Michigan Business Lawyer Blog

Unscrupulous businesses sometimes take unfair actions against their competitors that -- if left unchecked -- can permanently destroy the operations and future viability of those businesses. Such actions can include things such as stealing customer lists, hiring former employees who are restricted by non-compete agreements, product disparagement, or the misappropriation of confidential corporate information or assets.

In these types of situations, suing for damages may be a complete waste of time. Oftentimes, the damage done by these kinds of actions cannot be remedied by money damages. What is needed is to get the dishonest business competitor to stop the unfair competition. And, there is a legal remedy for that: an injunction.

An injunction is simply a court order preventing a party from doing something under the penalty of contempt of court. To obtain an injunction, a party must first file a lawsuit and then ask the assigned judge to issue the desired injunction. If granted, an injunction preserves the status quo until the court issues a final decision in the case.

When considering a request for injunction, a court considers a number of factors, including:

1. The chances that the party seeking the injunction will ultimately succeed on the merits of their case.

2. Whether the party seeking the injunction will suffer irreparable harm without obtaining the extraordinary relief that an injunction provides.

3. Whether granting the injunction will cause significant harm to others.

4. Whether the public interest is served by issuing the injunction.

It is important to keep in mind that these factors are a balancing test, they are not simple prerequisites that must be met. Rather, the purpose of these factors is for the court to consider, weigh and balance the equities in any given case.

Any business or entrepreneur who is faced with an unfair business practice that is damaging their business should immediately consult with a Michigan business litigation lawyer for advice on how to best proceed to protect their interests.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Litigation

Bookmark:

What is the Employee Free Choice Act (EFCA) and how could it affect Michigan businesses? The EFCA is a proposed piece of legislation that would effect a dramatic overhaul to the National Labor Relations Act. The National Labor Relations Act is the law that governs unions in the workplace.

The EFCA would do away with the secret-ballot elections for union certfications where more than half of employees sign union cards. In addition, the EFCA would mandate binding arbitration of first labor contacts after 120 days and would also enhance penalties for a number of unfair labor practices.

The EFCA was first introduced in February, 2007 in the U.S. House of Representatives. It passed the House in March of 2007, and was subsequently placed on the Senate's calendar for consideration. It is currently being considered in a Senate committee. The EFCA has the nearly unanimous support of the Democratic Congressional and Senate caucuses. Also, President-Elect Obama has vowed to sign the bill into law if it is passed by Congress.

There is a lot of political rhetoric on both sides of this bill. Management views this legislation as an attempt to unfairly strengthen unions and the power of union bosses by unfairly targeting and intimidating workers who do not want to be a part of a union. Labor views the legislation as a necessary means to ensure that workers who want to organize a union in their workplace will be able to do so without undue interference from management.

Regardless of your ideological leanings, it is important for every business owner to become familiar with this legislation, as it appears that its enactment is all but inevitable. You can read a copy of the bill that was placed on the Senate's calender by clicking here.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Employment Law

Bookmark:

In many business litigation cases, winning depends on the testimony of an expert witness who supports a party's theory of the case or damage calculations. When testifying, the expert gives his or her opinion on one or more topics at issue in the case.

Michigan Rule of Evidence 702 lays out the requirements for a witness to be qualified as an "expert" witness in Michigan court cases. That rule states that such a witness must demonstrate expert "knowledge, skill experience, training, or education". But, that's not the end of the inquiry.

Michigan Rule of Evidence 702 further provides that the opinion testimony of an expert witness will be admitted only if "(1) the testimony is based on sufficient facts or data, (2) the testimony is the product of reliable principles or methods, and (3) the witness has applied the principles and methods reliably to the facts of the case."

In other words, it's not enough for an expert witness to rest his or her opinion on legitimate data. Rather, it must be shown that the expert's opinion is based on legitimate data and expresses conclusions that are themselves based on reliable principles and methods.

Expert witnesses are an important part of many business litigation cases and have a significant responsibility. They must be chosen with care and properly qualified in order to support a party's case. If properly chosen and qualified, an expert witness can provide a basis for a court to adopt a particular party's case theory or damages calculation, which will then lead to a successful conclusion of that party's case.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Litigation

Bookmark:

Most Michigan businesses need loans from time to time to stay afloat and reach their strategic goals. Most loan agreements are very long and complicated documents, and are carefully designed to protect the lender's interests. Loan agreements typically contain a lot of "legalese", and technical language regarding interest rates, repayment terms, representations, warranties, conditions and covenants.

