Blog

• posted: Dec. 03, 2015
• Hemmer DeFrank Wessels PLLC
• Uncategorized

Written By: Scott R. Thomas

You started your business on a shoe-string but you’ve worked hard and built it up.  Now you’re at the point where you’re ready to take on other people to help shoulder the work.  You’ve interviewed several candidates you think have the potential to become true partners as you take your company to the next level.  But then you think, “What if it doesn’t work out?”  Your mind starts racing.  “What if I invest in this new employee, provide expensive training, share my business model, provide access to my hard-won customers, and then he/she leaves to go to my competitor?  Or decides he/she can hang up his own shingle?”  So you decide to make the prospective employee sign a covenant against competition.  If you go that route, there are a number of pitfalls that you need to avoid.  American judges don’t like non-competes because they are a restraint on free trade.  Courts will enforce them but they have to be fair and reasonable or your non-compete agreement won’t be worth the proverbial paper it’s written on.  Here are the “Top Ten” things to keep in mind.

• New employee. If you think you need the protection of a non-compete, make it part of the hiring process.  Once an employee has begun work, the employer must provide some additional value in exchange for the employee’s promise not to compete when the employment ends.  When the agreement is hammered out at the beginning, no consideration beyond the job itself is necessary to support the agreement.
• Geography. You may want to make the new employee agree not to compete with you in the same galaxy but non-compete agreements must be reasonable.  Consider how far your most distant customer is.  Pushing the envelope beyond that distance is dangerous.  Try to match the non-compete zone to your company’s footprint.  Pick a radius to be drawn from each place where you do business.  The reasonableness of the length of the radius will vary with each business.  If it’s more appropriate, you may specify a city, or a county or other defined region but be prepared to show that you have customers to protect in the territory you’ve identified.
• Duration. As with geography, you need to pick a time period that is reasonable.  You may wish to prevent the employee from competing till the rocks melt with the sun but judges will take a red pen to your agreement.  Again, the time period varies with the nature of the employer’s investment.  In some businesses, a year is appropriate; in others, two years might be reasonable.  Pushing it past two years is difficult.
• Activities. The activities that are prohibited must be spelled out clearly and in detail.  If any ambiguity exists, the law requires the Court to interpret the agreement in favor of the employee.  Accordingly, you must state exactly what your new employee cannot do in the event the employment ends.  In this regard, it’s a good idea to define what your competitors look like—without naming them.  You don’t want your employee to have any wiggle room.
• Injunctive relief. An injunction is an order from the Court that, in this case, would require your employee to refrain from violating the contract.  If the employee continues to violate the agreement, the Court can punish the employee via its contempt powers.  Your agreement should require the employee to agree to the things you would otherwise have to prove to the Court.  For example, the agreement should specify that the employee understands and agrees that if he were allowed to compete with the employer during the time and in the locale specified, you would suffer “irreparable harm,” i.e., harm that could not be remedied by mere dollars and cents.  By having the employee agree to the elements you would have to prove, you avoid much of the risk of litigation and make it much less expensive.
• Damages too. Your agreement should also specify that you are entitled to damages.  I know what you’re thinking, that I just said the employer has to prove “irreparable harm” to get an injunction.  True enough, but your employee will have violated the agreement for some period of time before you get a chance to persuade a judge to give you the injunction.  In many cases, you won’t know that your employee has been unfairly competed for some weeks or months.  Your agreement should state that while you are entitled to injunctive relief going forward, you are also entitled to compensatory damages for the unfair competition that occurred before you obtained the injunction.
• No Bond, thank you. Before an injunction takes effect, the Court has to specify a bond.  The bond is a surety that can be used to compensate the employee if it later turns out that the Court should not have issued the injunction. You don’t want to have to pay a bond to get the benefit of the bargain you made with the employee.  So put that in the agreement: the employee agrees that no bond is necessary to make the injunction effective.
• No cherry-picking, if you please. While we’re making the employee promise not to compete, you ought to make him promise not to hire away your employees.  You don’t want to come in to work and find out that your ex-employee has made your secretary a better offer to come work for him five miles away.
• Re-start the clock. Five hundred years ago, Hamlet complained about “the law’s delay.”  Courts try to work quickly when it comes to temporary restraining orders but things still take time, more time than you probably like.  By the time you get your injunction, your former employee may have been improperly competing for six months.  It’s only fair that that six months not be counted against the non-compete period in your agreement.  Unfortunately, that’s exactly what will happen unless you put language in the agreement that will re-start the non-compete period.
• Attorney fees. In the absence of an agreement or statute, American litigants have to pay their own attorney fees.  You can change that by putting it in your agreement.  You can provide that the “prevailing party” gets an award of attorney fees from the other side.  You can even specify that the employee has to pay your attorney fees but not vice versa.  That sounds harsh but the employee is the one violating the agreement.  But you won’t get fees unless it’s in the agreement.

