Michigan Business Lawyer Blog

This is the sixth and last post in my series on the Michigan litigation process.

Once a case has gone to trial and a judgment has been entered, the losing party has the right to appeal the judgment. In Michigan, there are two levels of appellate courts: the Michigan Court of Appeals and the Michigan Supreme Court.

In civil cases, the first appeal is made to the Michigan Court of Appeals. This is what is known as an appeal "as of right", meaning that the losing party is absolutely entitled to an appeal. However, under the Michigan Court Rules governing appeals, in order to take advantage of this absolute right, an appeal must be taken within 21 days after the court enters the judgment being appealed. Depending on the complexity of the case, an appeal to the Michigan Court of Appeals can take as many as two years or more from start to finish.

If a party cannot convince the Michigan Court of Appeals of the merits of their appeal, they can appeal further to the Michigan Supreme Court. However, this appeal is not an absolute right. Instead, a party who loses their appeal to the Michigan Court of Appeals, must file what's called an "application for leave to appeal" to the Michigan Supreme Court. If the Michigan Supreme Court accepts the case, that party gets another chance to argue its case. But, the chances of getting the Michigan Supreme Court to accept an appeal are slim. Over 2000 applications per year are filed with the Michigan Supreme Court, with the court accepting only a small number of those cases for consideration.

Winning an appeal is tough, even in the best of circumstances. Any litigant who wishes to take a case to before a Michigan appellate court should retain an experienced and knowledgeable Michigan appellate lawyer who can help them make the best case possible.

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

Posted In: Litigation

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This is the fifth post in a series of posts on the Michigan litigation process.

If a judge does not grant a party summary disposition, and the parties do not settle, the case proceeds to trial.

A trial starts with each party giving its opening statements. After opening statements, the parties present their respective cases to the trier of fact. The trier of fact decides which party's evidence is more believable. In a "bench" trial, the trier of fact is the judge. In a jury trial, the trier of fact is the jury. In civil cases, a party must demand a jury trial at the beginning of the case, or it will automatically be conducted as a bench trial.

While presenting their respective cases, each party tries to have evidence favorable to their case admitted to the trial record, so that it can be considered by the trier of fact. A party may object to the admission of the other party's evidence if he or she believes that the evidence should not be admitted. Whether evidence is admitted to the record is governed by the Michigan Rules of Evidence, as interpreted by the judge presiding over the trial.

Once evidence has been presented by both sides, the parties make their closing arguments to the trier of fact. In many cases, one or both of the parties will ask the court for a "directed verdict" on the theory that the other side failed to prove the basic requirements of their case. If the court does not grant a directed verdict, the trier of fact will decide who wins the case.

Once the trier of fact renders a decision, it is memorialized in a judgment, which is entered by the court. At that point, the losing party can appeal the judgment. If the judgment is not appealed (or the appeal is unsuccessful), the winning party can enforce the judgment through a number of post-judgment proceedings.

Trials can be time consuming and financially costly. It is of the utmost importance for any party whose case is going to trial to be represented by an able and competent attorney in order to maximize their chances for success.

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

Posted In: Litigation

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This is the fourth post in a series on the Michigan litigation process.

Once discovery has been completed (and sometimes before), the defendant or plaintiff (or both) will typically ask the court to rule in their favor as a matter of law, without a trial. In Michigan state court cases, motions for summary disposition are governed by Rule 2.116 of the Michigan Court Rules.

In evaluating a request for summary disposition, the judge reviews the pleadings as well as the motions and briefs filed by each party essentially summarizing the case and articulating the reasons why that party should win the case without having to go to trial.

The judge also relies on evidence gathered by the parties during the discovery phase of the lawsuit and presented to the court in connection with the motion(s) for summary disposition. It is important to remember that neither party is required to request summary disposition, but in most cases one or both parties usually files a summary disposition motion.

When reviewing the presented evidence, the judge must draw all inferences in favor of the party opposing the summary disposition, and may grant the motion only if there are no genuine issues of material fact and the party requesting summary judgment is entitled to it as a matter of law.

If a judge grants a motion for summary disposition, the case does not proceed to trial. However, the case may not be over since the party who loses a summary disposition motion is entitled to file an appeal of the judge's decision.

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

Posted In: Litigation

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This is the third in a series of posts about the Michigan litigation process.

If a Michigan litigation case proceeds past the initial pleadings phase, the next phase is what's called the "discovery" phase. Discovery is where each party has the chance to gather facts and information needed to prove the various points of their respective cases. The parties can gather these facts and information from both their opponents in the case and third parties.

