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Single Member LLCs

March 23, 2012 / in

A recent decision of the Supreme Court of Florida has called into question the
previously-held belief that a creditor of an individual could not reach the assets of the
individual’s single-member limited liability company (LLC).  In Olmstead v FCC, decided in
June, 2010, a divided panel of the Florida high court determined that a creditor of the
sole member of an LLC could force the individual debtor to “surrender all right, title, and
interest in the debtor’s single-member LLC to satisfy an outstanding judgment.”

This language may send shivers down the spines of those individuals who thought the
assets owned solely by their single-member LLC’s were completely safe from judgment
creditors of the individual.  Take, for example, an individual who purchases a parcel of,br /> real property, and does so by forming a single-member LLC, with title to the property
vested in the LLC.  Now, presume this individual is sued and a judgment is entered
against him or her.  Under the rationale of the Olmstead ruling, the creditor could seize,
control of this person’s membership interest and essentially take title to the real
property. This hypothetical presumes there is no mortgage interest in the real estate.

This possible result is sometimes referred to as “reverse veil piercing,” meaning a
creditor can “pierce the corporate veil” and reach past the limited liability into the
personal assets of the shareholder(s).  This seems to go against all reasonable beliefs
about the asset protections afforded by an LLC.  Thankfully, a more careful review of the
Olmstead decision, the Florida statutes it relies on, and the similar statutes in Michigan
reveals a key difference in the applicable statutes that makes a decision like that in
Olmstead unlikely to surface in the Wolverine State.

In Florida, the applicable statute authorizes a judgment creditor to be appointed as an
“assignee” by virtue of a “charging order.”  The judgment creditor then can take the
interest of the sole member in the LLC based on this provision:

“Unless otherwise provided in an operating agreement, an assignee of a limited liability company may become a member only if all members other than the member assigning the interest consent.”

The Olmstead court determined that, in the case of a single-member LLC, the set of
“other members” was “empty,” and as such the judgment creditor needed no consent
at all, and could simply stand in the shoes of the single member and seize his interest in
the company’s assets.

Michigan’s sister statute, MCL 450.4506, is nearly identical to the Florida statue, except
it contains the following second sentence:

“an assignee of a membership interest in a limited liability company having 1 member may become a member in accordance with the terms of the agreement between the member and the assignee.”

This seemingly innocuous language is vital because it keeps the right to grant LLC
membership in the hands of the sole LLC member, rather than an “empty set” of non-
existent members. It is hard to imagine a member willingly agreeing to allow a judgment
creditor to become a member by virtue of its assignment of that member’s interest.  In
turn, this means that the judgment creditor, as a non-member, does not step into the
shoes of the individual member, and cannot seize the member’s interest in the
company’s assets.

It would appear that the Michigan Legislature purposely clarified this layer of protection
for single-member LLC’s, to keep them from being subjected to “reverse veil piercing.
”  As such, while the Olmstead case should be a warning sign, it should not signal the end
of the single-member LLC in Michigan as an asset protection tool in the proper case.

For more information regarding asset protection or any business matters, contact Keith
Jablonski by email at kjablonski@bhlaw.us.com or call (248) 645-9400.

 

 

This publication is distributed with the understanding that Beier Howlett, P.C. is not
rendering legal or other professional advice or opinions on specific facts or matters and,
accordingly, assumes no liability whatsoever in connection with its use.  Forward your
comments, change of address, or additions to our mailing list at
Feedback@bhlaw.us.com.

 

Is Your Liability Waiver Unenforceable?

March 23, 2012 / in

Toss out the liability waivers and replace them with an increased insurance policy? According to a recent decision by the Michigan Supreme Court, the traditional pre-injury liability waiver, signed by parents to allow their child’s participation in a range of activities, will no longer hold up in court.

Although the liability waiver has long been the accepted release form for organization hosting activities from day camp to travel sports, on June 18, 2010, the Michigan Supreme Court held that a pre-injury waiver is unenforceable under Michigan’s common law. The Court noted that a parent or guardian has no authority to bind his child by contract (absent special circumstances), and a parental pre-injury waiver is a contract. Michigan’s common law rule is that a minor also lacks the capacity to contract for his or herself. The court also held that it is clear a minor cannot empower an agent or attorney to act for him in Michigan.

The case, Woodman v Kera LLC, 2010 Mich LEXIS 1125, involved a five-year-old child who was injured after falling off an inflatable at a birthday party held in a Bounce facility. Although the parents signed a waiver before the child engaged in the activity, they were able to successfully sue the facility for negligence after the injury.

Ramifications of this decision are expected to be far-reaching, as organizations of all types are left open to liability. From school districts hosting field trips to soccer teams traveling to games, the hosting organization is no longer protected by a parent’s signature on the pre-injury waiver.

Although a 2009 Estates and Protected Individuals Code (EPIC) proposed parents be allowed to sign enforceable waivers, the code was adopted without this provision. A child can be bound by a parent’s act when a statute grants that authority to a parent. Legislation to modify the common law rule at issue was introduced into the Legislature on May 19, 2009 – HB 4970. On March 10, 2010 the House Judiciary Committee reported the bill with a substitute and recommended that the House of Representatives adopt the statute. The HB 4970 would add Section 5109 to the EPIC. However, as of July 26, 2010 the statute has not been adopted.

Justice Young, in dicta, suggested that perhaps an alternative to the pre-injury liability waiver is a parental indemnity. However, the other Justices commented that such issue was not before the Court and would likely be held to directly contravene the compelling policy reasons that exist for the historic common law rule. Furthermore, courts in a number of States have held that such indemnity agreements are unenforceable because they produce the same effect as parental pre-injury liability waivers.

Currently, with no clear solution to the liability issue at hand, organizations hosting activities for minors should consult with their attorneys and insurance providers to determine how best to protect themselves from claims of negligence, whether it be through additional safety measures or insurance coverage. Liability waivers should continue to be used in the interim to inform your clients of the risks involved in participation. Beier Howlett will keep you informed of any updates to the EPIC that would offer solid legal protection to your organization.

For more information, contact Victor Veprauskas at Beier Howlett, P.C. (248) 645-9400, or email vveprauskas@bhlaw.us.com.

The L3C

Michigan’s New Business Hybrid Offers Benefits of Non-Profit Status With Reduced Regulatory Structure

Michigan is one of only six states that currently offers a new, legal form of business entity: the low-profit limited liability company, or L3C. The new structure is gaining momentum nationwide, yet many have never heard of the advantages afforded by this hybrid between a non-profit and for-profit venture. The designation was created in Michigan in 2009 to help spur business and advance socially beneficial ventures.

 

Designed specifically to bridge the gap between for-profit and charitable sectors, the L3C is similar to a traditional limited liability corporation, or LLC. However, its primary purpose is not to make a profit, but to achieve a socially beneficial objective. (Though making a profit is allowed.) The L3C must follow these requirements:

  1. The company must “significantly further the accomplishment of one or more charitable or educational purposes,” and would not have been formed but for its relationship to the accomplishment of such purpose(s);
  2. “No significant purpose of the company is the production of income or the appreciation of property” (though the company is permitted to earn a profit); and
  3. The company must not be organized “to accomplish any political or legislative purposes.”

Importantly, these three requirements closely mirror those of the IRS rules for “Program Related Investments,” making L3C businesses eligible to receive PRIs – a distinct advantage designed to spur economic growth. However, L3C entities do not qualify as charities and therefore are not exempt from taxes, nor are investments in an L3C tax deductible, as they would be for a 501c3 non-profit.


The L3C legal structure is similar to the LLC in many ways:

  • The L3C offers a flexible ownership structure, wherein each member’s management responsibility and financial stake may vary according to individual needs.
  • The L3C’s members enjoy limited liability for the actions and debts of the company.
  • The L3C is classified as a “pass-through entity” for federal tax purposes, like a partnership or sole proprietorship, so no federal income tax is imposed on the L3C itself.

Of the many advantages an L3C offers, perhaps the most attractive is that it offers the operating efficiencies of a for-profit along with a reduced regulatory structure. As an LLC, it can bring together foundations, trusts, endowment funds, pension funds, individuals, corporations, other for-profits and government entities into an organization designed to achieve social objectives while also operating according to for-profit metrics. Importantly, a foundation or business owner retains ownership and management rights, as opposed to the board-managed, non-profit operating status requirements.

What types of businesses would best qualify as an L3C?  It may provide a new structure for museums, concert halls, recreational facilities and the hundreds of thousands of nonprofits that perform service for the government under contract.  It may possibly help the flagging newspaper industry as well, as the designation is tested under this arrangement.

In Michigan, the L3C legislation was introduced by Traverse City Republican State Senator Jason Allen on July 24, 2008. Senate Bill 1445 was signed into law on January 16, 2009 as an amendment to the Michigan Limited Liability Company Act by Governor Granholm. The bill was supported by the Council of Michigan Foundations and the Michigan Department of Labor and Economic Growth.

For more  information on the L3C designation, contact Peter Gojcaj at pgojcaj@bhlaw.us.com.

 

News From The Firm

March 23, 2012 / in

Beier Howlett is now on facebook!  For regular updates, news and information from the firm, join us on our facebook page.

Jeff Haynes, chair of the firm’s environmental law practice group, announces the launch of the Michigan Environmental Law Deskbook, second edition, available at www.envdeskbook.org . Haynes served as co-editor and contributing writer for the Deskbook, a free service of the State Bar of Michigan prepared by its Environmental Law Section. The Deskbook provides up-to-date legal analysis of environmental law issues, and includes hyperlinks to environmental statutes, rules and cases.

Peter Gojcaj has been named to the board of directors for the Albanian American Chamber of Commerce.  Gojcaj is a founding member of the newly formed, Detroit-area organization.

Beier Howlett attorneys were recently spotted volunteering at the Woodward Dream Cruise, helping to control traffic throughout downtown Birmingham.

CONGRATULATIONS

 

Beier Howlett has been named to the inaugural edition of the U.S. News Best Law Firms rankings.

“U.S. News is the world’s leading publisher of institutional rankings based on both objective data and peer evaluations,” says Steven Naifeh, President of Best Lawyers. “By combining hard data with peer reviews, and client assessments, we look forward to providing users with the most thorough, accurate, and helpful rankings of law firms, both as providers of legal services and as places to work.”

Three firm attorneys were also selected by their peers for inclusion in The Best Lawyers in America®:

Tim Currier, CEO of the firm, was named in the field of municipal law;
Jeff Haynes was named in the field of environmental law;
Stephen Jones was named for probate and estate planning.

Stephen Jones of the firm’s Probate & Estate Planning Practice has also been named a Five Star Wealth Manager by HOUR Detroit and dBusiness magazines. Less than 7% of metro Detroit wealth managers are named to this list. Jones specializes in taxation and will preparation.

Tim Currier, CEO, along with partners Jeff Kragt and Frank Galgan, have been named to the annual Super Lawyers list. Only 5% of Michigan attorneys are included in this list. The selection process includes a statewide survey of lawyers, independent evaluation of candidates by the attorney-led research staff, a peer review of candidates by practice area, and a good-standing and disciplinary check. This is Currier’s fifth consecutive inclusion on the list, and Kragt’s second.

 

Landlord – Tenant Primer

March 23, 2012 / in


Owning rental property – be it residential or commercial – can be a lucrative business. But being a landlord also has its share of pitfalls and land mines. A prudent property owner who is careful to avoid some very simple mistakes will find that the business of owning property can have a lot fewer headaches.

Below are some helpful pointers to assist both the novice and experienced landlord with some common misconceptions and assumptions about the landlord/tenant relationship.

The biggest myth about rental property is that there is one perfect “boilerplate” lease. This is simply not true. In the commercial context, the types of expenses that a tenant pays vary greatly depending on the type of space being rented. Shopping malls, for example, tend to have the most landlord-friendly leases, oftentimes even expressly providing for acceleration of all rent due upon a default by the tenant. Conversely, office suites presently are in low demand, and so many tenants are finding that they can negotiate very favorable terms that include free rent, landlord-funded build-outs, and “tenant-improvement” funds.

The key to any lease is that the parties signing it have a firm grasp of its terms. First and most obvious of these is a written lease agreed upon and signed by both parties. Next, the parties must know who the actual tenant is. Too often, a landlord is in such a rush to sign a tenant to a lease, it forgets to ascertain who its tenant really is. If the tenant is an LLC or corporation, who are its members or shareholders? Often, it makes sense to ask for a personal Guaranty.

On the flip side, as a tenant, one must ask whether he or she as an individual is going to be personally liable for rent if the business fails. These matters must be discussed before the lease is signed. At that point, once the parties know the ground rules, it makes sense to have attorneys experienced at lease drafting compile the finished product.

Invariably, a landlord will find itself with a problem tenant.  Everyone knows what an eviction is, but a surprising number of landlords don’t know how to properly begin one.  If a tenant does not pay rent when due, the landlord has the right to send the tenant a Demand for Possession.  This document may be sent to the tenant via regular mail (certified mail is NOT required and NOT recommended) or hand-delivered, and gives the tenant 7 days to pay the past due rent.  If the rent is not made current, the landlord may file a Complaint in the local District Court to evict the tenant.
If the tenant is current on the rent, and the landlord still wants to end the tenancy, the landlord must give a 30-day notice to the tenant.  There are exceptions in residential matters that allow for an almost immediate turnaround on an eviction, but these are limited to situations where a tenant maintains a drug house or carries on other criminal activity.

One of the most common problems landlords face is the actual court process. Some experienced landlords would prefer to handle the court hearings themselves. However, it must be clear that a landlord who is anything other than an individual cannot be represented by anyone but a licensed attorney in any court proceeding.

Some landlords who own property in the name of an LLC or corporation have told me that they represent their companies and evict tenants.  Others have called me after trying this and receiving a stern lecture from a District Court judge about the “unauthorized practice of law.”  While some courts may allow this practice by non-lawyers, for whatever reasons (lack of oversight or the old “turning of the head”), it is not legal.  The best practice is to contact an experienced landlord-tenant attorney at the first sign of a problem tenant, and work together to craft the best strategy to deal with the problem.
Keith C. Jablonski is a partner with the Beier Howlett business law group.  He counsels clients in a wide variety of landlord-tenant matters, including lease drafting and evictions

For more information regarding landlord and tenant law, contact Keith Jablonski atkjablonski@bhlaw.us.com or call (248) 645-9400.

Beier Howlett is now on facebook and LinkedIn. For regular updates, news and information from the firm, we invite you to “Like” us on facebook and join our network on LinkedIn.

 

This publication is distributed with the understanding that Beier Howlett, P.C. is not rendering legal or other professional advice or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.  Forward your comments, change of address, or additions to our mailing list at
feedback@bhlaw.us.com.

 

News From The Community

March 23, 2012 / in

For the 11th straight year, Beier Howlett is supporting the Wish-A-Mile 300 Bicycle Tour. The  “WAM” is a three-day, three-hundred mile bicycle tour across Michigan, from Traverse City to Chelsea, Michigan. This is the Make- A-Wish Foundation’s single largest fundraiser, which is responsible for granting hundreds of wishes each year for Michigan children with life-threatening medical conditions.

Two of our attorneys, Michael Salhaney and Joseph Yamin, will be biking the 300 mile ride this year. Last year this event raised more than $1 million dollars to grant wishes.

Attorney Victor Veprauskas will serve on the legal committee for 1000 Conversations About Mental Health in Lake Orion. The committee is associated with MINDS: SHINING LIGHT ON MENTAL HEALTH, an awareness program that aims at educating young people about mental illness.

 

News From The Firm

March 23, 2012 / in

Beier Howlett has been selected as legal counsel for the City of Orchard Lake Village and the Wayne County Metropolitan Airport Authority Ethics Board.

Michael Salhaney will lead the municipal group in its representation of the City of Orchard Lake Village. Tim Currier will lead the municipal group in its representation of the Wayne County Metropolitan Airport Authority Ethics Board, which includes both the Detroit Metro Airport and Willow Run Airport.

Our newly updated Web site at www.bhlaw.us.com now features more news and expertise from our attorneys.  Visit our News page for media coverage, press releases and links to our e-newsletters and facebook news feed.

After serving for more than four decades on the bench of the Oakland County Probate Court, the Honorable Eugene Arthur Moore (left)  has returned to our firm in an of counsel role.

Congratulations to attorney Stephen Jones for being named as a 2011 FIVE STAR Wealth Manager in the Estate Planning category.

Keith Jablonski recently negotiated and obtained a substantial “policy limits” settlement for a client who was seriously injured in an automobile accident.  In addition to his Business Law practice, Keith also specializes in the review and handling of automobile accident cases.

 

News From The Community

Marsh 22, 2012 / in Municipal Law

Gilda’s Club Benefits From MSU, UofM Rivalry

Beier Howlett hosted a tailgate fundraiser for the University of Michigan and Michigan State game last fall. The firm hosted the event to help sponsor “Gilda’s Club,” an organization that offers free network and support groups, workshops, education and social activities for those with cancer. Beier Howlett was able to raise money as well as kitchen supplies to help them host their meetings.

The firm also supported the Raise the Roof for Affordable Housing event recently, donating U of M football tickets for the live auction and participating in the fundraising dinner. As a result of the event, Community Housing Network supporters contributed more than $67,000 to help people with disabilities and those who are homeless get into long-term, successful housing.

 

Social Media Policy

March 22, 2012 / in Bussiness Law, Written by Mike Gibbons

As employees of a company, we are all accountable for how we speak about that company’s products, services, and operations, whether in person, on the phone, in print or online.

The following sample Social Media Policy is a valuable employer reference when reviewing any company’s Employee Manual. The policy serves to remind employees that before they post information online that relates in any way to their employer, it pays to consider some guidelines. It also attempts to draw a line between protected speech and speech that could subject the employee to discipline or discharge.

OVERVIEW

“Social media” is also called “social networking,” but this Policy will use the term “social media” only. The purpose of this Policy is to provide guidance on the expectations of [Company Name] (the “Company”) regarding the use of social media by its employees in an appropriate manner.

While the Company respects your privacy and your right to free speech, you also have responsibilities when you voluntarily put information into the public domain. If you engage in conduct while using social media (as defined below) that violates the Company’s policies, you could be subject to disciplinary action up to and including termination, even if the conduct occurs off the Company’s premises or on your personal, non-work time.

According to two recent surveys from Technisource and its parent company, SFN Group.

DEFINITION

Social media refers to activities that integrate technology, social interaction, and the sharing of words, pictures, videos, and audio, such as:

  • multimedia and social networking sites like Myspace, Facebook, Twitter, flickr, and YouTube;
  • social networking sites with an emphasis on professional exchange of information and development of business, such as LinkedIn;
  • blogs, microblogs, wikis, message boards, social bookmarking Web sites, and other community-based sites or collaboration tools;
  • social commerce postings, like product or experience reviews; and
  • any other site where information (test, images, video, sound, or other files) can be uploaded or posted.

GUIDELINES

As employees of the Company, we are accountable for how we speak about the Company’s products, services, and operations, whether in person, on the phone, in print, or online. Before you post information online that relates in any way to the Company, become familiar with and consider the following guidelines.

Think before you “send.” Always remember to think about what you plan to say, and how you plan to say it, before composing information and sending it out via social media. Once your thoughts are “out there,” it is difficult, if not impossible, to take them back. Do not communicate information when you are excited or angry. You may not like what you sent when your mood has passed.

  1. Keep confidential information confidential. Any statement, whether made online or offline or though images, videos, or sound files, related to or referencing Company products, services, operations, customer, vendors, or other employees, regardless of the media or form used, must strictly comply with the Company’s practices, policies, and procedures. Keep any Internet-based conversation about the Company focused on publicly known information. If you are not sure whether something is appropriate to post, double-check what you have composed and get a second opinion from your supervisor before sending.
  2. Be accurate, truthful, and considerate in your posts. Be constructive, provide appropriate context, and think about the impact of your comments on our customers, vendors, other employees, and board members. Words matter, especially when employees discuss business-related topics. Anyone, including customers, vendors, competitors, your supervisor, and other Company employees can find and see postings put out in the public domain. Be thoughtful about what you share and how you share it—just as you would at home.
  3. Be respectful. Respect for others is mandatory. Do not use ethnic slurs, personal insults, or obscenity, or engage in any conduct that would not be acceptable in the workplace, at least where those comments relate to the Company in any way.
  4. No privacy exists. The Internet is fully searchable, which means that anyone with an Internet connection, including your co-workers, our customers, vendors and competitors can find even the most obscure information. Be careful about posting personal information online, whether it is information about you, other employees, or customers. Personal information can include photos, addresses and telephone numbers, information about where and when you work, or anything else that could compromise your safety or that of your team members or our customers.
  5. Possible legal ramifications. Remember that individuals can be held legally accountable for comments deemed to be defamatory, slanderous, libelous, obscene, or proprietary, whether they pertain to the Company, another organization, or an individual person.
  6. Identify yourself. You must make it clear that you are speaking for yourself and not on behalf of the Company. Speech that appears to represent the Company, even remotely, takes on the appearance of an official position statement and is not permitted in any circumstance. Use a personal e-mail address as your primary means of identification. You may use your Company e-mail to convey information on the Internet only in accordance with Company policy. The Company’s intellectual property, logos, trademarks, and copyrights may not be used in any manner.
  7. Communicating during working hours. While the Company does not prohibit minimal communication with friends and family during working hours, we expect you to use good judgment and not allow your social media activity to interfere with your work commitments, in accordance with Company policy.

For more information on Social Media Policies for your company, contact Michael Gibbons or call (248) 645-9400.

 

News From The Firm

March 21, 2012 / in Municipal Law

Beier Howlett is proud to announce Mary Kucharek as a partner in the firm.  Mary is a member of the firm’s municipal practice group.  Specializing in prosecutions and criminal law, she frequently speaks to community groups about under-age substance abuse.

Congratulations to attorneys Tim Currier, Stephen Jones and Jeff Haynes, named to the Best Lawyers in America for 2012.