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...

Non-Competiton Agreements; Is there an interest to protect?

A common question that business lawyers are asked about is the enforceability of non-competition agreements, or “non-competes”.The general topic of non-competition agreements requires far more discussion than can be completed in a single post. I will address other issues in later posts. As a very general rule, even thought the prevailing wisdom is that “judges hate non-competes”, in Indiana non-competition agreements are enforceable so long as the terms are reasonable in terms of time, geography, and the type of activity prohibited. Of course, what is reasonable is going to be determined on a case-by-case depending on the type of business, the customer base, the role of the employee, and many other factors. Businesses should be aware, however, that non-competes are strictly construed against the employer, and courts will look for any excuse not to enforce a non-compete so that an individual may to continue to work in his chosen field. While Indiana strongly favors the freedom to contract as parties see fit, public policy does not favor any restraints on trade, including restraints on a person’s ability to work. One area that is sometimes overlooked initially is whether the employer can demonstrate that it has a legitimate business interest to protect through the enforcement of the non-compete. If the employer cannot show it has a legitimate interest to protect, then it may not enforce the non-compete. That interest to protect can be as obvious as a patented trade secret or other confidential information, or as “soft” as goodwill. If the real issue is the customers, then a “non-solicitation” agreement may be the better alternative, or at least a supplement...

Just Sue ’em!

Although the linked case does not involve a business dispute, the procedural history serves as a cautionary tale to business owners and all other people who think litigation is the magic pill that will quickly cure and resolve a business dispute. In the case of Moore v. Ford, the accident occurred on December 20, 2001, the lawsuit filed in May, 2003, and the Indiana Supreme Court just sent it back to the trial court for a new trial. Litigation is typically a slow process, and much moves slower than business people are used to moving and making decisions. Keep that in mind the next time you pick up the phone and, believing that a lawsuit is the best way to obtain a quick resolution, tell your lawyer to “just go sue” the other party to the dispute. There are certainly times where a lawsuit is need to protect your rights or enforce appropriate remedies, but just be aware of the time and resources that will be spent by you and the business in either prosecuting or defending a lawsuit, regardless of the how meritorious (or not) the claims are in the...
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