Tag: business law

COVID-related Employment Lawsuits Are on the Rise: What to Watch For and How to Avoid Them.

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Employment lawsuits and EEOC complaints are surging. All employers have had to adjust in response to federal, state, and local COVID orders. Small business not previously subject to FMLA have had to suddenly enact polices to comply with expanded regulations under the Families First Coronavirus Relief Act (“FFCRA”). Transitioning employees to remote work has not been easy either. However, businesses have to take extra care to make changes and transitions the right way, so that they are not subjected to employment discrimination or retaliation lawsuits. Litigation is not the only downside to employee strife – turnover is notoriously expensive and adding new team members during the pandemic brings its own set of challenges. Remember that communication, flexibility, and kindness goes a long way as we all continue to deal with a surging global pandemic.

An important note: Michigan recently enacted the COVID-19 Response and Reopening Liability Act that gives businesses immunity from COVID-related tort claims so long as they have been following all applicable laws and regulations. A tort claim is a claim that a customer or visitor can make against your business for an injury suffered on the premises. This new Act only applies to tort claims – it does not grant immunity from discrimination, contract, workers’ compensation, or any other type of claim or lawsuit.

What are some of the situations that may lead to an employment discrimination or retaliation claim against your business? There are many different situations, and each is fact-specific, but here are some common examples:

  • Discharging an employee because they or someone they have to care for contracted COVID.
  • Discharging an employee, reducing their hours, benefits, or otherwise treating them differently because they are taking leave under the FFCRA.
  • Denying an employee parental leave to care for a child whose school closed or when child care becomes unavailable.
  • Threatening to demote employees, reduce hours, or to reduce pay if they took leave under the FFCRA.
  • Denying reasonable accommodations for remote work or schedule adjustments.

Illegal retaliation is generally easier to prove than discrimination. Discrimination requires proof of an employer’s illegal motive. Retaliation simply requires proof that an employer treated an employee differently when they took leave or after they came back.

What can you do to protect your business from employment discrimination or retaliation claims? Again, each business and situation is fact-specific, so there is no one-size-fits-all approach. However, here are some general guidelines:

  • Be flexible and recognize that the pandemic has affected people with different family circumstances in different ways. People with children and single parents are more likely to need adjustments from their employers.
  • Make sure your workplace polices and employee handbook are up-to-date and consistent with the latest government guidance.
  • Educate managers and supervisors on the policies and applicable laws to ensure best practices.
  • Consult an attorney if you are not sure about how the new regulations apply to you or whether your organization is following federal and state employment laws.

Above all, be kind, flexible, and understanding. The pandemic is a world-wide crisis that has impacted everyone, and some more than others. From a business standpoint, a little flexibility can go a long way to reducing turnover cost, litigation costs, and boosting overall worker morale (which is invaluable).

Dan Artaev is a former Assistant Attorney General with the State of Michigan in the Labor Division, and in private practice has represented numerous employers with respect to employment law matters, including responding to EEOC and wage and hour complaints. Email Dan at dan@artaevatlaw.com or call or text (269) 930-0254 to set up your consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every business is different and faces its own unique set of challenges. Do not take any action with respect to your business until you have obtained specific guidance from a qualified professional.

© 2020 Artaev at Law PLLC. All rights reserved.

FAQ: Michigan’s COVID-19 Response and Reopening Liability Act

In 2020, employers have been struggling to navigate a maze of ever-changing COVID laws, regulations, and guidance from both the state and federal levels. It has not been easy. Besides trying to keep their business open, make ends meet, and generally stay safe, employers now have another thing to worry about: liability lawsuits for potential COVID-19 exposure, illness, or injury.

To protect businesses, the Legislature has passed new laws intended to create some certainty and protection against costly litigation. These are referred to as HB 6030 or the “COVID-19 Response and reopening Liability Assurance Act.” While the legislation is by no means a “get out of court free” card, it seeks to reduce lawyer costs and keep insurance premiums down across the board. Governor Whitmer signed the bills into law on October 28, 2020, which are effective immediately.

Q: Why do Michigan businesses need a “liability shield” against COVID-19 lawsuits?

A: The new law offers protections from tort liability related to COVID-19. The idea is to prevent negligence lawsuits against employers who were substantially following the law and public health guidance. As a policy matter, it is important to give employers and insurance companies some predictability – otherwise, insurance premiums will quickly become unaffordable and businesses may have to face litigation-related shutdowns, bankruptcies, etc., which would further disrupt the economy.

Q: What does the COVID-19 Response and reopening Liability Assurance Act do for businesses?

A: The new law grants businesses retroactive immunity (to March 1, 2020) from lawsuits alleging a COVID-19 claim, which is a tort claim based on or related to COVID-19 exposure (or potential exposure). COVID-19 claims also include allegations related to a business’s efforts to reduce COVID-19 transmission such as a “health screening, testing, contact tracing.” However, the immunity is only available if the business operated in compliance with all federal, state, and local laws and rules that were in effect and deemed legal at the time of the alleged incident.

An example of a potential tort claim is if a customer caught COVID-19 at your business and was injured. The customer will likely pursue a standard negligence claim, arguing that the business had a duty to keep the customer safe, breached that duty by allowing COVID-19 exposure, the exposure was the proximate cause of injury, and the customer suffered damages. Normally, the business would respond by disproving any of these elements – however, the new law creates an affirmative defense that allows the business to avoid liability by showing compliance with all applicable COVID-19 laws and regulations at the time of alleged exposure.

