I am going to reveal my true inner-nerd here so please keep it on the down low, but this is pretty hilarious. It’s a librarian’s blog–no that’s not the funny part—wait—really. It’s a librarian’s blog post on stupid e-mail disclaimers! Any one who e-mails regally with lawyers, has seen so many of these you don’t even notice them anymore (real effective disclaimer) but this one sums up some of the more hilarious ones I’ve read in a while . . .or maybe it’s just the liberation commentary to each one that does it? Either way, I am thankful for humorous librarians this Turkey Day in the year Twenty Fourteen. Enjoy and thank a librarian everyday!
Since the last post already gave away the end of the story, I thought I’d go back to the beginning and try to fill the blanks. As you may recall, I was describing a win I had recently that was somewhat surprising. My client had sued his former employer and business partner and won via summary judgment. Really isn’t anything too unusual or exciting about that, except the way the judge crafted the relief in the Order exactly the way I wanted–and then some!
So, first I’ll let the court explain the basic facts for the employment claim (although my client wanted me to use the real names, they have been changed to protect the guilty):
Fisher was employed by Mountain Const. Inc. as the site superintendent for a restaurant Project from October 8, 2012 through February 5, 2013 at a rate of $1,750 per week. Fisher was not compensated for seven weeks and two days of work, for which Fischer is owed $12,950.00. Mountain Const. Inc. is liable for this debt as Fisher’s employer. Fisher also claims that Mountain Const. Inc.’s owner, TJ, should be held personally liable by piercing the corporate veil of Mountain Const. Inc.
Knowing that the company was defunct with no assets, and after hearing numerous threats of bankruptcy, I thought I would take a long shot and try to hold the owner personally liable for the unpaid wages. The main reason I tried was because of how often TJ kept throwing around the “B” word (Bankruptcy) throughout the case–including during his deposition–smugly. I knew it was less likely for TJ to file bankruptcy personally, at least not until absolutely necessary. We proved TJ took money from the Project and used it personally to buy a house and flip it. It is much easier to buy real estate if you don’t have a bankruptcy on your credit report.
After Fisher was fired, he provided the statutorily required written demand (Minn.Stat. § 181.13(a)) on his employer. After 24 hours passed, with his wages remaining unpaid, the statutory penalty of an extra day’s pay was added on for each day he went unpaid (up to 15 days). The Court also ordered the employer to pay for Fischer’s attorney’s fees and expenses (Minn.Stat. § 181.171). Piece of advice: Pay your employees on time in Minnesota.
Before and during the case, Fisher was accused of being the reason there was no profit from the Project and told he would never be paid. In essence, he was accused of being a traitor due to working with the General Contractor to finish the Project (TJ walked off the job); accused of being a forger for trying, unsuccessfully, to sign his own name to a lien waiver for work that was paid for; and a conspirator, for helping turn documents in so the Project could be closed out and everyone could be paid–even TJ and Mountain Const. Inc.! For doing all that he was fired and told he didn’t deserve to be paid for over two weeks of work.
As the litigation progressed, we could tell we would not be getting any useful documents from TJ or Mountain Const. Inc. We decided to change course and serve subpoenas on the company’s credit union and see what we could uncover. My client had done some (a lot) of the bookkeeping for the Project but TJ said he had not completed a final accounting yet because he was broke. With the subpoenas, Fisher’s understanding of the Project’s finances and some help from the General Contractor, we were able to piece together a puzzle that only formed one picture when the pieces fit and locked together: TJ took all the money from the Project and the business’s bank accounts and kept it for himself.
Here’s what the Court did with that:
A. The Victoria-Elevator Test Favors Piercing the Corporate Veil
In the usual case, an individual shareholder is not liable for the debts and obligations of the corporation. To
determine the appropriateness of disregarding the corporate entity in this case, however, the Court applies a two-pronged test considering: (1) whether TJ has sufficiently established MCI as a separate entity and; (2) whether the failure to impose personal liability on TJ would work an injustice or be fundamentally unfair to Fisher. Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., Inc., 283 N.W.2d 509, 512 (Minn. 1979). Here, “courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.” Id. at 512 (citing DeWitt Truck Brokers, Inc. v. W. Ray Flemming
Fruit Co., 540 F.2d 681, 684-87 (4th Cir. 1976)). That can be determined by an analysis of the following factors:
insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of corporation as merely facade for individual dealings.
Id. Not all but “a number of” these factors need to be present to satisfy the first prong of this test.
The Court applies these factors to our case’s facts and here is the lesson that can be learned from this. If you want to maintain the liability protection you gain from doing business as a corporation or a limited liability company (LLC), you need to follow corporate formalities, keep your business and personal finances separated and keep current and accurate records. And pay your employees, your taxes and don’t lie in a deposition.
In this case TJ did not treat MCI as a separate entity and failed to distinguish between property owned by him and property owned by the corporation. The Court has no evidence that TJ observed any of the corporate formalities necessary to distinguish MCI as an entity separate from himself. TJ was the sole shareholder of MCI. He admits that no taxes have been paid by the corporation and, according to him, he no longer possesses the corporation’s financial documents.
TJ claims that he did not pay himself a regular salary as CEO of MCI. He treated MCI’s bank account, however, as his personal account. Depo. at 42. He wrote checks from MCI’s account at the Credit Union and deposited them into his personal account at his Bank without recording transactions. The amounts of these transactions varied from $6,000 to $40,000. TJ also claims that he cannot remember why he transferred that money. Id.
*****[numerous self serving transactions deleted]****
TJ claims to not remember any of the above transactions or their purpose. Furthermore, the only records of the transactions were kept by the bank and credit union. The Court can only conclude that TJ was using MCI to support himself and his other businesses and investments. Based upon the evidence in this case, TJ did not distinguish between his own assets and those of MCI.
Under the first prong of the Victoria-Elevator test, TJ’s failure to observe corporate formalities, the absence of corporate records, and the evidence that the existence of the corporation is merely a facade for individual dealings, all support the piercing of MCI’s corporate veil.
Stay tuned. The next post will address the second prong’s analysis of the injustice and unfairness of allowing the corporate entity to shield the owner from liability. Now isn’t legal geeking fun! Oh yeah, and please pay your employees and taxes.
I got a nice win this week I really wasn’t expecting. I always try to keep my client’s expectations low, realistic, but low. I find I can meet or exceed their expectations that way and keep them happier. In this business, you cannot over-promise just to get a case signed up and then never deliver what you promised. Well, I can’t. And this was a case that real low expectations were justified.
The Defendant and his construction company had previously been charged with very serious fraud in a licensing context and apparently agreed to a fine and forfeiture of a business license (I think maybe all business licenses for a real long time, like, forever). As usual, no one knew about this before doing business with him. Although it is public knowledge, it is not as if he has to wear a scarlet letter on his forehead. Now that I said that, I’m thinking maybe . . . naw, never never mind.
The guy was a classical narcissistic conman. Not the kind of conman that will build up your trust and confidence and then disappear with your life savings. The life savings you handed him yourself, voluntarily, a few minutes earlier believing he’d be right back with . . .whatever it was it sounded good at the time. Not the kind who can disorient you with charm and charisma and the next thing you know he borrowed your new car . . . a little while ago. Well, a while ago and is coming right back . . .of course he’s coming back . . How long ago? Three weeks? Maybe four or so . . .. damn it!
Those conmen I always have a touch of respect for as professionals. They are good at what they do. Some are so good they have it down to an art. But no. This guy we dealt with this week, he was the idiot kind of conman. Actually,calling him a “con man” is an insult to conmen everywhere.
The guy I’m talking about is the kind of conman that only fools himself forever. He believes his own BS. He cons some of the people for some of the time. But is caught and found out in the end. Nobody really believes him for very long because his greedy, true self shines through.
He can’t keep it hidden for long–the greed is too strong and stupid. The greed-need won’t be ignored. Or avoided; or suppressed. For awhile. Never too long. The greedy-needy monster comes out and takes over and it is: All for me none for you. At any cost and without much subterfuge. No creative tricks, no sleight-of-hand or unbelievable story that just might be true because it is just too much to make up.
If a cat-burglar is akin to the professional conman above, then this guy is akin to the smash and grab burglar with an old truck he rams store windows with so he can grab a couple twelve packs while being recorded by surveillance video. The problem is he always rips a few people off before he is figured out. He always gets to drinks five or six beers before the cops show up after seeing his license plate on the surveillance video.
Back to reality, my client sued him for unpaid wages and for a promise he made to split the profits from a commercial construction project with him.The wages were a no brainer and after enough time and relentless accusations–he gave up. He stopped lying. He told the truth and admitted it. But he didn’t stop lying for long. He had a plan. He’ll through another lie that’s kinda true on top of it. I’m sure he thought that would fool the lawyers and the Court. It didn’t.
At his deposition, it all came back. The game. The con. the lies. But he was stuck. He had already told the truth. The gawd awful truth. So what can he say now?
I don’t know. I have no idea. I really don’t know. I can’t recall. I don’t remember that.
In a deposition just over two hours long, he said a variation of no recollection a world-record worthy amount of times: Idea= 25 (as in “I have no”); know=73 (as in “I don’t); recall=54 (ditto); remember=23 (thought that would be more).
Anyway, I think the Judge read the deposition transcript or at least the court’s clerk did because what follows is the Order I got. It was a painful depo to conduct. It must have been worse to read how much this guy didn’t know. At one point he claimed he was broke and minutes later claimed he could not remember why or what he did with a withdrawal out of the company bank account in the tens of thousands of dollars–that was only about a year earlier!
More to come on the memorandum supporting the Order . . . I’ll explain paragraph two next time. I am not sure I have ever gotten more than I asked a Court for before? At least in a favorable way. . .
Order Granting Plaintiff’s Motion for Summary Judgment
1. Plaintiff’s motion for summary judgment as to his employment claim is GRANTED. Defendants are liable, jointly and severally, for Plaintiff’s unpaid wages in the amount of $12,950.00 plus a penalty of $5,250.00 under Minnesota Statute § 181.13.
2.Plaintiff’s motion for summary judgment as to his contract claim for half of the profits is GRANTED in part. Only Defendant T J is liable to Plaintiff for half of the profits from the project in the amount of $33,142.00.
3.Plaintiff is entitled to recover his costs, disbursements, witness fees, and attorney’s’ fees. Plaintiff’s counsel must submit information on his reasonable attorneys’ fees within 10 days of the date of this Order.
4.Defendants’ counterclaims for Tortious Interference and Breach of Fiduciary Duty are DISMISSED with prejudice.
5.The attached Memorandum is incorporated herein.
More to come . . . .(Including a real good reason to not mix business and pleasure)
Happy, Happy, Joy Joy! Bankruptcy stats for the fiscal year are out! This is better than x-mas and thanksgiving all rolled into one holiday!
BANKRUPTCIES ARE BACK DOWN TO PRE-RECESSION NUMBERS!
There is just a little taste below, but for more sexy stats and tantalizing tables go here:
I am asked contract questions by small business owners all the time. Basically the owner invariably wants to know, “Would my contract stand up in court if I have to sue or get sued?” My response is usually to ask (lawyers have a genetic defect that makes them answer questions with questions) if they always have a new contract signed for every job, with every customer and if they can find all their contracts when they need to? This is usually met with a long pause and then a look that’s something like, “He makes a living doing this???”
But the real reason I’m asked the question in the first place is that most small business owners (fortunately) don’t get sued, or have to sue, too often. That means they never have their contracts tested trying to enforce or defend one. Understandably, it would be comforting to know if, after all the hassle that can be inherent in getting clients to sign a written agreement, if it is even enforceable anyway.
Some people seem to think that if they show me their contract, I can pull out the crystal ball they give all of us in the second year of law school, and after I peer intensely into it, a before-then-unknown future is revealed to me. Of course, the future revealed takes place in a courtroom with a Judge ruling on the validity of the guy’s contract. Unfortunately, I must’ve missed class the day the crystal balls were passed out, because I don’t have one and I’ve never been able to do this.
Is that a Vulcan Thing?
I suppose it’s easy enough to just answer with a classic. Like rattling off something about a contract requires an offer and acceptance with valuable consideration exchanged and a meeting of the minds. But this answer seems to draw another look that indicates my ability to financially support myself is seriously being questioned. To avoid this constant questioning, I usually try a different approach.
I have never seen a perfect contract that will be guaranteed to be upheld in every imaginable, unknown factual situation that may come up. My prediction is usually worthless in the end (particularly when they don’t show me the contract) and I think the focus should be on a different aspect of the contractual relationship that’s controllable: It’s physical manifestation.
Get What You Pay For
Of course it is best to not use the contract you found on the internet that seems close to a good fit. Or better yet, don’t use the contract you cut and pasted together from many contracts you found on the internet. Make sure you have a solid agreement that was at least reviewed, if not written, by a lawyer with contract experience. It is a critical part of getting paid for what you do after all and not the best place to cut corners to save a little money (Grandma called it pennywise and pound-foolish).
The most important thing is to make sure you require a signed contract before starting any work on any job. Especially with existing clients. It is when you deal with people you think you know that most people get lax and don’t get a signed agreement. It is also when you will let your guard down and tend to have your larger credit lines extended. It isn’t a coincidence that people behave a bit differently when they know they have a signed agreement with you.
Don’t Trust–Verify First
Because you have done business with the client before and for awhile, it is only natural to get a false sense of trust built up. Then you get sloppy (or lazy or don’t want to offend) and you’ll let them go a little longer or deeper with you on credit. But don’t do it. Guard against this.
This is when you have the most exposure. And it is when it hurts the most if a dispute comes up or the deal goes south or for some other reason the client can’t or won’t pay you. This is when you look back in the file after trouble has begun to find the contract it never seems to be there.
I Can See . . .
There is a future I can see and one I can guarantee will come to pass. Without that signed contract I”ll guarantee a future that is going to be harder and more expensive when you try to sue the contracts client. Without that signed paper, you probably lost your ability to collect the costs of collection, including recouping any of your attorney’s fees. Or worse, now you can’t prove it at all if the former client can’t seem to remember anything at all about this account or the terms you’re talking about or who the hell you even are?
My point is that no matter what type of contract you have it can be completely unenforceable if it is unused or goes unfound or is unsigned. The most important issue for a small business owner to worry about is actually using contracts religiously on every project and always requiring a signed contract for every job, from every customer, on every account and in every situation. At least this way when you do need to sue something out, or worse yet you get sued, you’ll have the best chance at prevailing. And prevailing in the most effective, efficient and economical way possible.
BTW: Yes, oral contracts are valid in Minnesota and can be (and are) successfully enforced. It is much more difficult and expensive to enforce an unwritten agreement if the other party denies the agreement or disputes the terms and conditions that you believe were agreed upon. Oral contract cases can (usually do) devolve into messy “he said-she said” situations that are decided on highly subjective credibility determinations alone. Don’t bet on that one.
Minnesota on Pace to Exceed 2013 in New Business Filings
More than 14,000 New Business Filings Reported in Third Quarter
Contact: Nathan Bowie, (651) 297-8919, firstname.lastname@example.org
SAINT PAUL, Minnesota — Secretary of State Mark Ritchie reports 14,135 new Minnesota businesses were filed in the third quarter of 2014, bringing the state’s year-to-date filings to 45,637 — edging out the 44,544 new business filings reported through the third quarter in 2013. The 2014 business filings are on pace to surpass the 58,260 filings for all of last year.
“It’s been a strong year for business filings, and these numbers point to the great number of innovators and entrepreneurs who call Minnesota home and believe in doing business here,” says Secretary of State Mark Ritchie.
Minnesota’s new business filings reports are available to view online for 2014 and 1990–2013. Last year, the Office of the Minnesota Secretary of State reported 58,260 new business filings, the third-highest annual total on record.
A guest post from my law clerk. Next up, we’ll get the new attorney to write one. Scott’s writing below is kind (and well done), even if he does call me old. Your check is docked!
My name is Scott Jurchisin, and I am the new law clerk at MKT Law. I went to college at Hamline University, where I majored in Legal Studies and Philosophy. I am now a second-year law student at William Mitchell College of Law. I started competing in mock trial in high school, which is when I decided I wanted to become a lawyer. I continued to compete in mock trial through college, where I was nationally recognized for my performance. One of my mock trial coaches happened to be one of Mark’s former law clerks. So during my first year of law school, when Mark was looking for a new law clerk, my former coach gave him my name. Since then, I have been working for the firm and gaining real-world experience, which law school classes are unable to provide students.
Final exams in law school are supposed to measure how prepared students are to practice law. My final exam for my Contracts course was about whether a business and a building manager had an enforceable lease. I ended up writing nearly twenty pages over the course of three hours. After working at MKT Law, PLC for Mark K. Thompson, I realize that final exams are not a measure of my preparedness to practice law, but only of my knowledge of certain subjects.
Here’s the difference: When studying for my Contracts final, I am working in a closed environment. I could look at my list of all the topics covered in class that semester (offer, acceptance, consideration, promissory estoppel, the statute of frauds, the parol evidence rule, capacity, quantum meruit, etc.) and know that I would only be tested on those, and nothing else. I knew that there would be issues dealing with contract law, and my only obligation was to spot the contracts issues and write about them until my fingers went numb.
In contrast, whenever Mark gets a new client, I do not know exactly what the issue will be. The case will most likely require me to both identify and learn about an aspect of the law I am unfamiliar with. Fortunately, I have access to several resources at work (past cases, statutes, Mark’s years of experience and knowledge) that make the assignments from Mark manageable, unlike at school, where the only tool I have is my own brain.
Since starting work at the firm, I have realized that law school exams cannot mimic this aspect of real life: where the student is completely unaware of what type of issue a client will have. Students have to know the subject of the exam or they will not be able to study for it beforehand. In the legal field, lawyers find out what the problem is and then research it. Because of this difference, final exams measure how much a student knows, while the work of an actual lawyer measures how well a lawyer learns.
This is one of the many reasons my experience with Mark has been so valuable. Working at a firm gives me an opportunity to struggle with and learn the law without being confined to a particular subject area. When Mark hands me a new file, I do not know whether the issue will be regarding employment, securities, a personal injury, default on a loan, the breaking of a contract, a failure to disclose, or contractor services. Law school does not give me the same opportunity to constantly learn and explore the law that this work experience does. Working with Mark allows me access to a resource I never had access to before: the mind of someone who has been working in business litigation for fifteen years.
While Law school exams give me an opportunity to apply my knowledge, the firm constantly gives me opportunities to learn. In a world where “no two days are the same,” as is often fondly observed by Mark, being able to learn is more important than being knowledgeable.