Several years ago I moved my family to the Grand Rapids Area. As a new member of the West Michigan community I asked myself one fundamental question: where am I going to serve in my local community…
Source: A Call to Young & Future Leaders
Trending Towards Social Entrepreneurship: Update on Michigan’s Benefit Corporation Legislation.
House Bills 5710, 5711 & 5712 were introduced on May 31, that would allow BCorps to be formed under Michigan Law.
Although the State House has taken no formal action since June 1, in late September the House Fiscal Agency issued a Fiscal Analysis on the BCorp bills, check it out here.
The Analysis provides good background on what the legislation would do. This is helpful for those who are not overly familiar with BCorps in general.
Education on the “why” for BCorps.
Interested groups and local politicians are educating the public on why BCorp laws would be a good thing for our state.
State Rep Hank Vaupe gave a discussion to a local chamber group on B-Corps in September:
As Rep. Vaupe indicated “benefit corporations provide an opportunity for businesses to use the markets, rather than traditional charity giving, to advance their philanthropic missions.”
BCorp Certification is Trending in Michigan…
Over the last several months more and more local businesses have becoming Certified B Corps through BLabs. West Michigan has the most concentration of BCorp businesses in the State.
Recent headlines in Grand Rapids have brought attention to the need for businesses to ask the question: Am I working to build a better community?
B-Corp certification is one way (certainly not the only way) for businesses to hold themselves accountable to being a good community partner.
Why has it taken so long to get here?
Over the last several years Michigan legislators have introduced BCorp legislation – to no avail.
Check out this handout from Rep Barnett several years ago in support of the BCorp legislation he proposed in September 2010.
I found particularly interesting the very last section – it provides some comment on why some Michigan businesses may have been averse to the introduction of BCorp legislation. Feel free to read it and reach your own conclusions.
Trending Towards Social Entrepreneurship.
The trends all show that millennials and our up and coming workforce want to to be part of business as a force for good in our local community.
Questions? Comments?
Jeshua@dwlawpc.com
Connect with me on Twitter: @JeshuaTLauka
Business Law Update: Why Your Operating Agreement Matters.
Business Owners and Entrepreneurs: Let me paint you a picture:
You decide to go into business. You’ve identified a business partner. You and your business partner decide the details of who is going to contribute what (capital, finances, “sweat equity”, etc..).
Your startup is now off and running!
Your business does not go as expected.
You have a few “hiccups” that were unanticipated.
Your business needs some emergency cash flow.
You and your business partner agree (verbally) that you will contribute some extra funds out of your savings, and your partner will do the same.
Your partner does not contribute what you verbally agreed to….
Unfortunately, these scenarios can oftentimes find themselves in Court.
The Michigan Court of appeals issued a recent business law opinion on September 20, 2016.
The Case is Copacia v Ginzinger (on reconsideration of its prior decision.)
This case illustrates very important reasons why you want your LLC to have a fully executed Operating Agreement in place.
The Facts:
Plaintiff and Defendant formed an LLC in 1998 as equal members. 50/50.
The purpose of the LLC was to own a parcel of undeveloped land to develop site condos.
side bar-
An initial question you may be asking yourself: Why should I form an LLC?
The primary reason – limit your personal liability.
“Once a limited liability company comes into existence, limited liability applies, and a member or manager is not liable for the acts, debts, or obligations of the company. “Duray Dev., LLC v. Perrin, 288 Mich. App. 143, 151 (2010)
Ok, now going back to the facts…
As the Court tells us in its opinion,
“the development did not go as planned by the parties.” Cocacia, Id. at page 1.
The financing of the development had to be restructured – Plaintiff and at times his spouse provided additional funds. Copacia, Id at page 1.
Thereafter, Plaintiff sued his business partner for “50% of the operating expenses and costs pursuant to a purported oral agreement between the parties.” Id. pg 1-2.
