Newsletter Archives: Winter 2006

RICHARDSON AND TYLER, LLP NEWSLETTER

Winter 2006

• Business Ventures and LLCs
• Tenancy Law
• The Disappearing Trial Lawyer
• Real Estate
• Estate Planning
• Employers and Employees

WELCOME!

Richardson and Tyler, LLP is pleased to bring you the first edition of our 2006 newsletter.

This newsletter is to share new matters of general interest with our clients. It is not intended to provide legal advice. Please speak to an attorney before applying this information to your specific situation.

Business Ventures and LLCs

Limited Liability Companies are increasingly popular vehicles for participants organizing start up businesses of all types. At the outset, ask yourself: "what is the exit strategy?"

It is very easy to form a limited liability company. It is harder to draft a good "operating agreement" that outlines each participant's rights and responsibilities.

The exit strategy is an issue easily overlooked at the outset, and fraught with danger after a new venture has built up value over the years.

For instance, what if:

• One member wishes to quit and the other does not?

• One member has guaranteed a loan, has left the business, wishes to be released from the guaranty, and the others do not agree?

• Two members are deadlocked on a major business decision?

• The business has an "exit" provision, but there is none for the jointly owned real estate at which the business operates?

These problems arise with frequency. A court ordered dissolution and sale is sometimes (but not always) available ... and, it is expensive.

Suggestions?

• Understand the dissolution procedure before you invest.

• Consider a "buy-sell" agreement.

• Make sure that the exit strategy covers all aspects of the business, including the operating company, the real estate, debt arrangements, and any other business entanglements.

• Review your plan periodically – if you have taken on new lines of business or acquired additional assets, are they covered by the plan? Does the plan still "make sense" in light of new circumstances?

• Consider a third party decision maker, such as an arbitrator or a trusted "outsider" to resolve potential deadlocks.

As with most good legal planning, "an ounce of prevention is worth a pound of cure".

Tenancy Law – Breaking News

Carbon Monoxide Alarms are required in every residential structure, effective March 31, 2006. Most people are familiar with smoke alarm requirements. Enforcement and requirements are similar. Why comply?

• If you sell property, buyers and lenders will require a compliance certificate.

• Landlords are required to maintain and inspect detectors annually. If you don't, and injury or death results, liability will be considerable, possibly exceeding your liability insurance limits.

• As insurers become aware of this law, it is possible they will refuse to renew policies for non-compliant buildings; and

• It is the right thing to do, to protect family, tenants and loved ones.

Tip: We suggest landlords not only inspect and maintain detectors annually, but maintain a written compliance record, so you or your attorney may demonstrate compliance if you experience injury, death, or a claim.

The Disappearing Trial Lawyer

The population of Massachusetts has increased dramatically since 1925. However, a recent study shows that the number of jury verdicts has decreased equally dramatically, from 3,022 in 1925 to 571 in 2000.

This decline can be attributed to many factors:

• Increased use of arbitration or mediation
• Negotiated settlements
• Trials by judge without jury
• Increased expense of trials

An interesting "side effect" of this phenomenon? Each year, there are fewer and fewer lawyers who are experienced at conducting jury trials.

Richardson and Tyler is well experienced in this area of the law, and stands ready to serve you when an important issue can only be resolved by a "jury of your peers".

Real Estate

Selling or re-financing your home or other property? Here's a tip on how to avoid an increasingly common pitfall.

When you pay off your old mortgage, you are entitled to receive your cancelled promissory note and a mortgage discharge.

The mortgage discharge must be properly recorded, or the title to the property could be clouded for years to come, rendering it unsaleable.

In recent years, we have encountered:

• Inexperienced or non-attorney "loan closers", who pay off the loan but neglect to obtain a discharge.

• Lenders who fail to provide a discharge after taking your money.

• Lenders or loan closers who record the discharge in the wrong registry of deeds ... if your property is in Suffolk County, it does no good if a lender in Texas sends your discharge to Plymouth to be recorded.

• Lenders or loan closers who take your money for a $75 mortgage discharge filing fee, but never file the discharge.

Suggestion? Remember that the transaction is not "closed" at the "closing". Insist that someone follow up on obtaining a discharge, recording the discharge, and sending you a copy of the recorded discharge with recording information (book and page) stamped on the discharge. When you go to sell or re-finance again, your life will be much simpler.

Estate Planning – Living Wills and Medical Directives

With the Terry Schiavo case featured prominently in the news last year, there has been a lot of discussion concerning "Living Wills".

• What is a Living Will?

A living will is a statement setting forth your wishes concerning medical treatment, and the extent to which you wish heroic or extraordinary measures to be used to prolong life. A living will is binding on the person making decisions for you (your "Agent").

Many people do not realize that MA does not have a living will law.

• What does this mean for Massachusetts residents?

While MA residents cannot force their Agent to make decisions that are in agreement with a living will, they can provide written instructions to guide their Agent. It is important to have a writing to clearly articulate your wishes to avoid any differing opinions among family members as to what you may or may not want.

• The Massachusetts alternatives to a Living Will:

An "Advance Directive" or "Medical Directive" is an expression of your wishes given specific medical circumstances that your Agent can use as a guide in making decisions on your behalf.

A "Life Support Statement" is a written statement of your wishes as to heroic measures or life sustaining treatment, and an authorization for your named agent to make decisions in accordance with the written statement.

Employers and Employees

The courts were active last year as they interpreted at least nine different restrictive employment contracts. Although such agreements are enforceable, the employers batted only .333, prevailing in three of the nine cases – a reminder that courts are reluctant to enforce such agreements.

Restrictive Covenants fall into different categories – including promises:

• Not to Compete
• Not to Solicit Customers
• Not to Use Confidential Information or Trade Secrets

Some practical lessons drawn from last year's cases?

• A non-compete agreement should be signed at the time of hire or promotion ... the court will not enforce it if the employee receives no "consideration" for the promise not to compete.

• Public interest can override a non-compete. The court declined to enforce a non-compete that would have prevented an individual from working to perfect explosive protection systems for airports.

• Companies do not "own" their customers. An insurance agent prohibited from soliciting former customers was not prohibited from taking orders when the customers approached him.

• Covenants are more enforceable if the former employer can demonstrate irreparable harm or misuse of confidential information or carefully protected trade secrets.

• Courts are more likely to enforce an agreement that protects a legitimate business interest, such as proprietary secrets, customer relationships developed by the company and not the individual employee, ongoing contracts, and the like.

• Courts are willing to partially enforce an agreement, to the extent necessary to protect a legitimate business interest.

Conclusion? There is no substitute for a carefully crafted and executed agreement that is tailored to your business's specific needs. A generic form is less likely to work when "push comes to shove" in the court system.

These materials are offered for information purposes only. Do not act or rely upon any of the resources and information available in or from this site without seeking professional legal advice. This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts.