Category: Business Law

If parties to a business dispute want to achieve a resolution through mediation, then the parties have to leave some hostile feelings in the past, work creatively with the mediator to find solutions, and be realistic about the importance of the future business entities involved. There are key principles to remember in any significant business disputes between parties with longstanding relationships.

First, business disputes, especially with partners or other significant shareholders, are ripe with emotional stress. Like a regular divorce, sometimes business divorces incur significant emotional stress from a perceived lack of respect and a violation of trust on one side or the other or both. These hard feelings can make it difficult to resolve business disputes. Often, however, once the mediator and the parties recognize that a real business decision has to be made, then the parties maintain a significant opportunity to find common ground.

Second, the success of business entities in the future may be a key to resolution. While this is not true always, often it is a critical factor to the resolution of a business dispute. If there has been a usurpation of corporate opportunities, i.e., the taking of business opportunities, a diversion of assets or a transfer of customers or clients, often one of the parties wants to kill the business of the opposing party that gained the clients or assets. Many times, a party may say that they have alternative income and can afford to take this fight all the way. Other parties have determined that it’s in their best interest to find a resolution at mediation. In mediation, the successful revenue stream of a defending party may be the key to resolving the business dispute depending on the type of resolution gained. A resolution may include a percentage of the revenue stream being brought to another party no longer in charge of a particular client base or assets. However, the parties must find common ground and oversight to allow this to happen.

Confidentiality and non-disparagement may be a key to resolution as well. Also at mediation, some expression of a confidential apology or disappointment might be a key to letting the emotions out of the business decision. However, thereafter, confidentiality and non-disparagement may be significant keys to resolving a business dispute, just like any other dispute that affects businesses and principals’ reputations. The parties may or may not agree to such provisions, but these provisions may be a key to achieving better economic bargains for the side giving in on confidentiality and non-disparagement.

Lastly, verification of financial condition may be an important factor to resolving a business dispute as well. Once trust is lost, one party will likely seek to ensure a verification of financial condition of the other party. While this may or may not be critical if the business is being audited or subject to public regulation, often between closed corporations or limited liability companies, this type of accounting may be critical to resolution.

While these considerations are just a few of the ones to be considered in the successful mediation of a business dispute, they are neither exclusive nor necessarily inclusive for your situation. If we can assist you either mediators, arbitrators or lead counsel in a matter, we would be honored to serve. Please feel free to contact us at (404) 348-4881 or at scarlet@hmhwlaw.com. Thank you.

Hecht Walker, P.C. works on a daily basis with General Counsel on litigation and arbitration matters and finds certain critical truths to avoiding liability exposure for the GC and his/her company and excessive fees. We have been lead counsel in over 300 Trials in Court/Arbitration Settings and 1000 Court Hearings.

Here are our tips in short order:

1. If there is a positive written anticipation of litigation evaluation or at least a very clear demand letter threatening litigation, the GC should have the company/client team draft comprehensive “Work Product/Attorney-Client Privileged” Chronologies, a Witness List and an Inventory of Documents, Communications and Tangible Evidence Addressed to Outside Counsel. This work will reduce expensive outside counsel hours and identify legal issues and potential exposure areas early.

2. Make an early deep dive into e-communications, chats and social media entries before Answering a Complaint, Responding to Interrogatories and making a decision on Litigation/Trial vs. Settlement Strategy. You may find communications that will determine whether you want to resolve the case before discovery or whether you want to defend through the summary judgment stage or all the way through trial.

3. Don’t mix the Transaction Counsel with the Litigation Counsel. Most likely, the Transaction Firm has a conflict if the Transaction is being litigated. Even with an indemnification agreement, get an outside litigation firm and ask the transaction firm to pay for it if necessary. See St. Simons Waterfront LLC v. (Firm Name Omitted) 293 Ga. 419 (2013) State Bar rules and Regulations rule 4-102(d), Rule 1.10.

4. Make sure someone is checking the Criminal Ramifications in taking certain strategies. If you demand your outside counsel to threaten arrest if payment is not made or agree to withdraw criminal proceedings to resolve a case without the consent of the prosecutor or the judge in the criminal case, you may have just become a party to a crime. OCGA 16-10-90; OCGA 16-8-16. Also, you may have violated a bar rule. State Bar Rule 4-102, RPC Rule 3.4

5. Beware sanctioning requests by outside counsel of misrepresentative discovery answers. Just because outside counsel takes the shortcut, a GC’s approval may result in sanctions for both attorneys, even if unknowing approval occurs. Your emails may be in front of a court one day, even though you thought they were privileged. Certain exceptions including the crime-fraud exception may open up those communications to the Court and your opponent. See Ford Motor Company V. Conley, 294 Ga. 530 (2014) See Pihlman v. The State, 292 Ga. App. 612 (2008); Begner v. State Ethics Commission, 250 Ga. App. 327 (2001)

If you follow these tips, it will help you to reduce your conflicts, attorneys’ fees and personal liability exposure as a General Counsel. We work with our General Counsel at Hecht Walker to try to ensure that our GCs do not take an accidental step toward company or personal liability. Our firm’s initials are HW, which doesn’t just stand for Hecht Walker, it also stands for Hard Work and Honest Work.