Defendant counter-sued, he asked the court to declare that $135,000 held in escrow should be disbursed according to the proper adjustment of the parties’ membership in the LLC (50/50). Id.
Law: The Business Partners’ Operating Agreement Controlled.
An Operating Agreement is a contract between the owners of the LLC.
“The LLC operating agreement is the written agreement regulating the parties conduct in this matter. See MCL 450.4102(2)(r)(footnote omitted). An operating agreement is a contract between the members of a limited liability company and is interpreted according to principles of contract interpretation.” Copacia, Id. at pg 2.
The Court went on to hold that the parties’ operating agreement is a contract that is analyzed under ordinary contract principles, citing Holmes v Holmes, 281 Mich App 575, 594; 760 NW2d 300 (2008). “The language of a contract should be given its ordinary and plain meaning.”
As the Court noted, analyzing under the plain meaning, the signed operating agreement indicated that no interest accrues on any capital contribution and no member shall have any right to withdraw or to be repaid any capital contributions except as provided in the operating agreement. Id. pg 3.
Plaintiff’s argument is essentially: Ginzinger verbally agreed to compensate me for the additional funds that me and my wife contributed!
Michigan law is clear, MCL 450.4302 “a promise by a member to contribute to the [LLC] is not enforceable unless..in writing and signed by the member.” See Copacia, Id. at pg 4.
The Court found that the parties’ business relationship was governed by the Operating Agreement. Period.
If Copacia expected to be repaid the funds he contributed, a few things he could have done:
- loaned the funds under an executed promissory note; or
- have the parties’ Operating Agreement revised and signed by him and his business partner.
A few take aways:
If you are going into business with a business partner there are a few things you want to do:
- Limit your Liability – form an LLC.
- Execute an Operating Agreement (all parties need to sign it); and
- Any revision to that relationship must be signed in writing.
Questions? Comments?
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Recent Court Case Provides Good Lessons For Real Estate Investors.
Its Wednesday and I wanted to share a court of appeals case that came out on September 15th.
Case: Key Bank v Lake Villa Oxford Assoc, et. al.
Lesson: be careful when drafting “personal guarantees”
I’ve written in the past about personal guarantees.
This particular case involved a real estate development gone bad.
Defendant, developer, Lake Villa and its principal Burnham apparently needed additional funding for the project.
Christopher Investment loaned Lake Villa Rochester $4.45 million, the loan was secured by a second mortgage on the subject property and Burnham, personally guaranteed the loan.
(Note – If I was an investor, and I knew that my mortgage was going to only be a 2nd mortgage, a personal guarantee from the borrower’s owner(s) is definitely a good idea.)
As it turned out, Lake Villa defaulted on its primary loan to KeyBank. KeyBank foreclosed on its mortgage.
Christopher assigned the mortgage and guarantee to Homestead Properties.
When Burnham and Lake Villa defaulted on its loan to Christopher, Homestead declared a default and sought to collect.
Problems arose in litigation.
Burnham claimed the guarantee was not assignable because the specific language in the personal guarantee provided “This Agreement shall be binding and inure to the benefit of the parties and…permitted assigns.” (emphasis mine). Burhman argued – “I never granted permission!”
Keep in mind, that there was no real argument that Burnham defaulted on his repayment obligation. The only relevant question was whether or not Homestead could enforce its rights as an assignee under the personal guarantee.
The trial court agreed!
The case went to a Jury Trial, where a jury returned a verdict in favor of Burnham individually, claiming that the assignment did not intend to benefit Homestead!
However the Court of Appeals did not agree with the Jury or with the trial court.
The Court of Appeals cited the following long standing rules of contract law:
- The parties are free to contract as they see fit. Citing Coates v Bastian Bros, Inc, 276 Mich App 498, 503 (2007).
- “Under general contract law, rights can be assigned unless the assignment is clearly restricted.” (emphasis added) Citing Burkhardt v Bailey, 260 Mich App 636, 652 (2004).
- The Court cited 3 Restatement Contract 2d for the notion that “contractual rights are assignable so long as the assignment is not ‘validly precluded by contract'”. KeyBank, pg 4.
- Michigan Courts have “striven to uphold freedom of assignability.” citing Detroit Greyhound Employees Fed Cred Union v Aetna Life Ins Co, 381 Mich 683, 689 (1969).
Conclusion:
The Court of Appeals found that given the legal authority in favor of freedom of assignability, unless clearly restricted, the language “permitted assigns” did not rise to the level that would forbid the assignment.
Burnham was therefore on the hook for the repayment of the debt under the personal guarantee.
Lesson:
Real estate investors: make sure the contractual language in your loan and security documents is clear. Particularly when executing personal guarantees. Courts have recognized that personal guarantees must be “strictly interpreted”. Bandit Indus, Inc v Hobbs Int’l, Inc 463 Mich 504 (2001).
Here, the language was not clear. The result – undoubtedly significant attorney fees expended in pursuing a jury trial and an appeal.
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Why Startup Fintech Company “Lemonade” is so Intriguing.
CrowdFundInsider just posted an article on a new Fintech Startup – Lemonade. You should check the article out here
I’ll start by answering a basic question:
(By the way – the photo is one I took last year from Central Park – my limited experience with New York.)
What is Fintech?
According to FinTech Weekly:
Financial technology, also known as FinTech, is a line of business based on using software to provide financial services. Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systemsand corporations that rely less on software.
The idea of a business’ purpose of “disrupting incumbent”…anything is intriguing to me.
Some systems need to be disrupted. I recently posted my own thoughts on being a disruptive force for good.
To that point, Lemonade seemingly fits the bill. Look no further than it’s mission statement on its homepage: “Instant everything. Killer prices. Big heart.”
About Lemonade:
According to its website, Lemonade is the “World’s First P2P Insurance Company” (Peer-to-Peer).
Lemonade provides Renters and Homeowners Insurance to New Yorkers.
According to the CrowdFundInsider article: “Lemonade has positioned its platform in a David vs. Goliath battle to challenge antediluvian insurance incumbents by providing a far better service at a superior price.”
Who doesn’t root for the underdog?
Technology Driven.
Shai Wininger, co-founder and President of Lemonade, explained to CrowdfundInsider that technology drives everything at Lemonade.
“From signing up to submitting a claim, the entire experience is mobile, simple and remarkably fast. What used to take weeks or months now happens in minutes or seconds. It’s what you get when you replace brokers and paperwork with bots and machine learning.”
Disruptive Force for Good.
Daniel Schreiber, co-founder and CEO of Lemonade. told CrowdfundInsider “the opportunity is unusual. Disrupting an industry that has not changed for a hundred years ”
According to an article posted yesterday by Venture Beat:
“Lemonade is also setting out to combat existing models through an annual “giveback,” where it donates unclaimed money to good causes.”
Conclusion.
It it is way too early to say what impact Lemonade will have, However, I love the concept of this startup –
a. taking a risk doing something different;
b. disrupting business as usual;
c. for the good of others.
That’s social entrepreneurship at its finest.
If you are a homeowner or tenant residing in New York, this company is worth checking out.
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Encountering the homeless in Downtown Grand Rapids and Mel Trotter’s Season of Hope.
Occasionally when I am walking in downtown Grand Rapids I will run into a guy with dirty clothes, smelling bad, looking homeless. When this guy asks me for money, my gut reaction is to want to help. Honestly though, oftentimes I have no idea what is the right response. I will invariably pray for them, but I’m faced with the hard decision:
- do I give them money?
- do I buy them food?
- do I simply direct them to Mel Trotter?
“Giving to those in need what they could be gaining from their own initiative may well be the kindest way to destroy people.”
This is a quote from Bob Lupton, from his book Toxic Charity.
Join me in hearing what Bob Lupton has to say on these issues and more.
