Indianapolis Litigation Blog

Do I Need an Attorney for a Real Estate Transaction?

Tue, 18 Jun 2013 11:34:38 -0500

Typical real estate transactions involve a buyer, a seller, and real estate agents who represent each of the parties involved in the transfer of ownership of the property. Including an attorney in your real estate transaction can help either party ensure that their interests are being protected.

You may be wondering why you would need to hire an attorney. Regardless of whether your transaction is typical or not,. An attorney can provide valuable assistance to make sure your interests are well represented in the transaction. Below are a few facets of the real estate transaction that an attorney can help you with.

1. Purchase Agreement
If you are a buyer, you might want to make sure you have some "outs" if things don't go right. Conditioning your offer on being able to obtain acceptable financing can provide you peace of mind as you work with lenders. Including a provision for an acceptable home inspection can help you identify any defects in the home and protect your investment. Payment of property taxes can be negotiated. Proration or assumption of taxes can cause a swing of thousands of dollars for a buyer or seller.

2. Closing
An attorney can review the title commitment for either the seller or buyer to explain any exceptions that it might disclose. Some title issues can easily be cured and some cannot. The buyer and seller both need to be aware of any concerns with the chain of title, property liens, and other items.

An attorney can also review the HUD-1, or closing statement to ensure that it matches what you have agreed upon in your purchase agreement.

3. For Sale by Owner (FSBO)--These transactions involve a seller who is not represented by a real estate agent. An attorney can assist you in these transaction by handling the following types of issues: Negotiate and prepare the purchase agreement

• Order title insurance
• Negotiate issues with any home defects which may show up in an inspection
• Coordinate the closing
• Review the HUD-1 closing statement to ensure that it matches what the parties have agreed to
• Attend the closing to help with any explanation needed

4. Contract Sales
If a buyer cannot qualify for a mortgage for reasons such as poor credit, lack of adequate income, or inadequate down payment, a seller may be willing to sell his house on contract. This is also referred to as a land contract or contract for deed. In a contract sale, the seller keeps the deed for the real estate in his name and agrees, by contract, to accept a down payment and payments with interest from the buyer, The title to the real estate will be deeded to the buyer once the contract is paid off.

The contract sale of a property can be very complex. You would be well advised to hire an attorney to assist you in this type of transaction regardless of whether or not a real estate agent is involved.

Purchasing or selling real estate is one of the largest financial transactions a person can make. This can cause a lot of stress for people who have little experience in these transactions. In the past 39 years, I have helped lots of people who have bought and sold real estate. An attorney can help save time, money, and frustration. Most of all, an attorney provides a buyer or seller comfort that his or her interests are well represented in a real estate transaction.

Protecting Your Business with Non-Compete and Non-Solicitation Provisions

Mon, 03 Jun 2013 08:10:00 -0500

by: Arend J. Abel, Attorney

Business owners invest a great deal of time and money in developing customer relationships. That investment can be placed at risk when key employees who have been servicing customers leave to work elsewhere. The valuable relationships they have built can easily be leveraged to move customers to the competition unless the business owner take appropriate measures to protect the business.

Similarly, a person buying an existing business is investing money to acquire the customer lists and relationships as well as inventory and product. Buyers can be placing their investment at risk if they allow the seller to remain free to re-start the business and compete for the seller's former customers.

So how can business owners or buyers protect themselves?

The law has developed two types of contractual provisions designed to protect business owners and buyers from the above risks:

1. Agreements not to compete, and

2. Agreements not to solicit particular customers

These provisions are sometimes referred to as "covenants" not to compete and not to solicit, or sometimes just as "non-competes" and "non-solicitation" provisions. A business owner should give careful consideration to these types of provisions anytime a new key employee is hired, particularly one with customer relationship responsibilities. It is also possible to have existing employees sign non-compete or non-solicitation provisions as a condition of continued employment.

Non-competes and non-solicitation agreements can also be signed when a business is purchased. These agreements can restrict former business owners from re-starting the business and competing for their former customers.

Courts have imposed strict limitations on non-compete and non-solicitation agreements allowing provisions to the extent that they protect a legitimate interest of the party who benefits from the covenant. However, the agreement must also be reasonable in terms of (1.) geographic scope, (2.) time, and (3.) activities restricted.

For example, if a business operates only in a particular county, a court might find that a provision barring an employee from competing in the entire state is unreasonable. Similarly, a court could find that a five-year restriction barring an employee from competing is too long. Likewise, if an employee worked only in a particular part of the business where he had customer contact, a court could reject a restriction preventing the employee from working in another capacity in a competing business. In any of these circumstances, the court could hold that the non-compete or non-solicitation is unenforceable.

Typically courts will more readily enforce restrictions connected with the purchase or sale of a business, on the theory that the seller of the business received a substantial benefit in exchange for the restriction. Without the restriction, courts reason, the buyer of the business could be deprived of the benefits of the purchase transaction--namely that sellers will use their relationships to re-start the business and compete directly with their former company putting the new owner's investment at risk. Thus, courts are likely to tolerate longer term and more comprehensive restrictions.

Courts are also more likely to enforce restrictions that prohibit former employees from soliciting customers with whom they had contact during their employment.

