Last week, the Supreme Court refused to immediately close the waterways.  However, the Court did not explain the reasons for its ruling, nor did it indicate whether it would rule to close the waterways at some point.

Just hours after the Court issued its ruling, it was announced that Asian carp DNA had been detected in Calumet Harbor, part of Lake Michigan near Chicago.  It is unclear whether this finding will influence the Supreme Court, or cause it to reconsider its prior ruling.

Michigan has been joined in its fight by Ohio, Indiana, Wisconsin, Minnesota, Pennsylvania, and New York (all the Great Lakes border states except Illinois), as well as Ontario.  President Obama has invited the governors of these states to a summit to be held next month regarding these issues.

Various members of Congress are also looking at possible solutions for the Asian carp problem.  A bipartisan group is looking at measures to poison the Asian carp; to strengthen an electronic barrier in the Chicago waterways; and other options.  Additionally, U.S. Rep. Dave Camp (Midland), introduced a bill called the Carp Act, which would close the waterways, and strengthen protections against Asian carp within the waterways, without the Supreme Court’s involvement.

Not surprisingly, the shipping industry opposes the closure of the waterways leading from Chicago to Lake Michigan.  At this point, it appears to be up to the Supreme Court, Congress, and/or the President to decide whether protecting the Great Lakes from Asian carp is more important than allowing commercial shipping between the Great Lakes and the Mississippi River (through Chicago).

Stay tuned for further updates.  Also, see these articles in The Detroit News for more information: http://bit.ly/cfUu7V, http://bit.ly/83fqws, http://bit.ly/6WoS1, and http://bit.ly/aSDOEd.

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

This week, Michigan Attorney General Mike Cox filed a petition with the United States Supreme Court, essentially asking the Court to close all waterways from Illinois leading to Lake Michigan, to prevent Asian carp from reaching the Great Lakes.  You may be wondering why the United States Supreme Court is involved.  The answer is that this is a dispute between two states – Michigan and Illinois – and the US Supreme Court has “original jurisdiction” over disputes between the states.  28 USC § 1251(a).  Original jurisdiction means that if such a dispute arises, the only court that is allowed to hear that dispute is the US Supreme Court.

Essentially, Michigan’s Attorney General is arguing that the threatened harm to Michigan and the Great Lakes is so severe that the Court should take the drastic measure of closing off all rivers and canals leading from Illinois to Lake Michigan, by closing locks and/or sluice gates.  The Attorney General acknowledges that this would likely harm commercial and pleasure boating traffic in the Chicago area, but maintains that this harm would be insignificant compared to the harm caused by Asian carp reaching Lake Michigan and destroying the Great Lakes fishing industry.

Michigan’s Attorney General has asked the Supreme Court to weigh the environmental and business concerns of protecting the Great Lakes against the business concerns of keeping open the waterways from Chicago to Lake Michigan.  Stay tuned for the Court’s ruling.

See this article in The Detroit News for more information: http://www.detnews.com/article/20091222/METRO01/912220363/1448/LIFESTYLE14/Groups-laud-Cox-in-carp-fight

Also see the Michigan Attorney General’s website for more information: http://www.michigan.gov/ag/0,1607,7-164-34391-228350–,00.html

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

It is essential that new businesses have all of their ducks in a row so that they are protected personally from the debts and liabilities of their new ventures, they take the best advantage of tax laws, and so that they are prepared for future success.

We advise contacting an attorney, as opposed to going it alone.  Demorest Law Firm, PLLC provides these services and can help you start your new company, and then help it to grow.

Excerpt from Freep.com Blog

11:42 a.m. | According to several business and academic leaders at the summit this morning, now is the time to start that business you’ve always dreamed about.

“Entrepreneurism is going to be the key to the economic recovery not just in this country but in the world,” James Turley, CEO of Ernst & Young LLP, declared at a town hall this morning.

Nearly a decade after the dot com bust, becoming your own boss is hip again.

Mary Sue Coleman, president of the University of Michigan, boasted to the audience that 15% or 6,000 of the students recently admitted to the school had started a business during high school.

“We’re in the perfect time in the history of this country to encourage this,” she said. “Let them loose.”

U-M now provides 100 courses that are in some way engaged in entrepreneurism, Coleman said.

What exactly does being entrepreneurial mean?

One panelist, Eva Chen, CEO of Internet security firm Trend Micro Inc., had the perfect Twitter-like response: “Using limited resources to create something that you want.”

By Katherine Yung

via Leader: Ford ready to compete | Freep.com | Detroit Free Press.

What is a Garnishment?

Garnishment is a court procedure through which a debtor’s money or property that is in the hands of a third party (the garnishee), may be subjected to the payment of the creditor’s claim.    Typically judgment creditors garnish wages, bank accounts and accounts payable.     Simply put, when a creditor gets a money judgment against a defendant, and the defendant does not have the money to immediately satisfy the judgment, the creditor can apply to the court to have the defendant’s wages garnished.   This means as an employer of the defendant you would be under order to remit a specified portion of the defendant’s paycheck to the creditor every pay period until the writ expires.    The creditor can also garnish the defendant’s bank accounts, tax refunds or other assets in the hands of third parties, including amounts owed by the defendant to the garnishee.

Garnishment Procedures

When you receive a Writ of Garnishment, it will be approved by the clerk of the court.  The Writ of Garnishment will contain a verified statement the Creditor has obtained a money judgment against the defendants.   Also included will be identifying information such as the defendant’s social security number, employee identification number or federal tax number.    Carefully examine the date the Writ was issued to ensure that 91 days after issuance have not expired.   If you are served more than 91 days after the Writ was issued, it is invalid.

After you have received the Writ and verified its timeliness, you must send a copy of the Writ of Garnishment to the defendant within 7 days.  As the garnishee have 14 days to file with the court clerk a verified disclosure indicating what (if anything) you owe to the defendant.    You must also send a copy of the verified disclosure form to the creditor and defendant, who will both be listed on the Writ of Garnishment.   At this point a judgment as already been entered and you are not the arbiter of the fairness of it.     If there has been an error, then it is the defendant’s attorney’s responsibility to investigate it, not yours.   Explain to the employee that you have no choice in the matter.

If you fail to respond to the Writ of Garnishment, the creditor can take a default judgment against you.  As a result of the default you will become liable for the entire debt owed by defendant, even if you had no involvement whatsoever with the creditor before that. We have seen this happen before, and it is not easy to get a default set aside.   Don’t let this happen to you.

After you have given the defendant a copy of the Writ, the defendant has 14 days in which to file an objection with the court.  Any objections will be resolved by the Court.

If the garnishment is for wages, you are required to begin making the deductions from the defendant/employee’s paycheck when the Writ of Garnishment is received.   The Writ will inform you the amount and to whom the payment must be directed.     A Writ of Garnishment only lasts 91 days, and a new one must be issued should the judgment not be satisfied within that time period.   For garnishees with weekly, biweekly, or semimonthly pay periods, withholding shall commence with the first full pay period after the Writ was served.    Withholding shall cease upon the end of the last full pay period prior to the expiration of the Writ.

Every time a payment is withheld, the garnishee must provide the following information to the creditor and the defendant:  case number, date and amount withheld, and the balance due on the Writ.    After 28 days from the date of the service of the Writ on the garnishee, unless an objection to the Garnishment is pending with the Court, the garnishee shall transmit all withheld funds to the creditor unless the garnishee has been notified that objections have been filed.

The creditor also has the right to issue interrogatories to the garnishee regarding amounts owed and other creditors who have attempted to garnish the funds.   A garnishee only has to comply with one garnishment at a time for the same creditor.    If there are multiple garnishments, contact us to determine which garnishment holds the higher priority under the Michigan Court Rules.

Compliance is Vital

Should you fail to comply with the dictates of the Writ of Garnishment, your company will become liable for the judgment against the defendants.    While possibly tedious, full compliance is necessary because the penalties are far too stringent otherwise.   As always, if you ever have any questions on the process contact us.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm. Click here to view his professional resume.

The current economic downturn has led to increased public scrutiny of lending practices.  Michigan usury laws offer important protection to borrowers by capping the interest rate that lenders can charge.  Whether one is a lender or a borrower, it is important to become familiar with the basic law and its many exceptions.

Violation of the usury laws has important consequences for borrowers and lenders alike. First, MCL 438.32 provides that any seller or lender who enters into a contract that charges an interest rate in excess of the maximum allowed by law is barred from the recovery of any interest at all.  The lender is also barred from collection charges, attorney fees and court costs.  In fact, the borrower or buyer, on the other hand, may recover his or her attorney fees and court costs from the usurious seller or lender.  Second, of particular interest to lenders, is Michigan’s criminal usury statute (MCL 438.41) which makes it a crime for any person to charge interest at a rate exceeding 25% per annum.

Michigan’s baseline usury statute, MCL 438.31, states that, “The interest of money shall be at the rate of $5.00 upon $100.00 for a year […],” but allows parties to stipulate in writing to an interest rate up to 7% per year.  The law, however, has many exceptions and explicitly states that it “shall not apply to the rate of interest…regulated by any other law of this state, or of the United States….”

For business loans, MCL 438.61 provides that a state or national chartered bank, savings bank, savings and loan association, credit union, insurance carrier, finance subsidiary of a manufacturing corporation, or a related entity may charge any rate of interest if the parties agree in writing, not subject to the normal 25% criminal usury cap.

An individual or company that is not a regulated lender may make business loans with a rate of interest not to exceed the 25% criminal usury cap.

There are three important tips for making sure that your loan documents comply with Michigan usury law: (1) If the borrower is an individual, rather than a corporation, LLC, partnership, or other entity, a sworn business purpose affidavit should be obtained by the lender for the borrower.  (2) Since the usury laws are complicated, it is important that the lender check the legal maximum rate for each specific loan transaction.  (3) Loan documents should contain a provision that if the interest rate specified in the agreement is higher than that permitted by law, the parties agree that the interest rate will be reduced to the highest rate permitted by law under the circumstances.

For a chart detailing the various interest rate limits in Michigan, click here (PDF).

On May 19, 2009, the Michigan Legislature passed a package of three bills designed to give homeowners facing foreclosure a ninety-day window to meet with their lender and modify the terms of their mortgage.  With the state facing one of the highest foreclosure rates in the nation, lawmakers hope these new laws will ease the strain on distressed homeowners and allow them to stay in their homes.  These laws may not be permanent.  Some of the provisions will be in effect for a period of only two years unless the “sunset” provision is amended.  Governor Granholm signed the bills on May 21, 2009, and the laws will take effect on July 5, 2009.

Under the legislation, a lender may not foreclose on a property claimed as a principal residence unless the lender first provides written notice to the borrower stating the reasons that the mortgage loan is in default and the amount due.  The written notice must also designate an agent of the mortgage holder whom the borrower can contact to attempt to rework the terms of the loan, and a list of housing counselors prepared by the Michigan State Housing Development Authority whom the borrower can request to attend a meeting with the agent of the mortgage holder to assist in modifying the loan.

The law further provides that foreclosure proceedings may not be commenced until ninety days after the initial notice was mailed if the borrower chooses to meet with the mortgage holder.  If the borrower and the mortgage holder reach an agreement to modify the terms of the loan within the ninety-day period, the mortgage cannot be foreclosed.  Potential modifications include an interest rate reduction, extension of the amortization period, deferral of up to 20% of the unpaid balance of the loan, and reduction or elimination of late fees.

If the homeowner meets minimum financial standards specified in the law, but the mortgage holder refuses to modify the terms of the loan, the lender is required to go before a judge to attempt to complete the foreclosure.  Additionally, if notice is not mailed to the borrower as required, the borrower may bring an action in the circuit court to enjoin the foreclosure.

The new restrictions apply only to property claimed as a principal residence by the property owner.  They do not apply to second homes, rental properties or other commercial properties.

For the full text of the new laws, click here (PDF format).

Michigan Legislature Website – House Bill 4453

Michigan Legislature Website – House Bill 4454

Michigan Legislature Website – House Bill 4455

1. IDENTIFICATION OF EMPLOYEES TO BE LAID OFF. The decision which employees are to be retained and which employees are to be laid off should be based on a variety of factors, including their skills, experience, job performance and tenure with the company.  At the same time, the lists of employees to be retained and to be laid off should be reviewed to make sure that the layoffs are not targeting or adversely affecting some protected group.

2. UNION. If some of the company’s employees are represented by a union, the company will have a duty to bargain with the union both about the decision to lay off employees and the effects of the layoff.

3. WARN ACT. The Worker Adjustment and Retraining Notification Act of 1988 (commonly referred to as WARN) generally applies when a business has 100 or more full-time employees, and lays off at least 50 people at a single site of employment over a 30-day period.  When WARN applies, the company must give the affected employees at least sixty (60) days prior written notice of their job loss.  The notice must provide specific information required by WARN.  There are three main exceptions to the 60-day notice requirement:  (a) the company is in financial trouble, is actively seeking new business or capital, and reasonably believes that an announcement of its planned job cutbacks could jeopardize the efforts to obtain capital or new business; (b) the plant closing or mass layoff was caused by business circumstances that were unforeseeable; or (c) the plant closing or mass layoff was the direct result of a natural  disaster.

4. COBRA. If a company has more than 20 employees, it must provide a COBRA notice to employees who lose their health insurance coverage as a result of job loss.    The affected employees and their dependents have the right to continue their health insurance for 18 months (or in some cases longer) at their own expense.  As part of the Obama administration’s economic stimulus package, a new subsidy is available to employees who lose their health insurance coverage as a result of a layoff.  The employees have to pay 35% of the cost of continuing their coverage.  The federal government pays the other 65% through tax credits to the employer.  (A separate article on page 2 deals with the new COBRA subsidy.)

5. FMLA. Employees on a leave of absence under the Family and Medical Leave Act (FMLA) are protected against a reduction in force unless it can be demonstrated that they would have lost their position even if the FMLA leave had not been taken.

6. SEVERANCE PACKAGE. No federal or state statute mandates that a severance package be given to an employee who is being laid off.  However, a company policy on severance pay could create an enforceable contract.  If an employer decides to give severance pay, then a Settlement Agreement and Release should be required as a condition of the payment.   In other words, in exchange for a voluntary payment of severance pay to the employee, the employer will be assured that it will not face litigation from the laid-off employee.

The severance agreement needs to contain certain specific language to be enforceable, particularly if the employee is 40 years of age or older.   The Older Workers Benefit Protection Act (OWBPA) requires certain provisions for the severance agreement to be enforceable.  It may also require that the affected employees be given information on the job title and ages of all employees being laid off, as well as the same information for the employees that are being retained.
The severance agreement should also allocate the severance pay to specific weeks, to reduce the company’s unemployment liability in connection with the layoff.

7. PENSION, 401(k) AND OTHER EMPLOYEE BENEFIT PLANS. These plans should be carefully reviewed to determine the rights of employees.  The layoff could affect their vesting or right to obtain distributions.

This is a complicated and risky area of the law.  You should consult legal counsel before any layoff decisions are made or implemented.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm. Click here to view his professional resume.

When a company fails to pay its Federal employment taxes, the trust fund portion of those taxes can and will be assessed personally against the business’s “responsible persons” (such an assessment is called a “trust fund recovery penalty”).  “Trust fund” taxes are those that the employer is required to withhold from employees’ wages and pay over to the IRS.    They include withheld income tax, Social Security tax, and Medicare tax.  Many states, including Michigan, also impose a trust fund recovery penalty for state income tax withheld from employees’ wages but undeposited with the state taxing authority.

A responsible person is one who decides how the company uses its available cash. In the IRS’ view, one who has the right to determine how a company uses its cash, even though he or she does not exercise that right, can be a responsible person.   Signature status over a company’s bank accounts is a telling indicia of responsible personhood.  A company’s chief executive officer is nearly always deemed a responsible person.

Nearly every company has at least one responsible person; it is a rare company that does not have a responsible person.  Heroic efforts to prevent assessment of a trust fund recovery penalty usually are not worth it.  It is much more worthwhile to endeavor to confine assessment of a trust fund recovery penalty to one, truly responsible, person, and to start the collection statute of limitations running on the assessment.

Within about six months after a company fails to file an employment tax return, or fails to deposit employment taxes with the IRS, an IRS Revenue Officer will contact the company and attempt to bring it into compliance with the law.  If that doesn’t work, the Revenue Officer will initiate a trust fund recovery penalty assessment, beginning with interviews of suspected responsible persons.  It is critically important that such persons immediately retain qualified counsel, and that the interviews not take place.  A target’s representative can instead complete a questionnaire for the target and submit it to the Revenue Officer.

If a target disagrees with a proposed trust fund recovery penalty assessment against him, he or she can appeal the proposed assessment to the IRS Office of Appeals.  If that is unsuccessful, the trust fund recovery penalty will then be assessed.  Upon assessment, a tax lien in the amount of the trust fund recovery penalty arises in favor of the IRS on all of the taxpayer’s property.  The IRS will record notice of the tax lien in the local register of deeds’ office, disabling the assessed target from selling or mortgaging real property.

The statute of limitations on collection is 10 years from the date of assessment for a Federal trust fund recovery penalty, and six years from the date of assessment for a Michigan trust fund recovery penalty.  Neither Federal nor state trust fund recovery penalties are dischargeable in bankruptcy.

A target against whom a trust fund recovery penalty has been assessed can litigate the assessment by paying trust fund tax for at least one employee for at least one calendar quarter   (this is called a “divisible portion” of the assessment), and then filing a claim for refund of it with the IRS.  Once the IRS denies the claim, or six months pass without IRS action on the claim, the target may sue in U.S. District Court, challenging the trust fund recovery penalty assessment.

The IRS can criminally prosecute a failure to deposit withheld trust fund taxes, and in the present economy it is doing so with increasing frequency.  A well-known Michigan restauranteur recently pleaded guilty in U.S. District Court in Detroit to a prosecution for failing to deposit trust fund taxes withheld from his employees’ wages.

Several things can and should be done to protect a company’s principals from trust fund recovery penalty assessments:

* The company’s CEO should monitor the company’s trust fund obligations and determine that they are being paid on a current basis.

* As soon as the company determines that it may not be able to fully pay its employment tax obligations as they accrue, the company should─

• prepare to cease operations as soon as possible; and
• specifically allocate any further payments of employment taxes as against the company’s trust fund obligations.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm. Click here to view his professional resume.

Under ARRA, employees “Involuntarily Terminated” from their employment (and other qualified beneficiaries) anytime from September 1, 2008 through December 31, 2009, and who are eligible for and elect COBRA, may receive a federal government subsidy to help pay for their COBRA premiums.  They will be able to receive this federal government subsidy for up to 9 months.  Employees and other qualified beneficiaries will only have to pay 35% of their regular COBRA premium, with the other 65% being paid by the federal government.

“Involuntary Termination” includes layoffs, failure to renew employment contracts, termination for good cause by employer action, or forced retirement packages, if after the offer period a certain number of remaining employees in employee’s particular group will be terminated.  “Involuntary Termination” does not include voluntary resignation, divorce, dependent child ceasing to be dependent, death, or termination due to gross misconduct.

Employers are required to mail all eligible former employees (and other qualified beneficiaries) one of four different notices to notify them of the premium reduction and other rights provided to them under ARRA, including a second opportunity to sign up for COBRA. Each of the four types of notices is designed for a particular group of qualified beneficiaries and contains information to help satisfy ARRA’s notice provisions.

COBRA-eligible employees who lost their jobs between September  1, 2008 & February 16, 2009 (and other qualified beneficiaries) who either didn’t elect COBRA when offered, or elected COBRA but discontinued COBRA coverage have another chance to sign up for COBRA and get the reduced premium.  Employers were given a deadline of April 18, 2009 to send all former employees in this particular group a letter informing them of their second chance to elect coverage.

To summarize, employers must do the following to comply with ARRA: (1) Identify the eligible individuals; (2)  Calculate and report the subsidy to employees and the federal government; and (3) Provide the proper notice to all eligible individuals.

Employers should take note that if a qualified beneficiary becomes eligible for other health care coverage, the COBRA subsidy ceases.  It is not necessary for the qualified beneficiary to actually obtain other health care coverage to lose the subsidy.  All that is necessary is that the qualified beneficiary be eligible to receive the other health care coverage.

It is important that employers be careful to fully comply with the requirements of ARRA, as failure to apply the subsidy can mean tax penalties.  Likewise, employees should take care not to miss an opportunity to receive the subsidy.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm. Click here to view her professional resume.