On Wednesday October 12, 2016 Mel Trotter Ministries will host its 2nd Annual Season of Hope Event at the Frederik Meijer Gardens with Bob Lupton as our guest speaker.
We are still looking for corporate sponsors. Tickets are available here
Thank you to our Honorary Leadership Committee!
Committee Chair: Greg & Meg Willit
Rick & Peg Breon
Gordon & Karla Oosting
Rick & Melissa DeVos
Janis Petrini
James & Nancy Engen
Jerry & Marcia Tubergen
Kenneth Graham & Linda Vos-Graham
Carol & David Van Andel
Tom & Marcia Haas
Harold & Lori Voorhees, Jr.
Cate & Sid Jansma, Jr.
Larry & Lisa Walt
E-mail: Jeshua@dwlawpc.com
http://www.dwlawpc.com
Twitter: @JeshuaTLauka
Grand Rapids’ Businesses: Lessons from a Recent West Michigan Court Case- Read Those Terms and Conditions.
Business owner – let’s say you just signed a purchase order and agreed to buy some product for your business.
The product is not what you expected. In fact, its not going to help you in your business at all.
You don’t pay for it.
You get sued.
You take the contract to your lawyer and at the bottom of the contract are the words“Subject to Seller’s Terms and Conditions”.
You can’t be bound by those terms you never even looked at (whatever they are), right?
W-R-O-N-G.
On September 8th a Court of Appeals case was issued stemming from a business dispute initially decided in the Kent County Business Court. The case: Naturipe Foods, LLC v Siegel Egg Company, Inc.
This case involved a business contract dispute.
Naturipe offered to sell Siegel Egg Co. frozen blueberries.
Seigel Egg wrote in under the Offer “Grade A” and crossed out the reference to Georgia Blueberries.
Near the end of the first paragraph of the opinion tells you what you need to know about this case: Below DaCruz’s signature read, “Subject to Seller’s Terms and Conditions.”
Plaintiff contracted to deliver 316,800 lbs of frozen Michigan blueberries to Defendant.
Plaintiff delivered two shipments.
The Blueberries delivered were “sub grade A” – so Defendant refused to pay.
So, Plaintiff sued Defendant for breach of contract.
The Trial Court held Defendant was liable, and the parties had a jury trial on damages.
The Jury awarded Plaintiff $723,578.83 – broken down to include costs, interest, and:
$327,644.98 in damages
$201,900.65 in attorney fees (yes – a lawsuit is expensive!)
Defendant appealed. Defendant argued that the Trial Court erred when it held that Plaintiff’s “Terms and Conditions” were incorporated into the parties’ contract.
You can check out some of my prior posts on Terms and Conditions. “TnCs” are important to review closely. They “allocate risk” among the two parties to the contract.
In this case, the Defendant asked the question: Can a business just state in its contract that the contract is “subject to Seller’s Terms and Conditions”?
The Court of Appeals told us a resounding – YES.
Law: Terms and Conditions are Part of the Contract.
The Court of Appeals laid out the law for clearly:
“Where one writing references another instrument for additional contract terms, the two writings should be read together.” Forge v Smith, 458 Mich 198, 207; 580 NW2d 876 (1998). That is, “[i]n a written contract a reference to another writing, if the reference be such as to show that it is made for the purpose of making such writing a part of the contract, is to be taken as a part of it just as though its contents had been repeated in the contract.” Id. at 207 n 21 (citations and quotation marks omitted).
Where additional documents or terms are made part of a contract by reference, the parties are bound by those additional terms even if they have never seen them. (Emphasis added) See Ginsberg v Myers, 215 Mich 148, 150-151; 183 NW 749 (1921). “It is well settled that the failure of a party to obtain an explanation of a contract is ordinary negligence. Accordingly, this estops the party from avoiding the contract on the ground that the party was ignorant of the contract provisions.” Scholz v Montgomery Ward & Co, Inc, 437 Mich 83, 92; 468 NW2d 845 (1991).