Depending on how the restrictions are written, courts can strike down some portions and enforce others. For example, a court might strike down an overly broad restriction on competition, but uphold a restriction against soliciting customers with whom an employee had contact while working with an employer. Similarly, if multiple geographic areas, such as counties, are separately stated, a court may find that a restriction against competition is valid in some counties but not others.

Business owners should carefully consider what type of restrictions may be necessary in a non-compete or non-solicitation agreement to protect their legitimate business interests without being too broad in scope. It is important to hire an attorney skilled in drafting non-compete and non-solicitation provisions to ensure that, if some portions of the covenant are struck down, other provisions that protect the business interests can be upheld. Likewise, if non-compete and non-solicitation provisions are breached by a seller or departing employee, a business owner should be sure to engage an attorney who is skilled at litigating such provisions.

The last thing a business owner wants is to find out that a contract the owner thought provided protection is completely invalid, leaving ex-employees or sellers of the business free to compete for valuable customers.
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What You Need to Know about Housing Discrimination: Guest Post by Melissa Stuart

Tue, 28 May 2013 08:00:00 -0500

by: Melissa L. Stuart, Attorney

Finding appropriate housing can be a challenge for many people. People with disabilities can find the process of securing housing even more difficult as they may have to navigate additional issues of accessibility and affordable pricing. My article in the Friendship Circle blog this month addresses the issue of housing discrimination and the specific protections that are afforded to people living with disabilities.

Filing, Service and Deadlines - Traps for the Unwary abound

Wed, 22 May 2013 08:10:00 -0500

by: Arend J. Abel, Attorney

A recent Indiana Court of Appeals opinion serves as a warning that those filing pleadings and other papers must always check the precise terms governing deadlines and how to comply with them. In Moryl v. Ransone, decided May 9, 2013, the Indiana Court of Appeals held that a proposed medical malpractice complaint sent to the Indiana Department of Insurance was untimely because it was "filed" using Federal Express, rather than sent by certified or registered mail. Although the Indiana Trial Rules allow for filing via third-party carriers like Federal Express, the Indiana Medical Malpractice Act does not. The failure to recognize this nuance in the filing rules had dire consequences for Mrs. Moryl, whose malpractice claim on behalf of her husband was thrown out on summary judgment.

There is a broader lesson to be learned than just the rules applicable to proposed medical malpractice complaints, however. There are a number of provisions in the Indiana Trial Rules and Federal Rules of Civil Procedure that create risks for the unwary practitioner.

For example, when a deadline runs from the date a prior paper was served and the paper was served via "United States Mail," the responding party has three additional days beyond the normal response time, under Indiana Trial Rule 6(E). Thus, a response for which the rules specify a 30-day deadline is actually due 33 days from the date the prior paper was mailed. However, if the prior paper was served in some other way (such as by hand delivery), the three-day rule does not apply.

Importantly, the three-day rule also does not apply if the deadline runs from the filing of the prior paper, or if the deadline runs from issuance of an order. As a result, if a final judgment is entered against a party, the party has 30 days, not 33 days, to appeal. Again, failure to recognize this nuance can be fatal to a case.

Differences between State and Federal practice present still more opportunities for procedural missteps. In federal court, if a paper is served via electronic means (which generally means using the Federal Court's "Electronic Case Filing" or ECF system), the three-day rule applies under Federal Rules 6(d) and 5(b)(2)(E). In the Indiana State Courts, which just began recognizing email service this year, the three-day rule does not apply. There are a variety of other differences between State and federal time deadlines, including numbers of days and whether intermediate Saturdays, Sundays and legal holidays count.

The bottom line is that parties and practitioners must carefully review the rules applicable to each particular deadline, every single time. Only in that way can they avoid a costly lesson such as the one the Indiana Court of Appeals delivered in Moryl.
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Is My Daughter's Juice Really "All-Natural"?

Mon, 29 Apr 2013 08:10:00 -0500

by: Lynn A. Toops, Attorney

As a class action attorney and mother of two toddlers under the age of 3, I am constantly struggling to find healthy snacks and drinks that my children can eat or drink on the go. Before buying any packaged food for my children, I scour the label to make sure that I'm making the healthiest choice possible. Unfortunately, a recent class action case shows that a product's label may not really tell you much (or even the truth about) what's in the package.

In Larsen v. Trader Joe's Co., No. C 11-05188 SI, 2013 WL 132442 (N.D. Cal. Jan. 9, 2013), two consumers brought class action claims against Trader Joe's for its labeling, marketing, and sale of "all natural" or "100% juice" apple juice. The plaintiffs alleged that the apple juice actually contained a synthetic or non-natural ingredient, ascorbic acid. Ascorbic acid is a chemically modified form of vitamin C used in foods as a chemical preservative. It is produced from corn or wheat starch being converted to glucose, then to sorbitol, through a series of chemical processes. The consumers alleged that they wished to avoid synthetic, artificial, or chemical ingredients and that Trader Joe's profited unfairly by marketing and selling the "all natural" or "100% juice" at a higher price to consumers. The Northern District of California recently denied Trader Joe's motion to dismiss the case.

