Mobile, Alabama Business Litigation Update

As a Mobile, Alabama Business Lawyers we always pay close attention to significant decisions by the Alabama State and Federal Courts that have an impact on Business Law or Business Litigation in Alabama.

In a case should be of interest to those involved with Business Law, the Alabama Court of Civil Appeals in Evans v. Anderson, No. 2130468 (Ala.Civ. App., March 6, 2015), held that the filing of a foreign judgment in an Alabama court for the purpose of domesticating that judgment did not constitute the filing of a “complaint.” Consequently, a motion to “dismiss” the filing under Rule 12 of the rules of Civil Procedure based on lack of personal jurisdiction was procedurally inappropriate and would be consider a motion filed under Rule 60(b)(4). However, the court also noted that the filing of a “motion to reconsider” with respect to a ruling on what was substantively a Rule 60 motion did not suspend the running of the 42-day time for appeals because Rule 59 motions were not permitted following denials of Rule 60 motions. Thus, when the defendant appealed within 42 day of the court’s denial of the “motion to reconsider” but not within 42 days of the original order of the court denying the motion to “dismiss,” the appeal was untimely and due to be dismissed.

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REAL WORLD REMEDIES FOR BREACH OF PURCHASE AND SALE AGREEMENT

The remedies for the breach of a purchase and sale agreement need to be adequately spelled out in the agreement. Frequently the forfeiture of the earnest money which is deposited is the sole remedy available for the Buyer’s breach. However, if this is not spelled out adequately, the Seller may also be able to sue for damages and specific performance for a Buyer’s breach. Likewise, the buyer may have remedies available at law if they are not adequately identified and set forth in the purchase agreement itself.

Frequently, particular transactions call for certain remedies in addition to the mere forfeiture of earnest money.

The buyer in a large transaction may wish to consider as a remedy shifting the cost of some of the pre-closing inspections and testing in the event the seller is not able to furnish marketable title or meet the requirements set forth in the purchase agreement. This can shift significant costs such as environmental studies to the buyer.

There may also be the ability to provide for alternative dispute resolution for issues which may come up prior to closing. Consider whether or not arbitration of issues is desirable and necessary.

Consideration should also be given to what happens to documents and information if the transaction fails. Confidentiality agreements, agreements to return all documents and not to retain any copies in the event a closing does not take place, can help you protect your clients interests.

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THE NEW ALABAMA LIMITED LIABILITY COMPANY LAW

The Alabama law governing limited liability companies changed effective January 1, 2015.  It is important to understand the changes the new act known as the Alabama Limited Liability Company Law of 2014 makes to the prior LLC law.

 

SUMMARY OF SIGNIFICANT CHANGES

 

  1. The new Act recognizes the contractual nature of the limited liability company.  Many of the Act’s provision can be changed by agreement of the members to fit their particular needs.  If the members do not change these provisions there are many default provisions that become applicable.  (The upshot of the mandatory default provisions in the new law require careful preparation of the limited liability company agreement to make certain that members are not inadvertently binding themselves to default provisions they do not wish to follow in their LLC.)

 

  1. Under the old law many LLC’s were formed without the preparation of what under the old Act was called an Operating Agreement and under the new Act is called the Limited Liability Company Agreement.  The filings required to form, dissolve, merge or convert a limited liability company are now designed to simply provide notice to the State and third parties that the limited liability company exists.  (What this means is that the details about the limited liability company will now need to be contained in the limited liability company agreement.  If you visit the Secretary of State website you will see that the form for creation of an LLC is now very limited underscoring the need for the preparation of a limited liability company agreement.)

 

  1. The Limited Liability Company Agreement for the LLC will identify the person or persons who will direct and oversee the activities and affairs of the limited liability company will be governed by the limited liability company agreement.

 

  1. Authority to act.  It should be noted that there is no statutory authority to bind the LLC.  A person’s authority to bind the limited liability company will be governed by the Limited Liability Company Agreement and the law of agency.

 

Once again, the limited liability company agreement becomes important in that banking institutions and others dealing with the limited liability company will now likely all require a clear statement of authority in the limited liability company agreement.

 

  1. Series.  A unique feature of the new Act is that it provides for the creation of what is known as series, LLC’s.  The Act permits the limited liability company to establish, either through a Certificate of Formation or through its Limited Liability Company Agreement one or more designated series of assets with which certain members may be included.  The Act provides that the assets of one series will not be liable for the obligations of the limited liability company or another series.  (This of course requires attention in both the Certificate of Formation and in the Limited Liability Company Agreement.  It should be noted in the past many people formed a different LLC for each aspect of business which they wanted to engage in.  However, it is likely if the series LLC is utilized that an improperly formed series or one which does not comply with the law will face the challenges of an alter ego or piercing the veil claim if suit is brought against it.)

