Michigan Business Lawyer Blog

One of the advantages of acquiring a business through an asset purchase is that the assets are transferred to the purchaser free and clear except for enforceable liens and security interests. However, there is a doctrine that anyone contemplating an asset purchase should be aware of. It's called "successor liability".

Successor liability is an "equitable" doctrine that a court can apply when a strict application of the law would result in an injustice under the circumstances of a particular case. When a court imposes successor liability, a plaintiff with a claim against the seller of the assets will be allowed to assert that claim against the purchaser.

Successor liability can be imposed in a number of circumstances, including:

1. When the purchaser intentionally assumes the seller's liabilities.

2. If the asset sale is a fraudulent scheme for the seller to escape liabilities.

3. If the asset sale is a de facto merger of the seller and purchaser.

4. When the purchaser merely continues the business of the seller.

It is important for any Michigan business that is considering purchasing assets of another business to engage a competent Michigan business lawyer to thoroughly analyze the transaction so that it can be structured to avoid (to the extent possible) successor liability for the obligations of the seller.

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

Posted In: General Topics , Sale/Purchase of a Business

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For many "regular" businesses, a growing percentage of their value is made up of intangible assets like intellectual property and trade secrets. As these items grow in value, ensuring protection of your business's trade secrets is of the utmost importance to its success and future growth.

Trade secrets include such items as research and development data, customer lists and related information, financial data, and strategic plans and corporate information. It comes as a surprise to many business owners that one of the biggest threats to a business's trade secrets is its current and former employees. But, this makes sense when one considers that today's employees are more like free agents than long-term "franchise players."

It is imperative that businesses take the appropriate steps to guard and protect their trade secrets and confidential business information. The loss or theft of this information can be devastating to a business, especially if it is used by former employees to unfairly compete by undercutting their former employer's market position or to solicit their former employee's customers or clients.

Michigan law provides protection to businesses who are the victims of misappropriation of their trade secrets and confidential business information. If you are faced with the loss or theft of important business information, you should consult with an experienced Michigan trade secrets lawyer to assist you in enforcing your rights.

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

Posted In: Litigation , Trade Secrets Law

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Federal copyright law generally gives copyright owners exclusive control over their original works of authorship. Copyright protection extends to original works of authorship that are fixed in a tangible medium of expression.

In order to be protected, a work of authorship must possess only a minimal level of creativity. In fact, almost any original work of authorship is sufficiently “creative” to qualify for copyright protection. But, the more creative a work is, the more protection it will be given under federal copyright law.

The law extends copyright protection to a number of different categories of work, including:

1. Literary works, such as books, magazines, ad copy, and copies.

2. Musical works.

3. Pictorial, graphic and sculptural works.

Contrary to a belief held by many lay people, American copyright law offers no protection to short phrases, slogans or titles. The same is true for ideas, procedures, processes, systems, methods of operation, and principles. However, some of these items may be protected by United States trademark or patent laws.

Copyrights can be registered with the United States Copyright Office. Registering a copyright is not required for having a valid copyright. The copyright comes into existence automatically when the work is fixed in a tangible medium of expression. However, if a copyright owner does not register their copyright, they will not be able to recover statutory damages and attorneys’ fees if there is infringement. To qualify for these protections, the copyright owner must register their copyright before infringement of their copyright occurs, or, if the infringement occurs before registration, within 90 days of the date the work is first published.

Copyright law is an extremely complicated area of the law. Anyone who wishes to protect their works of authorship should retain the services of a Michigan business attorney who is experienced in copyright issues and registrations.

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

Posted In: Copyrights

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Although the average Michigan business participates in a number of "secured transactions" during its life cycle, most Michigan entrepreneurs and business people would be hard pressed to explain just what a secured transaction is or the Michigan legal rules that govern these sorts of transactions.