After reading the Trader Joe's case, I looked at the ingredients of many products I frequently purchase for my children and noticed that a large majority of them contain ascorbic acid. So what's a parent to do if reading a product's label doesn't really tell you the truth about the product? Education is key to making healthy food choices for your children. Helpguide.org is an excellent resource to help parents understand food labels, benefits, and claims. I've also recently started using the Fooducate app on my iPhone, which allows me to scan the barcodes of products and the app issues a grade (A through F) for the product and lets me know about things like high sugar levels or the presence of genetically modified organisms.

But the bottom line for all parents is that you can't really believe everything you read on a product's label.
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Comcast Corporation v. Behrend

Mon, 22 Apr 2013 08:10:00 -0500

by: Richard E. Shevitz, Attorney

The Supreme Court's recent reversal of class certification in Comcast Corporation v. Behrend has generated commentary as divided as the Court's 5 to 4 opinion. But while Comcast will no doubt be trumpeted by those opposing class certification as a major shift in precedent, the opinion never purports to do anything other than apply existing procedural law to the particular facts of the case before it. Thus, as even the dissent points out, the opinion does not signal a wholesale change in the legal landscape of class actions, and is better seen as merely providing guidance for class certification in antitrust matters.

In Comcast, plaintiffs brought an antitrust claim alleging that Comcast's practice of concentrating cable operations in certain geographic regions, by swapping such assets with companies in other locations, created an unlawful local monopoly that eliminated competition and raised prices. In support of class certification, the plaintiffs submitted the report of an expert witness to establish that the element of "antitrust impact" involving an economic injury to class members could be established on a classwide basis through the use of a common methodology. Relying in part on the expert's report, the District court certified a class of cable subscribers, and the Court of Appeals affirmed.

The Supreme Court, however, held that a failure to link the economist's expert model for calculating damages to "the particular antitrust injury on which [the defendant's] liability in this action is premised" required a reversal of class certification. The Plaintiffs' expert report initially advanced four different theories of antitrust impact, which were supported by a "regression model comparing the actual cable prices in the [local area] with hypothetical prices that would have prevailed but for [Comcast's] allegedly anticompetitive activities." In ruling on class certification, the district court rejected three of the plaintiffs' "impact" theories, but certified the class under the fourth theory. The district court did not expressly address whether the expert's damages methodology could be applied to the one theory of liability which it found to be viable.

In reversing, the Supreme Court held that the damages "model failed to measure damages resulting from the particular antitrust injury on which the action" was then premised. The Supreme Court emphasized that the "damages model assumed the validity of all four theories of antitrust impact" initially advanced by the plaintiffs, and that the expert testified that his damages model did not attribute damages to any one particular theory of damages. Under those circumstances, the Court held that class certification was not appropriate, because the damages model presumably included higher prices caused by factors the theory of antitrust harm accepted by the Court. According to the opinion, such prices "are not 'anticompetitive' in any sense relevant here."

As a strongly-worded, four-justice dissent noted, however, the Comcast decision has limited application outside of the antitrust context, and even then should be limited to the unusual and complex situation before the Court. As the dissent suggests, the majority opinion in Comcast may have no application to typical consumer claims involving defective products, claims for excessive fees, and similar cases in which complex economic damages models are not required to obtain class certification. According to the dissent, "The [majority opinion] is good for this day and case only. In the mine run of cases, it remains the 'black letter rule' that a class may obtain class certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members"). And as Justice Scalia himself states, the opinion rests on "an unremarkable premise."

Even in the context of antitrust class actions, the lesson from Comcast may simply be that an expert's damages model must apply specifically to whatever remains as the viable theory of the case. In many antitrust actions there will only be one proposed theory of measuring damages. When the determination of viable theories may shift as a case progresses, antitrust plaintiffs are likely to demand a more multi-faceted expert analysis. An antitrust damages analysis that can reliably anticipate and discretely address potential outcomes as they develop will satisfy the "unremarkable premise" on which the Comcast opinion is based.

FDA Has Growing Concern Over Popular Diabetes Drugs

Mon, 15 Apr 2013 08:00:00 -0500

by: Jeff S. Gibson, Attorney

Advances in modern medicine over the past decade have given patients many great treatment options. Drugs have been designed to treat myriad of conditions from heart arrhythmia to kidney disease. Ideally, drug manufacturers have a goal to create medicine for patients that will give them maximum benefit with minimum risk. It seems that lately this ideal has been lacking. Adverse event reports have been filed with the FDA for a variety of drugs that have led to heighted patient safety warnings and recalls.

Diabetes drugs Byetta and Januvia are now being studied by the FDA for causing an increased risk of pancreatitis and other health issues which may lead to pancreatic cancer. As early as 2007, the FDA added warning information about pancreatitis to the labels of Byetta, Januvia, and Janumet. However, a recent study shows these drugs may as much as double a patient's risk for developing pancreatic or other serious pancreas-related illnesses.

Perhaps the worst example of harm caused by a diabetes medication is Avandia, which was manufactured by GlaxoSmithKline. Researchers stated in a New England Journal of Medicine article that Avandia was associated with a 43% increased risk for heart attacks. Over 100,000 heart attacks have been linked to usage of Avandia.
GlaxoSmithKline has since agreed to pay over $700 million in settlements to patients who filed lawsuits against the company for injuries associated with the drug.

Patients have a right to be concerned about the risks associated with the diabetes drugs Byetta, Januvia, Janumet, and Victoza. Bristol-Myers Squibb, the manufacturer of Byetta, received a notice from the FDA within its first two years on the market of a need to add safety information regarding cases of pancreatitis, some fatal, to its labels. Merck, the manufacturer of Januvia and Janumet received a similar notice from the FDA within its first three years on the market. These notices were in response to adverse event reports filed with the FDA. Victoza was approved by the FDA in 2010. If this drug follows suit with the others, patients can expect the FDA to issue a safety alert for this drug soon.

Johnson & Johnson recently gained FDA approval for Invokana, the first of a new class of drugs used to treat type 2 diabetes. Early trials of the drug have indicated some cardiovascular events have occurred in patients. The manufacturer believes Invokana will be used as an option for patients who are not responding to other drug therapies including Januvia.

Given Johnson & Johnson's checkered past with lawsuits associated with other products such as metal-on-metal hip implants, transvaginal mesh, and pharmaceuticals, the drug manufacturer needs to conduct thorough testing of this drug to help ensure patient safety. All drug manufacturers need to be vigilant in conducting efficacy and safety tests to protect consumers and not put profits ahead of people.

The Billable Hour Debate

Fri, 05 Apr 2013 11:18:29 -0500

by: Richard E. Shevitz, Attorney

The recent revelations that DLA Piper, one of the world's largest and most prestigious law firms, has apparently intentionally padded its bills to a client who had the audacity to challenge them are, sadly, not shocking to anyone in the legal world. Not that it was specifically, DLA Piper, of course, but that large, silk stocking law firms regularly overbill their clients is the dirty, little not-so-secret that seems to be an acceptable norm to corporate America. Of course, many law firms resist that pressure, but the simple reality is that an hourly billing arrangement can sometimes put a law firm and its client at odds. Clients desire a prompt and inexpensive resolution and law firms that primarily rely on hourly billing may be inclined to bill for more services than necessary. An alternative billing arrangement can be a great way for the two parties to meet in the middle.

To be sure, there are many lawyers in prominent institutional and defense oriented firms who are models of integrity and should not be tarred by those who are less scrupulous. But if you examine the system, the temptation to overbill is almost inescapable. Indeed, one of the nefarious emails from the DLA Piper lawyer read: "Now Vince has random people working full time on random research projects in standard 'churn that bill, baby!' mode..."

DLA Piper now insists that the email was written in jest - as was the email stating "I hear we are already 200k over our estimate--that's Team DLA Piper!" But most firms who live and die by the hourly rate have an inherent conflict with their client. The longer a case drags out, the more time invested and the higher the fees. Indeed, it is common for lawyers in such firms to have minimum annual hour requirements; some even give bonuses for exceeding those minimums. Thus, the financial interest of the client - to resolve each dispute as efficiently as possible - flies in the face of the financial interest of the law firm.

Plaintiff contingent fee firms traditionally approach their representation very differently. Although most plaintiffs firms which use best business practices maintain hourly records for a multitude of purposes (quantum meruit divisions, profitability analysis, production metrics, etc.), the fee itself is result driven. The fortunes of the client are parallel to the interests of the law firm. And while certain clients of a plaintiffs firm may chose to be billed hourly, the firm itself is not leveraged on the hourly billing rates of its lawyers to generate most of its profits.

Because of their familiarity with result-driven fees, where the client and lawyer share a common interest in securing the best result possible in the shortest possible time, Plaintiffs contingent fee firms are also open to a variety of other alternative fee arrangements. Those arrangements can include flat fees or reduced hourly rates coupled with an agreed bonus if successful result is achieved for the client.

Surprisingly, many large corporations as well as many small businesses remain mired in the billable hour approach, often for no reason other than their traditional law firm is not willing to give up that lucrative billing model. Following the disclosure of the DLA Piper emails, more is being said publicly about the benefits of non-hourly fee arrangements, including contingent fees, flat fees, and various blended approaches. Those concepts, however, have yet to gain significant traction.

Cohen & Malad, LLP has been involved in alternative billing arrangements for years, often servicing clients of other firms in cases where the recovery may be speculative or simply too expensive for the client to fund year after year - all without undermining the other firm's existing relationship with the client on other matters. Such cases have resulted in multimillion dollar recoveries, without the client ever expending a dollar from its own pocket before the matter was concluded.

Prior results do not guarantee future outcomes. Case results vary dramatically depending on specific facts and circumstances.

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Indiana Court of Appeals Rules on Foreclosed Properties and Attractive Nuisances

Mon, 01 Apr 2013 12:56:51 -0500

by: David J. Cutshaw, Attorney

In a very tragic case, our Court of Appeals in Erwin v. HASBC Mortgage Services, Inc., 983 N.E. 2d 174 (Ind. Ct. App. 2013) ruled that a mortgage company has no duty to maintain property of a homeowner who abandons the property. In this case, a homeowner had placed an in-ground pool on his property with a safety cover, but did not fence in the pool. The home owner filed bankruptcy and abandoned the property--and the pool. The pool and the pool cover deteriorated and was not maintained for several months. A five-year-old granddaughter of a neighbor slipped into the pool and drowned. Because the sunken pool cover was covered in algae, the young girl could not climb out of the pool when she slipped into the pool.

This cannot be an uncommon problem in light of all the properties that have been abandoned due to our recent and continuing foreclosure problems. The Court ruled that since the mortgage company did not actually have possession of the property (which was an asset of the bankruptcy estate), the mortgage company could not be responsible for maintaining the property, the pool or the pool cover. The Court made this ruling even though several neighbors and the homeowner's association had complained to the mortgage company before the drowning that the home and pool were in bad shape and the pool was dangerous.

The Court also ruled that the homeowner's association had no responsibility to remedy the dangerous condition of the pool or protect this five-year-old from harm. In short, the Court hinted that this was a job for our legislature to impose duties upon mortgage companies or homeowner's associations, as Indiana law does not protect children in this situation.

So, the question is, what can an adjacent homeowner who has young children do to make sure this does not happen to his or her children? One could argue that if no one has a duty to maintain this type of property, then no one should complain when the pool cover is removed and the pool is drained--with the drain left open so that water will not accumulate. The adjacent homeowner should consult with a lawyer before taking the law in his or her own hands in this situation, but the safety of children should be paramount. Sending this case to your legislator may also help, assuming they are not lobbied mercilessly by mortgage companies and homeowner's associations already.

Sequestration and Its Effect on Individuals with Special Needs: Guest Post by Melissa L. Stuart

Mon, 25 Mar 2013 08:10:00 -0500

by: Melissa L. Stuart, Attorney

Much attention has been given to the automatic cuts to federal government spending, or sequestration. It is unclear what impact these spending cuts may have on people with disabilities and the families who care for them. My article on the Friendship Circle blog talks about which programs may be impacted by the spending cuts.

Supreme Court Raises the Bar for Bringing Class Actions in State Court

Wed, 20 Mar 2013 13:35:38 -0500

by: Scott D. Gilchrist, Attorney

The United States Supreme Court has ruled unanimously that under the 2005 federal Class Action Fairness Act a plaintiff may not avoid having his or her case removed from state court to federal court by stipulating that the total damages for the combined class are less than $5 million. Under the Act, federal courts have original jurisdiction over class actions in which, among other things, the combined amount in controversy for all proposed class members exceeds $5 million. 28 U.S.C. § 1332(d)(2). In some federal judicial circuits, plaintiffs filing smaller class actions in state court have been able to avoid having their claims removed to federal court by stipulating that the total amount at stake is less than $5 million. In Standard Fire Ins. Co. v. Knowles, Supreme Court Case No. 11-1450 (March 19, 2013), the high Court ruled that such stipulations were not effective.

In Knowles, an Arkansas homeowner brought a proposed class action in state court against his property insurance carrier. The plaintiff alleged that the company had failed to pay the insurance benefits due to the plaintiff and other policyholders for hail damage to their homes from a 2010 storm. When filing the lawsuit, the plaintiff stipulated in writing that he would seek less than $5 million for himself and other Arkansas homeowners insured by Standard Fire. Nonetheless, the insurer removed the case from state court in Miller County, Arkansas, to the Federal District Court for the Western District of Arkansas, citing to the Class Action Fairness Act for federal jurisdiction and asserting that, notwithstanding the plaintiff's stipulation, the amount in controversy for all proposed class members exceeded $5 million.

When the homeowner plaintiff sought to have the case returned to state court, the Federal District Court found that the damages for the proposed class were in fact likely to exceed $5 million, but that the plaintiff's stipulated promise to seek less prevented the federal court from having jurisdiction. The insurer appealed and the Eighth Circuit Court of Appeals agreed with the District Court that the case should be returned to the Arkansas state court where it was filed. On the further appeal, the United States Supreme Court disagreed and ordered that the case should remain in federal court.

Writing for a unanimous Court, Justice Stephen Breyer first noted that the Class Action Fairness Act requires that the value of the claims of all proposed class members be aggregated to determine if the sum exceeds $5 million. Justice Breyer then concluded that the plaintiff homeowner could not, by stipulation, prevent a finding that the claims of all proposed class members exceeded $5 million, because the plaintiff did not have the authority at the outset of the case to bind the other proposed class members. "[A] plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. ... Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members' claims." Justice Breyer therefore concluded that the Federal District Court should have ignored the plaintiff's stipulation and allowed the case to remain in federal court.

With the Knowles decision the Supreme Court has resolved any disagreement over the ability of a plaintiff to avoid federal court jurisdiction under the Class Action Fairness Act by stipulating to limited damages. For plaintiffs seeking to bring smaller class actions in state court, however, the Knowles decision will likely make the removal of such cases to federal court by defendants even more common, and undoubtedly raises the bar for plaintiffs seeking to have their state law class action claims decided by state courts.

What Creditors Don't Know Can't Help You: Indiana Court of Appeals Holds Ex Spouse Liable for Business Debt

Mon, 18 Mar 2013 08:10:00 -0500

by: Michael J. Blinn, Attorney

In a published opinion, the Indiana Court of Appeals taught a costly lesson to the former spouse of a business owner, and it's one everyone involved in a small business (and their creditors) should heed. By failing to notify his former spouse's landlord that his partnership with her had dissolved, an ex-husband became liable for more than $28,000 for a lease extension his ex-wife signed after filing for divorce. Curves for Women Angola v. Flying Cat, LLC, No. 76A04-1206-PL-312 (Ind. Ct. App. Feb. 26, 2013).

I. Marriage, Partnership and Business

Curves begins happily enough in 2001. Dan Cole and his then-wife Lori executed a franchise agreement with Curves International, Inc. and started a business called Curves for Women of Angola. The agreement identified them as "principals of the corporate or partnership franchisee," and both Dan and Lori signed. Around the same time, Dan and Lori leased space for the business from a predecessor in interest to Flying Cat LLC. Dan and Lori both signed the lease as "owners." The lease had a three-year term with an option for two additional three-year terms.

Over the next several years, both the business and the marriage began to break down:

In late 2004, Dan and Lori exercised their option for the first three-year lease extension on behalf of "Curves for Women of Angola."
On May 4, 2007, Lori filed a petition for dissolution of the marriage.
By the end of 2007, the business was $21,641.55 behind on the lease.
On January 1, 2008, Lori and the landlord exercised the second three-year renewal of the lease, again on behalf of "Curves for Women of Angola." This time, Dan did not sign the extension. But neither he nor Lori told the landlord about the divorce, or that he and Lori were no longer in partnership with each other. The landlord believed that Lori was signing on behalf of the partnership.
By August 2008, the business was still behind on the lease. The landlord set up a repayment schedule, but the business soon fell behind again and owed more than $44,647.39 in back rent and fees by the end of 2010.
In 2011, Lori sold the business. Dan, still a franchisee under the franchise agreement, signed the necessary documents to authorize the sale.

In the meantime, the landlord filed suit in 2010 against Dan, Lori and the business. It quickly obtained default judgment against Lori and the business - neither responded to the lawsuit - for $49,945.03. (The opinion does not explain the increase, but it is likely due to a combination of additional rent, interest and penalties, and contractual attorney fees.) The trial court soon entered partial summary judgment against Dan for the arrears as of December 31, 2007, the day before Lori signed the second lease renewal. Dan's liability for the remainder of the debt, arising from an extension Lori signed after filing for divorce and after the business partnership dissolved, was the only dispute remaining and the central issue on appeal. After a bench trial in 2012, the trial court held that Dan was liable, and the Court of Appeals affirmed the judgment.

II. Partnership and Debt

Dan's argument on appeal that he was not liable under the lease extension took two parts: that he was not in partnership with Lori, and that even if he was, he was not liable for the second lease extension, which Lori had signed alone. The Court of Appeals rejected both arguments.

A. Dan and Lori operated the business as a partnership.

First, the Court of Appeals affirmed the trial court's finding that Dan and Lori operated the business as a partnership. As defined in the Indiana Code, a partnership is "an association of two (2) or more persons to carry on as co-owners a business for profit and includes for all purposes of the laws of this state a limited liability partnership." Curves, slip op. at 6 (citing Ind. Code § 23-4-1-6(1)). A partnership requires a voluntary association between the parties for the purpose of sharing profits and losses, the court continued, and intention by the parties to form a partnership. Id. Intent to form a partnership is determined by examining the facts of the case, id., but subject to certain exceptions (such as wages or rent), "receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business." Id., slip op. at 7 (citing Ind. Code § 23-4-1-7(4)) (emphasis omitted).

Dan argued that he and Lori had not shared profits, so the trial court had erred by finding that they were partners. The Court of Appeals disagreed. It held that no "set formula" for profit sharing was required to establish a partnership, and that the business profits "shared in the profits as a general marital asset." Id., slip op. at 8. And it noted that Dan and Lori had signed the original franchise agreement as principals of the franchisee; that Dan had paid the first six months' rent; that Dan had provided services to the business; and that he had shared in business profits. In light of these facts, the court concluded, "the trial court could reasonably find that Dan and Lori operated Curves of Angola as a partnership." Id., slip op. at 9.

B. Dan was liable for the second lease extension - even though it was executed after the divorce - because he did not notify the landlord that the partnership had terminated.

The trial court in Curves found that the partnership terminated on May 4, 2007, when Lori filed for divorce. Still, the trial court found, and the Court of Appeals agreed, that Dan was liable under the lease extension that Lori had signed alone on January 1, 2008.

This was so because Lori would have had authority to bind the partnership had it not dissolved, and no one had told the landlord that it had dissolved. On this point, the Indiana Code is clear: Subject to certain exceptions, a partner can bind a partnership (making other partners liable) by any transaction that would have bound the partnership had it not dissolved, provided that the other party had either extended credit before the dissolution and had no notice of the dissolution, or had known about the partnership before dissolution, had no notice of the dissolution, and the partnership had not published notice of its dissolution. Curves, slip op. at 9 10 (citing Ind. Code § 23-4-1-35). Because (a) Lori had authority to bind the partnership before it dissolved, (b) nobody notified the landlord of the dissolution until after Lori had signed the extension and (c) the dissolution had not been published in a newspaper and there was no other evidence the landlord knew about it, Dan, as a partner, was liable. Id. at 11.

III. What Does it Mean?

This case reinforces the principle that it is possible to "fall into" a partnership and become bound by the acts of others, perhaps without realizing it. If you're involved in a business venture with someone else, it's important to know exactly what your rights and obligations are. And it's just as important, when the venture ends, to take appropriate steps to ensure that your past partnership does not come back to haunt you. Had Dan notified the landlord, as soon as Lori filed for divorce, that the partnership had dissolved, he probably would not have been liable for the 2008 lease extension.

But suppose Dan and Lori had formed a limited-liability entity like an LLC. Would the result have been different? Maybe, maybe not, and there lies what I think to be the broader lesson in this case.

As a general rule, a limited liability entity like an LLC or a corporation shields its owners from personal liability for the entity's debt. If Dan and Lori's business had been an LLC, and the LLC alone had signed the lease extension, neither Dan nor Lori would have been liable for the rent (except under special circumstances this article won't get into). But there's a catch: landlords, banks and other creditors also understand this principle, so they commonly require "personal guaranties" from creditworthy individuals, usually but not necessarily the business owners themselves. Those guaranties require the individuals signing (the "guarantors") to pay the debt if the business does not.

So now we're back to Square One. Had Curves of Angola been an LLC, and the landlord had been wise enough to demand continuing personal guaranties from Dan and Lori, this case would have been governed by different laws but similar principles. Under a continuing guaranty, the guarantor is generally liable for all debt under the guaranty whether or not it existed when the guaranty was signed. If the guarantor properly terminates the guaranty, he or she is liable for the debt then existing, but not for any future debt. But until the guarantor does that, he or she is liable for all debt under the guaranty.

In fact, a continuing guaranty may apply to new debt that can be incurred more often than we see in Curves, where the new debt was a single lease extension under an existing option. A trade line with a supplier, for example, incurs new debt every time the supplier delivers goods or provides services. A revolving line of credit with a bank incurs new debt each time the borrower draws on it. In both cases, a guarantor's potential liability can grow at any time, often (under a typical guaranty) without particular notice to the guarantor.

All of this means that whether you're in a partnership, as in Curves, or have simply guarantied some small business debt, it is important to understand your obligations and how to limit your exposure to the business's creditors once you are no longer involved. Ending the personal or business relationship with the other person may not be enough.
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Weight-loss Drugs and FDA Recalls

Mon, 11 Mar 2013 11:02:37 -0500

by: Jeff S. Gibson, Attorney

As a product liability attorney, I hear too many stories about pharmaceuticals and medical devices that end up doing more harm than good to patients who are seeking treatment for a disease or illness. Serious injuries and deaths happen when companies place profits ahead of patients. Just last year the FDA approved two new drugs to fight obesity: Belviq and Qsymia. While I hope these drugs are able to produce good results for the patients who need them, I am skeptical about the performance of weight-loss drugs based on the number of FDA recalls in the past.

Recent news about these weight-loss drugs reports that sales of Qsymia have not performed as well as the manufacturer had hoped. Belviq is currently waiting for the U.S. Drug Enforcement Agency to classify it as a controlled substance. Once the classification is complete, Belviq will be in U.S. pharmacies.

A new FDA recall in the weight-loss industry caught my attention. Recently, the FDA recalled the weight-loss product-- Maxiloss Weight Advanced softgels. This recall gave me that all too familiar concern about product liability and consumer safety.

This FDA recall is a little different than other drug recalls. First, Maxiloss Weight Advanced Softgel product is classified as a dietary supplement rather than a drug. This means that it is not subject to FDA approval. However, the FDA does have some regulatory function over supplements and does require that manufacturers of dietary supplements disclose all ingredients of the product on its label. In February, the FDA discovered that the Maxiloss Weight Advanced product contained the ingredient Sibutramine, which was not on its label. This ingredient is considered a drug which is classified as a controlled substance. Sibutramine had previously been used to treat obesity until it was removed from the U.S. market in October 2010 for safety reasons. Sibutramine has been known to substantially increase blood pressure and may pose a serious risk to patients with a history of coronary heart disease, congestive heart failure, arrhythmias and stroke.

The Maxiloss Weight Advanced product has been on the market since January 2011 and has now been recalled due to a safety risk to consumers. It is my hope that the new weight-loss drugs, Belviq and Qsymia, do not follow a similar pattern of being found to cause more harm than good to a patient's health.

Belviq is an entirely new weight-loss drug. It acts as an appetite suppressant by using serotonin receptors in the brain to allow users to feel full after smaller meals. The FDA approved this drug in conjunction with diet and exercise to treat obesity last summer. Once the U.S. Drug Enforcement Agency classifies Belviq as a controlled substance, the manufacturer will be ready to market this drug. This should happen in early 2013.

Qsymia is another weight loss drug that also earned FDA approval last year. Qsymia is a combination of two already approved drugs, phentermine and topimirate. Phentermine was part of the fen-phen diet combo that was found to cause heart problems in patients and taken off the market in the late 1990s.Phentermine is a stimulant that suppresses appetite, while topimirate is an anticonvulsant that is used to treat epilepsy.

The obesity epidemic in the U.S. poses a very serious concern for health care providers. Lifestyle changes involving diet and exercise can go a long way in curbing this problem. Drug manufacturers continue to scramble to find a "miracle pill" that will help patients lose weight in an effort to better their health. While a "miracle pill" sounds like a good idea, it's important to remember that anytime you ingest a chemical into your body there is the potential for side effects to occur. Drug manufacturers need to be vigilant in conducting efficacy and safety tests to protect consumers and not put profits ahead of people.

Protect yourself
People who have been injured by dangerous drugs or defective medical devices should contact a product liability/personal injury attorney to discuss their legal rights and options in obtaining compensation for their injuries. My practice is focused on these matters. I have helped people who have suffered serious personal injury litigate claims against drug and medical device manufacturers.

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Fungal Meningitis Lawsuits Consolidated in District of Massachusetts

Tue, 19 Feb 2013 09:59:40 -0500

by: Edward B. Mulligan V, Attorney

On February 12, 2013, the federal Judicial Panel on Multidistrict Litigation (JPML) transferred some 134 cases filed against New England Compounding Center, the now-notorious seller of contaminated steroid injections, to the District of Massachusetts for consolidated pretrial proceedings. While a group of plaintiffs argued for consolidation in Minnesota, the JPML opted to send the cases to the District of Massachusetts, where NECC is headquartered. The consolidation of the civil cases in the District of Massachusetts is designed to eliminate duplicative discovery and prevent inconsistent pretrial rulings. It will also help to conserve the resources of the parties, their counsel, and the judiciary, particularly in light of the fact that that the NECC bankruptcy case is also pending in the District of Massachusetts. The litigation is captioned In Re New England Compounding Pharmacy Inc. Products Liability Litigation and will be run by Judge F. Dennis Saylor IV, who already issued a broad evidentiary preservation order in December and ruled that the plaintiffs could inspect NECC's premises.

The District of Massachusetts is also where NECC's bankruptcy case, filed in December 2012, is currently pending. Although NECC has filed for bankruptcy, there is evidence suggesting that the owners of NECC have substantial funds and assets. For example, in January, Bankruptcy Judge Henry Boroff, issued an order attaching up to $21.1 million of the owners' assets. And on February 11, Judge Boroff issued an additional order barring the owners of NECC from transferring or dissipating assets, other than living expenses, and preventing them from receiving funds from NECC's sister company, Ameridose LLC. The order makes permanent a temporary restraining order issued by Boroff in January. It will be in effect until the cases against NECC are resolved.

To date, the CDC has linked 704 cases and 46 deaths to the fungal meningitis outbreak believed to have originated at NECC's facilities in Framingham, Massachusetts.

Transparency Comes to Your Doctor's Office via Affordable Healthcare Act

Mon, 18 Feb 2013 11:49:30 -0500

by: Jeff S. Gibson, Attorney

Pharmaceutical and medical device makers invest millions of dollars in the research and development of innovative treatments and cures to help improve the quality of life for people all over the world. Such large investments can create a lot of pressure for these products to succeed in the marketplace. To drive sales, drug and device makers send representatives to hospitals and local doctors' offices to educate healthcare professionals on the benefits that their products can offer patients. Part of this sales process may sometimes involve financial support of the doctor's practice via payment for conference attendance, consulting fees, or charitable contributions.

Consumers have a right to be concerned about the financial support provided by these drug and device manufacturers. This support may have a 'reciprocity effect' on the doctors who receive it. Psychologists have studied the effect of favors and gifts on subjects and noted that when gifts or favors were given, the subject often felt a social obligation to return the favor. The return favor in this instance would be writing prescriptions for the manufacturer's drugs and medical devices. As you can imagine, the greater the investment the drug manufacturer makes with the doctor, the more likely the doctor will feel a greater social obligation towards the manufacturer in the form of writing more prescriptions.

The Centers for Medicare and Medicaid Services (CMS), which administers Medicare and Medicaid policies and oversees other regulations such as the Affordable Healthcare Act, released information regarding transparency in health care. On August 1, 2013, CMS will begin collecting data from pharmaceutical and medical device manufacturers, group purchasing organizations, physicians, and teaching hospitals. This data will include information regarding payments and gifts that are exchanged between parties and will be made public through an online database beginning September 30, 2014. The idea behind this change is to provide patients information regarding financial relationships that exist between the companies that supply and manufacture the drugs and medical devices that the doctor who is treating them.

Transparency provides both physicians and manufacturers accountability for their actions. I wrote an article about bias in pharmaceutical industry sponsored drug trials and feel that this type of reporting system can help patients understand the dynamics of these relationships and make informed decisions regarding their health care. The monetary support that the pharmaceutical industry provides to healthcare personnel can be good if it helps to improve knowledge and best practices. However, if taken too far, greed can put patients at risk. Doctors should prescribe medications and medical devices to patients based on improving the quality of care for the patient, not improving their bottom line. This new reporting requirement will offer greater clarity for the public about the relationship between the physician and the pharmaceutical or medical device manufacturer.
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