Q: What kinds of evidence would I need to show compliance and to claim immunity under the COVID-19 Response and reopening Liability Assurance Act?

A: The answer depends on your particular facts, location, and situation. However, in general a COVID preparedness and response plan, a designated COVID-19 coordinator, workplace policies directly addressing things like social distancing, mask-wearing, and disinfection protocols are all useful in showing compliance. For the latest guidance on compliance, check out my updated Guide for Michigan Employers Navigating COVID Regulations.

Q: Does this mean I don’t have to follow the COVID orders about masks and social distancing anymore at my business?

A: No. The orders enacted by the Michigan Department of Health and the Occupational Safety and Health Administration still apply and must be followed. Ignoring the government’s orders not only risks the health and safety of your employees and customers, but it also exposes you to government citations and fines for creating a dangerous work environment. The new law only gives immunity from a private lawsuit to a business that “acts in compliance with all federal, state, and local statutes, rules, regulations, executive orders, and agency orders related to COVID-19 that had not been denied legal effect at the conduct or risk.” In other words, a business that deliberately or recklessly violates safety orders receives no protection and will be fully liable for any injury or death related to COVID. Further, the law does not grant immunity from any administrative proceedings or civil actions brought by government entities to enforce COVID-19 safety orders.

Q: Are there minimum injuries that someone has to suffer due to COVID in order to bring a lawsuit?

A: No. Early drafts of the legislation included a “minimum medical condition” threshold that required a certain level of injury to bring a lawsuit – for example, hospitalization for at least 24 hours. Once the plaintiff met the minimum threshold, the employer could then introduce evidence of compliance with the law to create a “presumption” of non-liability. The final version of the law does not have this “burden-shifting” framework – instead, the requirement is that the employer show compliance with government directives in effect at the time of the alleged injury. Note that the law requires substantial compliance and expressly notes that a minimal inconsequential deviation is not enough to defeat immunity.

Q: Does this new law affect the existing workers’ compensation obligations or change potential exposure under workers’ compensation law?

A: No. The new law expressly states that it does not affect the rights, remedies, or protections under the Worker’s Disability Compensation Act. That means that if you have an employee who suffered a COVID-19 related injury in the scope of their employment, workers’ compensation insurance will likely apply and the COVID-19 injury will be treated the same as if the employee fell off a ladder, was hit by a forklift, or suffered some other more traditional work related injury. Note that workers’ compensation insurance is mandatory for businesses with at least one full time employee or at least three part-time employees at the same time.

Have more questions? Contact attorney Dan Artaev by email at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is a summary of legislation for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2020 Artaev at Law PLLC. All rights reserved.

Is Your Lawsuit Stuck Due to COVID? Stipulated Mediation May Be the Answer.

You may wish to give mediation a second look. If you are business owner involved in pending business litigation, you are likely frustrated with the progress – or rather the lack of progress – in your case. Whether as a plaintiff looking for a resolution of your grievance or a defendant eager for vindication, it is frustrating when the courts keep pushing back deadlines and hearings, with no end in sight. When Michigan shut down back in March 2020, the Michigan Supreme Court directed (and rightfully so) that criminal cases be prioritized. Civil matters – and especially business disputes – got pushed to the back of the docket. Now, as many of the courts have resumed normal (albeit remote) operations, they are playing catch-up. This is especially so in busy circuits like Wayne and Oakland.

Business owners do not make money in litigation. Lawsuits are expensive in terms of both time and money – there is little doubt that you are not making the best use of your time if you are stuck in an 8-hour deposition, rather than out there selling your product. This is why mediation is always a good idea, even in the best of times, but during COVID, it is the best possible solution to a number of complicated problems facing business owners attempting to resolve their disputes in the courts.

Even if you have already mediated (unsuccessfully), you may consider another attempt. There is no limit to how many times you can try to facilitate a case. Some judges even order the parties to mediate multiple times during the process at different stages of the case. The court rule that governs mediation, MCR 2.411, is very flexible and allows the parties to stipulate to a mediator of their choosing, whether an attorney, a former judge, or even a respected neighbor in the community. COVID has brought about a sea change for businesses across the United States and there is little doubt that the primary facts, interests, and goals, are different now than they may have been pre-COVID. Accordingly, you may want to try again and possibly with a different mediator.

Effective mediation can work wonders, even with the most stubborn parties. I once represented a former employee, whose employer owed her at least $60,000 in back wages. The employer was a start-up entrepreneur in the fitness business, who was big on making promises, but not so big on delivering them. In other words, he promised to pay many times, but at the end of the day, was either unable or unwilling to write a check for services rendered. The employer was also very aggressive and responded to a rather simple breach of contract complaint with counter-allegations of embezzlement and fraud that were unsupported by any evidence whatsoever. The court strongly suggested mediation, but I had no hopes that this case was going to end up anywhere other than trial. Much to my surprise, our mediator was able to craft a solution that settled the case. Not only that, but the mediator’s resolution made both sides feel like they won. That to me is the hallmark of a good mediation – where both sides feel like they are better off than they were prior to mediation. Better yet, the employer could now devote his time and money to his business instead of the lawsuit, and the former employee could spend her time working elsewhere and making money, instead of paying attorneys and going to hearings.

