Andy’s Updates: Keeping You Informed of Recent Cases and How They Apply to You and Your Business // July 2017

The recent case Saturn Wireless Consulting, LLC v. Aversa in New Jersey sheds more light on how non-solicitation clauses will be interpreted.

Here’s the story (“CliffsNotes” version): Saturn Wireless hired Aversa. A Confidentiality, Non-Solicitation, and Non-Compete Agreement was signed by Aversa.  Aversa quit and set up a competing shop (outside of the non-compete radius).  Saturn Wireless sued, in part, for breach of the non-solicitation provision of the contract.

In this case, the non-solicitation clause stated an employee was prohibited from solicitation activity or contacting customers “for the purpose of diverting work or business.”

The court gave a divided ruling, some benefiting Aversa and some benefiting Saturn Wireless. Continue reading “Andy’s Updates: Keeping You Informed of Recent Cases and How They Apply to You and Your Business // July 2017”

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Big Head and Proud

A person with a big head is defined by the Merriam-Webster Dictionary as “an exaggerated opinion of one’s importance” and by the Cambridge Dictionary as “someone who thinks that they are more important or cleverer than they really are.” Suffice to say there are many other definitions of “being big headed,” but these get the point across.

Me and my “Big Head”

Most lawyers at one time or another have been accused of having a big head. It’s a common problem among our profession. In fact, I was recently accused of having a big head. But I wear this accusation with a badge of honor. You see, I’m a proud member of the Big Head Corps that marches in the Thanksgiving Day Parade.

The Big Head Corps is a group of people who help raise money for the Thanksgiving Day Parade and have an opportunity to march down Woodward Avenue with a huge paper mache big heads on them. This past year, I had the amazing opportunity and experience to do this with my daughter. My daughter’s the one with the big ears, and I’m the one with the elegant smoking jacket. I must admit, I had not been down to the parade in at least 15 years. So, when I decided to actually be a Big Head, I was not sure what the experience or the crowd would be like. Would the weather be frigid? Would my neck hurt for days afterward from carrying the head? Would I topple over head first?
Continue reading “Big Head and Proud”

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2 Examples of How Divorce Effects Beneficiary Designations

In the first case, Estate of Mark E. Patrick v. Wendy Freedman, Wendy had relinquished all claims she had to Mark’s life insurance as part of their divorce judgment. However, Mark never changed the beneficiary designation on his life insurance policy.

When he died, the plan administrator properly and lawfully paid the proceeds to Wendy who was still named as beneficiary. Of course, the estate beneficiaries went after Wendy to repay these funds.

They eventually prevailed but this whole court case could have easily been avoided if Mark had simply changed his beneficiary designation as part of his estate plan after the divorce.


Photo via Foter.com

In the second case, In Re Estate Of John Lett, John’s wife, like Wendy, gave up all rights to his life insurance as part of the divorce decree.

However, after becoming deficient in payment of a home loan they agreed to be jointly liable for, John agreed to name his spouse as 100% beneficiary of a life insurance policy just in case he never paid off his share of the loan.  Although after he paid off the loan, he never changed the insurance beneficiary so when he died John’s ex-wife collected.

This time, the Michigan Court of Appeals said because Lett named his ex-wife as beneficiary AFTER the divorce decree, she was entitled to this life insurance policy. Another case of beneficiary designations gone awry.

These two cases only reinforce my continuous words of caution: always, always, always review and update your beneficiary designations to make sure they are consistent with your goals, objectives, and life conditions.

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The One Big Reason I Hate Employee Leasing Companies

While there are many reasons I don’t like employee leasing companies, the IRS just added another big one to my list. In a recent IRS Office of Chief Counsel Ruling 20171201F, the IRS ruled that the taxpayer was on the hook for employment taxes that were left unpaid by a Professional Employer Organization, or “PEO” (aka an employee leasing company).


Photo credit: Andrew Huff via Foter.com / CC BY-NC

Many small businesses use a PEO to handle all of their payroll, HR, Worker’s Compensation insurance issues, and other matters related to employing staff. Under the structure, all of the company’s “employees” are actually hired by the PEO and then leased back to the taxpayer. Most contracts between a PEO and a taxpayer state that they act in a co-employer relationship.

These PEO contracts also usually state the PEO is responsible for payment of the employment tax liability. However, if the PEO doesn’t pay the employment taxes, the IRS doesn’t simply accept the contract terms and assess liability against the PEO. Rather, the IRS analyzes this issue under Internal Revenue Code Section 3401(d)(1) to determine whether the leased employees are truly “employees” of the taxpayer and not the PEO. In almost all cases, the IRS will rule that the taxpayer is the employer and not the PEO. As a result, ultimate responsibility for the payment of employment taxes is still on the taxpayer.

As a result, ultimate responsibility for the payment of employment taxes is still on the taxpayer.

The IRS has recognized the problem with this position and it subsequently led to the enactment of the Tax Increase Prevention Act of 2014 (TIPA) that a “certified PEO” would be liable for the employment taxes. The requirements for a certified PEO were released in January of this year and can be found here.

