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WE'RE MOVING!
It's been nearly seven (great) years on Garfield, but the
practice has grown so much that the time has come to move the law
offices! Our brand new offices are located in Shelby Township, and are
only about 2 miles from the old Garfield offices. From the intersection
of Hall (M-59) & Hayes Roads, go north on Hayes a quarter of a mile past
the Meijer store and make the first left, onto Lakeside Blvd. North. A
few hundred yards down Lakeside Blvd. North, directly across from
Lifetime Fitness, is the Shelby Village Office Center. We are in the
left building at 45670 Village Blvd., next to an adjoining suite with
other lawyers. Stop in and see us!
Please note that not only has the
address changed, but so have the phone and fax numbers. However, we
still have the same website and the same professional legal services.
Finally, please accept our apologies for being so late with this issue
of The Gavel. We expected to be in the new offices this past summer, but
the build out took a long time. We think you'll agree the new offices
are worth the wait!
Can Officers and Directors be Liable To Creditors (?!?) if the
Corporation goes Under?
A fledgling movement, started in Delaware
courts, may expand the potential liability of corporate directors and
officers to the creditors of the corporation if the company is (or close
to becoming) insolvent.
First, some background. Directors and officers
have always owed a fiduciary (high degree of good faith) duty to the
corporations they serve. There is the strict duty of good faith, and
the duty to the shareholders to maximize value and allow for the
greatest return on their investment. The duties must be handled
prudently, and in a manner that he or she believes to be in the best
interest of the corporation.
So how do creditors of the corporation
become so important that the directors and officers have to consider
their needs as well?
The concept of a fiduciary duty owed to creditors
arises only when a company is insolvent or nearly insolvent. Insolvency
is measured under either of two tests: the balance sheet test
(liabilities exceed assets) or the cash flow test (not paying its debts
as they
become due).
As a corporation is going under, it is easy to see
how the interests of the shareholders and the creditors will diverge.
The shareholders want the maximum return on their investments in the
corporation, while the creditors desire to collect as much of their
debts as possible. Delaware case law has evolved so that at the
insolvency or near insolvency, the directors and officers must consider
the interests of the shareholders (as they have always done) but also
consider the interests of the creditors.
This "tight rope" act becomes
especially tricky when the directors and officers are considering a
potential buy out, sale of assets, or transactions with "control
persons" (insiders) or their relatives.
But why should the directors
and officers take creditors in consideration?
As it was phrased in a famous Delaware case, because within the community of interests that the
corporation represents, it is "... the right (both the efficient and
fair) course to follow...". While at first glance, this might seem to
be unfair, If you have ever been in the position where a business owes
you money and the business is not only failing to pay, but it is sinking
fast, you would be able to better appreciate the Delaware position.
How will this affect us in Michigan? Delaware tends to be the leading
jurisdiction when it comes to corporate and business law, and many
states (including Michigan) can be expected to follow.
Source: Michigan Business Law Journal.
Small Claims Cases
As it comes to pass, you may
either sue or be sued in small claims court. Small Claims court is a
division of your local district court, and is designed to resolve
smaller civil matters in an efficient and timely manner. No attorneys
are allowed (though an attorney can ‘remove' the claim to regular
district court, which then proceeds as a normal court case). The only
other requirement is that the claim cannot be greater than $3,000; even
if it could be more, the small claims court can only grant judgment up
to $3,000.
So how do you proceed without an attorney? It can be done,
and is done every day in small claims court, but a few words to the
wise. The first thing to remember is to stay calm. The magistrate who
hears your case has heard hundreds of similar disputes. While your case
may seem like the gravest injustice to you (and it could be), the
magistrate has heard it all before.
You should dress nicely, showing
respect to the magistrate. Does this mean Sunday best? Not necessarily,
but jeans and t-shirts do not show that you are serious about your case.
The magistrate will tell you where to sit, and if necessary where to
stand, and when it is your turn. If you are confused or just don't
know, ask the magistrate - he or she should be helpful. Remember to
speak respectfully to the magistrate; it does make a difference.
Before you walk into the courtroom, write out what you want the magistrate to
know. You should only focus on the important issues that will help the
magistrate to resolve the case. Skip the ancillary stuff that will not
help the magistrate to decide the case, no matter how badly you want
someone to know what a lousy person the other side is. Try to stick to
your guideline, and let the magistrate know in advance what the point is
that you are trying to make.
What carries the day in small claims court
is evidence - tangible items or documents. For example, a neighbor had a
claim against a painter for the house across the street. The painter
had sprayed on a windy day, and as a result the neighbor's house and car
got paint on them. The painter denied all of this. So the neighbor
filed a claim in small claims court, then took a close up picture of his
car, unscrewed the mailbox, coach lights, etc. from his house, and put
all the items into a big box, and hauled it off to court. His evidence
carried the day. There can be no greater proof than the items with
paint on them.
Without any corroborating evidence, the case just becomes
a swearing contest between two people, and the magistrate is left to
decide who is telling the truth and who isn't. If you have a witness or
two, especially those that would appear to be unbiased, have them come
to testify as well.
Finally, good luck (sometimes the other side doesn't
show up, and you could win by default!).
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CASE IN POINT: Noncompete Agreement (revisited)
In a prior issue (The Gavel 1-99) the
topic of non competition agreements was discussed. A recent Michigan
case has expanded the use of this concept in Michigan.
A home
improvement company employed a number of independent sales
representatives to sell the company's products and services. As part of
the agreement with each, the company had them sign a covenant not to
compete with the company: they were not to compete within Michigan for a
period of three years. Subsequently, a number of the sales
representatives left the company and set out to establish a competing
company. The home improvement company sued them, alleging among other
things, that the sales representatives had violated the non compete
covenant.
The defendants countered with a rather interesting legal
argument. In essence, they contended that the laws that allowed non
compete agreements to be enforced only applied to employees. Since the
Defendants were not employees but independent contractors, the repeal
did not apply to them; i.e. the original prohibition on non-compete
agreements still applied, and therefore the Plaintiff could not bring
the unlawful claim against them. The trial court agreed with the
Defendants and dismissed the non-compete claims against them.
Plaintiff
appealed. On appeal, the Michigan Court of Appeals undertook a (very
long) legal analysis of the original case law (called common law) before
the enactment of the original Anti-Trust laws. The Court of Appeals
found that all reasonable non-compete agreements were now enforceable.
Bottom line: covenants not to compete by non-employees (here independent
sales representatives) are enforceable. Plaintiff home improvement
company wins. Bristol Window and Door, Inc, v Hoogenstyn, Michigan Court
of Appeals.
REFERRALS
If you have been pleased with the service and professionalism
you have received from our office, it would be greatly appreciated if you
passed the good word along. Referrals are always appreciated and
encouraged, and we look forward to the opportunity of being of service
to your associates and friends. If we can not immediately service
their needs, we will be happy to refer them to the appropriate attorney
specializing in their specific area of need.
However, if you have not been pleased, contact
us directly!
David B. Forest, JD, MBA
Attorney and Counselor at Law
(586) 532-6100
www.forestlaw.com
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