Detroit Business Law

When Opportunity Knocks, Should You Answer?

There is a quote from William James that reads:

“He who refuses to embrace a unique opportunity loses the prize as surely as if he had failed.”

A couple of weeks ago, I received a unique opportunity from Renee Warnimont, the business development officer who supports the Charter One Bank branches in the Downriver communities of Dearborn, Southgate, Taylor and Trenton, Michigan. Each month, Charter One conducts a conference call to discuss relevant topics in the banking industry.  Because February’s call focused on how the state of the economy in Michigan & Ohio is affecting small businesses, Renee offered me the chance to be the only CPA in the State of Michigan to present on the economic and tax issues that are having an adverse affect on small business owners today.

I decided to embrace this unique opportunity even though public speaking is not my expertise. In hindsight this proved to be a tremendous marketing opportunity. Initially, I expected the conference call would only include the branches of the Detroit metropolitan market and Toledo, Ohio. Instead, it turned out that the call included 40 bankers, 6 Regional Directors and the Michigan State Director of Charter One, along with branches representing Akron, Canton, Cleveland, Columbus and Toledo, Ohio. Not only did I have exclusive access to all of these decision makers, but the following week I was able to meet the Michigan State Director for lunch to follow up on the conference call and to provide him with additional information about Numerico, P.C.

In closing, I want to give special thanks to Renee for this incredible opportunity. If you have any banking questions or would like to hear a different point of view regarding the banking industry, you can email Renee at Renee.Warnimont@CharterOneBank.com

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.

Attorney’s Signature Creates Binding Settlement

You might think that the settlement of a lawsuit requires the signature of the client.  That is not the case under this Michigan Court Rules.   A settlement may be enforced if (a) it is agreed to before the Judge in open court on the record by the client or attorney or (b) if there is “written evidence” of the settlement signed by the client or attorney.  MCR 2.507(G0.

In Kennedy v Hayduk, the plaintiff’s attorney claimed that a settlement had not been reached.  The Michigan Court of Appeals disagreed.  The defense attorney sent a letter summarizing the terms of a proposed settlement.  There were more detailed settlement documents still to be prepared.  The plaintiff’s attorney then signed and returned to the defense attorney a stipulation and order to dismiss the case.  The plaintiff later argued that there were terms of the settlement that had not been agreed upon, so there was no binding settlement.    The Court of Appeals ruled that: “The signed stipulation was unconditional acceptance of defendants’ offer. … The objective evidence shows that an agreement was reached.”

A lesson from this case:  Don’t sign a settlement until all terms have been agreed upon.

Download a PDF of the decision by clicking here.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

CARD Act – How the New Credit Card Law Works

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (or “CARD Act”) went into effect on Monday, February 22.  The purpose of this Act was to prevent credit card companies from using predatory lending practices and excessive penalties for credit card customers.  Note, however, that the CARD Act only applies to personal credit cards, not business credit cards.

Key provisions of the CARD Act include:

• Interest rates on existing balances cannot be changed unless (1) your payment is 60 or more days late; or (2) you have an introductory rate that expires.
• If a payment is more then 60 days late, but your payments for the next 6 months are all on-time, the credit card company must reduce your interest rate back to the original rate.
• Interest rates on new purchases can be changed, but the credit card company must give you 45 days notice before raising your rate.  You can opt out of the rate change, but that means your account will be closed and you will have five years to pay off the existing balance at the existing interest rate.  There are some exceptions to this rule, however.  For example, if you have a variable rate card tied to the prime rate, this provision does not apply.
• Credit card companies can no longer use the “universal default” provision that some were using.  If you pay late or default on any account (credit card, utility, etc.), other card issuers can no longer raise your interest rate on your existing balance on those cards.
• Credit card companies can no longer approve a charge that exceeds your limit and then charge you an over-limit fee and penalty interest rate.  Beware of “opt-in” offers to avoid over-limit fees, as this is a scam.
• You cannot be charged for paying online, by mail, or over the phone, unless you speak to a live operator and then they must disclose the fee before you pay.
• Payment due dates must be the same every month, and if the due date falls on a holiday or weekend, the payment is due the next business day.
• Your bill must now disclose how long it will take to pay off the current balance if you only pay the minimum amount each month, as well as the total amount of principal and interest you would pay over that time period.
• Anyone under 21 cannot get a credit card without either (1) proof of income to pay the bills or (2) an adult co-signer.

One problem with the CARD Act, however, is that it was signed into law in May 2009, but did not become effective until this week.  This gave credit card companies significant time to find ways around the new laws, including cutting credit limits and raising interest rates before the restrictions on such practices went into effect.  Some other new negative practices include:

• Closing accounts or charging fees for inactivity or even for “low activity”
• The return of annual fees to many cards – even if you have never had an annual fee on a particular card, there is nothing to stop the card issuer from charging one now
• Converting fixed rate cards to variable rate cards, and setting these rates with a floor that they will never fall below
• Redefining terms of certain fees, such as what is considered an “international transaction”
• Increasing balance transfer fees and cash advance fees
• Adding fees for paper statements
• Changing the terms of rewards programs or eliminating such programs altogether
• Stricter review of who is issued credit
• Reducing credit limits without warning

Pay attention to all correspondence from your credit card company, and if they are acting in a way that should be covered by the CARD Act, call and complain.  If that doesn’t work, contact your US Senator or Representative.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.

To Quality as a Future Advance Mortgage, Correct Language Must By Included in the Recorded Mortgage

A mortgage has priority over other liens on the property from the date it is recorded with the Register of Deeds. The mortgage can also have priority for amounts advanced by the lender after the date of recording if the mortgage contains certain specific language making it a “future advance mortgage”. In Citizens State Bank v. Nakash (2010), the Michigan Court of Appeals considered what happens when a recorded mortgage references a promissory note or agreement that contains the future advance language, but the recorded mortgage itself contains no future advance language. The Court of Appeals ruled that the mortgage creates no priority for future advances by the lender when the promissory note or agreement containing the future advance language is unrecorded. MCL 565.901(b) holds that the instrument creating a future advance mortgage must be recorded. This ruling makes sense, because the recorded mortgage should put other parties on notice that it is a future advance mortgage, and not merely refer to another document that is not part of the chain of title.

To download a PDF of the case click here.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Tough Love in Your Business

What do oil and water and family members who are employees in your small business have in common?

They rarely mix and are frequently toxic to the environment.

Although it should be noted that there are of course occasions of success, the most likely outcome is entrenched employees that are nearly impossible to remove, strained relations and uncomfortable holiday dinners. In fact, you could probably make an argument that it is easier to remove a unionized government employee than a family member who is your employee.

I recently read an interesting article that deals with this topic in the New York Times on February 11, 2010, entitled “Fire Your Relatives. Scare Your Employees. And Stop Whining” by Kermit Pattison. (Click here to read).

While some of his suggestions may be too aggressive for your average small business owner, they get right down to my point.

As a business owner you are either in it to win it or you are not.

Which are you?

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.

Don’t Sign the Satisfaction Unless You’re Satisfied

The Michigan Court of Appeals recently reaffirmed the Michigan Common Law that when a plaintiff enters into a release and provides an accord and satisfaction to settle a lawsuit, that if the plaintiff seeks to later repudiate the accord and satisfaction, he or she must return all the money that was paid by the defendant originally to settle the suit before a new suit may be commenced.    An accord and satisfaction is more than a release of a claim. An accord and satisfaction requires that the claim be disputed and the substituted performance be agreed upon and accomplished.

In the case decided by the Michigan Court of Appeals, the plaintiff purchased a manufactured home from the defendant.   Soon after the plaintiff took possession, she discovered several serious defects and sued the defendant.    The parties reached an out-of-court settlement, wherein the defendant agreed to repair all the various defects and pay plaintiff and her attorney $8,500.  After the repairs were made, plaintiff inspected the repairs with her attorney and signed off on them, signing both a release and satisfaction.

A year later, plaintiff discovered high levels of toxic mold, later filing suit against the same defendant arguing that the defendant breached the settlement agreement by not completing the original repairs in a workmanlike manner.

The Court of Appeals affirmed the trial court’s holding that nothing prevented the plaintiff from having a professional inspect the defendant’s work before she signed the original satisfaction.   Just because the mold was not visible to the naked eye does not mean the satisfaction does not cover it.    Thus, plaintiff’s second lawsuit was an attempt to repudiate the release that she gave defendants originally.    The Court held that because plaintiff signed the release and satisfaction, and because defendants made the repairs and paid her, the contract was complete.    The Court held because plaintiff was attempting to repudiate the release she must give back the consideration before filing suit.    If she had not signed the satisfaction, she could have filed suit without having to return the money first.

Click here to download a PDF copy of the Michigan Court of Appeals Decision in Bain v Community Sales.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm.

Separate Appeal of Attorney’s Fees and Costs

The Michigan Court of Appeals decided an interesting procedural issue regarding the appeal of post-judgment orders awarding or denying attorney’s fees. In Mossing v. Demlow Products, Inc. (2010), the trial court denied an award of attorney’s fees and costs to the defendants.  This occurred after the plaintiff had already filed an appeal, and the defendants had already filed a cross-appeal, in the Court of Appeals. In their cross-appeal, the defendants seek to have that fee order reversed. The Court of Appeals ruled that a completely separate appeal must be taken from the post-judgment order. In other words, the appeal cannot be tacked on to the cross-appeal; it must stand alone as a separate appeal.

Click here to download a PDF of the Court of Appeals decision in Mossing v Demlow.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Is it a Rat Race?

Business is war. It’s a jungle out there. Never give a sucker an even break. Nice guys finish last. It’s a dog-eat-dog world. We’ve all heard at least one of these bits of wisdom in our lives. Some of us even use them on a regular basis to describe business or personal philosophy. Though they are effective and hard-hitting, there’s one basic flaw. Each one of these statements is premised on the idea of business or personal relationships as a fight to the death.

Though the idea of life as an endless struggle or fight for survival is romantically appealing, it’s not very efficient. Those who go through life in this way waste so much energy and time waging short-term battles that they lose the long-term war. In this case, the long-term war is productive change.

Though you can force some productive change through continual frontal assaults, there are more efficient means of accomplishing your objectives. It is shortsighted to handle all challenges with the same tactic. Different situations require different methods. By understanding the environment around the situation, you can use tactics that blend into and solve the conflict harmoniously.

If a conflict is solved in a way that creates discord (future conflict), then the situation hasn’t been resolved. You may think you have come out on top, but the conflict will usually be revisited, with much more intensity. Your short-term gain will produce long-term pain, either for you or for the other parties involved.

A basic law of the universe is that “for every action, there is an equal and opposite reaction”. The universe demands that equilibrium is maintained. Imbalances have a way of righting themselves, with the unknown variable being the time it takes for resolution. If we push a situation toward further imbalance, the time table is accelerated. The greater the imbalance becomes, the greater the force against us.

The principle of avoiding negative conflict, yet accomplishing your objectives, is the essence of a martial art called aikido. In aikido, the aggressor’s strength is never met head-on. Instead, the aikidoist, yields to the force in such a way that it is unable to cause harm and, at the same time, the force is redirected, usually to the opponent’s detriment. This is like redirecting the flow of a river instead of opposing it. Much less energy is expended, equilibrium is maintained, and the objectives are met. This principle works in most every situation.

All things in life have a balance. By approaching all situations in life as confrontations and attacking relentlessly, we eventually, upset many balances. This is not to say that you should never use a direct attack. However, by looking at the environment (which shapes the situation and its outcomes) and considering alternatives, we can accomplish our objectives and maintain a healthy, natural balance.

2009 Federal Tax Benefit for Qualifying Contributions for Haitian Earthquake Relief

The Internal Revenue Service is making a one-time, extraordinary allowance to taxpayers who make qualifying contributions for Haitian earthquake relief.[1]

Individual taxpayers who itemize their deductions for 2009 may deduct on their 2009 income tax return cash contributions to qualifying charities for Haitian earthquake relief made after January 11, 2010 and before March 1, 2010.  A “qualifying charity” for this purpose is a charity which is (1) based in the United States, and (2) is either (a) listed in IRS Publication 78 or (b) a bona fide church.

Publication 78 lists charities which have applied for, and been granted, IRS recognition that contributions to them are deductible as charitable contributions for Federal income tax purposes.  An online version of Publication 78 can be found at http://www.irs.gov/app/pub-78/.

To designate that a contribution is for Haitian earthquake relief, you should specify on the memo line of the check or otherwise in the documentation for the contribution that the contribution is for Haitian earthquake relief.

If you have any question about making a qualifying contribution, please feel free to contact us.

[1] IR 2010-12, Jan. 25, 2010.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm.

Keeping Property Tax Values Capped Upon the Death of a Joint Tenant

Under Michigan law, a property’s taxable value is capped and may not increase by more than the rate of inflation until ownership of the property is transferred.

However, there are certain types of transfers of ownership that are exempt from this rule and will not cause an uncapping of the taxable value.  These no-transfer-of-ownership exemptions are listed in the General Property Tax Act, Section 211.27a(7).

One particular exemption that has been the subject of recent litigation in Michigan is set forth in Section 211.27a(7)(h). This exemption has to do with a transfer that creates or terminates a joint tenancy.  It has been widely assumed that the death of a joint tenant is considered a transfer that “uncaps” the taxable value of a property and is not exempt under Section 211.27a(7)(h).

However, in December 2009, the Michigan Court of Appeals reversed the decision of the the Michigan Tax Tribunal in the case of Klooster v City of Charlevoix, holding that the death of one joint tenant, even though it terminated the joint tenancy, was not a “conveyance” because there was no instrument that affected title.  In that case, husband and wife first acquired property, wife then quitclaimed to husband, husband then quitclaimed to himself and his son as joint tenants, and the husband/father subsequently died.  It is the death of the father as joint tenant that is the issue of the dispute.  The court disagreed with the City of Charlevoix and the Tax Tribunal’s contention that the death constituted a “transfer” under Michigan statutes.

Just this month, the Michigan Court of Appeals in Klevorn v. City of Boyne City, using Klooster as precedent and citing the similarity of the facts, held that the death of one joint tenant (mother) and the subsequent transfer the other joint tenant with rights of survivorship (son) was not a “conveyance”.  Therefore, the Court held that the property value upon transfer to the son should not have been uncapped and he was entitled to the no-transfer-of-ownership exemption in MCL 211.27a(7)(h).

The Klooster decision has been appealed to the Michigan Supreme Court.  In the meantime, there is precedent to argue that upon the death of a joint tenant, the remaining joint tenant with rights of survivorship is not subject to an uncapping of the property’s taxable value.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.