In simple terms, a secured transaction occurs when someone borrows money in order to acquire some type of property. The property may be real estate, business equipment or even vehicles. Typically, to make the loan, the lender will require a "security interest" in collateral that the borrower owns. The security interest allows the secured party (i.e., the lender) to take the property that the borrower pledged as collateral if the borrower does not repay the loan. In Michigan, the terms "security interest" and "lien" are often used interchangeably.

The law governing the creation and perfection of security interests is known as the Uniform Commercial Code. The Uniform Commercial Code (UCC) is one of a number of uniform acts that have been introduced in an attempt to harmonize commercial law throughout the various legal jurisdictions in the United States. The UCC has been adopted in one form or another by all fifty states. The Michigan Uniform Commercial Code was first adopted in 1962, and has been amended at various times throughout the years since.

Michigan's UCC is divided into nine separate Articles. Article 9 of Michigan's UCC deals with lenders taking security interests in borrowers' collateral to secure loans. Under Article 9, a lender’s security interest attaches when:

(a) the collateral is in the possession of the secured party pursuant to agreement, or the borrower has signed a security agreement which contains a description of the collateral;

(b) value has been given; and

(c) the borrower has rights in the collateral.

A security interest becomes protected against the claims of others when it is “perfected”. With certain exceptions, under Michigan law a lender must file a Michigan UCC financing statement with the Michigan Secretary of State in order to give public notice of its security interest and “perfect” that interest as against other members of the public who may have some type of interest in the collateral. Under Michigan law, if there is more than one perfected security interest in one piece of collateral, the interest that was perfected first will generally be given priority.

The law governing security interests is very technical and can be quite complex. Any Michigan business or entrepreneur who is asked to give a security interest to secure a loan or is loaning money and wants to secure repayment should consult with an experienced Michigan business lawyer for assistance with protecting their interests.

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

Posted In: Business Financing

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The Michigan Antitrust Reform Act provides for the enforcement of properly prepared and implemented non-compete agreements. A Michigan business that wants to enforce a non-compete agreement can start a legal proceeding and obtain an injunction to prevent the breach of the agreement.

But, it is important to remember that just because a company can enforce a non-compete agreement doesn't mean that it necessarily should. Deciding whether to sue an ex-employee for violating a non-compete agreement involves a number a complicated factors.

These include determining whether the former employee is a threat to the company, as well as considering the possibility that the court will refuse to enforce the non-compete agreement in question. Non-compete agreements must comply with certain legal requirements to be enforceable, and its surprising how many businesses employ non-compete agreements of dubious quality.

If the court does refuse to enforce the non-agreement, not only would it be embarrassing for the company, it could also have serious ramifications for the enforceability of the rest of the company's non-compete agreements. On top of these considerations, the company needs to consider the cost of litigation, both financial and otherwise.

Of course, the decision becomes much simpler if the former employee has taken private/confidential company information or trade secrets. This type of information is protected by the Michigan Uniform Trade Secrets Act and Michigan common law. The issue is also easier if the former employee was an important part of the company, such as a key member of management, since such people often have continuing fiduciary duties to their ex-employers.

Regardless of the particular circumstances involved, when a Michigan business is confronted with this sort of situation, it should immediately seek the advice and counsel of a Michigan business lawyer who is experienced with non-compete agreements, trade secrets, and unfair competition issues.

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

Posted In: Non-Compete Agreements

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One of the biggest challenges for owners of Michigan small businesses is obtaining sound guidance and advice in running and growing their companies. Any Michigan small business owner struggling with this issue should seriously consider taking advantage of the resources SCORE offers.

SCORE is a nonprofit association that was founded in 1964 and whose mission is to foster entrepreneurs and the formation, growth and success of small business nationwide. Headquartered in Herndon, VA and Washington, DC, SCORE partners with its 10,500 volunteers and the U.S. Small Business Administration (SBA) to offer resources to entrepreneurs throughout the US and its territories. SCORE's partners include both working and retired executives and business owners who dedicate their expertise and time to serve as business counselors.

Some of the unique and useful assistance SCORE offers includes:

1. Offering advice to entrepreneurs via email.

2. In person mentoring for small business owners at its chapter offices nationwide.

3. Low-cost workshops at its chapter offices nationwide.

4. Many informative articles and business templates on its website.

5. Online workshops and learning opportunities.

The resources SCORE offers are truly incredible. Every Michigan entrepreneur and small business owner would be well served to at least check out the offerings on SCORE's website.

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

Posted In: General Topics

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The New York Times Magazine has published a piece detailing the apparent strengthening of businesses interests before the U.S. Supreme Court. In the article, the Times profiles the efforts of the U.S. Chamber of Commerce in its advocacy of business interests before the United State Supreme Court. The article notes that in the Supreme Court's most recent term the chamber’s litigation center filed briefs in 15 cases, with its side winning in 13 of them — the highest percentage of victories in the center’s 30-year history.

An interesting aspect of this story is that some of the justices on the Supreme Court who are generally considered "liberal" joined in decisions that favored the positions advocated by the U.S. Chamber of Commerce, positions that are typically considered to be very conservative. This shift represents what the article terms "an ideological sea change on the Supreme Court," especially when one considers that only a number of years ago businesses interests were viewed with skepticism by the Supreme Court.

Although many business owners and entrepreneurs might feel inclined to applaud this apparent shift in the Supreme Court's judicial philosophy, this change is not without its critics. Many observers and legal practitioners are concerned at what they believe is a growing and one-sided sympathy by courts across the country with business interests. These critics complain that the interests and legal rights of consumers and individuals are being subordinated to corporate America's pursuit of profits. Some of these critics also point out that the U.S. Chamber of Commerce tends to serve the interests of very large businesses, which can be and often are divergent from the interests of small businesses.

Whatever side of the debate you are on, the article is an interesting and informative read about an issue that affects all of us.

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

Posted In: Litigation , Michigan Business News

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One of the main reasons businesses are conducted through corporations is to protect owners from personal liability for company obligations. Preserving limited liability is one of the most important aspects of operating a corporation because protection from liability can be lost unless certain formalities are observed.

There are three main ways liability protection can be lost:

1. Invalid incorporation.

2. Improper execution of documents.

3. Piercing of the corporate veil.

Invalid Incorporation
To form a corporation in Michigan, articles of incorporation must be completed, signed and filed with the Michigan Department of Labor and Economic Growth. In addition, certain internal corporate documents must be prepared and signed by the appropriate parties. If a corporation is not properly incorporated, stockholders may not have limited liability if a legal proceeding is brought against the corporation and may be required to personally pay if a judgment is obtained against the corporation.

How to Properly Sign a Document on Behalf of a Corporation
When signing a document on behalf of a corporation, it is important to remember that a corporation is treated as a separate individual under the law. As such, it is imperative that documents are properly signed or the person signing may find himself or herself on the hook for that obligation. Specifically, when documents are signed on behalf of a corporation, both the name of the corporation, the name of the person signing, and that person's title must be stated.

For example:

THE MICHAEL J. HAMBLIN CORPORATION
By: /s/ Michael J. Hamblin
Name: Michael J. Hamblin
Title: President

Piercing the Corporation Veil
A court may pierce a corporation's protective liability veil if the corporation is undercapitalized, or if it can be proved that the corporation is nothing more than a sham set up to defraud. If corporate stockholders and representatives do not follow the required formalities, a court could rule that the corporation is not really functioning as a corporation, but rather as what is known as the "alter ego" of the stockholders. To keep the corporate veil from being pierced, it imperative to keep proper minutes of corporate board and stockholder meetings. It is also imperative that corporate and non-corporate monies are not co-mingled.

The measures discussed in this post, among others, can help to ensure that a corporation will be treated as a separate entity under the law and protect its stockholders from personal liability for corporate obligations. To achieve the greatest level of protection when operating a corporation, it is important that an experienced Michigan business lawyer be consulted before incorporation and at regular intervals thereafter.