Lastly, the employer has to keep his nose clean too.  An injunction is what Courts call “equitable relief.”  The goal is fairness.  If the employer has violated the employment agreement is some way—e.g., not paying a promised bonus—the Court may deny a request for an injunction.  The Court is going to look at the conduct of both parties.

If you would like more information about these issues, please contact Scott Thomas.   Scott has secured victories for firm clients both seeking and defending claims for injunctive relief in Ohio and Kentucky courts.  He welcomes the opportunity to work with you on your case.  His direct line is 859.578.3862.  You can email him at sthomas@HemmerLaw.com.  If there is a particular topic you would like to see addressed in a blog, please send Scott an email with your ideas.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

• posted: Dec. 01, 2015
• Hemmer DeFrank Wessels PLLC
• Uncategorized

Written By: Justin Whittaker

What happens when your previously reliable commercial tenant stiffs you on the rent?  If you are a commercial landlord in Kentucky, you’ve likely had to grapple with this question.  If you are a commercial landlord who has not yet faced this issue, give it time; you’re up next.  All landlords have a fundamental interest in securing a responsible tenant to occupy their property, the security of their property, and collecting rent for the use of their property.  In the event of a breach of a commercial lease, the last thing the commercial landlord wants to do is misstep in securing its rights.  Any misstep may result in landlord being left out in the cold on months of rent, and damage to its property.  These risks will rear their ugly heads if the commercial eviction is not handled properly.

In Kentucky, the commercial eviction procedure is known as a “forcible detainer” proceeding.  The purpose of a forcible detainer proceeding is to simply determine who has the right to possession of the commercial property at issue.  Forcible detainer proceedings arise if the commercial tenant hasn’t paid rent, or if it has otherwise failed to comply with other terms of the commercial lease.  In order to recover the money owed by the tenant for back rent, late fees, damages, etc., a landlord is required to file a separate civil action against the tenant.  In either case, the commercial landlord must act swiftly – and act correctly – to secure its rights.

Commercial landlords are required to provide proper written notice and an opportunity for the tenant to cure its breach of the commercial lease.  If the commercial tenant fails to cure its breach within seven days of proper notice, the landlord must proceed formally by filing a forcible detainer complaint to evict the tenant.  After the complaint is filed, the court will schedule a hearing.  In Kentucky, a representative of the landlord must appear at the hearing to offer testimony as to the landlord’s right to possession of the property.  If the judge grants a forcible detainer judgment, the tenant has seven days to either vacate the property or appeal.  At this point, the commercial tenant can either make plans to vacate the property, appeal, or try to make a deal with you.

Resolution at this point may sound great.  It is important, however, that in your eagerness to put the matter behind you, you do not give up your rights to continue collecting rent and enforcing the commercial lease.  If the tenant appeals the forcible detainer judgment ordering it to vacate, the court will require it to post a bond in the form of ongoing rent payments.  The court clerk will hold these funds until the appeal is resolved.

If the tenant does not file an appeal but also does not willingly vacate the property by the end of the seventh day, the landlord must obtain a writ of possession from the district court judge and ask the County Sheriff to enforce the judgment.  The Sheriff will require a fee for this service, and precise instructions as to the removal of the tenant, either by “put out” or “set out.”  The Sheriff is then authorized to physically remove the tenant and reclaim the property for the landlord.  You may be tempted to avoid the hassle and expense of enlisting the Sheriff’s services and resort to “self help” in evicting the deadbeat tenant.  It is important to understand the risks to the self-help approach.  Regardless, once you have successfully removed the commercial tenant, you will need to secure as much of the back rent as possible through the enforcement of a “landlord’s lien” on the personal property of the tenant.  It is critical that you differentiate between the value of your lien and the overall value of the tenant’s property.  While you are entitled to receive value for rent of your property, you are not entitled to convert the tenant’s property in excess of the value of your lien, lest you face a lawsuit for damages and attorneys’ fees from the tenant.

If you need assistance with these issues, please do not hesitate to contact Justin Whittaker at 859.344.1188.  Justin is also happy to help you prepare a commercial lease agreement.  You can email Justin at jwhittaker@HemmerLaw.com.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

• posted: Nov. 23, 2015
• Hemmer DeFrank Wessels PLLC
• Uncategorized

Written By: Matthew T. Cheeks

Has your practice done a HIPAA Risk Analysis lately?  Indiana provider pays $750,000 settlement for HIPAA violations.

Hacking and data breach incidences are increasingly common and have become a fact of life in modern business.  Regardless of the sector or industry, individuals rarely have to wait long before the next hack or breach grabs national headlines (e.g., government, banking, retail or healthcare).  The constant media attention and an increased awareness of the risks of identity theft have driven healthcare consumers’ concerns about the use and security of their electronic protected health information (ePHI).  This growing concern and the ease of electronically filing a Health Insurance Portability and Accountability Act (HIPAA) complaint via the U.S. Department of Health and Human Services Office for Civil Rights’ (OCR) online Complaint Portal have led to tremendous increases in the number of HIPAA complaints OCR receives.  For instance, there was a 16 percent increase in the number of complaints received between 2011 (9,018) and 2012 (10,457).  The number of complaints increased 24 percent in 2013 (12,974) and jumped 37 percent in 2014 when OCR received 17,779 complaints.  As healthcare consumers’ interest in ePHI has grown, so too has OCR’s enforcement efforts, and OCR publicly maintains that enforcement is a high priority.

The natural result of these factors is the increased risk to healthcare providers of potentially significant liability, particularly growing out of the failure to be proactive in guarding ePHI.  For example, OCR recently announced the $750,000 settlement of potential violations of HIPAA’s Security Rule and Privacy Rule against Cancer Care Group, P.C. (CCG), an Indiana-based group that includes 18 physicians.

CCG self-reported the theft of “computer server backup media” (e.g., back-up tapes) containing the unencrypted ePHI of 55,000 patients from a CCG employee’s vehicle in August 2012.  OCR’s investigation revealed that “CCG failed to conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of ePHI help by CCG.”  OCR further found that CCG had “failed to implement policies and procedures that govern the receipt and removal of hardware and electronic media that contain [ePHI] into and out of a facility, and the movement of these items within the facility.”

While the impermissible disclosure of ePHI of 55,000 patients certainly played a role in the outcome of OCR’s investigation, it is clear that CCG’s failure proactively address the security of ePHI was a—if not the—significant factor.  OCR reinforced its emphasis on the Risk Analysis and Risk Management requirements (45 C.F.R. §164.308(a)(1)(ii)(A) and (B)) in the Resolution Agreement and required CCG adopt a “robust corrective action plan” subject to OCR’s review and approval.

Despite OCR’s efforts in recent years, the U.S. Department of Health & Human Services Office of the Inspector General (OIG), Office of Evaluation and Inspections, released two reports in September 2015 (found here and here) calling on OCR to strengthen its enforcement efforts regarding general privacy standards and security breach reporting requirements.  OCR agreed with the OIG’s reports, and indicated that it intends to do just that (the implementation of Phase 2 audits in 2016 will be part of these efforts).