The IRS Chief Counsel office, in ruling that the taxpayer was still the employer of the staff, looked at the language in the contract, the fact that all money used to pay the wages came from the taxpayer, and that if the contract was terminated for any reason the taxpayer was still responsible for the payment of wages, salaries, and employment related taxes. In essence, under this ruling, the PEO was nothing more than a conduit to pay wages and payroll taxes.

While the new IRS position provides some protection for taxpayers who want to use a PEO, the only difference, in my opinion, is that now if there is a dispute you have to deal with the IRS directly, instead of having to deal with the IRS and the PEO as to who is responsible. It does not change the fact that if the PEO does not make the payment, you will be embroiled in some sort of dispute that will be time consuming, stressful, and take away from running your business.

If you have any questions about employee leasing companies or other matters regarding your business give me a call at 248-455-6500 or email me agoldberg@ajglaw.com

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4 Elements that Make a Succession Plan Destined for Success

As you know, I’m a big advocate of succession planning, and have tweeted, posted on my social media accounts, and blogged about this topic here and here. However, I still find that well over 75% of businesses in Detroit have failed to implement a comprehensive succession plan.

That’s why I was excited to talk to Tim Gunn, CFO of the Adamo Group, regarding the succession plan at Adamo. You might recall that John Adamo, President of Adamo Group, died in a construction accident in late 2015. When talking to Tim, I asked how the business not only continued but thrived after Adamo’s sudden death. The first element he attributed the success to was the Buy/Sell Agreement that provided for the orderly transfer of shares to his partner. The next element Tim noted was that more importantly the Buy/Sell Agreement was funded with life insurance so there was adequate liquidity to payoff John’s heirs. The business did not have to pay off John’s estate with its own cash, which would have clearly put undue financial strain on the business.

For most businesses, the implementation of a Buy/Sell Agreement and having a life insurance policy to support it, would be the beginning and end of their plan.

However, I believe there are additional elements of a succession plan that have to be addressed in order to fully ensure the longevity of the company.

This led to the next part of my discussion with Tim where we discussed operational issues related to succession planning:

  • Be Proactive:  The first action Adamo took was to schedule a meeting with the bank to discuss their financial situation, how the business was going to continue, what strategies were in place, and explain why the business would continue to be a profitable and credit-worthy customer of the bank. By being pro-active, they generated a lot of goodwill with the bank.
  • Ensure Clients Have Relationships with the Right People:  Tim also discussed the company’s relationship with customers after John passed away. Tim said many of their customers had relationships with managers or other senior executives so there was not a hiccup in the relationship with the company. This point should not be overemphasized. A business cannot survive the death of its owner if all customer relationships sit solely with the owner.

    A business cannot survive the death of its owner if all customer relationships sit solely with the owner.

  • Create Relationships with Vendors: Vendor relationships were next on the list. Again, Tim said because of its long-standing relationship, vendors actually extended additional terms and consideration to Adamo. While vendors always want customers to sell to, they could have very easily cut off Adamo for fear the company would not continue.
  • Make Yourself Obsolete:  The successful transition would not have been possible had John and his brother not established and groomed key executives throughout the company. It was clear Adamo made a concerted effort to have the company thrive in the owners’ absence. As I’ve always promoted, the most valuable business is the one where the owner and boss are obsolete.

    the most valuable business is the one where the owner and boss are obsolete. 

Adamo’s experience, unfortunately, is the exception and not the rule. Too often, business owners think that simply having a Buy/Sell Agreement in place (even if it’s often not funded) means their succession plan is in place.

However, true business continuity is mostly about culture, leadership, relationships with vendors and customers, having proper internal controls and policies, and most importantly, grooming the right people to manage the business and giving them the opportunity to learn while the owner is alive to mentor them. These are the elements that truly make a succession plan destined for success.

If you have any questions about succession planning give me a call at 248-455-6500 or email me at agoldberg@ajglaw.com.

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Free Yourself from the Pointless Letter of Intent

The case of Up Hydro, LLC v. Artibee heard by the Michigan Court of Appeals is critical for all parties who want to use letters of intent as part of the purchase agreement. The plaintiff, who wanted to get out of the agreement, argued that no binding contract existed because its offer stated it was “pursuant to the terms and conditions of a separate offer agreement to be signed by us.” When the plaintiff decided he didn’t want to go through with the sale, he filed a claim to assert a claim on the property, and the defendant counterclaimed for breach of contract.
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Andy’s Updates: Keeping You Informed of Recent Cases and How They Apply to You and Your Business

Benteler Automotive Corporation v. Wellington Industries, Inc.:

This case stresses the importance of a well-crafted settlement agreement. More than 95% of all lawsuits filed never go to trial, they’re usually dismissed or settled out of court. Of course, a settlement is not always the perfect resolution, but an even worse resolution is when the settlement agreement itself leads to litigation.