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

Posted In: Business Formations , Corporations

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As we all know, any prudent business person will get any important agreement in writing. But in this day and age what does it mean exactly to get something in writing? Many businesses do much of their communication electronically, and may exchange physical paper documents only on a very rare occasion. Can these businesses enforce agreements that are documented and "signed" only in electronic format?

The federal Electronic Signatures in Global and National Commerce Act (E-Sign Act) went into effect in 2001. This law facilitate the use of electronic records and signatures in interstate and foreign commerce by ensuring the validity and legal effect of contracts entered into electronically. One of the main purposes of this law was to ensure that electronic contracts would be given the same weight and authority as paper contracts. Under this law, an electronic signature is broadly defined as any mark or sound.

Michigan has also adopted legislation that provides for the enforcement of electronic agreements and contracts. This law is known as the Michigan Uniform Electronic Transactions Act, also known as UETA. UETA establishes rules to govern electronic commerce transactions. The law establishes a legal foundation for using electronic communications and record when the parties have agreed to deal electronically. UETA is designed to foster electronic commerce by placing electronic commerce and paper-based commerce on the same legal footing when it comes to enforcing agreements.

It is possible to for Michigan businesses to engage in enforceable electronic transactions. However, it is important for any business that is doing business electronically to consult with a Michigan business lawyer who is familiar with the laws governing e-commerce and electronic transactions to ensure that its electronic business activities are on the same legal footing as its paper-based transactions.

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

Posted In: Contracts

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We've all read the headlines where a particular business is charged with discriminating against one of its employees. Even if the charges are not true, being the subject of this kind of legal action can be devastating for a business. One of the best ways a business can protect itself against these kinds of charges is to be aware of the various state and federal civil rights laws that protect workers and implement procedures to ensure compliance.

There are a number of state and federal laws that prohibit harassment and discrimination in the workplace. These laws include:

1. Title VII of the Civil Rights Act of 1964. Title VII is a federal law that prohibits harassment and discrimination based on sex, race, color, national origin and religion. This statute covers employers with 15 or more employees (as defined in the statute).

2. The Age Discrimination in Employment Act. This is a federal statute that covers employers with 20 or more employees and prohibits discrimination against any employee who is more than 39 years old.

3. The Americans with Disabilities Act. This is a federal law that applies to businesses with 15 or more employees. It prohibits employers from discriminating against disabled employees. Disabled employees are those who meet this statute's definition of "qualified employees with a disability."

4. The Pregnancy Discrimination Act. The Pregnancy Discrimination Act is an amendment to Title VII of the Civil Rights Act of 1964, and applies to employers with 15 or more employees. Under this amendment, discrimination on the basis of pregnancy, childbirth or related medical conditions constitutes unlawful sex discrimination under Title VII. Women affected by pregnancy or related conditions must be treated in the same manner as other applicants or employees with similar abilities or limitations.

5. The Equal Pay Act. This federal law makes it illegal to pay male and female workers differently for equal work that is performed on jobs of equal skill, effort, responsibility, and working conditions in the same workplace. The jobs need not be identical, but they must be substantially equal. It is job content, not job titles, that determines whether jobs are substantially equal. This statute applies to any employer that has one or more employees.

6. The Michigan Elliott-Larsen Civil Rights Act. This state statute applies to employers with one or more employees and prohibits discrimination based on sex, marital status, familial status, height, weight and age. Under this law, the prohibition of discrimination on the basis of sex specifically includes sexual harassment.

7. The Michigan Persons with Disabilities Civil Rights Act. This Michigan statute applies to an employer with one or more employee and prohibits discrimination against an individual based on their disability. In essence, under this law an employer is prohibited from discharging or otherwise discriminating against an employee because of a disability that is unrelated to that employee's ability to perform the duties of required in a particular job or position.

It's important to remember that these laws not only ban intentional discrimination, but also discrimination that arises because of disparate treatment of certain employees as well as the disparate impact that certain actions may have on a legally protected class of employees.

When it comes to these types of issues, prevention is the best cure. Michigan business owners should consult with a Michigan business attorney experienced in employment law issues to assist them in complying with applicable civil rights laws.

