Bankruptcy Law, Blog, Business, Business Litigation
Who Do You Pay When the Business Can’t Pay Everyone?
Which Creditors To Pay? This doesn’t seem that tough a question to most folks. You’ll pay the creditors you need to keep your doors open and delay paying the ones who may let you slide or are just not that vigilant when you are past due. Well, an important different analysis will likely lead to different priorities. Consider first to whom you may be personally liable if the doors do close. Taxing authorities and holders of guaranties must be at the top of the list. Then consider whether you have it in you to guide the company through the dark times. First, even though you set up a corporation or limited liability company to own your business and protect your assets from company debts, some claims for unpaid taxes create personal liability for those associated with the business. If you are focusing on who to pay to keep the doors open, you will likely not consider the IRS and the Department of Revenue (in most states), who will often be about the last creditors to show up when you don’t pay on time. But often liability can pass to the owners, officers, or even an employee entrusted with making decisions on who to pay (yes, even the bookkeeper can be personally liable). Personal Liability Personal liability for unpaid business taxes generally arises from the failure to pay sales or use taxes and federal payroll taxes. In the case of sales/use taxes, that money never belonged to your business. The business collected it for the state and…
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Blog, Business Litigation, Environmental Law
Dismissal of Inverse Condemnation Pleadings Premature
A property owner’s inverse condemnation complaint against Duke Energy properly states a claim on its face, and the trial court’s dismissal pursuant to Indiana Trial Rule 12(B)(6) was erroneous, according to the Indiana Supreme Courts in Bellwether Properties, LLC v. Duke Energy Indiana, Inc. Plaintiff Bellwether owns real property in Bloomington on which Duke Energy has a recorded 10-foot wide utility easement. Bellwether filed an inverse condemnation claim against Duke in 2015, alleging Duke’s clearing and maintenance of a 23-foot wide swath of Bellwether’s property constituted an uncompensated taking for public use of the additional 13-foot wide portion of the property. Duke filed a motion to dismiss the claim under T.R. 12(B)(6), asserting that Duke was bound by a National Electrical Safety Code provision the Indiana Utility Regulatory Commission incorporated by reference in 2002. That safety code required the wider easement, and thus Duke asserted Bellwether’s 2015 claim was barred by the six year statute of limitations. The trial court granted Duke’s motion to dismiss on that basis, and Bellwether appealed. After the Indiana Court of Appeals reversed the trial court, Duke Energy sought transfer to the Indiana Supreme Court, which also reversed the trial court, but on other grounds. The Supreme Court noted dismissals based on a failure to state a claim must be based solely on the allegations contained in the complaint, and may not incorporate any defenses. The Court found Bellwether’s complaint on its face alleged only that Duke Energy “currently” uses a 23-foot easement, but not when that use started. As a…
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Blog, Business Litigation
Appellate Court reaffirms Lender’s Priority over Mechanic’s Lien holders– but big questions remain
The Indiana Court of Appeals recently reaffirmed a lender’s priority in mortgaged commercial property over mechanic’s lien holders so long as the lender’s mortgage was recorded first and the proceeds of the lender’s loan were used “for the specific project.” As discussed below, a mechanic’s lien holder may upend the “first to file” general rule, but this recent decision preserves the lender’s priority so long as specific requirements are met. Kellam – The Latest Case The case of Kellam Excavating, Inc. v Community State Bank, 82 N.E.3d 928 (Ind. Ct. App. 2017) (“Kellam”) follows up on the case of Harold McComb & Son, Inc. v. JP Morgan Chase Bank, NA, 892 N.E. 2d 1255 (Ind. Ct. App. 2008) (“McComb”). In both Kellam and McComb the Court reviewed the three Indiana Code provisions generally related to the priority of a lender’s mortgage vs. a filed mechanic’s lien. While there are conflicting provisions in the statutes, both decisions explicitly hold that there is a “Lender Exception” provided for in Ind. Code §32-28-3-5(d) which gives absolute priority in real estate and improvements to a lender when (1) the lender’s mortgage was properly recorded before the mechanic’s lien notice; (2) the funds from the loan secured by the mortgage are intended to finance those improvements; and (3) the lender meets the statutory definition of “Lender,” which is a supervised financial organization or any other entity that has the authority to make loans (Ind. Code §32-28-3-5(a). In Kellam a mechanic’s lien holder questioned whether a leasehold mortgage for improvements constructed on…
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Blog, Business, Business Litigation
Commercial Courts, TROs, and Restrictive Covenants…Oh my!