Although many commercial loan agreements are standardized, it is important for parties to a loan transaction to read and understand the terms of the loan agreement. This is because any party to a contract (including loan agreements) has a duty to understand and abide by the terms of the contract. Needless to say, no entrepreneur should sign a loan agreement without first consulting with an experienced business attorney.

There are a number of important provisions that should be carefully considered in any commercial loan transaction:

1. Receipt of Loan Funds. Will the money be delivered by check or wired into a bank account? Will all of the loan proceeds be disbursed at once, or will they be delivered in installments?

2. Loan Conditions. Most loan agreements contain certain conditions precedent that must be met by the borrower in order for the lender to be obligated to make the loan. It is imperative that the borrower read and understand each of these conditions .

3. Borrower's Covenants. Covenants are promises that the borrower makes to the lender relative to the loan transaction and repayment of the loan. If these covenants are breached, the borrower will be in default of the loan agreement, with the result that the entire loan agreement could be due immediately (i.e., acceleration).

4. Loan Repayment Terms. These must be scrutinized very carefully. Perhaps the most important repayment term is the right to cure a default due to a late or missed payment so that if one of these unfortunate events does happen, it will not mean an automatic acceleration of the entire loan amount. Most lenders do not voluntarily offer to include this kind of provision in their loan agreements, but oftentimes it can be included through negotiations.

Again, any Michigan business or entrepreneur who is getting a commercial loan should consult with an experienced Michigan business lawyer before signing a loan agreement to ensure their rights are protected and they have an accurate understanding of their rights and responsibilities under the loan agreement.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Business Financing , Contracts , Financing

Bookmark:

No doubt about it, these are troubled times. The Michigan economy is in the tank, and as the auto companies teeter on the edge, many Michigan businesses are facing difficult decisions regarding their finances and future operations.

Although no one running a business likes to think about it, bankruptcy is an option for financially insolvent companies that should be carefully considered in certain situations. Bankruptcy is the last resort for a business in financial crisis. A company that files a bankruptcy petition wins an immediate break from being pursued by creditors due to the "automatic stay" that is put into place when a bankruptcy is filed.

There are two types of business bankruptcies: Chapter 11 and Chapter 7. These refer to chapters of the United States Bankruptcy Code. Filing under Chapter 11 is essentially a court-supervised reorganization, and allows a business to keep possession of its assets, propose a plan to restructure its debts, and (hopefully) emerge from bankruptcy in much improved financial condition. Chapter 7 is a much more drastic remedy, and is only invoked when a company's business problems become too severe to remedy. In a Chapter 7 bankruptcy, a trustee is appointed to liquidate the company's assets and distribute the proceeds to creditors.

If your business is facing financial difficulties, you should immediately consult with a trusted adviser such as an accountant or attorney to help you review your options.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Bankruptcy

Bookmark:

The United States Supreme Court begins its yearly session on the first Monday in October and ends on the preceding day the following year. This year's term begins on October 6, 2008. As of the date of this blog post, the Supreme Court has agreed to hear approximately 41 cases for the 2008-09 term.

At least 16 of those cases have been identified as "business cases" by the National Chamber Litigation Center, which is the litigation arm of the U.S. Chamber of Commerce. The Supreme Court usually hears around 75 cases each year, and will continue adding cases to its docket through the early part of next year.

To members of the general public, business cases aren't nearly as sexy as cases involving hot button cultural issues, but they can involve very important legal doctrines and topics. This year, one of the big issues is "pre-emption". For example, a case called Altria Group v. Good, concerns the issue of whether federal authority precludes consumers from challenging cigarette advertising in state courts. The Wyeth v. Levine case has a similar theme and concerns the tension between state vs. federal authority with respect to drug labeling.

It's always difficult to predict litigation outcomes. But, the general feeling is that the current Supreme Court is very "business friendly" under Chief Justice Roberts. Indeed, during the last two court terms, the U.S. Chamber of Commerce - which represents big business interests -- has won in 21 out of 31 cases in which it's filed briefs with the Supreme Court.

However, before small businesses and entrepreneurs get too excited at that outcome, it's important to remember that the interests of small business and big business don't always correlate, and decisions favoring big business can often have negative effects on smaller operations.

Regardless, you can follow all of the action by going to the United States Supreme Court's website at http://www.supremecourtus.gov.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Litigation , Michigan Business News

Bookmark:

Contracts are the foundation on which business deals are done. Parties to a business transaction may spend a lot of time and money on negotiating and finalizing their deal. Most important deals are put into writing, i.e.,, a written contract. Depending on the type of contract, there are a number of different kinds of clauses that may be included.