Now is a time like no other to engage a mediator to resolve that business case. The advantages are numerous:

  • Many judges will encourage parties to settle anyway, and even before COVID less than 1% of all business cases were resolved through trial.
  • The monetary cost of taking a case to trial has increased exponentially, as disputes have been more complex and the costs of discovery has skyrocketed in large part due to technology.
  • The time opportunity cost of taking a case to trial has also increased exponentially, as discovery has grown more complex and requires more time input from business owners.
  • The opportunity cost of taking a case to trial is also unpredictable and may largely depend on the forum and the particular judge’s preferences. I once was involved in a relatively straight-forward contract dispute that was pending for over a year, the judge refused to rule on any motions or set the case for trial, and ordered mediation at least 3 times. The parties eventually gave up and settled after the third mediation.
  • In the same vein, the parties can mutually decide on a mediator that fits their needs, whereas in litigation, the parties do not chose their judge.
  • If you filed pre-COVID litigation, consider whether mediation (even if you have previously tried mediation) can be a way out of the slowed-down docket across the state. After all, the facts, interests, and goals of the parties may look quite different than they looked back in February 2020.

Also, online mediation through videoconferencing (like Zoom) is viable and surprisingly effective option. Consider the following advantages:

  • No need for parties or attorneys to travel, allowing for convenience of all.
  • Greater flexibility means potentially lower costs and quicker resolution.
  • Potentially lower mediator fees.
  • Option to have multiple days or extended sessions, as may be needed.
  • Increased scheduling flexibility for all parties.
  • Technological advances such as separate virtual conference rooms, screensharing, text chat, and online whiteboards make it easy for the parties to share information with each other and the mediator.

Artaev at Law offers mediation services as well as representation in alternative dispute resolution proceedings. Contact Dan at dan@artaevatlaw.com or by call or text at 269-930-0254 to schedule your mediation or to secure representation.

© 2020 Artaev at Law PLLC. All rights reserved.

Are you expecting payments under a lease, land contract, or promissory note? It may be time to dust off those documents and call a lawyer.

The economy is still uncertain, especially for business owners who rely on lease payments, land contract payments, promissory notes, or other installment-type payments for their income are in for tough month. Payees may very well be unable to make payments on time or at all. What are your options to protect your rights? It is a good time to find those documents and contact a business attorney to review your options. While every document is different, here is a general overview of some key provisions and concepts:

  1. When is the payment actually due? More often than not, a payment clause in a note or lease has a built in “grace period” – usually between 3 and 10 days after the due date for the payee to “make up” any missed payment without penalty. Importantly, many agreements also require written notification that a payment is late or has been missed – it is critical to review the documents in question, determine exactly when a payment is considered late, and to send out notice to preserve your rights.
  2. Document any modifications in writing. If you do agree to a reduced payment, different payment deadline, or some other modification with your tenant or debtor, make sure to document the agreement in writing. Most contracts (including leases) have provisions that require that any amendment be in writing. And, you don’t want to be accused of agreeing to something that you did not actually agree to later on. Further, a written record goes a long way from protecting you against any future argument of “waiver” or that you simply abandoned your rights by failing to insist on strict adherence to the contract.
  3. Find out what happens if there IS a default. Despite your best efforts to work with a tenant or a note payee, there may come a situation where they simply cannot make the payment or refuse to agree to a reasonable modification of their obligation. In that case, you need to review the default provisions with your attorney and give prompt, written notice of default. Here are some special considerations:
    • Promissory note: (a) determine whether there is a default interest rate that entitles you to higher interest in the event of default; and (b) if the note is secured by collateral, determine the status and location of such collateral. Talk to an attorney immediately if you think the collateral may be destroyed or otherwise impaired.
    • Land contract: A land contract is unique because the seller retains ownership of the property and the deed until the land contract is paid in full. However, land contract forfeiture is not automatic – there is still a requirement that proper notice be given and the landlord go through the other steps required by Michigan law before actually retaking possession of the premises.
    • Lease: Michigan law provides for summary proceedings to recover premises and evict non-paying tenants – a useful process where a landlord wants a paying tenant to take the place of a delinquent. Summary eviction is still available as a remedy – but a new tenant is not a given, judicial proceedings are delayed, and there may be other considerations to discuss with your attorney before filing those court papers.
  4. However, you can still file a lawsuit to preserve your rights. You can still file a lawsuit to enforce a default on a note or lease. Remember, in addition to (or instead of) an order of eviction, you can get a money judgment for unpaid rent. Now it is more important than ever to retain qualified counsel to protect your rights in these uncertain times.

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

© 2020 Artaev at Law PLLC. All rights reserved.

5 Legal Tips for Business Owners Weathering the Coronavirus Disruption

There is no doubt you are distracted by this coronavirus outbreak. Constant news alerts, supply shortages, government-mandated closures and cancellations make it all but impossible to also run your business. However, remember that your lawyers are available to assist you. For example, if you have questions about obligations to your employees, insurance coverage questions, contract responsibilities, or anything else related to your business, feel free to reach out. In the meantime, here are 5 legal tips to help your business through the crisis with minimal disruption:

  1. Review your existing contracts for a “force majeure” clause. Do you have a contract with a supplier, distributor, or vendor? Has the coronavirus outbreak affected performance under the contract – for example, are payments being delayed? Are shipments delayed? Has demand dropped to the level where you are having trouble paying normal operating expenses? The reality is that a lot contracts were negotiated in “good times” without the threat of external forces disrupting business operations. This means not all contracts provide for what happens in times of crisis, and if they do, they are often generic provisions that may not even be applicable to the current situation. Nevertheless, some contracts have standard terms — known as “force majeure” or “Act of God” clauses — that allow for contract termination, modification, or delay in performance under certain extraneous circumstances. Importantly, even if your contract does have such a clause, it often includes notice obligations to the other party – so if you suspect that contract performance may be disrupted (either on your end or on the part of the other party), contact a business attorney for guidance on your rights and obligations.
  2. Review your existing lease and make sure you know your rights and responsibilities. Leases are another type of contract that may be affected by the pandemic. In general, commercial leases are drafted in such a way that a tenant’s obligation to pay rent is absolute and non-excusable. If you are a business owner having trouble making rent payments due to decreased demand, you need to carefully review your lease for any possible options, including early termination. Alternatively, you should be prepared to discuss lease modifications with your landlord. If you are on the landlord side, reach out to your tenants and discuss any potential issues directly. While eviction is still available as a remedy, consider that finding a replacement tenant may be more difficult at this time, and you may want to conserve resources instead of spending money to evict someone. And as always, reach out to an attorney if you have any questions about your rights and obligations under any lease.
  3. Purchasing or selling a business? Adjust your expectations or consider termination. Uncertainty is high, which means that many business deals that seemed profitable a few months ago may no longer be attractive to potential buyers. Whether you signed a letter of intent and are conducting due diligence, or you are at the purchase agreement drafting or even closing stage of the transaction, make sure you know your rights and responsibilities. Is there a specific time for performance and what happens if there is a delay? Is “time of the essence” to this transaction? Particularly, be aware of any penalties or liabilities that may be attached to termination of the pending transaction before closing. There may be a liquidated damages provision involved, or perhaps something more onerous, like an “actual damages” clause, including attorney fees. You should have an attorney representing you in any buy-sell transaction, and in the current situation, it is especially important to retain advice about your options.
  4. Know that courts are still functioning, although in a diminished or delayed capacity. One of the reasons that it is critical to know your rights and responsibilities under your various contracts, is that you want to avoid business litigation. But you may think, aren’t courts closed? So how can I protect my rights? Most courts are actually operating in a “diminished” capacity, with civil litigation taking a back seat to criminal matters. However, a lawsuit can still be filed. And, if there is a need for emergency relief like an injunction against a former employee actively stealing customers, it is still available. Understand that even if the justice system is operating in a limited capacity, it is still operating. Litigation is a possibility – and expect that even when this pandemic is over, there will still be litigation fallout over breaches of contract and other business matters that arose due to business disruptions in this difficult time.
  5. This is a perfect opportunity for “corporate catch-up.” Even if your business is currently slow or completely shut down, this time may be a great opportunity to talk to your lawyer about some business matters that you have been putting off. For example, have you trademarked your logo, slogan, or business name? Do you have a new business idea and need to incorporate a new business? Or, do you need to update your LLC’s papers to reflect the fact that you hired your niece as your new CFO? Are there old corporate entities out there (after an acquisition or merger) that continue to exposre you to personal liability? And ask yourself, is your business prepared for the 4 Ds — divorce, death, disability, and debt? Now may be the perfect time for “corporate catch-up.”

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2020 Artaev at Law PLLC. All rights reserved.

What Every Business Owner Must Know About PFAS Contamination

Remember when everyone was worried about PFAS contamination? Believe it or not, it was a serious concern that dominated headlines in late 2019 and early 2020 before COVID-19. It remains a serious environmental issue. But what is PFAS, and more importantly, how does it impact your business? PFAS stands for per- and polyfluoroalkyl substances, which are a group of man-made chemicals that have been manufactured and used in a number of industries across the globe since the 1940s. Also known as PFOA and PFOS, these chemicals are found in commercial household products like stains, paints, waxes, chemically coated fabrics, and production facilities for chrome plating, electronics, and general manufacturing. Firefighting foams used on military bases or at airfields are another big contributor to PFAS contamination.

One of the main reasons that PFAS is such big news today is that it has made its way into Michigan’s waterways. PFAS does not break down naturally and tends to accumulate, forming a foamy film on surface water. PFAS has also been linked to certain adverse health effects, making its accumulation in Michigan’s water especially concerning. For example, PFAS accumulation in the Huron River resulted in “do not fish” advisories throughout the watershed in 2019. While swimming was still safe, pictures of accumulated foam on the river banks made for dramatic news stories.  

Business owners need to be aware of whether their business is contributing to PFAS contamination. If your business is releasing PFAS into the environment—whether intentionally or not—it could lead to significant fines and clean-up costs. The State of Michigan recently filed lawsuits against 17 chemical companies that allegedly are responsible for 74 contaminated sites throughout the State. The State is seeking to recoup the approximately $25 million per year that it spends to remediate PFAS contamination—an amount that is likely to increase. Local wastewater authorities—entities that operate wastewater treatment plants—are also filing lawsuits against businesses that are releasing PFAS into the environment to recoup their own expenses and the need for new infrastructure.

Even if you are not the owner of a chemical company or a “toxic” business like a chrome plating facility, you still need to be aware of potential exposure and environmental liability associated with PFAS. An example of a “non-traditional” PFAS contamination source is Chinese-made surgical gowns. Unaware that the gowns are treated with PFAS-containing chemicals, some commercial laundry facilities were inadvertently releasing PFAS into their local wastewater systems. As a business owner, you need to be aware of whether your business is contributing to PFAS contamination. At a minimum, you will want to know the answers to the following:

  • First, does your business have an IPP permit (Industrial Pretreatment Program) from your local wastewater treatment facility? These permits govern the chemical levels that a business is allowed to discharge into the local wastewater treatment system and are issued pursuant to local sewer ordinance. Many—if not all—wastewater treatment authorities are in the process of adopting special regulations related to PFAS. Violations of the local sewer ordinance can result in significant fines and injunctive orders from the Courts.
  • Second, does your insurance protect you from any pollution liability or exposure? Most standard commercial liability insurance policies have pollution liability exclusions. So unless you purchased a special rider (which can be expensive), you are likely not covered against PFAS-related claims.
  • Third, did you do a Phase I, Phase II, and Baseline Environmental Assessment (BEA) when you purchased your business or the property on which your business is located? The Michigan Natural Resources and Environmental Protection Act allows property owners to conduct certain environmental testing as part of purchasing a property. The resulting BEA can limit environmental liability going forward.

If you are concerned with how PFAS is affecting your business, contact attorney Dan Artaev at 248-380-0000 or dartaev@fb-firm.com. Dan can advise you with respect compliance and answer any questions you may have about best business practices going forward.

3 Common Mistakes that Compromise a Business’s Corporate Protection and Expose Your Personal Assets.

Businesses that commingle assets, forgo record keeping, official minutes, and fail to keep their registration with the State of Michigan up to date risk losing their corporate protections. In most cases, the corporate form limits your personal liability and insulates your personal assets from business debt – unless a creditor successfully argues that the corporate form is a sham and used to perpetuate fraud. However, this protection is not an absolute and there are many situations where that protection may be set aside and personal assets (the owner’s house, boat, car, bank account, etc.) are at risk.

Even if you run a perfectly organized business with current paperwork and a separate bank account, there are still situations where you are at risk of personal liability for your business debts. The following three scenarios are most common:

  1. Did you sign a personal guaranty for a business lease or a business loan? Personal guaranties (or guarantys) are additional collateral that you may be asked to execute as a prerequisite to a business loan or even a business lease. A personal guaranty is effectively an agreement that waives your corporate protection and allows a creditor to go after your personal assets directly. Because a small business does not have many assets to collateralize a loan or assure a landlord that obligations will be paid, you may be asked to sign the personal guaranty. Whether you accept that risk is up to you, but at a minimum you should read the document carefully and discuss it with your attorney so that you understand the implications. You may also be able to negotiate for a lease or loan without a personal guaranty, but in most cases you will need to provide sufficient collateral or other assurances to secure your obligations.
  2. Are you knowingly breaching a contact or a lease? Some business owners erroneously assume that because they have an LLC, they can ignore contracts or leases. For example, if your company signed a 3-year lease in a dying shopping center – what’s to stop the LLC from defaulting on the lease and walking away? A lawsuit can only reach the LLC, right? That’s not only wrong, but it is also a dangerous line of thinking that may put your personal assets at risk. A court will not allow the abuse of the corporate form to evade obligations or escape debts. Understand that corporations are created by statute – i.e. the law – to facilitate business. At the same time, the court system will not apply the law to facilitate a party’s evasion of its contractual obligations. If you are abusing the LLC to default on loans, other contracts, or lease obligations, a court may very well determine that you are abusing the system, pierce the corporate veil, and impose personal liability.
  3. Are you moving assets around to another company? You may also think that you can simply start over by forming a new LLC, transferring the assets of the old LLC to the new one, and leave the loans, contracts, and leases behind with the old shell of a company. But even if you declare bankruptcy for the old LLC, your assets are not immune from creditors. The bankruptcy proceedings allow aggrieved creditors to challenge any transfers made before bankruptcy as “fraudulent” and have them set aside for the creditor’s benefits. And even if your old business had no assets, a court may still impose personal liability and pierce the corporate veil if it is determined that your actions were for a fraudulent purpose – such as escaping a debt, contract, or lease obligation.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2020 Artaev at Law PLLC. All rights reserved.

Does Your Business Have a Pre-Nup? The Importance of Planning for Life’s Unexpectancies.

Nobody likes to plan for life’s unpleasantries, including divorce. While divorce remains an unfortunate fact of life, proper planning with your business attorney can help protect your business from the unexpected. This is particularly critical where a business has multiple owners, members, or partners.

In a recent case out of New York, a company’s three partners were shocked to learn that the fourth partner’s impending divorce would result in his ex-wife owning part of the business. Small businesses are particularly vulnerable to members’ interests becoming part of a divorce property dispute. And unlike blue-chip stock, who owns the shares of a small business has a direct impact on the day-to-day operations and decision making. In the New York case, the owners admittedly failed to plan for a divorce and ended up having to borrow $250,000 to buy out the divorcing partner.

However, with proper planning and consultation with a business lawyer, you can hedge against contingencies like divorce ahead of time. One such way is through a carefully-drafted Operating Agreement that expressly sets out what happens if a membership interest becomes subject to a divorce judgment. Common provisions grant the company a right of first refusal to buy out any sort of membership interest subject to transfer, and also set forth the rules for valuing such interest using either the Company’s books, a CPA, or an independent appraiser. Another common (and highly useful) provision prohibits a transferee of any membership interest from voting or otherwise participating in the Company’s affairs, until officially admitted as a “member” by the other members. Thus, even if a divorce decree awards a spouse part of the membership in the company, the spouse is limited to the economic benefit of such ownership until (and only if) the rest of the membership decides to allow the new member to participate in the actual business. Another planning tool is a separate buy-sell agreement, which sets forth the rules and conditions for each owners’ membership interest.

Divorce is not the only “D” word that a prudent business owner must plan for. Death of a member is another contingency that should be expressly addressed in a company’s documents. Disability or incapacity is another. Finally, a business should have specific provisions in place to address the potential of bankruptcy or insolvency.

The four “D”s–divorce, death, disability, and debt–are realities that no one likes to think about. However, planning for the bad as well as the good is a part of running a business. With a plan in place, a company will suffer much less disruption and uncertainty when the unthinkable happens. And that is good corporate governance.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2020 Artaev at Law PLLC. All rights reserved.

A Lesson in Licenses and Why You Own Nothing.

In 2019, Fortnite went offline. No one could play, stream, compete, or access their account. This was part of an in-game “event” known as the Fortnite Blackout or The End. Can Epic Games do that? What rights do you even have as a player, team owner, or competitor? It all comes down to the End User License Agreement (EULA) – so leave it to a gaming lawyer to use Fortnite to teach you about the critical role of licensing in the digital age!

By way of background, Fortnite is certainly one of the most –if not the most popular video game in the world. The game, which is available as free download on modern consoles, PCs, and even iPhones, is a hit with kids, teens, adults, professional athletes, celebrities, and even Prince Harry (the Duke of Sussex) who got so addicted that he called for the game to be banned in Britain. True story. It has also evolved into an international eSport phenomenon, with this year’s World Cup Finals winner taking home a cool $3 million check. There are hundreds, if not thousands, of professional gamers and streamers across the world that make this game their career. Epic Games, the game’s owner and creator, is estimated to have earned between $2.4 and $3 billion from the game in 2018 alone. This is particularly impressive given that the game is free to download and play, with all of the revenue coming from in-game cosmetic content, such as different character outfits.

Now imagine if one day all of that was suddenly gone. Epic shuts down the servers and Fortnite no longer exists. Well, this actually happened (at least for about 24 hours)–during the Fortnite Blackout or The End event. The hundreds of hours you spent playing, earning points, and ranking? Gone. Did you spend all of your birthday money on new outfits so you could look like a James Bond villain in the game? Gone. Even worse if you are a professional gamer who made Fortnite a career. Or a team owner who invested hundreds of thousands of dollars into building the next world champion. What can you do? Who can you sue?

The simple answer is NOTHING and NO ONE. Because you have to understand licensing. And the fact that the traditional concepts of ownership–i.e. I pay money for something therefore I own it–do not transfer to the digital world. Did you read the EULA that you have to accept before logging into Fortnite? I didn’t think so. Yet it contains important rights and obligations–especially if you play professionally. The reality is, by playing Fortnite and even paying real money to “buy” in-game characters, weapons, etc., you own nothing. In simple terms, Epic Games grants you a license to play the game at its sole discretion, but Epic Games owns and controls everything and anything within the game, even the content that you paid real money for.

The Fortnite EULA is a license, which is a right to do something, or access something. Think of it like a ticket to go see a football game or a concert, but in this case it is a ticket that gives you access to a video game. In legal terms, what distinguishes a license is the fact that it is a “revocable” right, meaning the licensor (the owner of the license) can terminate the licensee’s rights of access at any time, subject to any conditions of the license. So what terms do you agree to when playing Fortnite?

Epic grants you a “personal, non-exclusive…limited right and license to install and use the Software…for you personal entertainment use.” Also, ” The Software is licensed, not sold, to you under the License. The License does not grant you any title or ownership in the Software. ” Ok, but can Epic just shut down the game? Yes–read on–” You also acknowledge that any character data, game progress, game customization or other data related to your use of the Software or Services may cease to be available to you at any time without notice from Epic….”

What about all the real money you paid for skins, custom characters, etc.? You get that back, right? Nope. Read on–” Epic, in its sole discretion, has the absolute right to manage, modify, substitute, replace, suspend, cancel or eliminate Game Currency or Content, including your ability to access or use Game Currency or Content, without notice or liability to you.” Meaning, you do not really own any “game currency” or the “content” that you bought–in fact, all you are acquiring when you are “purchasing in-game content” is another license to use the currency or the content that you purchase with the currency for as long as Epic wants.

It’s not really so confusing. When you downloaded and played Fortnite, you agreed that Epic owns everything and you own nothing. If you paid any money to Epic for skin or custom parachute, Epic gave you a license to use that particular skin or parachute. You paid for the “experience”–not a tangible item itself. That’s licensing.

Of course, this reality creates a whole host of follow-up questions. What happens to content I create using Fortnite’s creative mode? Does Epic own that too? Short answer is YES. What about streamers who make a living playing Fortnite? Professional gamers? Team owners? Fortnite World Cup sponsors? There is no easy answer there, as each situation is fact-specific and depends on the various terms of the license agreements, any sponsorship agreements, intellectual property law, etc.

The Fortnite Blackout was a lesson in “ownership” in the digital age. Traditional concepts of ownership do not apply or transfer to to the digital realm. Music, video, games, and even photos that you upload or post on social media–are not “yours” in the traditional sense. Rather, there is an increasingly complex web of rights that becomes even more complex when gaming is a business.

So, like any business owner, if you are investing time, money, and effort into a game–with the idea to play professionally, make streaming revenue, or to otherwise make it in the gaming business–engage and consult with an eSports attorney. Understanding your rights and obligations will help you craft an effective business strategy going forward, and plan for contingencies and er…singularities.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2020 Artaev at Law PLLC. All rights reserved.

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Into the Fire: Effective Strategies for Litigation Management Before Going to Court

Are you a litigious business owner? Do you copy your attorney on correspondence to a non-paying client or a vendor? Have you ever threatened another business owner with “I’m going to sue you”? Is this something you do as part of your day-to-day business routine? Does your county’s local business judge know you by name? If so, you probably are not effectively managing the litigation aspect of running a business.