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

Posted In: Employment Law

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It is the dream of practically every entrepreneur: build up their business and sell it for big bucks. In order to sell a business, the business owner has to talk with potential (or actual) suitors, negotiate the deal, and exchange certain information so that the parties can know whether the proposed sale is right for them.

Unfortunately, it is not uncommon for parties to go through these steps and decide for whatever reason not to pursue the deal, only for the seller to find out some time later that the former potential buyer is using the seller's confidential information shared during negotiations to unfairly compete against the seller. Fortunately, there is a way to legally protect the private and confidential business information of an entrepreneur who is contemplating selling their business.

The way to do that is to use a properly drafted confidentiality agreement. Before the parties finalize the sale of a business, the buyer will normally do an in depth investigation of the seller’s company. This investigation usually includes such subjects as customers, company finances, prospects for future business opportunities and sales, intellectual property, trade secrets, and other sensitive information. A well represented buyer will insist on being able to undertake this type of due diligence so that it can know whether the transaction is likely to work.

It is advisable (and completely accepted) in these types of transactions for the party requesting sensitive and confidential information to provide a signed confidentiality agreement to protect the party who provides the information. Generally speaking, a properly prepared confidentiality agreement will include a number of important provisions, with perhaps the most important one being an acknowledgment by the buyer that the seller will be entitled to injunctive relief if the confidential information is improperly used or disclosed.

The seller should ensure that the confidentiality agreement sufficiently details the nature and scope of the protected confidential information to ensure maximum protection for the seller. Finally, the seller should be very careful to make sure that the confidentiality agreement is not too onerous or unreasonably restrictive or the buyer could be discouraged from pursuing what might otherwise be a mutually beneficial deal.

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

Posted In: Sale/Purchase of a Business

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Many people assume that when they have a written contract with someone else that any disputes about their agreement will be resolved simply by reading the contract itself. Sometimes this instinct is right. Indeed, Michigan state courts and federal courts applying Michigan law have generally ruled that the most reliable indication of the parties’ intent is the language of the contract itself.

It is basic Michigan law that courts must avoid allowing into the evidentiary record outside evidence of the parties’ intentions because this often leads to contract interpretations that are contradictory to the parties' true intent. This means that when the language in a contract is unambiguous, the parties’ intent is to be discerned from the actual language used in the contract. Court use an objective standard to evaluate the meaning of the contractual language.

However, if a court declares a provision in a contract to be ambiguous, then outside evidence may be allowed to prove the parties' intent. Michigan law further provides that an ambiguous provision in a contract is to be construed against the party who drafted it.

The rules that Michigan courts use to interpret contracts are meant to accomplish one thing: figure out what the parties intended when they drafted their contract. All important contracts should be prepared or at least reviewed by an experienced and knowledgeable Michigan contracts lawyer. Involving an attorney early in the contract preparation/review process could mean the difference between having a contract that is enforceable according to the parties' expectations and intent, and one that could lead to totally unpredictable results if there is a dispute.

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

Posted In: Contracts , Litigation

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Crains Detroit Business is reporting that Chrysler L.L.C. will appeal a Detroit federal bankruptcy court's order that it cannot retrieve equipment from the premises of Plastech Engineered Products Inc. Plastech filed for bankruptcy protection last month. Chrysler has filed the notice of appeal with the bankruptcy court that is required under the Federal Rules of Bankruptcy Procedure.

This case arises out of a lawsuit that Chrysler filed against Plastech seeking to recover in excess of $167 million worth of tooling machinery Chrysler owns that Plastech used to manufacture parts for Chrysler. Chrysler had requested the bankruptcy court to grant a stay that would allow it to recover the equipment in spite of bankruptcy litigation rules that prevent non-bankruptcy legal proceedings against parties that have filed for bankruptcy.

However, the bankruptcy court denied Chrysler's motion and ruled that Plastech's reorganization efforts could be harmed if Chrysler removed its equipment at this point in time.

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

Posted In: Litigation , Michigan Business News

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