One of the most important clauses that can go in a contract is the integration clause (also known as the merger clause. What is an integration clause? Put simply, an integration clause prevents parties to a contract from claiming later that the contract doesn't bind the parties as written because it doesn't reflect their entire understanding, it was altered by a subsequent oral agreement, or because it's inconsistent with one or more prior agreements.

Here's a sample integration clause:

This Agreement and the exhibits attached hereto contain the entire agreement of the parties with respect to the subject matter of this Agreement, and supersede all prior negotiations, agreements and understandings with respect thereto.

There are two main points that parties entering into a contract should remember about integration clauses. First, generally speaking, a contract should contain an integration clause. This will help to prevent a party from successfully claiming that certain promises or commitments were made to them even though they aren't in the contact document itself. Second, each party to a contract that has an integration clause should confirm that all of the promises and agreements are actually included within the written contract. If they aren't, those promises and agreements may be difficult -- if not impossible -- to enforce.

Any Michigan business or entrepreneur who is entering an important contract or agreement should involve an experienced Michigan business/contract lawyer to make sure their rights are fully protected and their business goals are met.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Contracts

Bookmark:

Many times during hotly contested litigation, settlement offers are made. But, when the parties are unable to resolve their differences, it is not uncommon for one or both parties to want to use the other party's settlement offer as evidence that the other party knows it did something wrong.

However, under Michigan Rule of Evidence 408, settlement offers cannot be used in that way. Specifically, Michigan Rule of Evidence provides that "Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount."

This rule means that evidence of actions or statements that are made in the course of settlement negotiations are not admissible either.

However, this rule does not require the exclusion of evidence that would otherwise be discoverable simply because it was presented during the course of settlement negotiations. Neither does rule require excluding evidence presented during settlement negotiations when the party offering the evidence does so for another purpose, such as proving the bias or prejudice of a witness, countering an accusation that they caused undue delay in the case, or providing proof of an attempt to obstruct a criminal prosecution or investigation.

A Michigan business, business owner, or entrepreneur who is negotiating a settlement to any significant dispute should be represented by a Michigan business litigation lawyer to ensure that their legal rights are fully protected, not only in the negotiation itself, but also in subsequent legal proceedings that could arise later regarding the dispute or the negotiations to resolve the dispute.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Litigation

Bookmark:

Tough economic times are upon us. Many businesses are finding themselves in difficult financial straights, and for some the unpaid bills are piling up. It is during times like these that many business owners and management officials are tempted to skip making their federal payroll tax deposits and use those funds for other purposes. The idea generally is that doing so will help the business get through a tough spot, and the payroll taxes will be paid back once the tough spot is receding in the rear view mirror.

While such a plan may make sense to a business owner or entrepreneur who is in a financial bind, it is a deadly trap that can lead to personal financial ruin. This is because under federal tax laws, any business that has employees automatically becomes a trustee for the government with respect to payroll taxes when it distributes its employees' pay checks. As far as the IRS is concerned, those tax funds belong to the government and it aggressively enforces collection of payroll taxes.

The bad news is that more than just the company be held liable for those taxes. In addition to the company, under Section 6672(a) of the IRS Code, every "responsible person" who "willfully" fails to have those taxes paid can be held personally liable for the payment of those taxes. Even worse, the IRS can collect the unpaid taxes from a responsible person without first attempting to collect the unpaid taxes from the company. This will include very steep interest and penalty assessments.

A person is categorized as a "responsible person" if they have ultimate authority over expenditure of a company's funds.

"Willful" failure to see to payment of payroll taxes basically means that the responsible person makes a deliberate choice to voluntarily, consciously, and intentionally pay other creditors rather than make tax payments. This includes situations where the responsible person deliberately or recklessly disregarded facts and known risks that the taxes were not being paid.

If a Michigan business owner or entrepreneur is facing a possible unpaid federal payroll tax situation, it is imperative that they immediately consult with a knowledgeable accountant or Michigan business lawyer who has experience with these issues in order to help them comply with their obligations under the IRS Code and avoid -- to the extent legally possible -- personal liability for any unpaid payroll taxes.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Tax Issues

Bookmark:

In a fascinating 2000 article in the Harvard Business Review entitled Discovering New Value in Intellectual Property, Kevin G. Rivette and David Kline estimate that a company's intellectual property can comprise as much as 70% of its value. Indeed, intellectual property has become one of the most important facets of the high technology economy that continues to develop worldwide.