 

We will be happy to assist you with a review of your current LLC document or the formation of a new LLC.

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Is your corporate entity really protecting you?

Is your corporate entity really protecting you?

Under Alabama law a corporate entity can be subjected to a claim of alter ego. A claim of alter ego attacks the validity of the corporate entity and seeks to reach the individuals behind the corporate veil.

What this means is that a corporate entity, whether it be an LLC, a corporation, or a limited partnership, must be properly formed and operated or the organizers, members, shareholders or limited partners. If not, individuals may be subjecting themselves to liability. Traditionally piercing a corporate entity in Alabama has been difficult but recent cases such as Hill v. Fairfield Nursing & Rehabilitation, 134 So.3d 396, 412 (Ala. 2013) illustrate that while the claim of alter ego or piercing the corporate veil is difficult there are an increasing number of cases where a plaintiff pursuing that claim has been successful at reaching individuals behind the corporate entity.

What this means for an individual, member, limited partner, or shareholder of a corporate entity is that attention to detail must be maintained and the corporate structure properly operated or that entity may be disregarded by the courts.

A review of how the corporate entity is operated and whether it is properly maintaining its corporate shield includes the following:

1. If you are an LLC do you have valid operating agreement?
2. Are minutes kept of regular meetings of the corporation?
3. Do you maintain a separate corporate bank account which does not have personal funds or funds from other entities co-mingled in the bank account?
4. If you are a corporation have stock certificates been properly issued to shareholders of the corporation?
5. Has the corporate entity been properly capitalized?
6. Is the corporate entity so controlled by another entity or individuals so as to make it the instrumentality or alter ego of the controlling entity/person? If so, has that control been misused.

Alabama has typically recognized three extraordinary circumstances under which it may be appropriate to pierce the corporate veil:

1. Where the corporation possesses grossly inadequate capital;
2. Where the corporation is conceived or operated for fraudulent purpose; or
3. When the corporation is operated as the alter ego of an individual or entity who exerts excessive control over the same.

See Gibson v. JRM, Inc., 812 So.2d 1269 (Ala. Civ. App. 2001); see also, Messick v. Mooring, 514 So.2d 892, 893 (Ala. 1987).

We have been involved with defending alter ego claims and can assist you in a review of your corporate structure and operation so as to minimize the possibility that you corporate entity will be set aside exposing you to personal liability.

We would welcome the opportunity of addressing your questions on this issue and our initial consultation is always at no charge.

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Commercial Lease Assignment

Real estate lawyers frequently include a clause in their commercial leases dealing with the assignment or subletting of the lease.  Frequently these clauses include language like “This lease may not be assigned or sublet without the written consent of the Landlord, which shall not be unreasonably withheld.”

A recent case from the Alabama Supreme Court underscores the need to carefully draft such provisions.  In a case of first impression, The Pantry, Inc. v. Mosley, No. 1110759 (Ala. May 3, 2013), the Court found that a Landlord withholding of consent to assignment of a commercial lease is unreasonable as a matter of law when motivated solely by a desire to renegotiate rent terms different from those provided for in the lease.

A real estate lawyer experienced in drafting leases can provide several options such as:  a prohibition against assignment or subletting, drafting language that includes a rent escalation clause, and many other variables.  Of course a commercial tenant would want an unrestricted right to assignment or subletting or at least a clause not prohibiting a transfer of the lease.

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Real Estate law pre-closing inspections

As real estate lawyers in Mobile, Alabama we assist clients with their real estate transactions by providing various services throughout the transaction.  One of those services is advising our clients on pre-closing inspections.  Any real estate transaction can present a wide variety of inspection requirements.  These can include structural inspections, soil inspections, storm water runoff studies, flood zone location, perk tests, and environmental studies to name a few.  This blog entry covers some of the basic issues we help our clients deal with regarding pre-closing inspection/cooperation.

The purchase agreement needs to clearly identify the time period that the Buyer will be allowed to conduct such inspection studies.  The purchase agreement should addresses liability associated with inspections.  Often times indemnity and hold harmless agreements are included to cover damages or injury which might arise from testing.  Reasonable access to the property, records, equipment, personal property and items to be inspected should be negotiated and agreed to by the buyer.  These inspections will require a reasonable time to be completed which likewise should be included in the purchase agreement.

The sellers also have several issues with respect to some of these studies.  Confidentiality agreements may need to be included in the purchase agreement so that information concerning the property is not published by third parties.  Additionally, there could be liability issues related to these studies.  If an environmental study is conducted which reveals certain contamination and the seller is provided a copy of the study, then it can trigger certain reporting duties under a number of environmental statutes.

The professionals involved in pre-closing inspections need to be identified and retained far in advance of closing.  The professional needs to be retained with a schedule agreed upon that allows some flexibility to complete certain tasks within the due diligence period and to avoid delaying the closing.

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Business Litigation Significant Alabama State Supreme Court Decision

At Clute & Clute P.C we have over thirty years combined experience being advocates for our clients involved in business litigation in Mobile, Alabama.  Whenever the courts issue a significant decision involving business litigation we take an interest.  The Alabama State Supreme Court recently issued such a decision that involved a fraud claim.  In Target Media Partners Operating Co, LLC v. Specialty Marketing Corp., No. 1091758 (Ala. Dec. 21 2012), Specialty Marketing contracted with Target Media Partners to issue a trucking publication to be placed in truck stops.  The contract in question arranged for specific distributions in specific locations.  Target agreed to provide the distribution and Specialty agreed to pay Target in exchange for the distribution.  During the trial evidence was submitted that indicated Target did not make all the distributions that were required of them under the contract.  The evidence offered during trial also revealed that Target sent distribution reports to Specialty that misstated the distributions that were occurring.  Specialty sued under both fraud and contract claims.  The jury returned a verdict on both claims in favor of Specialty and Target appealed.  The Alabama Supreme court reversed the trial court’s decision.  Justice Main authored the majority opinion which denied, on two separate grounds, Specialty’s fraud claim.  The majority stated their reasoning for rejecting the fraud claim was because Specialty could not have reasonably relied on distribution data which was provided by Target related to its contractual performance.  The Supreme Court offered two reasons for this, the first being that despite the fact that Target provided to Specialty distribution spreadsheets containing inaccurate or even fabricated data, for a period of two years after receiving the last such spreadsheet Specialty continued to work with Target under the contract which should have put Specialty on inquiry notice.  The second reason offered was a statement of former Justice Houston from the case Deupree v. Butner, 522 So.2d 242, 245 (Ala. 1988) that read “to assert a fraud claim that stems from the same general facts as one’s breach-of-contract claim, the fraud claim must be based on representations independent from the promises in the contract and must independently satisfy the elements on fraud”.  The majority concluded that a fraud claim does not lie for misrepresentations of a party regarding the performance of the parties contract obligations.  The dissent opinion, which was written by Justice Shaw, argued the evidence of fraud was strong enough for the fraud claim to go before the jury.

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Real Estate Law in Mobile, Alabama. General Deed Information

Purchasing property can be a very exciting time in your life, but the process can trip up a buyer or a seller who is not careful.  As real estate lawyers in Mobile, Alabama we assist clients with their real estate transactions.  We have over 30 years of experience helping people meet their real estate needs.  This is a brief discussion of some of the general requirements regarding the conveyance of real property through deeds in the State of Alabama

In the State of Alabama, the three most common types of deeds used to convey real property are:

1)      general warranty deed

2)      statutory warranty deed

3)      quitclaim deed

The general warranty deed gives the purchaser the most complete warranty of title a seller can provide.  A statutory warranty deed provides a more narrow warranty to the purchaser.  A statutory warranty deed in effect warrants only that the title to the real property has not been affected while the seller owned the real property.  A quitclaim deed passes only the interest in the real property owned by the seller.  A quitclaim deed does not offer the purchaser any warranty of title.

Alabama Code Section 35-4-20 provides that any instruments that convey real estate adhere to several requirements.  Any deed must include both the address and the name of the attorney that prepares the deed.  The deed must also reflect the grantees address.  The instrument must be executed and witnessed or notarized and identify the grantee with certainty.  The State and County in which the real property being conveyed is located must be stated in the upper left hand corner of the instrument and the State and County of execution should be stated above the notary acknowledgment.  The instrument must be delivered to the grantee with evidence of the grantor’s present intent to divest title that is rebuttably presumed upon the physical delivery; the instrument must contain a sufficient legal description of the land being conveyed.

A conveyance of real property by an individual grantor should contain the grantor’s marital status.  However, the spouse of the individual grantor only needs to sign the instrument of conveyance if the property is the Grantor’s homestead.  The preparer should include a recital that the property being conveyed is not the grantor’s homestead if the grantor’s spouse is not signing the instrument of conveyance.

In Mobile there is now an additional form that the Mobile County Probate Court requires before a deed will be accepted for recordation.  The Court uses this form to verify value for recording tax purposes.

For any instrument conveying real property in Alabama there is a requirement for one witness to sign the instrument.  In the event that the grantor cannot write, two witnesses are required to sign the instrument.  It is beneficial to have a notary acknowledgment on the instrument because it serves as a witness and makes the instrument self-proving when recorded.  If the instrument is notarized, an Alabama statutory acknowledgment form should be used.  Any instrument conveying real property should be recorded in the county where the real property is located and should include the address for tax notices to be sent to and the name and address of the person to whom the deed should be forwarded after recording.

The deed conveying real property is an important document and should be carefully reviewed.  It is but one step in a real estate transaction.  The legal description should be carefully reviewed.  It is often advisable to order a current survey to verify the legal description.  Deeds often retain mineral rights to the seller or an individual they have previously been transferred to.  Conveyances are often made subject to restrictions of record.  Examples of these restrictions are easements and subdivision restrictions (which may restrict your use of the property by prohibiting such things as storage sheds or parking a boat in the driveway).  We as real estate lawyers can help you understand the restrictions and the effect of the deed you will receive when you buy a piece of real estate.

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Banking Law Alabama Supreme Court Significant Decision

In a significant decision regarding banking law, the Supreme Court of Alabama issued a ruling this past October.  In Braden Furniture v. Union State Bank, No. 1110943 (Ala. Oct. 19, 2012) the issue was whether the provisions in the Alabama Uniform Commercial Code (more commonly referred to as simply “the UCC”) supersede common-law claims of negligence and wantonness in the event that a drawer seeks to recover from a depository bank any loss of payment for unauthorized checks.  The background of this case dealt with an employee of Braden’s furniture who misappropriated funds from Braden accounts and then wrote checks from the company and subsequently deposited those checks into her own USB account.  The Supreme Court held that common law claims of negligence and wantonness are in fact displaced by Alabama UCC Article 3 under these circumstances.  The court offered the following explanation “Braden Furniture’s common-law claims based upon Union State Bank’s alleged acceptance of unauthorized checks and Union State Bank’s presentment of those improperly payable checks to Braden Furniture’s bank for payment.  Because the UCC provides that transactions such as these are governed by the relationship between the drawee bank and its customer, and between the drawee bank and the depository/collecting bank, to allow Braden Furniture’s common-law claims of negligence and wantonness to proceed would create rights, duties and liabilities inconsistent with those set forth in the UCC.”  This case was brought before the Alabama Supreme Court on appeal from a summary judgment for Union State Bank and the Supreme Court affirmed the summary judgment.

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Real Estate Lawyer Alabama State Supreme Court Significant Decision

The Supreme Court of Alabama recently issued a significant ruling in the area of Real Estate law, in regards to Riparian rights or the rights of landowners whose property borders on a body of water or watercourse.  As a Real Estate Lawyer located in Mobile, I always take an interest in cases dealing with coastal real estate law.  Mobile is known as the port city after all.  In a case that originated in Baldwin County and involved an owner’s construction of a pier that would possibly conflict with regulations of the Department of Conservation and Natural resources, the department issued a pier permit to the landowner because applying the regulatory set-back requirement would encroach on the general common-law right possessed by all owners of riparian or waterfront property that allows the owners to “wharf out” to waters of a reasonable navigational depth.  Schramm v. Spotswood, No. 1110794 (Ala. Oct. 19, 2012).  The dispute concerned the boundaries between three lots located on the eastern shore of Mobile bay about one mile south of the Grand Hotel at Point Clear.  The construction of the new pier caused the neighbors some concern their view of the sunsets and the Grand Hotel would be obstructed.   The court held in this case that this common-law right was previously recognized in Alabama and many other jurisdictions.  Cove Properties, Inc. v. Walter Trent Marina, Inc., 796 So.2d 322, 326-27 (Ala. Civ. App. 1999), reversed in part on other grounds, 796 So.2d 331 (Ala. 2000).  The court held that the Department of Conservation and Natural Resources decision to allow the pier was not clearly unreasonable.

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