Such was the case in Benteler Automotive Corporation v. Wellington Industries, Inc. After a year of litigation the attorneys made the fatal flaw of submitting to the court a preliminary settlement agreement that had been marked up with comments from attorneys for both sides. When it came time to prepare the final settlement agreement, the parties disputed the terms as they were intended with the handwritten lines and notes on the preliminary agreement; as a result, litigation continued for another 2 years!

There is no need to go into the substance of the preliminary settlement agreement or what the dispute was over. The real issue here is simply never prepare a document that is simply “an agreement to later agree on more specific terms.” When settling a matter, get the definitive agreement, make sure it is fully negotiated, the terms are clearly written out, and make sure it is signed. Only at that time should you submit it to the court for entry.

Hajji v. Esho:

The other recent interesting case is Hajji v. Esho. Hajji had defaulted on his home mortgage and the bank was foreclosing on property with a value of over $500,000. Hajji wanted Esho to purchase the property for $130,000 and then retransfer it back to Hajji (in violation of foreclosure laws).

After Esho bought the property, he refused to turn the property over to Hajji, and Hajji sued based on their oral agreement (contracts related to real estate should always be in writing and never oral). However, Hajji still argued that when Esho purchased the property, he held it “in constructive trust” for Hajj’s benefit.

When someone makes a constructive trust argument, they are essentially stating it would be unfair for the person to retain ownership or use of the property; it should be considered as if he was holding the property for the benefit of someone else, in this case Hajji.  However, in order to make this argument, the person must have “clean hands.” That is, they cannot have done anything wrong in their position as the plaintiff. This is the problem with Hajji’s argument. He did not have clean hands because he was trying to illegally regain title to the real estate that had been foreclosed.

Equitable remedies like the constructive trust claim, can be a very powerful tool to correct a blatantly unfair result. However, make sure you have not done anything wrong if you are going to pursue this remedy. This case reinforces the need for you to have “clean hands” when trying to enforce a contract.

If you are thinking of entering into an agreement or have any questions about contracts or settlement agreements give me a call at 248-455-6500 or email me at agoldberg@ajglaw.com

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Excellent Book! 50 Scientifically Proven Ways to be Persuasive

If you don’t read Yes!: 50 Scientifically Proven Ways to be Persuasive, By Robert Cialdini, you are doing yourself and your organization a huge disservice.

This awesome book, by the best-selling author of Influence, is a quick read with many, many tips on how to improve your relationship and your ability to influence those you are with. While the word “influence” can often connote tricking someone or taking advantage of them, it is not the case with this book. All of us, no matter what business we are in, are always selling something. Even if it’s ourselves, we are selling our credibility, our time, our service, or even merely our ability to get things done.

This book gives you 50 tips on how to be more persuasive. The best part about this book, though, is that each of the 50 chapters, one covering each tip, is no more than five pages long. And each tip is written with a little wit, entertainment, and in an easy to read style. This means you can pick up and read a single tip, even when you only have a few minutes. More importantly though, each chapter gives specific examples on how and when to use each tip. There are many, many other books on improving sales, finding common ground with people you work with or your customers, or even Getting To Yes!, but I don’t think that there’s a single book that packs so much information that you can start using today, and use every day, and that can be read so easily and quickly.

I hope you pick up the book. If you don’t, someone else will and they will have a leg up on you.

If you’ve already read this book, let me know what your favorite part is. What the best tip you know of to be persuasive?  Give me a call at 248-455-6500 or email me at agoldberg@ajglaw.com

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Do You Count On NonCompetes to Protect Your Business?

Let’s take a look at a Michigan case of an ex-employer enforcing a non-competition agreement. This one may hit close to home as it involved two local swim schools, Goldfish Swim School and Aqua-Tots.  I’m sure you’ve heard of at least one of them, or noticed them popping up everywhere.  They’re very popular indoor swim schools that focus on getting children accustomed to water and teaching them to swim at an early age.

The facts are very simple: Steve Ogg, a Goldfish swim instructor signed a non-competition agreement when he was first hired. He subsequently left and immediately went to work for Aqua-Tots. Goldfish sued for breach of contract and requested a temporary injunction entered to prevent Ogg from working for Aqua-Tots until final resolution of the matter.

The injunction request was denied and Goldfish appealed to the Michigan Court of Appeals. The Court of Appeals ultimately ruled in favor of Ogg/Aqua-Tots.

The non-competition agreement failed to hold up for a number of reasons: Continue reading “Do You Count On NonCompetes to Protect Your Business?”

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Create Distinction: The Lifeblood of Your Company

All businesses, especially those in the service industry, struggle with distinguishing their business and services from those of competitors. Scott McKain, tackles this issue in, Create Distinction: What to Do When “Great” Isn’t Good Enough to Grow Your Business. Scott is a leading expert on business and professional distinction, the founder of the Ultimate Customer Experience, and also cofounder of The Value Added Institute, a think-tank that examines the role of the customer experience in creating significant advances in the level of client loyalty.

McKain examines many of the ways businesses attempt to compete with their competitors. He accurately points out, though, that most businesses spend too much of their time evaluating their competitors and competing with them, instead of “competing for the customer.” Continue reading “Create Distinction: The Lifeblood of Your Company”

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