Suttons Bay Law

Paying your competitor’s attorney fees in Non-Compete Cases

After seventeen years practicing law, I find that most business clients appreciate the services I have to offer and are willing to pay a fair fee for them. But I have yet to meet a client who feels at all inclined to pay the legal bill of a competitor who has just sued. That’s like being thirteen and kissing your sister. Yet when corporations sue each other over the alleged theft of a valuable employee, the dispute can quickly become a fight over attorney fees.

Any time you hire a competitor’s current or former employee (or independent contractor), you face the risk of a lawsuit from the competitor alleging improper interference with a contract, or some other form of unfair competition. If the employee had a written agreement not to compete with the former employer, the risk of such a suit is all the greater. Risk assessment needs to be part of the hiring decision so you can decide whether the potential employee’s attributes justify the risk. In performing that assessment, you have to consider the possibility of paying not only damages but also the cost of your own – and even your competitor’s – legal fees.

If the competitor goes to the trouble of suing you, it will probably bring every plausible claim available against you. In non-compete cases, this usually involves a claim that the employee and you have conspired to steal the competitor’s trade secrets and proprietary information. In most lawsuits between business competitors, each side pays its own legal expenses – win, lose or draw. But under Michigan’s version of the Uniform Trade Secrets Act, a prevailing plaintiff can recover attorney fees if it shows that the defendant willfully and maliciously stole a trade secret.

Just as I have never met a client anxious to pay a competitor’s lawyer, I have also never met a client (whether a corporation or an individual business person) who believes he acted maliciously in his business dealings. Unfortunately, there is scant case law in Michigan clearly defining willful and malicious conduct under the Uniform Trade Secrets Act. As a result, in virtually every non-compete case brought naming you as a defendant, you will face the argument – and the risk – that you did act maliciously.

Most non-compete cases start with a request for an immediate injunction to stop the alleged unfair competition. This requires the judge to conduct a hearing that resembles a mini-trial at the outset of the lawsuit. The judge’s decision whether or not to grant the injunction will be widely viewed as a barometer of the ultimate merits of the case. Consequently, many cases settle once the judge grants or denies the injunction requested, if not before. In the mean time, the parties – and the suing party in particular – will have incurred substantial legal bills in a short amount of time. (In one case I defended, the opponent racked up about sixty thousand dollars in fees in the one month between filing and settling the case.) With the judge’s decision on the injunction having effectively resolved the merits of the claim, the parties are left to fight over who should foot the bill for having brought the matter to court.

Obviously, the judge’s decision on the injunction will either strengthen or weaken the suing party’s claim that you acted maliciously. Either way, both sides will need to consider carefully how much more legal expense they are willing to incur solely to fight over who should pay the fees to date. If the case appears ready for settlement even before the judge rules on the request for an injunction, you still may face a fight over attorney fees. I have seen plaintiffs with no real damages become all the more insistent that they recover attorney fees as a matter of principle to ensure that the perceived misconduct does not go unpunished. If you are defending, do you buckle and pay some portion of the other side’s fees, or do you hold ground as a matter of principle? If you hold fast, you may end up paying far more money in the long run, albeit to your own attorney rather than to your competitor’s. As a colleague once told me, “It is perfectly appropriate to stand on principle, once you have acknowledged that principle is expensive.”

How do you avoid the distasteful dilemma of paying some portion of a competitor’s attorney fees? While no answer is full proof, there are steps you can take to minimize the risk:

1. Fully assess the risk going in. When interviewing potential employees, have them confirm in writing as part of the interview process whether they have obligations under an existing non-compete agreement. If they answer “no,” it will be harder for a competitor to show you acted willfully and maliciously in the hiring process. If the answer is “yes,” then you know you face a greater threat of a lawsuit and, consequently, may not want to hire the individual. (One caveat: if you do hire the individual notwithstanding his written admission of an existing non-compete, you may strengthen the argument that you have acted with malicious motives.)
2. Avoid trade secrets. If you do hire a competitor’s current or former employee, be extremely vigilant in instructing the new employee and all who work with him that you will not condone any using or sharing of the competitor’s proprietary information and trade secrets. Monitor the situation for compliance. This will make it harder for your competitor to seek fees under the Uniform Fair Trade Practices Act.
3. Assess your risks again. If you do find yourself in a lawsuit, make sure your initial assessment of your potential liability includes a proper allowance for attorney fees. It rarely makes sense to hold fast to an unreasonably low settlement position, only to spend far more in defense than what you could have resolved the case for early on.

By their nature, non-compete cases force the parties to spend considerable legal fees early in the process, often before either side has a solid understanding of the damages suffered. Many times, the actual damages a suing competitor is able to prove will be far smaller than the fees incurred. Given the attorney fee award provisions under the Uniform Trade Secrets Act, you could find yourself fighting to avoid a fee award against you, even in a case where you have caused no measurable harm to your competitor. Try your best to understand your risks before making the hire. That doesn’t mean you won’t make the hire if the employee is worth the risk. After all, most thirteen year olds would kiss their sister — for the right price.

Dirk A. Beamer

Tags: Asset Protection, Business Management/Law, Disputes & Litigation, Employment Law, Know it Now by Dan Penning
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In 2008, the Michigan Court of Appeals held that a child’s ability to sue for a personal injury is not impaired despite any pre-injury waivers signed by the child’s parent. The case of Woodman v. Kera, L.L.C., 280 Mich. App. 125 (2008), involved a 5-year-old boy who was injured at an indoor recreation facility. The boy’s father had signed a pre-injury waiver, purporting to hold the recreation facility harmless if any injuries occurred to the child. According to the Court, the waiver could not prevent the child from pursuing a lawsuit against the facility. This conclusion was based on the common law rule that a parent lacks authority to waive, release, or compromise his or her child’s claims merely by virtue of the parental-child relationship. A parent, absent a specific exception created by the Michigan Legislature, cannot authorize an act that is detrimental to the child.

This case, which has far-reaching effects on commercial recreation establishments, churches, and schools, is currently under review by the Michigan Supreme Court. Oral argument on the case was heard by the Supreme Court in October of 2009, and an opinion is expected sometime later this year. It is also possible for the State Legislature to enact an exception to the general rule cited in Woodman, either before or after a decision is reached.

In the meantime, Woodman remains the rule in Michigan, and therefore establishments are best served by acting prudently and maintaining adequate insurance. While it is not recommended to discontinue the use of pre-injury waivers, awareness of the limited protection afforded by the waivers is important. For more information about this matter, please contact us.

Tags: Asset Protection, Disputes & Litigation, Know it Now, Personal Management by Dan Penning
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From an article quoting Wright Penning & Beamer partner Dirk A. Beamer which appeared in The News Herald:

Saturday, October 31, 2009

By Jason Alley

DETROIT — The city of Ecorse has filed a lawsuit against a former mayor who is seeking re-election Tuesday, alleging that he owes the city more than $90,000 for a legal battle he lost in 2007.

A neighbor of former Mayor Larry Salisbury sued him years ago in both his official capacity as mayor and as an individual, claiming that Salisbury harassed him and denied him the city approval needed to sell his house.

A federal jury heard the case and sided with the neighbor, Joseph Door. The jury ordered the city to pay Door $11,000 and for Salisbury to individually pay him $66,000.

Nearly four months later, the federal court also ordered the city and Salisbury to jointly pay Door’s attorney fees and costs totaling nearly $30,000.

While mayor, Salisbury had the city put up a bond with taxpayer money to satisfy the judgment against him while he appealed the verdict, according to the latest lawsuit.

The 6th U.S. Circuit Court of Appeals in Cincinnati upheld the jury’s decision Dec. 29, 2008, and ordered the city and Salisbury to pay Door the money he was owed.

Since that time, the latest lawsuit alleges, Salisbury has never reimbursed the city for the amount that was fronted to cover his part of the judgment.

“Salisbury owed a duty of loyalty and a duty of good faith to (the) city,” the lawsuit says. “It was Salisbury’s duty to promote and protect the financial interests of the city, and it was his duty not to exploit the financial interests of the city for his personal gain or benefit.”

Attorney Dirk Beamer, who filed the suit on behalf of the city, said he isn’t sure Salisbury was authorized to use “cash out of the city’s coffers” to pay for a judgment against him individually.

“We question the propriety of him in the first place allowing the bond to be placed on his behalf with city funds,” Beamer said. “The city has effectively been forced to cover what is his own personal liability. … The city, obviously, is in need of funds and should be reimbursed by Mr. Salisbury.”

While the case was filed days before the election, Beamer said the timing is coincidental at best.

“People can infer what they choose to … but it’s a straightforward fact that there is money advanced or paid and arguably should not have been,” he said.

Salisbury declined to comment on the allegations of the suit, but through a spokesman said he intends to file a grievance with the State Bar of Michigan against the city’s attorney for abuse of process by bringing the case against him.

The lawsuit was filed in Wayne County Circuit Court and has been assigned to Judge Jeanne Stempien.

Contact Staff Writer Jason Alley at jalley@heritage.com or at 1-734-246-0867.

Read the entire article and comments posted on The News Herald website.

Tags: Disputes & Litigation by Dan Penning
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The following article reports on an increasingly used strategy by individuals representing homeowners whose homes are in danger of foreclosure. In summary, the article addresses situations where a homeowner’s mortgage may have been sold or reassigned between several different companies and, therefore, the original mortgage note and mortgage executed by the homeowner cannot be located. If there is no evidence of a mortgage note or mortgage having been executed by the homeowner, then the bank or lending facility may have a challenge to actually prove indebtedness. The article below does provide useful information and should be considered by any homeowner facing a foreclosure action by their lender.

Dan Penning

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From an article which originally appeared on the Consumer Warning Network website:

Homeowners’ Rallying Cry: Produce the Note

by MITCH STACY Associated Press Correspondent

ZEPHYRHILLS, Fla. (AP) — Kathy Lovelace lost her job and was about to lose her house, too. But then she made a seemingly simple request of the bank: Show me the original mortgage paperwork.

And just like that, the foreclosure proceedings came to a standstill.

Lovelace and other homeowners around the country are managing to stave off foreclosure by employing a strategy that goes to the heart of the whole nationwide mess.

During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed.

Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.

“I’m going to hang on for dear life until they can prove to me it belongs to them,” said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. “I’ll try everything I can because it’s all I have left.”

In interviews with The Associated Press, lawyers, homeowners and advocates outlined the produce-the-note strategy. Exactly how many homeowners have employed it is unknown. Nor is it clear how successful it has been; some judges are more sympathetic than others.

More than 2.3 million homeowners faced foreclosure proceedings last year and millions more are in danger of losing their homes. On Wednesday, President Obama will unveil a plan to spend at least $50 billion to help homeowners fend off foreclosure.

Chris Hoyer, a Tampa lawyer whose Consumer Warning Network Web site offers the free court documents Lovelace used to file her request, has played a major role in promoting the produce-the-note strategy.

“We knew early on that the only relief that would ever come to people would be to the people who were in their houses,” Hoyer said. “Nobody was going to fashion any relief for people who have already lost their houses. So your only hope was to hang on any way you could.”

Tom Deutsch, deputy executive director of the American Securitization Forum, a group that represents banks, law firms and investors, dismissed the strategy as merely a stalling tactic, saying homeowners are “making lawyers jump through procedural hoops to delay what’s likely to be inevitable.”

Deutsch said the original note is almost always electronically retained and can eventually be found.

Judges are often willing to accept electronic documentation. And lenders are sometimes allowed to produce other paperwork to establish they are the holder of a loan. Still, assembling such documents to a judge’s satisfaction takes time, which to homeowners is the point.

Lovelace filed her produce-the-note demand last fall after the bank acknowledged that her original mortgage document had been lost or destroyed. Since then, there has been no activity on the foreclosure — no letters from the lender, no court filings.

The law firm handling the foreclosure for the lender refused to comment.

A University of Iowa study last year suggested that companies servicing mortgages are often negligent when it comes to producing the documentation to support foreclosure. In the study of more than 1,700 bankruptcy cases stemming from home foreclosures, the original note was missing more than 40 percent of the time, and other pieces of required documentation also were routinely left out.

The first big success of the produce-the-note movement came in 2007 when a federal judge in Cleveland threw out 14 foreclosures by Deutsche Bank National Trust Co. because the bank failed to produce the original notes.

Michael Silver, a lawyer for two of the families in that case, said at least one eventually lost their home. Still, he considers that a success.

“From the perspective of the person who’s in the home, you may have kept them in the house another 10 or 12 months,” he said. “If I can get a result with economic benefits to a client, then I think I won.”

Democratic Rep. Marcy Kaptur of Ohio endorsed the strategy in a fiery speech on the House floor during debate on the federal bank bailout last month.

“Don’t leave your home,” she said. “Because you know what? When those companies say they have your mortgage, unless you have a lawyer that can put his or her finger on that mortgage, you don’t have that mortgage, and you are going to find they can’t find the paper up there on Wall Street.”

April Charney, head of foreclosure defense for Jacksonville Area Legal Aid in Florida, said the strategy has been so successful for her that she now travels around the country to train other lawyers in how to use it. She said she has gotten cases delayed for years by demanding that lenders produce paperwork they cannot find.

“This is an army of lawyers getting out there to stop foreclosures so we can get to the serious business of creating solutions,” Charney said. “Nothing good is going to happen as long as we continue to bleed homeowners.”
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Visit Consumer Warning Network for balance of article and reader comments and additional information about foreclosures and this issue.

Dan Penning
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Tags: Asset Protection, Disputes & Litigation, Personal Management, Suttons Bay Depot by Dan Penning
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Disputes & Litigation

From account collection to unfair competition, our lawyers handle it all

On television, courtroom lawyers neatly wrap up lawsuits in the span of a one-hour episode. In the real world, commercial disputes with customers, suppliers, competitors or employees rarely follow such an orderly process. At Wright Penning & Beamer, we bring a balanced combination of legal expertise and business common sense to our clients’ problems. We explore every avenue for delivering verdicts, judgments or settlements that bolster or protect the client’s bottom line.

Account Collection

Services Offered: We collect outstanding receivables for our clients through negotiation and, when necessary, litigation.

Unlike “collection firms” that act much like collection agencies, Wright Penning & Beamer assures direct attorney involvement and oversight in debt collection cases. Through long-standing relationships with major corporations like Sysco Food Services of Detroit, LLC, Wright Penning & Beamer has successfully handled thousands of collections matters.

Business Disputes and Litigation

Services Offered: We work with clients to find the most comprehensive and cost-effective solutions to business disputes. Where appropriate, we seek to negotiate and enforce win-win solutions for our clients and those they do business with. And, when necessary, we develop and implement aggressive trial strategies to protect our clients’ legal rights and business interests through the legal system.

At heart, our lawyers are business people. We analyze each dispute carefully to understand the legal options and the business ramifications. In courtrooms across the state and across the nation, Wright Penning & Beamer attorneys deliver results. When those results are challenged on appeal, we prevail nine times out of ten.

Construction

Services Offered: We represent both contractors and property owners in commercial and residential construction disputes, including proceedings under Michigan’s Construction Lien Act.

Wright Penning & Beamer enjoys relationships with several national lien firms who engage us to file and enforce construction liens in Michigan.

Contract Disputes

Services Offered: We find effective resolutions to contract disputes between our business clients and third parties. Where the other party will not entertain reasonable, joint solutions, we bring and/or defend lawsuits to enforce contract terms on a state and national level.

We work with supplier contracts, personal service contracts, verbal and written contracts, software and technology contracts, confidentiality and non-compete agreements, and everything in between.

Insurance Coverage Disputes

Services Offered: We pressure your insurance carrier to honor its obligations to you if you have been denied coverage under your policy.

We are unique in the fact that we have experience representing insured parties, insurance carriers, and insurance agents. We have served as general counsel to the National Association of Professional Allstate Agents for nearly ten years.

Landlord/Tenant Disputes

Services Offered: We act to enforce rights for payment of rent or possession of property on behalf of landlords. We act to protect the rights of commercial tenants if landlords fail to live up to their lease obligations.

We handle dozens of landlord/tenant disputes for business clients every year.

Sales Representative Contracts

Services Offered: We develop clear agreements with your sales force that minimize the chance of any dispute once you part ways, and we provide experienced representation when disputes do arise.

We have litigated millions of dollars in disputed commissions over the past ten years, covering topics ranging from auto parts to holographic images.

Unfair Competition

Services Offered: We seek quick remedies when competitors engage in business practices that cross the line – whether they involve violations of a non-compete agreement, the misappropriation of proprietary information, or tampering with customers.

Our attorneys have both initiated and defended claims of this kind in state and federal courts across the country for clients such as Toshiba Business Solutions-Michigan, Masters Green and Chemco Products. Dirk Beamer has written and published about rights and risks under the Uniform Trade Secrets Act.

Tags: Disputes & Litigation by Dan Penning
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