There are number of basic tools that parties to a litigation case can use to gather facts and information to support their case. These basic tools include:

1. Written interrogatories, or questions, which can a be sent to the opposing party.

2. Oral depositions, or questioning of potential witnesses.

3. Depositions by way of written questions.

4. Requests for admission directed to the opposing party.

5. Requests for production of documents or entry upon land for inspection.

6. Mental or physical examination of a party.

Depending on the particular circumstances of a case, different discovery tools may be better suited for obtaining the desired information. However, a party may use as many or as few of these discovery tools as needed to accomplish their purposes. That said, duplicative or unduly burdensome discovery requests are technically not allowed, although Michigan courts have broad discretion to allow discovery on wide variety of topics related to a case.

It is important to know that discovery can often be very time consuming and expensive. Indeed, discovery is usually where much of a client's money is spent during litigation. The good news is that it is not uncommon for cases to settle after discovery either because a party lacks sufficient facts to pursue the claim further and voluntarily resolves the case or because the court grants a motion to dismiss the case.

Because the discovery phase can be very contentious and difficult, it is important that anyone in litigation have a knowledgeable and experienced Michigan litigation attorney representing them to help ensure that their rights are vigorously pursued and protected.

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

Posted In: Litigation

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This is the second post in a series of posts about the Michigan litigation process.

The first stage in a typical lawsuit is the filing of initial pleadings. A lawsuit is started when the plaintiff files a complaint with the court. If a plaintiff wants to have a jury decide the case, they must also file a "jury demand" at this initial stage of the case. Once a complaint is filed, the Michigan Court Rules give a defendant 21 days to file their answer.

Along with the answer, a defendant must file any "affirmative defenses" they may have to the plaintiff's claims. Affirmative defenses are defenses that entitle the defendant to a dismissal of the plaintiff's lawsuit, even if the plaintiff's claims are true. For example, a defendant may claim as an affirmative defense that a plaintiff has not filed their lawsuit within the time required under the applicable statute of limitations. If that is true, then even if what the plaintiff claims in their lawsuit is true, the case will be dismissed.

If a plaintiff does not file a "jury demand" with their complaint, a defendant can file one with their answer, and the case will be decided by a jury, even if the plaintiff did not want a jury to hear their case.

In some circumstances, a case may be dismissed at the initial pleadings phase or judgment could be entered in favor of either party if appropriate. An example of this situation is if the plaintiff fails to state a legally recognizable claim against the defendant. Depending on the circumstances, a court could give the plaintiff the opportunity to "amend" their initial pleadings to cure the deficiency, or it could dismiss the case altogether.

Needless to say, litigation is not a "do it yourself" project. If an entrepreneur or business finds themselves in litigation, or anticipates that they might be in litigation soon, the first thing they should do is contact a knowledgeable and experienced Michigan litigation attorney to assist them in protecting their legal rights.

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

Posted In: Litigation

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This is the first in a series of posts about the Michigan litigation process.

At some point, an entrepreneur or small business may find themselves either a defendant in a lawsuit or contemplating filing a lawsuit against someone else. No one should feel hesitant or embarrassed to hire a lawyer to pursue a legitimate claim or file a legitimate lawsuit to protect their rights. Similarly, no one should feel shy about vigorously defending themselves if they find themselves a defendant in litigation.

Often times, however, people do not understand how time consuming and complex a legal case can be and how long it can sometimes take to ultimately settle or resolve a claim or a lawsuit. These mistaken or unrealistic expectations can lead to nasty surprises and great frustration. Therefore, it is imperative that any entrepreneur or small business facing litigation (either as a plaintiff or defendant) have a clear understanding of the litigation process and what they can expect during a lawsuit.

A lawsuit typically proceeds through five basic phases:

1. Filing of initial pleadings.

2. The discovery phase.

3. Filing of motions for summary disposition

4. Trial.

5. Post-trial or appellate phase.

It is also important to understand that each case is unique. The five basic phases listed above are just that, an overview of the five basic phases in a typical litigation case. Depending on the particular circumstances of a case, things could be a little different than my outline above. Indeed, that uncertainty and possible complexity make it very important for you to hire a knowledgeable and experienced Michigan litigation attorney to assist you when facing litigation.

I'll give some more details of the basic five phases of a litigation case in later posts.

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

Posted In: Litigation

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Governor Granholm signed a new law today that allows legal immigrants who temporarily reside in Michigan to resume getting driver licenses.

At this point, it's unknown how soon the necessary rules can be written and adopted so the Secretary of State's office can resume issuing licenses to legal immigrants who aren't permanent residents in Michigan.

Secretary of State Terri Lynn Land had changed the State's former policy in late January and began to deny the licenses, based on her analysis of a legal opinion by Michigan Attorney General Mike Cox.

Businesses and some educational institutions, particularly universities, had been unhappy about the Secretary of State's new policy because it had denied driver licenses to some of their workers and students even though they were in Michigan legally.

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

Posted In: Michigan Business News

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Arbitration agreements are becoming more and more common in a wide variety of Michigan contracts. The reason why arbitration is becoming so popular is that it is seen as generally being a faster, cheaper and less disruptive method for resolving business disputes than traditional litigation in the courts.

Although most lay people think that an arbitration agreement will automatically keep them out of court, that is true only if the arbitration agreement contains some statutorily required "magic" language. Michigan courts recognize two different types of arbitration agreements. The first is a "common-law" arbitration agreement, which is revocable by either party until the arbitration award is rendered. The second is a "statutory" arbitration agreement, which is non-revocable and binds both parties to the arbitration process.

Most lay people (and, I suspect, more than a few lawyers) are unaware of the differences between these two types of arbitration and do not know the "magic" language that is required to ensure that their arbitration agreement is of the "statutory" kind. Obviously, it is important to understand the requirements for invoking "statutory" arbitration, otherwise a party could find themselves having to litigate a dispute in court when they had been banking on resolving their dispute in an arbitration proceeding.

To be a "statutory" arbitration agreement, the arbitration clause must specifically state that "a judgment of any circuit court may be rendered upon the award made pursuant to such agreement." This requirement is found in the the Michigan Arbitration Act (MCL 600.5001). If that clause is included, neither party has the power to revoke the arbitration agreement unless the other party also agrees. But, if the arbitration clause does not include the "magic" statutory language, then it is a "common-law" arbitration agreement, which can be unilaterally revoked by either party up until the arbitration award is issued.

Every entrepreneur and small business who wants to be able to enforce their arbitration agreements should have a competent Michigan business lawyer review those agreements before they are signed. This will help to ensure that any arbitration provisions are properly drafted, thus preventing nasty surprises if and when it is necessary to invoke the arbitration process.

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

Posted In: Contracts , Litigation

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A report in Crain's Detroit Business notes that the State of Michigan is suing Tyco International, four of its executives, and its auditors for $50 million in losses in Michigan state pension funds. Tyco manufactures a wide variety of products such as electric components and health care products.

Tyco was one of the famous corporate implosions that led to the Sarbanes-Oxley corporate governance law. The "implosion" was was caused by a multibillion dollar accounting fraud, and resulted in some of Tyco's top executives going to prision. As a result of public disclosure of the fraud, Tyco stock plummeted, resulting in massive losses to its stockholders, including the State of Michigan. Overall, Michigan pension funds hold approximately $62 billion in investment assets.

The lawsuit was filed in the United States Federal District Court in Detroit, and will be prosecuted on behalf of the state by Michigan Attorney General Mike Cox.

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

Posted In: Litigation , Michigan Business News

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When a business acquires another business, it can generally be done in one of two ways: a stock purchase or an asset purchase. A stock purchase is just that, a purchase of the selling company's shares of stock (assuming it's a corporation). Along with ownership of the company's stock comes ownership of its assets and its liabilities. In an asset purchase, the seller keeps ownership of the shares of stock in the business and takes ownership only of the specific assets and liabilities included in the deal. All the other assets and liabilities stay with the existing business and, therefore, with the seller.

Sellers generally prefer to structure sale/purchase transactions as stock purchases because it allows them to completely withdraw from the business after they sell it. When they sell their stock in their business, they are usually totally free from any future responsibilities or obligations relative to the business. Also, a seller's tax on a stock purchase transaction is usually computed at the lower capital gains rate. In an asset purchase transaction that involves a corporation, the seller could face double taxation. This is because the corporation will be taxed at the corporate level on the gain from the asset sale and the shareholder(s) will be taxed if and when the proceeds are distributed.

On the other hand, a buyer will generally prefer an sale/purchase transaction to be structured as an asset purchase. This sort of structure allows the buyer to know specifically which assets and liabilities are being acquired and assumed. This is important to the buyer if the company has a large number of either potential or actual liabilities. It is especially important if it is difficult to quantify the exact amount of the liabilities being acquired. A buyer may also benefit from structuring an acquisition as an asset purchase if the value of a purchased asset has increased. A buyer can write up the tax basis of a purchased asset to the amount of the fair market value paid for that asset. This will allow the buyer to claim increased tax depreciation, which will lower its taxable income, with resulting lower taxes.