This Article is by Greg Hecht, Principal at Hecht Walker, P.C. He has been designated as Legal Elite in 2016 for Business and Employment Matters, a Top 100 Attorney in his fields of practice by International Who’s Who, a past Super Lawyer, and is AV Rated by Martindale Hubbell. Hecht Walker PC has offices in Atlanta at 3340 Peachtree Rd NE, Suite 1530 Tower Place, Atlanta, GA. 30326 and at Eagle’s Landing at 205 Corporate Center Dr., Stockbridge, Ga. 30281. Their phone number is 404-348-4881. Greg’s email is Greg@hmhwlaw.com and the website is www.hechtwalker.com

Mr. Chausmer is Senior Counsel with the Firm and is a frequent speaker at CLEs to other business attorneys on matters involving LLCs, disputes related to fiduciary duties, and member-asserted derivative actions.

Limited liability companies are a very popular form of incorporation. Many people prefer them for their ease of incorporation and simplicity in governance. Among other things, they do not require an underlying set of rules – like corporate bylaws – to be incorporated. This is because there is already an established default statutory scheme available as a default.

If the membership elects to have an operating agreement for the LLC, the members must abide by it.

But what about the LLC, which is frequently not a specifically designated signatory of the operating agreement? It is common sense that the LLC is bound by its own governing document, right? O.C.G.A. § 14-11-101(18) confirms this, stating  “except as otherwise provided in the operating agreement, [the LLC] is bound by its operating agreement whether or not the limited liability company executes the operating agreement.”

This common-sense rule is sometimes forgotten by members and managers of the LLC. The Georgia Court of Appeals recently reaffirmed this rule when it reversed a trial court’s grant of a motion to dismiss in Practice Benefits, LLC v. Entera Holdings, LLC, A16A1946 (March 14, 2017). But it bears noting that – in order for this reversal to happen – the LLC first had to convince a Georgia trial judge that the LLC was not bound by its own operating agreement.

Practice Benefits was a member in Entera Holdings, LLC, a manager-managed LLC. Although the LLC’s operating agreement granted each member one vote, Practice Benefits had been historically allowed 2 votes because the operating agreement had been drafted before two of the LLC’s intended members chose to form Practice Benefits to hold their interests in Entera. Despite this inconsistency, Practice Benefits was still allowed 2 votes.

Later, when it came time to amend the LLC’s operating agreement to formalize this voting arrangement, the LLC’s manager refused and would only allow Practice Benefits to cast one vote moving forward. The manager then made distributions to all of Entera’s members except Practice Benefits.

Because the LLC’s manager owed a fiduciary duty to both the LLC and its members under O.C.G.A. § 14-11-305(1), Practice Benefits sued both the LLC and the manager, individually. But Practice Benefit’s claims were asserted directly against the manager and were not asserted derivatively on behalf of the LLC.

A derivative action is the standard way to hold a manager liable for potential breaches of fiduciary duties owed to members. This is because a derivative lawsuit is intended to benefit the LLC and all members based on the belief that a manager’s misconduct would adversely impact the LLC in its entirety.

There is a common exception to requiring derivative actions, however, when only 1 member suffers a “special injury” – an injury that only that member suffers and is different from one suffered by any other member of the LLC.

Here, because the manager had specifically targeted Practice Benefits – by depriving only Practice Benefits of its voting rights and distributions – the Court of Appeals reversed the trial court’s dismissal of Practice Benefits claims against the manager and held that Practice Benefits could sue the manager directly.

The Practice Benefits decision is a reminder that sometimes even the obvious things can be overlooked and not all decisions – either by LLCs or judges – should be presumed to be correct and proper

For more information, contact our business lawyers today.

Every small business needs to work with both an accountant and an attorney. While the necessity of an accountant is obvious, the reasons for hiring a small business attorney may not always be so clear. A lot of small businesses operate on virtually a shoestring budget for the first several years, and sometimes, the entrepreneurs who launch those small startups simply presume that an attorney’s services will be too costly. What they may not have calculated accurately is the cost of not having an attorney’s services.

WHAT CAN HAPPEN TO A BUSINESS WITHOUT AN ATTORNEY?

Unfortunately, what happens too often is that a small business owner delays until the last possible minute – when the company is being sued or cited – to retain the services of an attorney. But when a business owner in Georgia works with an experienced Atlanta business lawyer from the very beginning, that attorney can often put legal solutions in place before legal problems emerge – saving business owners substantial time and resources in the long run.

Candid, sound legal advice from an experienced small business attorney can help to protect a small business from the potential legal actions that might be brought by employees, clients, suppliers, contractors, and others. You may need to comply with environmental and zoning regulations, advertising and marketing standards, and depending on the nature of the business and number of employees; your business may be subject to numerous Federal employment laws, including the Fair Labor Standards Act, Americans With Disabilities Act, and the Family and Medical Leave Act. If you employ foreign nationals, you’ll need to be compliant with immigration laws and prepared for inspections by immigration authorities.

WHAT IF A SMALL BUSINESS BUDGET IS LIMITED?

A good small business lawyer is the most effective legal help available to small businesses with limited budgets. Most of the legal matters that a small business owner must deal with are routine, and most of the necessary legal documents can be handled and expedited quickly and economically. A good business attorney can offer valuable legal experience and insights regarding almost every legal matter a business owner may face, from zoning, incorporation, premises liability, and other lawsuits.

A good business lawyer will help you focus on avoiding legal disputes and preventing legal actions against you. By the time your business is sued or investigated, the damage has already been done; all that remains is how much you’ll pay in legal costs, court fees, and potential fines or damages. Listed here are several of the common scenarios that will inevitably require the counsel of an experienced small business attorney – someone who can provide sound legal advice, ensure that any necessary legal paperwork is complete, accurate, and on time, and advocate on behalf of you and your business in court if that should become necessary:

• Business Formation: Establishing a corporation or any other type of business can be an immensely complicated task. A small business attorney can provide invaluable information regarding the legal differences between various business forms, including s-corporations, partnerships, and limited liability companies, and help advise which form may be right for your business model. Your attorney can also provide assistance with drafting and filing articles of incorporation, and creating operating agreements for businesses with more than one owner.

• Litigation: Litigation is the most serious reason you may need a small business attorney. You’ll need an experienced litigator if a government or law enforcement agency is investigating your business for any reason or accusing you of a violation or a crime. You’ll also need a seasoned litigator to defend private civil lawsuits filed by former or current partners, clients, employees, or customers.

• Major Transactions: You’ll also want the advice of a good small business attorney when you buy or sell a business. An Atlanta business attorney can help you negotiate sales, purchases, and lease agreements, review all of the paperwork to ensure its accuracy and its full compliance with the law, and represent you if necessary in real estate and leasing disputes.

WHAT ELSE DOES A BUSINESS ATTORNEY DO?

A small business attorney can also help small business owners write and negotiate contracts; conduct internal investigations; develop employee policies and compliance procedures; and act as your corporate secretary and registered agent. A good business lawyer will handle your routine business matters quickly, comprehensively, and reliably. When you work with a good attorney from the start, any unanticipated legal issues or disputes that emerge will be handled by an experienced small business lawyer you already know and trust. A small business lawyer will also be able to help you with matters such as:

• corporate dissolutions
• advising on protecting the corporate veil
• partnership disputes
• researching a name for your business
• creating a partnership or a limited liability company (LLC)
• creating contracts for customers or clients
• creating a buy-sell agreement with partners
• applying for any required licenses and permits
• interviewing and hiring employees
• establishing lien filing procedures for small construction businesses
• updating any legal documents as needed

This list is by no means exhaustive, but when a small business owner works with the right business attorney from the start, you’ll have someone you can turn to with any legal question or concerns – someone who already knows your business, how it operates, and the range of issues you face. Even a minor violation or an honest mistake can cost you substantially in lost hours, expenses, and red tape, so working with a small business lawyer is the best investment you can make for avoiding those kinds of unanticipated legal troubles.

If you own a small business already, or if you are buying or starting up a business, develop a relationship with an experienced small business lawyer. In fact, you really shouldn’t go into business without a small business attorney’s advice. Of course, no business owner likes to take time away from customers and clients to deal with legal matters, but it’s wiser to deal with legal matters before they become legal problems. Be sure that you have the legal help you may need, because if you own a small business for any length of time, the chances are high that you’re going to need it. If you have legal questions or concerns during the formation of a company or at any point, call Hecht Walker P.C. to set up a consultation.