It Does Not Hurt to Try (to Settle)

Did you know that in the event a business dispute ends up in court, that any settlement discussions or negotiations that occurred before the case goes to trial are not admissible? In other words, the judge or jury will never hear how much one side was willing to pay, nor how much the other side was willing to take, to resolve the dispute. Many business people are reluctant to engage in active settlement discussions because they are concerned that they re setting a floor or ceiling for what they may ultimately have to pay or can receive. However, because both the Indiana Rules of Evidence and the Federal Rules of Evidence do not allow evidence to be presented concerning settlement negotiations or “offers to compromise”, the parties should feel free to actively negotiate to settle their differences without fear of those negotiations later being revealed to the court. It is a good practice to reference the fact that any offer or proposal being made is being made for purposes of discussions. If the proposals are in writing, then the writing should clearly state, preferably at the beginning, that the proposal is being made for purposes of settlement discussions and is not admissible as evidence. Do keep in mind that if the negotiations are verbal as opposed to in writing, if an agreement is reached, an oral contract likely has been created, and oral contracts are enforceable as a general rule. Therefore, it does not hurt anything from a legal perspective to make a concerted effort to settle your dispute because of the financial and emotional expense of...

Understanding The First Breach Doctrine

Businesses deal with contracts on a daily basis. While it is always preferable to have your contracts in writing, oral contracts are enforceable, with certain limited exceptions. This is not news to most of you in the business world. A lesser known tenet of contract law is the first breach doctrine. This doctrine stands for the rather common sense notion that when a party to a contract does not live up to his own obligations owed under the contract, he may not sue to enforce the contract against the other party. Stated another way, if a party has committed the “first breach”, it cannot thereafter sue to enforce provisions of the contract that are favorable to that party, even if there is a subsequent “breach” by the other party. For this doctrine to apply, the first breach must be “material” to the agreement between the parties. A common example would be if an employer fails to pay an employee all that is owed pursuant to an employment contract, that employer will not be allowed to enforce non-competition and non-solicitation covenants contained in that same contract. It is also well established that a failure to pay an amount owed under a contract is a “material breach.” In the case of Licocci v. Cardinal Associates, the Indiana Court of Appeals succinctly stated this principle, which has been consistently enforced since the time of the Licocci decision: “As a rule, a party first guilty of a substantial or material breach of contract cannot complain if the other party thereafter refuses to perform … where a contract is not performed the party is...

No personal liability is the goal

When individuals set up corporations and limited liability companies, one of the driving concerns is to prevent any personal liability for that individual for the debts of the business. Furthermore, when someone “buys a business”, the buyer needs to limit or eliminate the risk that the buyer will be responsible for the business debts of the selling business. This is why so many transactions involving the “sale of a business” are in fact the sales of certain assets of a business. In order to prevent this type of personal liability for the corporate debts, or successor liability for the debts of a selling entity, certain formalities need to be followed and the transactions structured appropriately so as to fit into the guidelines of Indiana law. The Indiana Court of Appeals recently decided a case in which a party that was owed debts by one corporation sued that corporation and another corporation seeking to collect on the debt. In Ziese & Sons Excavating v. Boyer Construction Corporation, et al., decided by the Indiana Court of Appeals on March 29, 2012, Ziese sued Boyer Construction Group (“Group”) and Boyer Construction Corporation (“Corporation”) under various theories of liability, including piercing the corporate veil and successor liability. The short version of the facts is that Ziese had performed work for Corporation, but was never paid. One of the principals of Corporation later formed Group, and “bought” certain of the assets from Corporation. However, the evidence showed that Group was using all of the assets of Corporation, even those that were not purchased under the purchase agreement between Construction and Group. The website for...

Important 7th Circuit Opinion on Single Asset Real Estate LLC and Bankruptcy

The 7th Circuit issued an opinion recently concerning the rights of a limited liability company (“LLC”) that is a “single asset entity”, i.e. all it does is own one piece of real estate, and the rights of a lender to such an LLC when that loan is secured by a mortgage attaching to the real estate. The opinion can be found here. Given the large number of entities existing that were established just to own a piece of real estate (often done for purpose of asset and liability protection), combined with the depressed real estate market and the debts owed against that real estate due to the borrowing that occurred when real estate values were higher, it will be important in the coming years for businesses and their counsel to understand what can, and cannot, be accomplished through a plan of reorganization, and what a secured creditor’s rights are related to the real estate owned by the...

When in Doubt, Look It Up

As the parent of school age children, I get asked lots of questions about all sorts of topics, most if which I know not nearly enough about. Many times these questions are on topics that I “kind of, sort of” think I know the answer, but I am not real confident in my ability to explain it to those inquiring minds. Also, they are getting old enough that I can no longer get away with just making it up. As a result, I will often do what any good parent will do: I tell the children to go look it up (or Google it….) and report back to me. That way we can all learn something. The Indiana Court of Appeals recently dealt with a situation where it was confronted with interpreting terms that are frequently used in certain contracts, and are terms that we all “kind of, sort of” think we know what they mean, but they are certainly susceptible to some discussion about what their effect is in a contract. Specifically, the Court was asked to determine what parties to a “non-solicitation” contract mean when they agree not to “solicit” or “induce” customers or employees of each other.. In examining the issue, the Court noted that although these terms are routinely used in contracts, no Indiana case had addressed what they really mean. Therefore, because courts, like parents, cannot get away with just making something up, the Court used the tried and true method of opening up a dictionary and using the definition found in the dictionary, then applying that definition to the facts in the case....

Commercial Landlord Liable for Tenant’s Actions?

Who is on the Hook? A common question that we receive is whether the owner (landlord) of a commercial property can be held liable for damages to a third party that are caused by the actions of a tenant. As with most anything in the law the answer to this question will depend on the particular facts and circumstances surrounding the situation. Who Did What? However, a very general starting point is that in Indiana, a landlord is NOT responsible for a tenant’s actions, whether those actions are deemed a nuisance, a trespass or some sort of tort. Again very generally, someone seeking to recover from a landlord, for the alleged conduct of a tenant, must showthat the landlord has actual knowledge of the tenant’s actions and either consented to those actions or assisted or participated in causing the harm to the third party. In fact, the law at this time is while a landlord is liable for injuries resulting from the condition of the property at the time of the execution of a lease, and from nuisances that exist at that time, it is the tenant who is liable for the negligent use of the property and for defects in the property arising after the tenant assumes control and possession of the property. Recent Affirmation of these Principles. A recent case from the Indiana Court of Appeals reaffirmed these general principles and held that an owner of a commercial property where a tenant operated a dry cleaning company could not be held responsible for damages allegedly caused by that dry cleaner to the neighboring property. In that case...
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