Thus, all signs point to increasing risks for providers with respect to ePHI and the need to be proactive about the security of ePHI.  The unfortunate fact, however, is that policies and procedures—or lack thereof—similar to CCG’s are probably not uncommon.  Providers are too often reactionary, addressing these issues only after a breach for a variety of reasons (e.g., costs of risk analyses, costs of implementing recommended safeguards, or even a general unawareness of the need for the analyses).  Old adages often hit the mark and, when dealing with ePHI, an ounce of prevention is truly worth a pound of cure.

Matthew Cheeks is a trial attorney with Hemmer DeFrank Wessels PLLC.  His practice focuses on helping individuals and businesses solve complex problems through negotiation, mediation, arbitration and trial.  You can reach him at mcheeks@hemmerlaw.com.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

• posted: Nov. 12, 2015
• Hemmer DeFrank Wessels PLLC
• Uncategorized

Written By: Kyle M. Winslow

Limited liability companies (“LLCs”) have become a popular business entity for individuals in Kentucky. One of the main reasons that Kentucky small business owners choose the LLC is because of the protection offered by Kentucky Revised Statute 275.150 – “no member…of a limited liability company…shall be personally liable by reason of being a member…for a debt, obligation, or liability” of the LLC. Generally, LLC members can take business risks and creditors cannot seek their personal assets should their business ventures fail.

However, the LLC protection is not absolute. “Veil piercing” is an equitable remedy that allows a court to impose personal liability on shareholders for a corporation’s wrongful acts. In Turner v. Andrew, the Kentucky Supreme Court stated that the doctrine can also apply to LLCs.

In 2012, the Supreme Court of Kentucky clarified the test for veil piercing in Inter Tel Techs v. Linn Station, LLC. While Inter Tel Techs discusses veil piercing in the context of a corporation, Kentucky law does not distinguish between corporations and LLCs when analyzing the equitable remedy. In Inter Tel Techs, The Supreme Court stated that in its determination of whether to pierce the corporate veil, trial courts should essentially resolve two dispositive elements: (1) domination of the corporation resulting in a loss of corporate separateness and (2) circumstances under which continued recognition of the corporation would sanction fraud or promote injustice.

So how does the veil piercing doctrine affect small businesses? In Inter Tel Techs, the Court noted that in assessing the first element above, courts give the most emphasis to several factors, one of which is the egregious failure to observe legal formalities.

In my practice, piercing the corporate veil has come up most often where small businesses fail to follow the legal formalities associated with the business entity. This can include failure to hold meetings, failure to keep records of important decisions, and failure to monitor the activities of its members. To avoid personal liability, LLC members should make sure that they know the ins and outs of their LLC’s operating agreement and strictly comply with the agreement’s provisions.

Our team at Hemmer DeFrank Wessels is ready to answer any questions that you may have about your operating agreement or corporate bylaws, or how the legal doctrine of piercing the corporate veil may affect your business.

Kyle Winslow is an attorney with Hemmer DeFrank Wessels PLLC. He helps business professionals solve problems in Kentucky, Ohio, and Indiana.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

• posted: Oct. 30, 2015
• Hemmer DeFrank Wessels PLLC
• Uncategorized

Written By: Kyle M. Winslow

The construction industry is on the rebound in Kentucky and throughout the rest of the country. In northern Kentucky, our river cities are booming with various development projects. Nevertheless, in a good or bad economy, contractors and subcontractors encounter payment problems.

Kentucky’s mechanic’s lien statutes, found in Kentucky Revised Statutes (“KRS”) 376, provide protection to construction companies who furnish materials and labor on public or private projects.

While some of the statutes’ terms are interpreted liberally, Kentucky courts have consistently held that lien claimants must strictly comply with the notice requirements of KRS 376. Due to the demands of the construction industry, contractors and subcontractors routinely miss these deadlines and forfeit the leverage and security that accompany a mechanic’s lien.  The general notice requirements for private projects can be simplified into four steps:

(1) Preliminary Statement of Lien. The lien claimant should file a Preliminary Statement of Lien with the county clerk to secure priority over subsequently recorded liens. While the Preliminary Statement of Lien is not required to establish a valid mechanic’s lien, it protects the lien’s precedence. Since it’s not required, there is no deadline to file the Preliminary Statement of Lien.

(2) Notice of Intent to File Lien. Prior to filing the Lien Statement, subcontractors must notify in writing the owner of the property to be held liable or his authorized agent, of their intent to file a lien. This notification must be completed within 120 days on claims in excess of $1,000 (75 days on claims amounting to less than $1,000) after the last item of material or labor is furnished.

(3) Lien Statement. Lien claimants must file their Lien Statement with the county clerk within 6 months of the last day on which the lien claimant last furnished labor or materials. KRS 376.080(1) imposes strict requirements on the form of the Lien Statement.

(4) Notice to Property Owner. The lien claimant must send by regular mail a copy of the Lien Statement to the property owner at his last known address within seven days of filing the Lien Statement. Failure to follow this last requirement dissolves the lien.

In my practice, when a client anticipates payment problems, I immediately calendar all four steps on my personal calendar and on my firm’s litigation practice group calendar. I have forms for all four steps so when a deadline arrives, I’m prepared to take action. Should your company encounter payment problems, I’d encourage you to contact a construction lawyer familiar with the ins and outs of KRS 376. While many of the deadlines seem simple, they often involve complex factual issues.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

• posted: Oct. 26, 2015
• Todd McMurtry
• Uncategorized

Written By: Todd V. McMurtry

Over the years I have practiced law, one of the most common complaints that I have encountered is when business partners encounter difficulty in their relationships.  For example, one member may believe another has acted selfishly, diverted a valuable business opportunity or not disclosed significant expenditures.  This article will focus on the duties and obligations that business partners in member-managed Kentucky Limited Liability Companies (“LLC”) have to each other and from where those obligations arise.  It will help members of a member-managed LLC better understand the obligations each has to the other. 

An LLC is a legal entity that among many other benefits protects its members from personal liability for the acts of the LLC.  LLCs can be managed by a manager or by its members.  When managed by its members, each member of the LLC has authority to bind the LLC.  With the exception that it insulates its members from liability, it is similar to a partnership. 

In Kentucky, a member in a member-managed LLC owes the duties required by the operating agreement and the LLC Act. Additionally, a member may still owe duties imposed by the common-law.  An LLC operating agreement is an agreement among the LLC members about how an LLC will function.  Generally, the members can govern themselves in any manner they wish.  This includes limits on the duties that each may have to the other.  But, when an operating agreement does not limit those duties, Kentucky law governs. 

Kentucky Revised Statute 275.170(1) imposes on members a statutory duty of care. A member is liable to another member if his act or failure to act constitutes wanton or reckless misconduct.  To limit liability to wanton or reckless misconduct is consistent with Kentucky’s business judgment rule that protects business decision makers from liability where they act in good faith, on an informed basis, and in a manner honestly believed to be in the best interest of the LLC.  It is logical then that members in a member-managed LLC should always act in an honest and informed manner.  To act otherwise may subject them to liability. 

Members of a member-managed LLC also owe duties to the LLC.  KRS 275.170(2) imposes on members a statutory duty of loyalty. This duty does not apply to the other members.  Reported Kentucky cases suggest this duty applies to conduct such as diverting business from the LLC to oneself or another company that person owns or controls.

In addition to the statutory duties of care and loyalty, the common-law may also impose fiduciary duties on LLC members. The Kentucky courts have held that absent contrary provisions in an operating agreement, members owe each other a common-law fiduciary duty. 

In conclusion, a member of a member-managed LLC owes the other members a duty of care.  A member must act in good faith, on an informed basis and in the best interest of the LLC.  As well, a member should be very familiar with the operating agreement that governs the LLC.  While this seems like common sense, problems with these duties and obligations arise with great frequency. 

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.