As a Metro Detroit business attorney, I frequently encounter clients who are always “ready to sue.” However, as an attorney, my job is to counsel the client regarding all possible approaches, and to the extent that litigation is the preferred route, I am always honest with the client regarding the judicial process. If your lawyer talks up your case, or uses terms like “sure thing” or “slam dunk” to describe the lawsuit, stop and ask questions. Litigation is not a “hammer” with which to punish someone who wronged you – rather, the justice system is designed to be a neutral process to achieve a the correct result by applying the law to your specific facts.

But you may be thinking–come on Dan, this guy or girl totally screwed me! File the lawsuit tomorrow! I WANT BLOOD!!! I’ll pay you, whatever it takes!

But that approach is only likely to result in added time, expense, and headache for you. No matter how strongly you feel about your case, you absolutely must consider the following and discuss with your attorney:

  1. Litigation is a lengthy process – it may take years to reach a resolution at the trial court level, and then there is always the risk of appeal. Yes, years. Even if you think your case is “easy.” Remember the goal of the justice system is to reach the correct result, given certain facts and the law. Very rarely do the courts dispose of a case quickly, and it is especially so when you are the plaintiff (the side who initiates the lawsuit) because you will have the burden of proof. Most judges are also inclined to let cases drag on, in hopes that the case will settle and the judge won’t have to make a decision. If you file a lawsuit, be prepared for the long haul.
  2. Litigation is a disruptive and unpleasant process – as a business owner, you should never approach litigation as a money-making scheme. Litigation will not only require a substantial financial investment (see below), but it will also be disruptive to your business. You and your staff will need to search for and provide all relevant documents, emails, texts, phone logs, etc. as part of the discovery (or fact-finding process) to your attorney. You and your staff will have to appear for depositions (to provide testimony in this case). Then there are motion hearings and trial. If there are electronic data storage issues, you will need to retain an IT expert. All of this takes time and resources away from your business and you must do a careful cost-benefit analysis before getting involved in litigation.
  3. Litigation is an expensive process – you may easily end up paying tens of thousands of dollars to your lawyers over the course of the case. The fact-finding process that is discovery is the most costly and lengthy. Paying your attorney to attend a 5 hour deposition, review the transcript, respond to discovery requests, and craft your own discovery requests adds up very quickly. And, even if you win, YOU DO NOT GET YOUR ATTORNEY FEES PAID BY THE OTHER SIDE. The only exception to this general rule in the business world is a contract provision that expressly provides that the loser pays the winner’s attorney fees in the event of litigation. Of course, such a provision is a double-edged sword that applies to both parties.
  4. Litigation is an uncertain process – cases are rarely black and white and no attorney can predict what a judge (or jury) will do with your claim. You may have an unpredictable or eccentric judge. You may have attorneys on the other side that will make life not only difficult through discovery, but also expensive by dragging out the process. Also, even if you go to trial or win on a motion, there is always a chance for the losing party to appeal. And, if the Court of Appeals “remands” the case–meaning sends it back to the trial court with instructions–the process could very well restart and drag on for years more.

So what’s a business owner supposed to do? What are some options to enforce your contracts short of going to court? You should consult an attorney about the following options:

  • Consider pre-suit facilitation, but be mindful of the applicable statute of limitations.
  • Consider using arbitration clauses in your contracts to mandate an alternative dispute resolution process between the parties.

The unpredictability and expense of litigation also highlights the need to retain an attorney to advise your business and review any contracts before signing them.

The bottom line is a business does not make money litigating. It is a huge drain on time and resources that could be spent growing market share. If you find yourself considering litigation or on the receiving end of a lawsuit, contact an experienced business law attorney immediately for a consultation.

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Smoke ’em if You Got ’em: 4 Questions to Ask When Selling Commercial Real Estate in the Marijuana Era

In 2018, Michigan citizens overwhelmingly approved Proposition 1 to legalize recreational marijuana. While medicinal marijuana has been legal in Michigan for several years now, the recreational marijuana law will certainly expand the availability of the drug across the state. But what does that mean for the Michigan business community?

Legalization will impact your business, even if your business has nothing to do with the burgeoning marijuana industry. Recently, there have been a number of publications that counsel owners on the proper way to handle marijuana in the workplace. For instance, more access to marijuana means you will need to revisit your drug policies and make sure everyone is aware of the rules. This impact is rather obvious – but there are other effects on your business that are not as intuitive, but just as important. These “hidden” impacts may surprise you.

For example, you might be surprised that legalization presents a whole host of unique issues when buying or selling real estate. Imagine you are a small auto parts manufacturer located in the city of Pontiac. One of your facilities is in an area that will be zoned for marijuana dispensaries. A weed entrepreneur approaches you and presents a buy-sell agreement offering a significant premium.