It is imperative that each party to a Michigan business sale/purchase transaction retain an experienced Michigan business lawyer to assist and advise them through the process. This will help to ensure that the transaction is structured in the best possible way to achieve all of the intended and desired business and tax benefits.

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

Posted In: General Topics

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Although no one starts up a business with plans to fail or lose money, the success rate statistics for new businesses can be daunting. That's why Section 1244 stock should be on the mind of every new business owner who organizes their business as a C corporation.

Section 1244 stock is possible thanks to Section 1244 of the Internal Revenue Code. This is known as the small business stock provision, and was enacted to allow stockholders of domestic small business corporations to deduct losses incurred when they dispose of their small business stock as ordinary losses instead of capital losses.

The general rule is that any loss suffered by a stockholder upon liquidation of the company will be considered a capital loss. But, if the stock is Section 1244 stock, a part of the loss ($100,000 for husband and wife filing jointly, otherwise $50,000) will be treated as an ordinary loss. Since the loss is treated as ordinary, it can be used directly to offset the stockholder's investment income, passive income, wages, and self-employment income. In addition, because the use of the loss is accelerated, the tax advantage is much greater than if the loss is treated as capital.

Whether stock is Section 1244 stock depends on whether the requirements of IRC 1244 are met at the time the stock is originally issued. These requirements relate to (1) the corporation issuing the stock; (2) the stock itself; and (3) the stockholders of the corporation.

Being able to issue Section 1244 stock is one of the great tax benefits of organizing a business as a C corporation. Of course, you should consult with a knowledgeable Michigan business lawyer when setting up your corporation so that he or she can advise you on the requirements for issuing valid Section 1244 stock.

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

Posted In: Business Formations , Corporations , Financing , General Topics , Tax Issues

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How many times has this happened to you? You've deftly negotiated a terrific deal for your small business with a very tough adversary. The time has come to put your deal in writing. Your adversary generously offers to have his or her lawyers handle the first draft (after all he or she says, it's only the first draft, and this will save you legal fees). What do you do?

Many small business folks will accept their adversary's offer, all the while planning to have their legal counsel review the final draft, just to make sure everything "legal". But, if you're smart, you will insist that your lawyers handle preparing the first draft.

Why? Because it is well known by good business lawyers that the party who prepares the first draft of an agreement generally has better leverage in the negotiations that are sure to follow. This is because the first draft of an agreement invariably provides the framework, defines the issues, and sets the tone for what will be the final version of the agreement. When a party responds to a first draft of an agreement, their response is almost always a reaction rather than a proactive engagement of the issues.

Having your lawyer prepare the first draft of an agreement is definitely more expensive than waiting to involve them until the last minute. This is especially true when you consider that the first draft of any legal document is almost always the most difficult to prepare, and therefore, can be the most expensive part of the process in terms of legal fees. It definitely is more expensive than having your lawyer merely review a draft agreement prepared by the other side.

But, the sooner you start thinking of your legal fees in terms of expense versus cost, the better off you will be. Many small businesses try to skimp on legal fees by only involving their lawyers when absolutely necessary. But, often by the time the lawyers get involved, enough damage has been done that more is spent on fixing the problems than if the lawyers had been involved early enough to help their clients prevent the problems in the first place. It's called being penny wise and pound foolish.

Getting your legal counsel involved early in a transaction and having them prepare the first draft of important agreements wherever possible is so important in determining what the final agreement will look like. I really think you are doing yourself a true disservice if you pass up the opportunity to have your legal counsel prepare that first draft.

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

Posted In: Contracts

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As Sir Francis Bacon noted long ago: Knowledge is power. This is especially true for small businesses and their owners. Getting the correct, and timely, business and economic information can make the difference between merely surviving and thriving.

The United States Department of Labor, Bureau of Statistics hosts a terrific website (The Michigan Economy at a Glance) that provides a wide variety of up-to-date demographic, business, and economic information about the State of Michigan, and its most important counties and cities. This information includes labor force data, wage and salary information, layoff data, prices and living conditions and employment information.

The information available at this website is detailed and is broken down into a number of different categories and demographics. It is a true goldmine of information that provides Michigan businesses and their owners with a terrific information source regarding our state's economy and consumer activity.

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

Posted In: General Topics

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