Although many entrepreneurs and small business owners don't realize it, intellectual property issues are of the utmost importance for companies of all sizes, large and small. This is because virtually every business, no matter its size, possesses information and knowledge that could be useful in the hands of its competition. This could include a company's name or logo, promotional and advertising materials, product reports and literature, customized software, customers lists, and businesses processes.

Intellectual property laws provide businesses with the means to protect this information from misuse by their competitors. But, businesses must act in a proactive manner to obtain protection for their intellectual assets. This means consulting regularly with legal counsel to ensure protection of intellectual property rights through trade secrets law, trademark and copyright laws, non-compete, non-disclosure, and non-solicitation agreements, and employee training in the appropriate protective measures.

Protecting intellectual property should be one of the top priorities of any ambitious Michigan business, regardless of its size. Consulting with an experienced Michigan business lawyer, who is familiar with intellectual property issues such as trade secrets law, trademark and copyright laws, and non-compete, non-disclosure and non-solicitation law, should be a priority and will be an investment that has the potential to yield rich results in future protection and revenue.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In:

Bookmark:

Franchising can provide a business owner with a way to dramatically expand his or her business operations, and generate significant revenues by leveraging the efforts of the franchisees who buy into the system.

There are many legal issues that must be addressed when offering the franchise. These issues demand that the franchisor's legal counsel be familiar with various areas of law such as state and federal franchise law, contract law, antitrust law, intellectual property law, and even bankruptcy law.

The basics of offering a franchise involve the following:

1. Forming the business entity that will offer the franchises, which generally should be a separate holding company.

2. Obtaining the necessary registrations for franchise trademarks.

3. Preparing the franchise agreement.

4. Preparing the franchise disclosure document, which contains certain prescribed information for potential franchisees.

Once these steps are completed, the appropriate government registrations must be obtained in order to offer a franchise for sale. In Michigan, a notice that the franchisor is going to be offering franchises for sale in Michigan must be filed with the Michigan Attorney General, along with a required $250 fee. This notice must be renewed annually. Other states, such as Illinois and Maryland, require that copies of the franchise disclosure document actually be filed and approved by those states' franchise regulatory officials before franchises can be offered for sale and on an annual basis thereafter.

Once state approval has been obtained to offer franchises for sale, the process of expanding a business through franchise system can begin. It is vital that any business that is considering expansion through franchising in Michigan consult with a Michigan franchise lawyer to make sure all of the required steps are followed.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Franchise Law

Bookmark:

In a previous post, I discussed the case of Miller v. Allstate and the oral arguments that were held in the Michigan Supreme Court on the issue of whether those providing a service requiring a license must incorporate under the Michigan Professional Services Corporation Act (PSCA) instead of under the Michigan Business Corporation Act (BCA).

Before the Miller case reached the Michigan Supreme Court, the Michigan Court of Appeals ruled that under the language of the PSCA, any licensed professional who incorporates had to do so under the PSCA and not the BCA. The Michigan Court of Appeals' ruling caused quite an uproar and had the Michigan business law community very concerned about the possible outcome of this case in the Michigan Supreme Court and the ramifications for structuring business entities. Traditionally, only members of the “learned professions” (i.e., doctors, lawyers, and the clergy) have been required to incorporate under the PSCA. All other businesses that provide personal or professional services have had the option to incorporate under the BCA or the PSCA, even if a license was required to provide those services.

Well, all of the speculation ended when the Michigan Supreme Court issued its decision in Miller v. Allstate. To the surprise of many, the Michigan Supreme Court avoided the issue of whether those providing a service requiring a license must incorporate under the PSCA or the BCA. The Court held that the defendant (Allstate) did not have standing to challenge the incorporation status of the plaintiff (PT Works) because only the Michigan Attorney General has the authority to pursue a claim that a Michigan business entity has been improperly incorporated.

Soon after the Court's decision, the Corporation Division of the Michigan Department of Labor and Economic Growth announced that it would revert to its previous standard of requiring only members of the "learned" professions to organize their business entities as "professional" organizations (i.e., professional corporations and professional limited liability companies). This standard is supported by a Michigan Attorney General Opinion that had been followed before the Miller case.

Choosing the right form of business organization is one of the most important choices a new business can make. Given the various issues that can arise, an experienced Michigan corporate lawyer should be consulted if a business or professional has any questions about the issues raised in the Miller case, or any other issues concerning the proper incorporation of a business.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Business Formations , Corporations , Limited Liability Companies

Bookmark: