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...

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...

Why Lien Searches Are Important

Here is a link about a recent case where the Indiana Court of Appeals held that a secured creditor could obtain pre-judgment possession of its collateral, despite the fact that the borrower had sold that collateral to a third party. The Court rejected the idea that the buyer could rely upon the statements of others concerning whether there were any liens attached to the property being sold. The buyer never contacted the lienholder. The Court stated: We find that it is unreasonable to rely on the statements of third parties – or the debtor – about the current status of security interests, and noted that in these situations the debtor often has a strong incentive to be untruthful. The business tip here is to conduct a UCC or other title search prior to purchasing property to determine if any liens attach to the property you want to buy.  If there are perfected liens, and you buy the property without obtaining a release of those liens, you may find yourself paying twice for the same property....

Business Partners are Like Spouses

When deciding to go into business with a partners or partners, people need to be aware that in many ways a business partner is like a spouse. Business owners who succeed together do not need to always agree, but the successful owners have a relationship of trust, respect, equal division of effort, willingness to compromise, and an equal willingness to stick together through the rough times. The law in Indiana imposes certain obligations upon co-owners of a business, whether those “partners” (lawyers hate to loosely use that term partners, and the reasons why will be explained in later posts) are shareholders in a closely held corporation, members of a limited liability company, or partners in a partnership. The most important of these obligations is that each shareholder/member/partner owes fiduciary duties to his fellow shareholders/members /partners, as well as to the company itself. This duty is the same in Indiana regardless of whether the business is a corporation, partnership or limited liability company. The fiduciary duty that is owed is to deal fairly, honestly and openly with the fellow shareholders as well as with the company. This has been sometimes described as dealing with the “utmost good faith”. Examples of a breach of this duty including situations where a shareholder learns of a business opportunity and takes advantage of that opportunity without allowing the company an opportunity to participate; setting up a competing business; and using one’s majority shareholder status to cause the company to enter into agreement that are solely for the benefit of the majority shareholder. There are countless ways that the fiduciary duty can be breached. As...
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