Take Away on Terms and Conditions
- Read the Terms and Conditions
Enough said.
2. Implement Terms and Conditions
I recommend business clients to always include a Terms and Conditions page that is either attached to the back of their physical Purchase Orders, or is included in their Website and incorporated by reference. The Terms and Conditions will, essentially, allocate risk and liability, on such items like:
- warranties (what is the provider guaranteeing and what isn’t it?)
- payment terms (when and how is payment accepted? Late fees?)
- remedies (what is your recourse in the event the goods aren’t what the buyer expected? Are your damages limited to a refund, or can you get related damages as well? Can attorney fees be covered?
- Venue – (where can you bring your dispute? An arbitrator? Who pays the fees? Is the location of the arbitration specified?
3. Enforce Terms and Conditions
And of course, its important that a business enforces its terms. I have had clients who have been sued before and forgot of their advantageous language in their terms and conditions. If a business is sued and it waits too long in the litigation before raising its right to arbitration, the court very well might consider the business to have “waived its right” to arbitration. Although, “Waiver of a contractual right to arbitrate is disfavored” by the Courts. Best v Park W Galleries, Inc, No. 305317, 2013 WL 4766678 (Mich Ct App September 5, 2013), app den 495 Mich 979 (2014).
Questions?
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Michigan Construction Law Update
Real estate transactions can be complex.
Real estate lawsuits can be complex.
Sometimes a statute or case does not speak directly on point to the exact circumstances of a legal dispute.
This latest case is a good reminder of those points.
Today I read a construction law case issued on September 13. The case involved an issue of first impression – an issue not decided before, under the Michigan Construction Lien Act.
You can check out the case of Stock Building Supply, LLC v Crosswinds, et al.
This case involved a Construction Project gone bad.
In construction projects there are multiple levels of parties involved, from owners, to general contractors, to sub-contractors, to suppliers, tradesman, lenders, etc…
This is one of those cases. You can read the facts, I will paraphrase:
- Contractors obtained construction liens and foreclosed on those liens. Also, lenders foreclosed on their mortgages.
- It appears that a receiver was appointed to sell off condo units.
- The main issue in this case was that the receiver sold units “free and clear from all liens”.
- One of the contractors came back years after such a sale and claimed it had mortgages on the property that were not discharged.
(The Trial Court would dismiss the case for the reasons set forth below. The trial court also dismissed the case under the doctrine of laches – see my prior post for a discussion on this topic.)
The issue that came up: Whether a trial court is permitted to discharge mortgages pursuant to a sale by a receiver of encumbered property.
The Statute in issue:
MCL 570.1123(2):
“The receiver may petition the court for authority to sell the real property interest under foreclosure for cash or on other terms as may be ordered by the court…
The Court of Appeals indicated in its opinion that it was concerned with that language – what did it mean?
The contractor who claimed it had a mortgage argued that nothing in that statute expressly provides a court with authority to discharge its mortgage.
The Court recognized that the particular language in the statute “on other terms” is not defined.
The Court went on to interpret the statute and held that its plain reading allowed the Court the authority to determine the terms that it would place on the sale.
In sum, the Court of Appeals saw no reason why a trial court could not place as a condition for “terms of sale” that property be sold “free and clear of all claims, liens and encumbrances.”
The courts in that county had been doing this in practice. Now they had legal binding precedent to do so.
Take away for Real Estate professionals:
This is now (unless appealed to the Michigan Supreme Court) a clarified issue of law that construction industry folk can rely on.
However, it is a good example that many sticky situations that those in the real estate industry find themselves in (I’m particularly thinking about the application of MCL 600.3238, for example) are not as clear. Maybe the statute is silent. Maybe there is no case law developed on the issue.
e-mail: Jeshua@dwlawpc.com
News for Residential Real Estate Investors: Michigan Landlord Settles with DOJ for Allegations of Fair Housing Violations.