Warning – this is not like every other real estate buy-sell! Consult with your attorney and accountant to ensure that you are adequately protected. At a minimum, here are 4 fundamental questions to ask before signing off:

  1. Do you have adequate assurances from the buyer before entering into the “due diligence” period? Perhaps the biggest variable related to the marijuana industry is regulatory approval. The prospective weed entrepreneur must obtain licenses and approvals on both the state and local levels before they can open up shop. There may be local zoning hurdles to overcome as well. The licensing process may take 6-8 months or longer. Accordingly, as a seller – how long are you willing to wait? What are the risks to your ongoing operations during the due diligence period? Is the buyer depositing an adequate earnest money deposit to bind you to the sale? Increased uncertainty may warrant a greater down payment or non-refundable deposit to compensate the seller.
  2. Does the chosen title company handle marijuana-related transactions? Not all title companies will issue a policy where the transaction involved a marijuana-related business. Right now, this is more of a matter of policy rather than the law. However, right now, Westcor appears to be one of the few major insurers that will insure title in a marijuana business property sale. And even they have limits as to the amount of the policy. The worst thing that you can do is deceive your insurer on the nature of the buyer or fail to disclose this critical fact. Like any other kind of insurance, a misrepresentation will likely void any policy and may lead to conflict and even litigation down the road between the parties.
  3. How are you getting your purchase price? You probably already know that federally-regulated banks (which is pretty much all of them) do not accept funds from marijuana-related businesses. This is because while marijuana may be legal under state law, it is still a Schedule-1 prohibited substance (like heroin or cocaine) on a federal level. Accordingly, do not expect the typical wire transaction to work. Rather, your buyer might bring a cashier’s check for a large amount to the closing. Maybe they even want to pay in cash. Be sure to address exactly how the purchase price will be paid well in advance of closing.
  4. Are you violating any other lease or covenant? This is where it is especially critical to involve your attorney. Imagine a situation where you own a strip mall with several tenants and a marijuana business approaches you to either purchase or lease on the of the units. Did you know that selling or leasing to them might violate your leases with the other tenants? Frequently leases for a unit in a strip mall have a covenant that prohibits a landlord from leasing or selling a unit to an entity engaged in “illegal” activity. Again, marijuana is still “illegal” as a matter of federal law. Further, do you have a mortgage on the property? Does the mortgage prohibit “illegal” activity? Last thing that you want in an inadvertent default on either your other leases or to your bank under some obscure provision in a financing document.

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Non-Compete vs. Non-Solicitation: Key Differences that Every Employer Must Know

No matter what industry you are in, you have probably encountered non-compete and non-solicitation agreements. In Michigan, standard pre-employment paperwork often contains obligations for the employee not to compete with the employer (non-compete) and not to solicit the employer’s existing customers or other employees (non-solicitation).

Although these obligations may be in the same boilerplate paragraph of the documents your employees signed before or on that first day of work, non-competes and non-solicitation covenants are very distinct in terms of their enforcement by the courts. As an employer, you should understand the different goals of these two types of covenants, the differences in the applicable law, and also understand that Michigan courts will not automatically enforce an agreement just because an employee signed it.

For the uninitiated, a non-compete agreement obligates the employee to not “compete” with the employer’s line of business for a set period of time after leaving employment. The non-compete not only prevents direct competition (for example, an employee starting his or her own rival company), but also prohibits an employee from working for a competitor located within a certain area. By way of example, an employee working as a sales rep for a medical supply store might agree not to work for any competing medical supply store located within 100 miles of their current employer for a period of 1 year after leaving. In essence, the non-compete seeks to preserve the employer’s competitive advantage by restricting its employees’ ability to go work for a rival or to start their own competitive enterprise.

Because the non-compete restricts the free labor market, the Michigan Antitrust Reform Act of 1984 (MCL 445.774a) requires non-competes to:

  1. Protect a reasonable competitive business interest;
  2. Be reasonable in terms of duration;
  3. Be reasonable in terms of geographical area; and
  4. Be reasonable in terms of the the type of employment or business affected.

What is reasonable is a question of fact that depends on the scope of the restrictions and on the nature of the work to be restricted. For example, an agreement prohibiting a medical supply sales rep from competing for a year within 100 miles of his current territory is likely reasonable. However, the same agreement prohibiting the sales rep from working in the any medical-related field for 50 years anywhere in the world is probably not reasonable.

Also, the non-compete must protect a “reasonable competitive business interest” – meaning that agreements targeting back-room employees like maintenance or unskilled workers may be vulnerable to challenge because restricting those employees furthers no legitimate business interest. Before drafting and requiring a non-compete, an employer should ask themselves exactly what they are trying to protect. If the answer is something concrete like “customers” or “sales contacts” – then the agreement likely meets the reasonable competitive business interest criteria. If they struggle to come up with an answer or the answer is “I don’t want the employee working somewhere else” – then the agreement may not be considered reasonable and may not be enforced.

A non-solicitation agreement on the other hand is a promise not to interfere with the employer’s actual business by stealing their customers and employees. The non-solicitation is easier to enforce than a non-compete for several reasons. First, a non-solicitation agreement is NOT subject to MCL 445.774a because it does not “expressly prohibit[] an employee from engaging in employment or a line of business after termination of employment.” Thus, the statutory “reasonableness” requirements set forth above do not apply. Second, the non-solicitation by its nature is directly tied to legitimate competitive interests. There is little question that a business’s customers and employees are valuable assets. To prohibit an existing employee from interfering with those assets is not much different than prohibiting stealing on the job. Third, a non-solicitation agreement will not apply to a lower-level employee because they are not as likely to have no reason to or opportunity to steal customers or employees. After all, a maintenance tech working at a manufacturing plant is not likely to quit his or her job to start a rival manufacturing plant and steal customers and employees. But a C-suite executive may very well become a direct competitor.

As an employer, it is always a good plan to update your on-boarding documents and employee handbook to ensure that you know exactly what your employees are agreeing to. It is grave mistake to simply print some forms from the internet and cobble together a policy that does not make sense in the context of your business. After all, it pays to have a solid, enforceable document. If there are problems, it is better to find out that the document is problematic before it is held unenforceable by the courts.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2021 Artaev at Law PLLC. All rights reserved.

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