The Court of Appeals recently addressed three issues important to Indiana businesses embroiled in legal disputes: 1) Validity of the Commercial Court, 2) ex parte (no notice) temporary restraining orders, and 3) enforceability of restrictive covenants (noncompete and nonsolicitation clauses) in employment agreements. We will address each in turn. Vickery’s and Ardagh Glass’s Dispute Ardagh Glass is a manufacturer of glass containers and bottles. Vickery worked for Ardagh Glass as a Senior Mold Engineer. As a condition of Vickery coming to work for Ardagh Glass, he signed a Noncompete Employee Agreement in 2004 that explicitly provided that Vickery could not work for a competitor for a one year period following his departure. Vickery was passed over for a promotion in 2016, and soon after applied for a similar position at Owens-Illinois, one of Ardagh Glass’s primary competitors. Vickery was offered and accepted the position at Owens-Illinois. Once Ardagh Glass determined that Vickery intended to go to work for a competitor, it informed him that it intended to enforce the Noncompete Agreement. On Vickery’s last day of work with Ardagh Glass, he was informed that Ardagh Glass was filing suit and seeking an injunction that day. Indiana’s Commercial Courts In 2016, Indiana became the 23rd state to establish commercial courts. The pilot program established commercial courts in six Indiana counties and provides litigants the opportunity to place their legal disputes in front of a judge regularly hearing business disputes. Concentrating business disputes with selected judges is intended to more efficiently resolve those disputes and free up the…
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Blog, Business Litigation
Piercing of Corporate Veil –Case Law Development on Dissenter Rights Statutes
The Indiana Southern District Federal Court affirmed the bankruptcy court’s judgment in favor of KGR Client (the plaintiff trust), ruling that the trust can pierce the corporate veil to hold the sole shareholder personally liable to the trust, a prior minority shareholder. This is a case of first impression on piercing the veil of a corporation where the original $7.5 Million judgment was based on a dissenters’ rights determination of value for a squeeze out merger eliminating the minority shareholder’s ownership. The oppressed minority shareholder established that fraudulent conduct occurred both before and after the state court valuation petition date. The pre-valuation petition misconduct provided the basis for value enhancement damages in the state court’s determination of value; however, the post-valuation petition misconduct provided the basis for piercing the corporate veil. For a thorough discussion of these issues, or if you have other questions regarding your minority shareholders rights, please contact David Wright, Kevin Koons, and Justin Leverton or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
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Blog, Business Litigation
Trust/Estate Litigation Meets Corporate Litigation
Minority shareholders of a family corporation, were also trust beneficiaries and found themselves in the voting minority of a multiple trustee trust which controlled the family corporation. This erupted into business related trust litigation over corporation affairs of the operating company. There were also trustee and shareholder differences where corporate governance and trust governance issues converged resulting in corporate and trust fiduciary duty claims and fundamental contract law disputes. In addition, the decedent’s capacity became a material litigated issue. At trial, the clients defeated the conflicted management trustees’ claim for a seven figure oral contract bonus. This litigated resolution of the bonus claim identified evidence that resulted in a global resolution of all issues, and also resulted in a separate trust litigation seven figure settlement for KGR’s clients who were the heirs and trust beneficiaries. For a thorough discussion of these issues, or if you have other questions regarding your minority shareholders rights, please contact David Wright and Kevin Koons, or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
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Blog, Business Litigation
Shareholder Rights, Minority Shareholder Oppression
The founding executive and shareholder of a closely-held business found himself to be a minority owner after many years of success, growth and sharing the fruits of success. He then found himself fired which resulted in a fight for his personal and family financial survival when his shareholder distributions, salary and benefits were terminated, while taxable non-cash income continued accruing to the shareholder. At this juncture it was critical to preserve the family’s financial viability and resolve the career issues via claims including breach of contract and breach of fiduciary duty. The claims resulted in a resolution that met the client’s goals for securing the future for himself and his family, under confidential terms. For a thorough discussion of these issues, or if you have other questions regarding your minority shareholders rights, please contact David Wright and Steve Runyan, or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
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Blog, Business Litigation
The “Binding” Letter of Intent, Corporate Acquisition Strategy Via Litigation
KGR helped the client enter into a “binding letter of intent (LOI)” with minority shareholders to purchase the minority shares of company. The goal was to acquire the entire target company by enforcing the shareholder agreement rights and obligations. The shareholder agreement contained various triggers for compelling the sale of shares, or the right to purchase shares. The majority shareholder also happened to be terminally ill with serious health and potential capacity issues, thus certain corporate avoidance actions were subject to attack. The successful litigation strategy was based on strict interpretation and enforcement of the shareholder agreement and enforcement of the LOI as a binding unconditional minority shareholder contract, not a mere conditional statement of intent. The result was an industry impacting business resolution and the acquisition of the target company via the LOI strategy and contract enforcement strategies. For a thorough discussion of these issues, or if you have other questions regarding your minority shareholders rights, please contact David Wright and Kevin Koons, or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
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