Here’s a profound truth those in the real estate industry will readily acknowledge:
Owning and Managing Real Estate is challenging.
I hear it from my Property Owner/Manager clients. I experience it when I am involved in negotiating in landlord/tenant disputes.
Some of the pitfalls property owners have to watch out for are illustrated in a recentFederal government press release.
The Department of Justice issued a press release today concerning a lawsuit settlement reached with a Landlord and 7 Michigan apartment complexes over Discrimination Charges brought by the Federal Government. You can review that press release here.
According to the press release, the Federal government alleged in its complaint that the “ the defendants, including the rental manager…as well as the corporate entities that own the complexes…discriminated against families with children by prohibiting them from renting one-bedroom units in the defendants’ apartment complexes.”
According to the press release: the Fair Housing Center of Southeastern Michigan…had testers posing as prospective residents…ask[ed] to rent one-bedroom apartments. Testers who said that they wanted to rent an apartment with their child were told that children were not allowed in one-bedroom units.” Id.
Not good.
The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability.
As stated by Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division. “Families with children deserve access to housing that meets their needs without facing unlawful discrimination. The Justice Department will continue to enforce the Fair Housing Act to ensure that families with children have the same rights to housing within their price range as people without children.”
I’m speculating, but maybe the landlord didn’t know the law.
I wonder, did the landlord/property owner ever consult with legal counsel on its practices?
There are some lessons to be learned for landlords, property owners, managers, and real estate investors.
Two takeaways from this news headline:
1. It is worth engaging legal counsel.
Issues arise. When in doubt, e-mail or call your attorney.
2. Residential Real Estate Investment is highly regulated.
If you are a landlord leasing out “residential” property as opposed to purely commercial property (business tenant), you are under much more stringent regulations. You must comply with Federal laws, like the Fair Housing Act and state laws, like the Michigan Truth in Renting Act. Make sure you are operating lawfully.
Questions? Comments?
email: Jeshua@dwlawpc.com
What’s going on in Grand Rapids Real Estate and Beyond.
Happy Friday!
Some headlines to share – enjoy!
I. What’s going on in Grand Rapids Real Estate News:
In the wake of Propaganda Donuts Leaving Division public attention has been drawn to the tension between local businesses and the homeless population on Division Ave.
I explored this topic in my blog post: Can business, local government, and non-profits find ways to work together for the common good?
Check out the latest news on this subject from WoodTV8. Local government looks to be taking measures:
Goals for S. Division: Homeless, Business Coexisting
According to the Wood TV8 Article:
“That will be one area of focus for GRPD Capt. Scott Rifenberg as he takes over control of the department’s new Central Service Area, which was created in response to the downtown growing pains.”
Per Capt. Rifenberg: “That’s really going to be my goal, to make that area somewhere that people want to come to, that people feel comfortable in no matter what socioeconomic class they come from.”
Mel Trotter Ministries hosts a Unity Picnic: Bringing Unity around Division
Check out the Blog Post from Mel Trotter Ministries (“MTM”). MTM in connection with the Heartside Neighborhood Collaboration Project hosted a Unity Picnic in Heartside Park.
The rationale from Dennis Van Kampen, CEO of MTM:
“if we offered a free meal and played some music and invited the police, the business owners, the homeless, the folks who live in the new housing units, the agencies in the area, then conversations could lead to tolerance and tolerance could lead to understanding and acceptance. Just maybe through this meal, we could rise above our differences to see our similarities… and great things could begin.”
Thank you, Dennis. Great example of embracing the tension in the community in order to bring unity.
II. Beyond:
The U.S. Needs More Affordable Housing “How Cities Are Preserving Affordable Housing”
III. Parting Note for Landlords
Landlords Beware:
Maintaining a Tenant “Blacklist”? Potential Pitfalls in Tenant Screening.
e-mail: Jeshua@dwlawpc.com
