection.

Michigan law requires Limited Liability Companies to have appointed a Resident Agent.

MCL 450.4207(1)(b) requires an LLC to have a resident agent. A person, or business with a physical presence in the State of Michigan.

Michigan law does not require that an “owner” of the LLC be the resident agent.

“The resident agent appointed by a limited liability company is an agent of the company upon whom any process, notice, or demand required or permitted by law to be served upon the company may be served.” MCL 450.4207(1)(b).

Many of my real estate investment clients will utilize my law firm as resident agent when filing their articles of organization with the State of Michigan.

In Conclusion:

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

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Business Law Update: You have Terms and Conditions, but are they CONSPICUOUS?

December 16, 2016 Leave a comment

Business Owners – ask yourself:

When selling or buying, what are in my company’s Terms and Conditions?

You can check out some of my prior posts on Terms and Conditions. “TnCs” are important to review closely. TnCs “allocate risk” among the two parties to the contract. In some instances, even if one party never reads the TnCs.

Recent Case…

On November 29th, a Court of Appeals case was issued stemming from a product sold by a business to a customer. The case: John French Jr. v Ben’s Super Center

This case involved “the sale of a defective outdoor wood furnace”

Facts:

“On May 21, 2011, after meeting with defendant’s salesman, Todd Kaatz, and having a fairly lengthy discussion with him regarding purchasing an outdoor wood furnace for his home, plaintiff purchased an outdoor wood furnace, (“Optimizer 250″) from Ben’s Supercenter for $12,000.00.” Id. at pg 1.

Defendant delivered the Optimizer 250 to plaintiff’s property and plaintiff installed it.

Sometime around Christmas of 2011, after plaintiff had been using the furnace for about three weeks, he began to have trouble with its performance and contacted Kaatz for help.

“Kaatz…came to plaintiff’s property and inspected the furnace, but they were unable to determine why the furnace was operating inefficiently.”

After several years of attempting to work with the manufacturer and “retrofit” to make the furnace work, Plaintiff sued Defendant.

Plaintiff raised about of claims, variations of “breach warranties”.

Among other things, Plaintiff claimed that Defendant had breached an “implied warranty of merchantability.”

Essentially, it is implied in a sale of goods that what the buyer is getting, he or she will be able to use for the purpose it is generally intended to be used for.

Michigan law allows a business to exclude such warranties.

So the question is: did this business properly exclude any such warranties?

Answer: No.

Under MCL 440.2316 if a business is going to exclude such warranty, it must do so in CONSPICUOUS LANGUAGE. According to the statute, conspicuous “means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it.” Id. pg 4.

In this case, the business pointed not to any of its own terms and conditions, but to the manufacturer’s handbook, which had one line that stated: “No other warranty is expressed or implied.” Id. Pg 5.

As the Court noted – this was not conspicuous language.

The Court upheld the verdict in favor of Plaintiff.

Take Away on Terms and Conditions

  1. Read the Terms and Conditions

Enough said.

2. Implement Terms and Conditions

I recommend business clients to always include a Terms and Conditions page that is either attached to the back of their physical Purchase Orders, or is included in their Website and incorporated by reference. The Terms and Conditions will, essentially, allocate risk and liability, on such items like:

  • warranties (what is the provider guaranteeing and what isn’t it?) As emphasized by the French case – disclaimers need to be CONSPICUOUSLY IDENTIFIED.
  • payment terms (when and how is payment accepted? Late fees?)
  • remedies (what is your recourse in the event the goods aren’t what the buyer expected? Are your damages limited to a refund, or can you get related damages as well? Can attorney fees be covered?
  • Venue – (where can you bring your dispute? An arbitrator? Who pays the fees? Is the location of the arbitration specified?

3. Enforce Terms and Conditions

And of course, its important that a business enforces its terms. I have had clients who have been sued before and forgot of their advantageous language in their terms and conditions. If a business is sued and it waits too long in the litigation before raising its right to arbitration, the court very well might consider the business to have “waived its right” to arbitration. Although, “Waiver of a contractual right to arbitrate is disfavored” by the Courts. Best v Park W Galleries, Inc, No. 305317, 2013 WL 4766678 (Mich Ct App September 5, 2013), app den 495 Mich 979 (2014).

Questions?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka