Prebankruptcy Provisions: Should you include them in your contracts?

Creditors and lending institutions have recently been including various provisions in their contracts and credit agreements, which contemplate what will happen in the event of a bankruptcy. The provisions can be divided into three basic categories: (1) Waivers; (2) Covenants; and, (3) Representations/Admissions.

Waivers limit a borrower's right to either file a bankruptcy petition or to oppose the creditor's lifting of the automatic stay. Covenants provide for immediate relief from the automatic stay or consent not to contest a lift stay motion. Representations/Admissions include provisions in the agreement which admit the elements necessary for the creditor to lift the automatic stay, admit that any future bankruptcy filing will be made in bad faith to hinder or delay the creditor and admissions that security interests are properly perfected.

The prebankruptcy waivers provide a comfort level to lenders and creditors in the hope that they will not be delayed or damaged in the event of bankruptcy and they also are put in agreements to provide assurances that they are avoiding deals with debtors heading toward bankruptcy.

The courts are split on the enforcement of the prebankruptcy provisions. Some courts have expressed concern as to whether or not the provisions violate public policy. In almost all cases however, the courts have found the agreements are not necessarily self-executing. Therefore, a creditor should be weary of taking any action, which may result in a violation of the automatic stay without first obtaining bankruptcy court approval.

On the positive side, prebankruptcy provisions have proven to speed up the process and assist creditors in obtaining quick relief from the automatic stay of bankruptcy. In addition, some courts have upheld the various admissions and representations as conclusive evidence of the elements needed to lift the stay. This has led to a decrease in litigation cost for some creditors.

It would be dangerous and unadvisable to take any action which may be determined to be a violation of the automatic stay in reliance on the prebankruptcy provisions, but including the provisions may save you litigation fees in the long run. Therefore, while prebankruptcy provisions are not guaranteed to work, you may want to include them in your agreements.

The above article is not meant to replace legal counsel. If you'd like to speak to an attorney, please contact Gross & Romanick directly by filling out their online form, e-mailing law@gross.com, or calling (703) 273-1400.

Check: To Cash Or Not To Cash

You receive a check for less than the amount owed from a company. The company has stated that they owe you less than you contend is owed. Should you cash the check?

Virginia Law: In the 2002 case of Gelles & Sons General Contracting, Inc. v. Jeffrey Stack Inc., the Virginia Supreme Court for the first time interpreted Virginia Code §8.3A-311 which is a 1992 statute enacted to address the issue of cashing such checks. According to the Supreme Court opinion, the test is whether "a reasonable person" would consider the check to be a tender in full satisfaction of the claim.

Facts of Case: A general contractor ("general") and its subcontractor ("sub") dispute the amount owed by the general to the sub. The general wrote two letters to the sub setting out its position and included a check with the second letter which stated that it represented "final payment". The sub cashed the check but sued for the balance it claimed was due. The trial court found (and the Virginia Supreme Court agreed) that the letter and check was a "drop-dead letter" offer of final payment. By cashing the check, the sub could not sue for any additional sums.

Advice: If there is a question about whether a check is tendered as final payment, look at the correspondence and notations on the check to determine the intent of the maker. Cashing checks may be risky if there is some evidence for an accord and satisfaction.

This article is not meant to replace legal counsel: please contact Gross & Romanick directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.

Security Deposit Treatment in Bankruptcy

What happens to a tenant's security deposit after the tenant files bankruptcy? If rent is owned, can the landlord apply the deposit to unpaid rent?

An informal poll of area Bankruptcy Lawyers reveals a belief that a security deposit can be used as a set- off against both pre-petition damages and lease termination damages under Section 553 of the Bankruptcy Code. The set off is subject to mitigation by the landlord, including releting the premises. The safest process is to have a court grant relief from stay before applying the security deposit; but this procedure may cause a debtor to file an objection. Right or wrong, most Landlords simply keep the deposit.

Some attorneys also argued that Landlord can assert a "secured claim" up to the amount of the security deposit.

For more information or to speak to an attorney about your own individual case, please contact Gross & Romanick directly by emailing them at law@gross.com, filling out their online form or calling (703) 273-1400.

Business Conspiracy and Employee's Fiduciary Duties

FACTS: Feddeman & Co offered a group of its employees the opportunity to buy out the main stockholder, creating an employee owned corporation. During the negotiations, the buy-out began to seem unattainable to the employees, so these employees and directors of Feddeman met with a competitor (Langan Associates). The employees discussed the possibility of employment with Langan Associates, and used the threat of resignation as a leverage.

Feddeman then sued Langan and Feddeman's former employees for conspiring to ruin Feddeman's business, usurpation of Feddeman's business opportunities and breach of fiduciary duties.

In order to legally leave Feddeman the employees followed the advice of an attorney, who was also Langan's lawyer.

JURY RULING: An Alexandria Circuit Court jury awarded 3.3 million dollars to Feddeman.

COURT RULING: The judge set aside the 3.3 million dollar verdict in part because the "employee Defendants scrupulously adhered to the advise of counsel as to how to prepare to leave". The case has been appealed to the Supreme Court of Virginia.

SUPREME COURT RULING: The Virginia Supreme Court found that there was not basis to set aside the verdict because defendant employees and defendant directors did more than merely prepare to resign and advise others of a plan to leave. Credible evidence supported the jury determination that the conduct fell below the required standard of good faith and loyalty, and was sufficient to constituted a breach of fiduciary duty. The Court reinstated the 3.3 million dollar verdict.

ACTION ADVISE: When making an important business decision, hire a lawyer that does not have a conflict-of-interest. Conspiring against an employer with a competitor may be considered a breach of good faith and loyalty, as well as a breach of fiduciary duty.

The following article is not meant to replace legal advise. If you'd like to speak with one of Gross & Romanick's attorneys please fill out their online form, email law@gross.com or call (703) 273-1400.

Buildout Allowance - Landlord Gets Slammed

FACTS: Tenant leased property from a commercial Landlord. Part of the lease agreement was a building allowance of $699,000 to be paid by Landlord for improvements. Tenant hired a contractor to do the improvements to the property. The Contractor accidentally demolished an unoccupied improvement on the property. Upon noticing their mistake - the same day, The Contractor offered to remedy by either rebuilding the improvements or allowing for a credit for the value of the improvements. Instead of accepting one of the offered remedies the Landlord decided to withhold $301,000 of Tenant's allowance. When Tenant and Contractor sued for the allowance, the Landlord counter-claimed for lost rent and replacement of the improvement even though the Landlord did not have a tenant for the demolished space and did not replace the demolished improvement.

COURT RULING: The Court determined that the Landlord's counter-claims were without merit; and that the Landlord and its counsel should have known of the meritless nature of the claim. Judgment was entered against the Landlord for $351,057.65 for the withheld allowance plus interest. The Court also sanctioned the Landlord the sum of $251,018.16 for attorney's fees and costs for the baseless counter-claim and defenses, which prolonged the litigation (Va. Code § 8.01-271.1).

ACTION ADVISE: A building allowance is an enforceable right of the tenant. If the landlord withholds payment for the allowance, it will need good cause to do so. Furthermore, if a landlord does not have a tenant for the demolished or damaged space, it should not withhold a building allowance on the basis of lost rent. If the landlord has no intention of rebuilding the damaged improvements, the landlord is not acting in good faith by charging the contractor for the repair cost. Finally, asserting baseless claims in a court proceeding can result in sanctions. Try to resolve these disputes out of court!

The above article is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's attorneys, please contact the firm by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.

The Statute of Frauds: It's Not What it Sounds Like (What you should put in writing)

Based on its name you might think that the Statute of Frauds has something to do with criminal or civil fraud, but it doesn't. The name "Statute of Frauds" actually refers to a law passed by the British Parliament in 1677, and the name has been retained through the centuries. It specifies which kinds of contracts must be in writing in order to be enforceable. Its purpose is to prevent the setting up of supposed agreements and then supporting them by perjury.

The most common applications of the Statute of Frauds are as follows:

* Holding a person responsible for the promise to pay the debt of another
* Contracts for the sale of real estate
* Leases for real estate over 1 year
* Agreements which cannot be performed within 1 year
* Sale of personal property over $5,000
* Sale of goods over $500, unless the buyer accepts the goods
* Agency agreements

While the Statute requires a written agreement, almost any writing sufficient to indicate some kind of agreement between the parties will suffice. However, the "writing" must be signed by the party who is being charged. Thus, the venerable Statute of Frauds is still an important and influential part of modern law.

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The above article is not meant to replace legal counsel. For legal representation or for questions regarding a specific case, please contact Gross & Romanick directly by filling out their online form, e-mailing law@gross.com or calling 703-273-1400.

Important Commercial Eviction Deadlines

During a commercial eviction procedure there are important deadlines that landlord must meet in order to successfully evict a tenant. Some of them are as follows:

Notice of Default
There are no 5 day statutory notice requirements as in residential evictions. However, all notices required by the lease must be satisfied before filing the Unlawful Detainer.

Service of Unlawful Detainer
Must be made 5 days prior to first return date.

Removal
Tenant may seek to remove the case to the Circuit Court but must do so within 10 days after the first return date. If this occurs, be sure to demand that the tenant post a bond for future rent.

Appeal
If either tenant or landlord wants to appeal the General District Court trial verdict, a notice of appeal must be filed within 10 days; or, 30 days from a Circuit Court judgment.

Writ of Possession
If the court awards possession to the landlord, the Writ of Possession can be filed after 10 days. But, many clerks of court will not issue a Writ of Possession after 60 days.

Sheriff's Return
The sheriff must evict the tenant or return the writ of possession to the court without eviction within 30 days. Don't delay or Landlord may have to start the eviction all over again.

*** The above article is not meant to replace legal counsel. If you'd like legal representation for your specific situation, please contact Gross & Romanick today by filling out the online form, emailing law@gross.com, or by calling (703)273-1400.

Construction Law: Performance Bonds

Companies in the construction industry should understand performance bonds. Performance bonds differ in many ways from payment bonds. While payment bonds are designed to assure compensation to subcontractors and suppliers, performance bonds seek to secure completion of the project or award of damages to the owner for default by the general contractor.

Performance Bonds Defined

The parties to a performance bond consist of the following: (1) the principal (usually the general contractor), (2) the obligee (the owner), and (3) the surety. In some cases, a performance bond is required of a subcontractor, in which case the principal is the subcontractor and the obligee is the general contractor. Performance bonds are primarily designed to afford significant protection to the owner, while subcontractors and suppliers typically have no rights under such bonds.

Claims are brought by the obligee, when the principal has defaulted on its contract with the obligee - the obligee declares the principal to be in default and notifies the surety. Only then is surety required to act, since premature actions by the surety can result in litigation with the principal.

Actions upon Default

In the event of default by the principal, the surety has several options. It can permit the owner to finish the project and compensate the owner for damages. Or, the surety can finish the project through a new contractor. Or, it can finance the general contractor so the defaulting obligee can complete the contract. The choice depends upon the situation and the players.

Statute of Limitations

While the federal Miller Act states no specific time period within which suit must be brought against a surety, there are federal, state and local time limitations applicable to performance bonds. Virginia Code Section 11-59 requires actions against sureties on performance bonds be filed within one year after completion of the contract, including the expiration of all warranties and guarantees. If the action is for a breach of warranty or defect, then all cases must be filed within one year of discovery of the defect or breach of warranty.

Conclusion

In conclusion, individuals in the construction industry should keep in mind that the rules and principles, which govern the operation of these bonds, are sometimes peculiar to the bonds themselves and the statutes under which they are provided. Therefore, it is important to have a good understanding of the terms of your bond, any applicable statutes, your contract and the facts.

This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick by filling out out online form, emailing us at law@gross.com, or calling (703) 273-1400 if you need information about your specific situation.

Financing a Company in Chapter 11: Who Would?

Who would lend money, lease property or extend credit for supplies to a company in Bankruptcy? Why would anyone want to do that?! Who would want to provide financing to a company that has already mismanaged itself into bankruptcy? Answer: you may want to.

Inevitably a Chapter 11 debtor will require additional cash flow or extensions of credit. Because companies in bankruptcy need money, leases and supplies, if a creditor is willing to provide funds, offer a lease or extend credit, that creditor stands to obtain very favorable terms. Because few creditors are willing to enter into high risk investments, Congress enacted incentives under Section 364 of the U.S. Bankruptcy Code, which permits priority to such creditors over already existing creditors and administrative costs (the so called "super priority"), as well as providing security in the assets of the debtor.

Extending Credit

The potential creditor should obtain a copy of the company's bankruptcy schedules. The schedules will reveal the company's assets and liabilities. The creditor should also request all financial information that will assist in assessing the company's ability to repay the credit. Ask for balance sheets, income statements and monthly operating reports.

The potential creditor should try to place itself in the most secure position possible. The levels of security available range from unsecured credit that is paid back as an administrative expense prior to pre-existing unsecured creditors, to debt secured by a senior lien on property of the estate.

A creditor is most secure if it holds a senior lien on property of the bankrupt company. Be creative! You can hold a lien not only on real property, but also accounts receivable, equipment, inventory, etc. If the bankrupt company has real property with sufficient equity, a lender can get a lien senior to a pre-existing security interest. This is a unique opportunity for a lender to bypass perfected liens and Deeds of Trust, and to move directly into a first position. Of course, existing creditors may object to their loss of position at a hearing but the judge ultimately decides based upon the best interest of all the creditors.

At a minimum the creditor should demand a "super priority". A "super priority" will allow the creditor to be paid back prior to administrative claims such as fees charged by lawyers, accountants and other expenses incurred by the company to preserve the estate.

Conclusion

Opportunities for profit are available for those creditors who take advantage of the protection available. Furthermore, an infusion of credit or cash may preserve the bankrupt company to your long-term benefit.

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The above article is not meant to replace legal counsel. For more information or to retain legal counsel, please contact Gross & Romanick by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.

Slip & Fall: Landlord's Should Take Notice

Virginia is one of the most difficult states in the country in which to win a slip and fall case by an injured party. Nevertheless, a jury recently awarded a Plaintiff $2.5 million against a landlord for a slip and fall. Yet, a previous jury hearing the same case presented by the same attorneys awarded $0. The vagaries of the jury system account for this stark discrepancy, but the ultimate verdict indicates that landlords need to understand their obligations to safeguard the public from injury while on their premises.

Three 1992 Virginia Supreme Court cases prevent most victims of slip & falls from succeeding. A&P Tea Co. v. Rosenberger, establishes that owners of property are not insurers or guarantors of the safety of business invitees. Colonial Stores v. Pulley states that plaintiffs must prove that the owner created the defect which caused the fall or at the very least should have known of the problem. A&P Tea Co. v. Berry instructs judges to dismiss the case if the jury must speculate in order to determine that the owner had notice of the defect.

Thus, in order to recover Plaintiffs must prove that the defendant knew or should have known of the defect which caused the fall. This standard of proof is extremely difficult since many victims do not know why they fell or cannot conclusively prove that the owner or lessor of the property actually knew a problem existed. However, violations of building codes and standards can overcome proof difficulties since many such violations are considered negligence per se with no requirement of notice.

The $2.5 million case was successful because Plaintiff introduced evidence that there was grease or greasy water on the floor of the fast food restaurant. Another case was successful because a leaky roof was not repaired after notification by a tenant. A more complex case succeeded when a succulent plant was shown to be shedding leaves because of improper care by the plant section of the department store, which also failed to sweep the area for 4 1/2 hours. In addition, a slight erosion of the owner's position is taking place regarding slip on ice cases, since the Supreme Court held that merely walking on ice or snow was not an assumption of the risk or contributory negligence.

Despite these and other cases, the landlord in Virginia has the upper hand if proper attention is paid to dangers for which there is actual notice and if proper maintenance schedules are followed.

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For more information or to seek legal counsel for your personal injury case or a case filed against you, please contact Gross & Romanick by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.

The Soldiers' & Sailors' Civil Relief Act

While dodging bullets around the world, creditors may be conducting a rear assault on our military personnel's assets at home. The Congress came to the rescue in 1918 with the Soldiers' & Sailors' Civil Relief Act, which was amended in 1940 during the Second World War.

The Act is intended to provide unbothered personal serenity and security in order to promote military efficiency; and to assure that soldiers and sailors are not materially disadvantaged in prosecuting or defending legal actions. Judges can stay a legal proceeding if a serviceperson's ability to prosecute and defend an action is impaired by active duty. (So far no judge has enforced a stay to promote military efficiency)

The Act specifically provides relief in matters of rental and installment contacts, foreclosures and termination of insurance. In addition, maximum rates of interest (including service charges, renewal charges, fees, etc.) are set. Even divorce and annulment cases have been suspended.

A 1993 U.S. Supreme Court case demonstrates the problems the Act can cause. In Conroy v. Aniskoff, a property was sold by tax foreclosure, but the Court held that all statute of limitations are suspended. Since the right of redemption continues until active service is terminated, a member of the armed forces could show up years after the sale and demand to redeem the property.

The Conroy case may apply to ordinary foreclosures. And, failure to comply with this provision of the Act can result in imprisonment for one year and/or a fine. Help ... Congress!

*** For more information about the Soldiers' & Sailors' Civil Relief Act or to seek legal counsel for pending litigation, please contact Gross & Romanick by filling out their online form, emailing law@gross.com, or calling 703-273-1400.

Mechanic's Lien: What is Part of the Original Contract

A recent decision by Judge Thomas D. Horne of the Circuit Court of Loudoun County in Tart Lumber Co., Inc. v. Drewer Dev. Corp. may have significant impact on the timing requirements for filing mechanic's liens by suppliers, subcontractors and other lien claimants. Judge Horne dismissed approximately half of the $91,613.51 of liens by finding that each invoice evidenced a separate contract with a separate required date for filing of the memorandum of mechanic's lien.

Under Virginia Code ß43-4 a lien claimant must file a memorandum of lien no "later than ninety days from the last day of the month in which he last performs labor or furnishes material." In the 1993 Virginia Supreme Court case of American Standard Homes Corp. v. Reinecke a portion of a mechanic's lien was dismissed because subsequent orders were not considered part of the original deal; thus, the memorandum for the earlier materials was found to be filed after the statutory period for filing expired.

Judge Horne essentially agreed with the title companies' view of the Reinecke case. Even though the contractor signed a credit agreement pursuant to which the goods were delivered, the court found that each separate delivery was a separate contract. The credit agreement did not obligate the supplier to sell, nor the buyer to purchase, any specific materials. Thus, the court found each order to be a separate contract with a new 90-day filing requirement.

While Judge Horne is only a circuit court judge and his opinion has no precedent value in other courts, it may mean that other judges and ultimately the Virginia Supreme Court will have the same interpretation of the Reinecke case. On the other hand, we are aware that other circuit court judges have ruled more favorably regarding inclusion in "last perform(ed) labor or furnish(ed) materials". Apparently there are some cases on appeal to the Virginia Supreme Court to settle this issue.

Meanwhile, it will be important to file mechanic's liens within 90 days of the last day of the month for each separate invoice, or make sure you can prove that subsequent deliveries were pursuant to a prior single contract. Judge Horne's opinion focused on whether the supplier would have been required to deliver and whether the contractor would have been required to accept the materials in question; absent such requirement, he found that there was no contract and each delivery was a separate sale with a separate time period. This means that claimants need a written contract for the entire order, or file quick and often.

As you imagine, claimants seeking to collect unpaid bills believe the courts are impairing the protection that the mechanic's lien statute intended to provide. Property owners, title companies and banks are pleased with the ruling which presents another technical roadblock to enforcement of a mechanic's lien.

The above article is not meant to replace legal counsel. To speak to an attorney, please contact Gross & Romanick directly by filling out our online form, emailing law@gross.com, or calling (703) 273-1400.

Employers Rights Regarding Jury Duty

The words "jury duty" are not music to an employer's ear. It means the employee may miss a few days of work, or even a week or more. Many employers believe they must pay the employee for the time missed. Employers can breathe a little easier if they understand Virginia Code § 18.2-465.1 and the Federal Jury System Improvement Act.

Virginia Code § 18.2-465.1 does not specifically mention payment of salary. It does, however, state that an employer may not discriminate against an employee who is called to jury duty. The Code states that the employer may not discharge the employee, or take any adverse personnel action. Also, upon reasonable notice by the employee, the employer may not require the employee to use sick days or vacation time for the appearance in court.

The Federal Jury System Improvements Act (28 USC §1875.) does not allow an employer to intimidate, coerce or otherwise discriminate against an employee who must attend jury duty. However, an employer is not required to pay an employee for time missed as long as the employer's actions would be the same toward any employee who missed work time.

The Commonwealth of Virginia has prepared a book that answers frequently asked questions about jury duty. That book, which is published on the Internet at www.courts.state.va.us/jury/cover.htm, states that "many employers will continue to pay your salary while you are in jury service."

Consumer Online at http://consumer.org.nz/problem/leg-jury.html also offers legal advice to jurors. The site states that employers are "encouraged", but not required, to pay their employees for time missed for jury duty. Also, if an employer decides to pay an employee for jury duty, then the fee normally paid to the juror will be paid to the employer for reimbursement.

One other interesting web site is http://www.ahipubs.com/problem_solvers/jury.html. This site is designed to answer employer's questions, such as how to handle a key employee has been called to jury duty. The site advises that an employer may ask an employee not to serve, but the employer must demonstrate to the court that an extreme hardship would be placed on the employer if the employee were required to serve. An employee may refuse an exemption from jury duty, even if secured by the employer. In that case, the employer may not, "threaten to [or] discharge, intimidate or coerce" or retaliate in any way for the time the employee serves on jury duty.

Conclusion
So long as an employer does not discriminate, violate an employee contract/policy or the Fair Labor Standards Act (FLSA), an employer does not have to pay an employee for time spent at jury duty. Nevertheless, an employer may not force an employee to use sick or vacation days for jury duty as long as reasonable notice has been given to the employer.

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The following article is not meant to replace legal counsel, merely to serve as an educational supplement to Gross & Romanick's clients. If you'd like to speak with an attorney about your specific situatin, please contact Gross & Romanick directly by e-mailing law@gross.com , filling out our online form, or calling 703-273-1400.

Apparent Authority: Is It What It Seems?

Before your business ships materials to a construction site, you insist that the subcontractor execute an agreement that all payments from the general contractor to the subcontractor be in the form of a joint check with your company as joint payee. After the general contractor and the subcontractor execute this joint check agreement, you begin shipping materials. When the subcontractor disappears with an outstanding balance on the account, you notice for the first time that the few payments you received were from the subcontractor and not joint checks issued by the general contractor. A call to the general contractor reveals that they claim to have no knowledge of the joint check agreement; in addition, they insist that the person who signed the agreement had no authority to do so. Can you get past due money from the general contractor for its failure to comply with the joint check agreement?

Actual v. Apparent Authority

Our analysis of the validity of the joint check agreement begins with whether the employee of the general contractor had actual or apparent authority to sign the agreement.

Actual authority means that the general contractor has officially empowered the employee with the right to sign the agreement and bind the company.

Even if an employee does not have actual authority, an employer may be bound by the acts of its employee under the theory of apparent authority. According to the Virginia Supreme Court in the case Wright v. Shortridge, "An act is within the apparent scope of the employee's authority if, in the view of the character of his actual and known duties, an ordinarily prudent person, having a reasonable knowledge of the usage's of the business in which the agent is engaged, would be justified in believing that he is authorized to perform the act in question," In our case example, a common laborer does not have apparent authority while the job supervisor probably does.

Even when an employer has specifically limited the actual authority of an employee, the employer may still be bound under apparent authority if it has held out the employee as possessing authority or has permitted the employee to represent that the employee possesses such authority.

Estoppel Works Both Ways

The general contractor in our case may be estopped from denying that its employee lacked authority to sign the joint check agreement if it acted or allowed the employee to act as though the employee had ostensible authority. Thus, employers cannot claim that an employee lacks authority if it represented that the employee had such authority or if the employee is clothed with apparent authority to enter into the agreement.

On the other hand, if your company knew or should have known that the employee lacked authority, you will be estopped from arguing reliance upon the employee's apparent authority. Furthermore, if you accept checks without informing the employer of the breach of the joint check agreement, the employer may have a good argument that they were unfairly prejudiced by your failure to provide an opportunity for them to avoid breaching the agreement.

Avoid Problems

Employers who wish to limit and define the authority of their employees or other agents should place these limitations in writing and they should send potential contracting parties a copy of this document. To limit the appearance of authority, control and monitor activities of employees and avoid giving important titles to people with lesser duties. If you learn that an employee's act exceeds granted authority, immediately repudiate the act and disclose the lack of authority to third parties relying on the act. Otherwise, you may inadvertently ratify the act, or worse, unknowingly extend the authority to the employee to bind the company.

Parties who enter into agreements with companies should beware. You may think you are dealing with an employee with authority to bind the company; however, this may not be the case. Even the President of a corporation may not have actual authority to bind the company; the president's power as an agent comes only as delegation of authority from the bylaws or the board of directors. (See Annotation Note to Virginia Code §13.1-673)

Protect Yourselves!

Insist on documentation of the authority of the person who is signing the agreement, such as a corporate seal or a corporate resolution. When in doubt, send a copy of the agreement to the company's headquarters, this will assist your estoppel, reliance and ratification arguments if the company does not protest the agreement. Had the supplier, in our example, sent a copy of the agreement to the general contractor and immediately contacted them when the checks were not issued jointly, then they might have prevailed in court even without actual authority. As the facts stand in the example, they will lose and fail to recover any money from the general contractor.

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The article republished above is not meant to replace legal counsel. To seek representation or to ask further questions about Construction Law, please contact Gross & Romanick's Business Law division today by calling (703) 273-1400, e-mailing law@gross.com or filling out our online form.

Security Deposit Treatment in Bankruptcy

What happens to a tenant's security deposit after the tenant files bankruptcy? If rent is owned, can the landlord apply the deposit to unpaid rent?

An informal poll of area Bankruptcy Lawyers reveals a belief that a security deposit can be used as a set- off against both pre-petition damages and lease termination damages under Section 553 of the Bankruptcy Code. The set off is subject to mitigation by the landlord, including releting the premises. The safest process is to have a court grant relief from stay before applying the security deposit; but this procedure may cause a debtor to file an objection. Right or wrong, most Landlords simply keep the deposit.

Some attorneys also argued that Landlord can assert a "secured claim" up to the amount of the security deposit.

For more information or to consult with one of Gross & Romanick's Commercial Landlord lawyers, please contact us directly by e-mailing law@gross.com or by calling 703-273-1400.

Business Owner and Landlord's Liability for Criminal Assaults: How Adequate is Your Security?

A sales clerk abducted from a Northern Virginia shopping mall obtained a $360,000 settlement from the owners and operators because a former mall employee sodomized her, attempted to rape her and threatened to kill her. Yet, a woman who was attacked in a parking lot after attending a dinner theatre had her favorable verdict reversed on appeal to the Virginia Supreme Court. What is the difference between these two cases? Apparently, the main distinction was that 170 crimes had occurred at the mall in the past four years, while the dinner theatre had only two prior isolated acts of violence.

Duty to Foresee Imminent Danger

In the dinner theatre case (Wright v. Webb) the Court held that an owner did not have a duty to foresee acts of criminal violence and that two acts are insufficient to "lead a reasonable person ... to conclude that there was an imminent danger of criminal assault which required the invitor to take action to protect Webb." The mall which settled for $360,000 had numerous acts of violence, but hired only had one security guard to monitor the mall's interior.

Changes in Premise Liability Article

The Webb case would have a very different result if the business was the type that either "attracts" or "provides a climate" for assaultive crimes. But, what this standard means is difficult to define. Thus, a 24 hour Hardee's located in a bad neighborhood and catering to a "club crowd", which possesses guns and drugs, was not sufficient to prove that the business established a "climate" for criminal activity. On the other hand a car wash was held liable for maintaining a nuisance because of the behavior of its patrons who used and sold narcotics, consumed alcohol, littered and played loud music. Thus, we can assume that a criminal act committed by a patron of the car wash might result in liability to the owner. Nevertheless, even if the premises is permeated with criminal behavior, maintaining adequate security may still overcome liability for criminal acts against patrons.

Inadequate Security

A 1992 study indicates the average jury verdict in an inadequate security case is $3.35 million, with an average out of court settlement of $545,800. In a recent Texas case a jury awarded $17 million to a residential tenant who was raped by an intruder who had broken into the management offices and stole the woman's unit key. The victim had requested a deadbolt lock from the inside but the management company refused because the lease prohibited measures that would make the unit inaccessible to the management company, a policy which violated state law. In addition, the keys were stolen the day before the actual crime and no preventative action was taken; thus, it was foreseeable that there was danger of an imminent crime.

If a case goes to trial, the plaintiff will hire an expert who will identify the reasonable and appropriate preventative security measures which should have been taken by the owner. This same type of expert should be hired by an owner before a crime occurs in order to establish a security plan. Follow the plan, because a deviation can be used against the owner. Indiscriminate notation of problems by security personnel must be avoided; another recent large settlement resulted from the mall's personnel categorizing some teenage assaults as sexually related, as well as overdocumentation and exaggeration of many petty problems which occurred at the mall. Furthermore, failure to warn tenants of crimes that have been committed on the property and false assurances about security measures are cited as reasons for lawsuits.

In a case involving imminent danger of criminal assault, the Virginia Supreme Court reversed a judge who threw out a premises liability case. The case involved a restaurant which was sued for permitting a patron who was threatening a customer to return to the restaurant after he was initially escorted outside. Because this patron later assaulted the same customer upon reentry, the Court found sufficient evidence that the restaurant might have had notice that the assailant was likely to commit an assault o n a customer.

Standard of Care

Violation of federal, state, county and other municipal statutes, ordinances and regulations can be used by a plaintiff to establish negligence per se. The Residential Landlord Tenant Act authorizes localities to require charley bars, secondary locks on sliding glass doors and special locks on windows. Many municipalities have passed lighting requirements for parking lots, parking garages, common areas and other specific places. Virginia Code Section 9-183, et.seq. establishes licensing requirements for security guards. Follow these requirements.

The American National Standard Institute (ANSI) and other industry standards can help determine the specifications that should be followed. A focus on actual practices of comparable entities assists in discovering a standard of care. By surveying competitors an owner knows where closed circuit television cameras are normally used or how fire escape access is limited.

Conclusion

Do a realistic assessment of the likelihood of a crime being committed against your tenant or customer. Based upon that assessment, structure and follow a security plan which may include more security guards and structural solutions. Finally, do not violate any building codes designed to promote safety!


The above article is not meant to replace legal counsel: to speak to an attorney or to retain legal counsel, please contact Gross & Romanick's commercial landlord division today. You can reach us by calling 703-273-1400, by using our online form, or by emailing law@gross.com.

Prebankruptcy Provisions: Should you include them in your contracts?

As part of its Business Law practice, Gross & Romanick is dedicated to educating its clients; this information, however, is in not intended to replace legal counsel. If you need legal representation, please contact Gross & Romanick today by visiting their website or by calling 703-273-1400.

Creditors and lending institutions have recently been including various provisions in their contracts and credit agreements, which contemplate what will happen in the event of a bankruptcy. The provisions can be divided into three basic categories: (1) Waivers; (2) Covenants; and, (3) Representations/Admissions.

Waivers limit a borrower's right to either file a bankruptcy petition or to oppose the creditor's lifting of the automatic stay. Covenants provide for immediate relief from the automatic stay or consent not to contest a lift stay motion. Representations/Admissions include provisions in the agreement which admit the elements necessary for the creditor to lift the automatic stay, admit that any future bankruptcy filing will be made in bad faith to hinder or delay the creditor and admissions that security interests are properly perfected.

The prebankruptcy waivers provide a comfort level to lenders and creditors in the hope that they will not be delayed or damaged in the event of bankruptcy and they also are put in agreements to provide assurances that they are avoiding deals with debtors heading toward bankruptcy.

The courts are split on the enforcement of the prebankruptcy provisions. Some courts have expressed concern as to whether or not the provisions violate public policy. In almost all cases however, the courts have found the agreements are not necessarily self-executing. Therefore, a creditor should be weary of taking any action, which may result in a violation of the automatic stay without first obtaining bankruptcy court approval.

On the positive side, prebankruptcy provisions have proven to speed up the process and assist creditors in obtaining quick relief from the automatic stay of bankruptcy. In addition, some courts have upheld the various admissions and representations as conclusive evidence of the elements needed to lift the stay. This has led to a decrease in litigation cost for some creditors.

It would be dangerous and unadvisable to take any action which may be determined to be a violation of the automatic stay in reliance on the prebankruptcy provisions, but including the provisions may save you litigation fees in the long run. Therefore, while pre-bankruptcy provisions are not guaranteed to work, you may want to include them in your agreements.

Act of God: Are You Saved?

Gross & Romanick's litigation division offers legal counsel and representation to clients across the Metro DC area. The following article about "Acts of God" is meant to provide information to its many clients--but not to replace actual representation. To seek legal counsel, please contact Gross & Romanick today via their website or by calling 703-273-1400.

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Flood, fire, and famine may be the traditional hallmarks of divine intervention, but the law has a very specific definition of what count as actions by the Almighty. Legally, "Acts of God" are "misfortunes and accidents arising from inevitable necessity which human prudence could not foresee or prevent" - in other words "bad luck." The earliest recorded use of the term "Act of God" was by Sir Edward Coke in 1581; he used the term to refer to death, and later extended it to include a sudden tempest that broke down sea walls. In 1899 the Virginia Supreme Court had the opportunity to address the Act of God question when it excused a reluctant groom from his promise to marry because the unfortunate fellow had contracted a urinary disease that was aggravated by sexual intercourse. As the blushing Court states: "I desire to speak with all reserve: but to possess the lawful means of gratifying a powerful passion, with the alternative of abstaining or periling life, is, indeed, to incur a risk of intense misery, instead of mutual comfort."

Similarly, in 1931 the Virginia Supreme Court came to a widow's aid, when it made her deceased husband's life insurance company pay. The insurance company tried to avoid the insurance contract by a provision that required prompt notice of incapacity even from a person who was too incapacitated to give any notice. The court quotes: "The primary purpose of all insurance is to insure or to provide for indemnity, and it should be remembered that, if the letter killeth, the spirit giveth life."

Most Act of God defenses involve extraordinarily violent storms, sudden tempests, severe frosts, great droughts, lightening, earthquakes, sudden death and illness. Or, a remarkable "freshet"? A railroad company successfully argued that the sweeping away of a privy with one of their employees inside was excused because a freshet with this volume of water pouring through the creek could not have been anticipated.

To successfully employ the Act of God defense, one must have been victim of a natural cause without human intervention that could not have been prevented by exercise of reasonable care and foresight. So, ironically, a devout worshiper who testified that he was trotting through his church under the Spirit of the Lord when he injured a fellow congregant was not permitted to use "Act of God" as a defense.

Should an atheist be allowed to make the Act of God argument? Maybe an agnostic judge should decide the issue.

Lease Drafting: Avoid Common Mistakes

As part of its Commercial Landlord practice, Northern Virginia's Gross & Romanick is dedicated to educating its clients about various aspects of Business Law. The following article is not, however, meant to replace legal counsel. If you'd like to speak to a lawyer about your commercial property or other business matter, please contact Gross & Romanick today.

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Nothing is more frustrating to a landlord than providing an expensive build-out and a rental abatement period, only to have the tenant fail to make any payments once the free rent period has expired. The landlord's anger boils over when the attorney informs him that the lease does not provide for return of the build-out costs or the abated rent and, therefore, the court will not award these damages. This is a common error of lease drafting and can be easily avoided by a properly worded default clause.

Another common error is the failure to provide for a specific interest rate upon default. Virginia courts will not award prejudgment interest without such a lease provision. We suggest an 18% interest rate, rather than complex rates keyed to a bank's prime rates which fluctuate during the term of default and may be difficult to prove at trial.

Although Virginia law allows for a self-help, lockout remedy, it is advisable to have such a provision in your lease to assure that this right has not been waived by the landlord.

Default money damages should provide the landlord with an option to choose:

1. current rent as it becomes due
   
2. acceleration of the rent during the remaining term of the lease
   
3. the "present value" of the lease

Always allow attorney's fees in the "event of default", not only if sent to collection or suit.

Avoid complex notification provisions by not requiring notices for late payments or other defaults. Furthermore, any required notices should be effective when sent by regular mail to the address included in the lease.

Try very hard to obtain personal guarantees by a husband and wife, especially for small corporate tenants. Even apparently solvent corporations and limited partnerships can become unable or unwilling to pay rent.

These suggestions are only a brief summary of some of the more common lease drafting mistakes that we see in our office. All provisions of the lease are important and should not be drafted or changed by leasing personnel without careful consideration or an attorney's opinion.

Overtime/Minimum Pay: What You Don't Know Could Be Expensive

The following article is meant to be a guideline only. To seek legal counsel, please contact Gross & Romanick directly via their website or by calling 703-273-1400.

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You receive a call from a Department of Labor (DOL) investigator who wants to come to your office the next day to review your employee records. Should you panic? Maybe you should!

Very few employers understand the Fair Labor Standards Act (FLSA). Unfortunately, even inadvertent violations of the FLSA will result in an assessment by a DOL investigator, or a lawsuit by a disgruntled employee. Many employers mistakenly believe that proof of fair wages and the satisfaction of employees will succeed as defenses to an investigation or to a lawsuit. Another incorrect myth is that it is ok to the grant comp time in lieu of overtime (CPA's tell themselves this story during the tax season) Although commonly held, these beliefs evidence a fundamental misunderstanding of the purpose of the FLSA, and highlight why so many businesses unintentionally violate it.

History of Act

Adopted in 1938 during the Great Depression, the FLSA was an attempt to maximize the number of workers in the workforce through penalizing employers who work people over 40 hours rather then hiring someone else to work those extra hours. The requirement to pay overtime wages was the incentive. A minimum wage was set in order to provide a livable wage.

Exempt Employees

Most businesses are covered by the FLSA. A few very small retail or service enterprises, not engaged in any interstate commerce may be excluded; even then, some of their employees may still be covered if they engage in interstate commerce or produce goods for interstate commerce. Employers must classify each employee to determine who is exempt and who is covered. In addition, independent contractor status may not be honored by the DOL, which applies "economic reality" and a "right to control" tests along with other common law principles.

The major FLSA exemptions relate to executive and professional employees. Applying the "long test", the DOL will examine in detail the actual duties, responsibilities and obligations of an employee (job title will be ignored). The "short test", also applied by DOL, requires a high minimum salary (cannot be paid hourly). The professional exemption requires: (a) advanced learning at academic institutions (the "learned professions"); or (b) original or creative work, such as artists and inventors; or (c) teachers for schools and educational institutions.

The other exemptions are too numerous to discuss in this article. Perhaps the most common relate to the motor carrier exemption and to outside salespersons. If the employee is subject to regulation by the U.S. Department of Transportation (DOT) then the employee is exempt; DOT's jurisdiction broadly covers transportation of goods and passenger across state lines, as well as the safety of operation of motor vehicles engaged in interstate commerce.

The Investigation

Do not bother to ask the DOL investigator why they are picking on your company because the reason is completely confidential. However, with the shortage of personnel in the investigation department, you can almost assume it is a disgruntled current or former employee, or an industry-wide abuse. There is a real incentive for a former employee to complain, since they can receive the overtime pay assessed for them by the DOL without the expense of a suit, even if they received a very satisfactory wage while employed.

The investigator will inform you of the purpose of the visit and the records to be examined. These records must be made available. Either these records will be scrutinized by the investigator and/or you may be requested to compile summary data. The investigator will generally conduct interviews of employees and may send a questionnaire to past and present employees. The objective of the interviews is to test the adequacy and accuracy of employer records, to determine compliance, to give employees the opportunity to point out other violations and to examine the validity of claimed exemptions. Although these interviews are confidential, do not question or intimidate employees; in fact, it may be best not to discuss the DOL investigation with employees until after their interview.

At the conclusion of the investigation, a conference will be held with the employer. Bring your lawyer to all meetings with the investigator, especially the final conference. At this stage, the investigator will inform the employer of any violations and attempt to obtain an agreement for compliance. The amount of back pay to be paid will go to former and current employees, who were underpaid during the prior 2-year period. The agreement is subject to reasonable negotiation.

Cooperation at all times is the best rule, since the DOL has the power to assess liquidated (double) damages as well as back pay. Furthermore, a finding of a willful violation may result in a three-year assessment for back pay. Future non-compliance may now be considered willful.

Suits by Employees

Employees can sue in federal and state courts for violations of FLSA, or discrimination due to reporting or suing for an FLSA violation. The potential damage award is much harsher than generally imposed by the DOL; and, may include back pay and/or overtime, liquidated damages, prejudgment interest and attorney's fees.

An employee's right to sue ends once the DOL files suit. Additionally, employees who receive compensation from a DOL assessment, sign a release or may be considered to have waived their right to sue after cashing the check. A settlement outside a DOL-supervised settlement may not be valid, so be cautious if you try to make agreements on your own.

Summary

When the DOL investigator calls, do not hang up. If they call you at home, do not worry since live-in domestics do not have to be paid overtime, just minimum wages.

(This article was reviewed for accuracy by Cordelli & Associates, Inc., federal labor law consultants. Phone: 304-754-7294)

Accounts Receivable: A Plan to Improve Your Collections

In today's stressful economic climate, managing accounts receivable becomes vitally important. Gross & Romanick offers the following suggestions for increasing in-house collections. The article is not meant to replace legal counsel, however: please contact Gross & Romanick with any further questions.

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Effective management of accounts receivable requires a written procedures manual, so that the patients, the office staff and the doctors understand everyone's duties and responsibilities. This plan will increase in-house collections.

A comprehensive collection plan that informs your patients of their obligations and identifies bad debts early can go a long way toward putting you in control of your accounts-getting your money more quickly and minimizing the cases sent to an attorney or collection agency. Any such plan that you devise must strike a balance between a policy that is too harsh at the cost of strained relations, or a lost patient, and one that is too permissive at the cost of profitability. Even the best plan will prove futile in some cases, when it becomes apparent that any further effort to convince a patient to pay will fall on deaf ears. Identifying bad debts and quickly sending them out for collection will improve your success rate.

This sample outlines a mix of written and oral reminders. Perhaps one like it will work for you.

The Collection Plan: Taking Control of Your Accounts Receivable

You've completed your service for the client and sent out the bill. But the money is not yet in your hands. You could just sit and wait (and hope), but we suggest a better alternative: a collection plan. A comprehensive plan will make collections more successful by informing clients of their obligations and identifying bad debts early enough to take appropriate action.

Formulating an effective collection plan is the first and most important step in getting control of your accounts. By setting up a comprehensive scheme for dealing with accounts receivable collections, you can obtain your money faster and avoid the necessity of going to an outside collection agency or attorney.

In constructing a collection plan it is important to strike a balance between effective collections and not angering (and losing) clients. At the same time it is necessary to quickly identify those clients who will not pay, so that more drastic actions are initiated.

In order for a collection plan to be effective it must treat all accounts according to the same policy so that your staff and clients know their obligations. This consistency will can be best achieved through the creation of a "schedule", similar to the one show below, which sets out the various contacts that should be made with the debtor at appropriate intervals. When designing a schedule you need to keep diplomacy in mind as well as your financial needs. A bookkeeper can call a client to check on an account a certain amount of time after a bill has been sent. If this is done incorrectly it can be very rude and will be likely to antagonize your clients, but if it is done properly it can be both polite and effective.

The schedule show below is only an example; you will have to design your own plan to suit your particular business needs.

At some point it will become apparent that any further efforts to convince a client to disgorge the unpaid funds would be futile. The whole point of a collection plan is to determine who is not going to pay, and to determine it as quickly as possible. Our own feeling is that any account which is over 90 days past due should be considered a bad debt and sent to an attorney for collection.

Past Due	Contact Type
15 days	Pleasant memo: "Do you need more information?" -- written
30 days	Polite inquiry: "Just a reminder." -- oral
45 days	Strong reminder: "Is there a problem?" -- written/oral
60 days	Strong demand: "Please pay now!" -- written/oral
75 days	Final demand: "Pay now or face legal action." -- written/oral/personal visit
90 days	Place debt with collection agency or attorney

Getting Your Money After You Win In Court

You just won your case. The judgment order says the defendant owes you a tidy sum, but how do you collect it? Many creditors are under the mistaken impression that all they have to do is walk into court and pick up the cash. Unfortunately, it's not that easy, especially if you're dealing with an uncooperative debtor. The real challenge may lie ahead.

One of the best and fastest means to collect a judgment is through the garnishment procedures. A garnishment allows you to seize the assets of a judgment debtor. While wages and bank accounts are the most commonly garnished assets, any money owed from a third party to the debtor may be subject to garnishment. You could claim the debtor's accounts receivables, promissory notes, and proceeds from the sale of a business or real estate.

Few creditors take full advantage of this legal right. For example, did you know that a debtor's I.R.A. can be garnished? Most debtors who are hiding assets will not secret this and other exposed assets.

Unfortunately, there are limits to what can be garnished. Money payable by the federal government is not subject to garnishment, including the wages of federal employees or money owed to vendors. Furthermore, there are a whole series of specific exemptions which are available to the debtor. See the box below for a few of these exemptions.

Investigate Credit Worthiness

* Call other creditors of applicant
* Call industry contacts
* Check with landlords and credit references
* Obtain a Credit Bureau Report
* Review Dun & Bradstreet Reports
* Study court records for information about: Judgments, pending litigation, title to real estate, liens on realty, and UCC financing statements
* Hire an investigator or attorney Have your CPA review financial records

This article is advisory only and not meant to replace legal representation. If you need legal counsel, please contact Gross & Romanick.

Building Manager Liable for Theft of Tenant's Property

In Virginia it is rare that a landlord or property manager is found responsible for third party criminal acts against tenants. Nevertheless, in the 2002 Arlington County Circuit Court case of King v. Atrium Unit Owners Association, a jury found a building manager liable for the burglary of a tenant's condominium.

Facts: While on vacation, a tenant left the key to her condo with a building manager. Circumstantial evidence satisfied the jury that the burglar used the key left with the building manager to steal $250,000 worth of property.

Finding: The building manager was negligent in the custodianship of the key.

Advice: Landlords, building managers and property managers must protect tenant keys, master keys and access codes that will permit access to tenant's premises. Negligent handling of such keys or access codes may result in liability for thefts.

For more information about commercial landlord law or to seek legal representation, contact Gross & Romanick today.

At-Will Employment

Here at Gross & Romanick, our business law division is at the heart of our practice and we're dedicated to keeping our clients well-informed and educated about employment law here in VA. Below, you'll find a general discussion of at-will employment in Virginia, but if you're not familiar with the statutes mentioned, its best to seek legal counsel.

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THE AT-WILL DOCTRINE: In the Commonwealth of Virginia when employees are hired, unless there is a specific contract, they are considered to be at-will employees. This means that the employee may be terminated at any time without notice or reason.

LETTERS OF ENGAGEMENT: Letters of engagement do not form a contract if all they do is state the basic terms and conditions of employment, even if they include items such as benefits, compensation, bonuses, and starting date. To be sure that an engagement letter is not misunderstood by the employee as forming a contract it is important to include a line that states that the employment is for no specific period of time and that the employer is free to terminate the employee at any time.

LAWS TO KNOW: Laws to know are the National Labor Relations Act; the Fair Labor Standards Act (FLSA); Title VII of the Civil Rights Act as amended in 1991; any state or local anti-discrimination laws; the Age Discrimination in Employment Act; the Americans with Disabilities Act; the Family and Medical Leave Act (FMLA); the Older Workers Benefit Protection Act; the Worker Adjustment and Retraining Notification Act; the Employee Retirement and Income Security Act; the Consolidated Omnibus Budget Reconciliation Act of 1985 and many others. Sound overwhelming? It can be. If you ever have any questions regarding your rights under the above laws you should consult your attorney.

EVALUATIONS: It is important to adopt a uniform system of evaluation of your employees for hiring and advancement. These evaluations may be closely scrutinized at a later date if your decisions are challenged by your employees in a discrimination suit.

OVERTIME AND THE FLSA: One of the most overlooked and misinterpreted laws is the FLSA's overtime requirements. When a non-exempt employee works over forty hours in one week that employee is to be paid time and one-half of their regular hourly wage. It is often mistakenly thought that this requirement can be satisfied by awarding the employee compensatory time off. Awarding compensatory time off can only be a substitute in very limited circumstances.

ACTION ADVICE: Most Employers prefer the at-will status and should take care not to change it by letter, contract or handbook. If you are not familiar with the statutes mentioned above, contact an attorney and have them explained to you.

The Chiropractor: An Expert and An Expert Witness

If you've been injured in a car accident, you need to seek legal representation. We here at Gross & Romanick understand the pain and stress you are going through in dealing with your injury, lost income, and unexpected medical expenses. Our firm represents injured individuals and their families in serious personal injury and wrongful death cases--so please contact us today.

In the meantime, please review a recent article we published on whether or not you can or should use chiropractors as expert witnesses.

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As recognition of the effectiveness of chiropractic increases, the acceptance of the chiropractor as an expert witness in the courtroom is also growing. This recognition may be grudging on the part of the "traditional" medical community, even after the American Medical Association's stinging defeat in Wilk v. AMA. However, any number of studies attest to what millions of auto accident victims and back pain sufferers have known for decades. Even Time, that most-read of the newsweeklies, gave its seal of approval in a report last fall headlined, "Is There Method in Manipulation?" "Now," the magazine piece said, "almost despite itself, mainstream medicine has started to take notice," and it cites reports of medical doctor groups holding symposiums on back manipulation and of orthopedic surgeons admitting they referred patients for such treatment.

In addition to this recognition by the public, the medical community and the media, chiropractic doctors have achieved considerable statutory recognition in many jurisdictions, including the Commonwealth of Virginia. The definition of reimbursable medical expense in a Virginia automobile insurance policy must include payment for chiropractic care (see "Helping Clients Negotiate the Insurance Maze"). That language appears because the Virginia Insurance Code, Section §38.2-2201, requires that any insurance company licensed to issue auto liability insurance in the Commonwealth of Virginia provide chiropractic benefits. Virginia's chiropractic doctors are licensed by the Commonwealth's Board of Medicine, the same body that licenses medical doctors. Becoming licensed as a chiropractic doctor involves rigorous testing, even after the awarding of the Doctor of Chiropractic degree.

Another provision of the Virginia code is important to both the chiropractic and the legal professions; viz., the admissibility of expert testimony in court by chiropractors. "A doctor of chiropractic," reads Section 8.01-401.2, "when properly qualified, may testify as an expert witness in a court of law as to etiology, diagnosis, prognosis, and disability, including anatomical, physiological, and pathological considerations within the scope of the practice of chiropractic ..." Thus chiropractic doctors by Virginia statute are considered to be experts and cannot be excluded as experts in their field of medicine.

Nearly 20 years ago, celebrated defense attorney Melvin Belli noted in an article in The Digest of Chiropractic Economics that, while the chiropractic doctor would scarcely expect to be called to testify on a matter that is out of his field, "... the list of what is 'out of his field' is daily being limited, at least by the courts." Of particular interest is Belli's contention, dramatically illustrated by a Michigan case, that chiropractors can testify successfully as to the permanence of an injury, and hence as to future pain and suffering, even against the opinion of orthopedists and other medical men. In that case, Corbin v. Hittle, a chiropractor testified that his patient's injuries were permanent and that he would never be free of pain. Challenged by the defense as reversible error, the testimony was allowed to stand by the appeal court, which said in essence that, since the state allows and regulates the practice of chiropractic as a restricted form of medicine, it must also allow it as expert testimony.

Edward Gross has represented many clients who are patients of chiropractic doctors, and he does not hesitate to call upon them as expert witnesses. Mr. Gross finds these doctors to be well prepared in offering expert testimony and able to demonstrate to juries that they understand their patients' problems.

In reflecting on his successful presentation of the case for Dr. Wilk and his colleagues, Plaintiffs' Attorney George P. McAndrews stated that one of the highlights of the case was the difficulty the plaintiffs had in finding a law firm that was willing to undertake the case. He was told by Dr. Wilk that 15 or 16 other firms that had been approached all found some kind of a conflict, usually representation of some part of the adversary medical community. It took three or four years, Dr. Wilk told him, to find a firm that would take this antitrust case. In retrospect, looking back at that landmark decision, perhaps some of those bashful lawyers would be less reluctant today.

When the victim of a violent collision enters the chiropractor's office seeking relief for his or her considerable pain and discomfort, the stress that patient is experiencing is apparent to the doctor. As the doctor's patient and as the lawyer's client, the victim needs an advocate, a role that the chiropractic doctor and an attorney who understands chiropractic are amply prepared to fulfill.

Security Deposit Treatment in Bankruptcy

In today's worsening financial climate, more and more landlords are worried about their legal rights when a tenant declares bankruptcy. In the following article published by Gross & Romanick, the firm's attorneys discuss security deposit treatment in bankruptcy. Keep in mind, though, that the article is not meant to replace legal representation: if you need legal counsel, please contact Gross & Romanick today.

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What happens to a tenant's security deposit after the tenant files bankruptcy? If rent is owned, can the landlord apply the deposit to unpaid rent?

An informal poll of area Bankruptcy Lawyers reveals a belief that a security deposit can be used as a set- off against both pre-petition damages and lease termination damages under Section 553 of the Bankruptcy Code. The set off is subject to mitigation by the landlord, including releting the premises. The safest process is to have a court grant relief from stay before applying the security deposit; but this procedure may cause a debtor to file an objection. Right or wrong, most Landlords simply keep the deposit.

Some attorneys also argued that Landlord can assert a "secured claim" up to the amount of the security deposit.

Payment Bonds

As part of its Construction Law practice, Fairfax law firm Gross & Romanick fields so many questions about payment bonds that they've compiled a brief article about it. Keep in mind, though that the article provides a very broad overview of the complex area involving payment bonds and can't be relied upon as a substitute for legal advise. Please contact Gross & Romanick directly if you'd like information about your own specific situation.

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If your company is a subcontractor or supplier to a government project, you need to understand payment bonds. Some private jobs also utilize payment bonds. The federal statute generally applicable to payment bonds on federal projects is the Miller Act, with state and local statutes termed Little Miller Acts.

Payment Bonds Defined

Payment bonds are required on almost all federal, state and local construction projects. Federal and state laws require these bonds on public projects for the protection of the subcontractors, materialmen and suppliers against insolvent or defaulting contractors and subcontractors. Although no legal requirement exists regarding privately owned construction projects, payment bonds are frequently required by owners and lenders.

The bonding relationship is as follows: The "principal" is the general contractor or the subcontractor whose work is being bonded. The "surety" is usually an insurance company that is standing behind the principal. If the general contractor is the principal, the "obligee" is the owner of the project. If the subcontractor is the principal, the "obligee" is the general contractor. The "claimant" is the subcontractor, materialman or supplier seeking payment from the bond.

Who is Covered, and What is Covered

Payments bonds posted by a general contractor will always cover the subcontractors, materialmen and suppliers who have a direct relationship with that general contractor. On public projects, a general contractor may be required to have its subcontractors post payment bonds; in such a case, sub-subcontractors, materialmen and suppliers to those subcontracts will then be covered by the bonds of those subcontracts. In addition, on both public and private projects, the terms of a payment bond itself might extend coverage to include suppliers and materialmen who would not generally be covered.

The terms of a payment bond along with any applicable statutes define the extent of the bond's coverage. The typical payment bond coverage is for labor and materials furnished for use on contract projects. Numerous factors are considered by the courts in determining coverage, including the relationship of the parties, the nature of the product or labor provided and the cost of the work or materials relative to the overall project. Such an analysis is complex.

Notice Requirements

Notice of a bond claim to the principal and surety needs to be done within prescribed time limitations in order to pursue a claim. The terms of the payment bonds on both public and private projects typically contain strict time requirements for giving notice, as well as time limitations on when suit must be filed. Furthermore, federal, state and municipal statutes will set strict time deadlines.

For state projects in Virginia, the applicable statute is Virginia Code Section 11-60B. This section bars suits or actions under certain circumstances on a payment bond unless the claimant had given written notice to the principal and surety within 180 days after it performed the last of the work or labor or furnished the last of the materials for which the claim was made.

Summary

Before you begin a job, get a copy of the bond that covers the project in order to determine whether you are covered and how to enforce your rights. Notices of your claim must exactly track the bond and applicable statutes. Legal enforcement is never simple, since the principals and sureties typically assert every available defense.

Pre-Judgment Attachment: Get It Before It Vanishes

Gross & Romanick's Business Law, Commercial Landlord Law, and Litigation divisions handle diverse legal matters. If you'd like representation for a situation similar to the one discussed below, don't hesitate to contact us today.

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Unfortunately, filing a lawsuit to collect a debt is often an encouragement to the debtor to move and conceal assets. This sometimes makes creditors hesitant to take early legal action. But, Virginia law has a solution: the pre-judgment attachment. Virginia law allows a creditor to bring the debtor's property into court custody at the outset of a lawsuit, thereby assuring that the property will be available to satisfy any judgment the court eventually grants.

Virtually any significant asset of a debtor can be subjected to attachment. Although real estate and business equipment are the most popular targets, a creditor can also attach bank accounts or even other monies owed to the debtor by a third party. One useful application of pre-judgment attachment occurs in construction cases, when a sub-contractor attaches payments to an out-of-state general contractor. An interesting case is the attachment of an elephant from a traveling circus; unfortunately, the creditor neglected to compute the cost of feeding the animal before taking this ill-advised action.

To secure a pre-judgment attachment the plaintiff files a sworn petition setting forth the cause of action and the grounds for the attachment. The justifications for attachment must fall within one or more of the categories allowed by Virginia Code Section 8.01-534. If the petition is approved by a judge, the creditor must post a bond of twice the amount of the claim. Upon posting of the bond a warrant will be issued ordering the sheriff to seize the property and bring it into the custody of the court. Generally, the debtor will request a hearing within twenty-one (21) days of the seizure at which time the court will determine whether the property will be released or remain in custody until the lawsuit is completed. Many attachments are dismissed at that hearing because of failure to comply with the technical requirements of Virginia attachment procedure.

Pre-judgment attachments do involve certain risks to the creditor. The bond is posted in order to compensate debtors for the improper seizure of their assets. Therefore, creditors should not use attachments for questionable claims. Nevertheless, the judicious utilization of this legal tool can be the difference between an empty judgment and a collected judgment.

Grounds for Attachment:

In summary form, it is sufficient grounds for attachment that the defendant:

1. Is a nonresident corporation or individual, which has assets or debts owed to it in Virginia
   
2. Is removing or about to remove out of the Commonwealth with intent to change domicile
   
3. Intends to remove, or is removing, or has removed the specific property sued for or his assets or the proceeds of the sale of his property out of the Commonwealth so that the debtor will not have therein assets sufficient to satisfy the judgment
   
4. Is converting, is about to convert or has converted his property into money, securities or debt with the intent to hinder, delay or defraud creditors
   
5. Has assigned or disposed of or is about to assign or dispose of his assets with intent to hinder, delay or defraud creditors
   
6. Has absconded or is about to abscond from the Commonwealth or has concealed himself to the injury of his creditors, or is a fugitive from justice.

Success At Fairfax County Juvenile Court

A recent client was very pleased with Gross & Romanick for the handling of 2 charges against his son in Fairfax County Juvenile Court. The charges were underage possession of alcohol and petty larceny. (Gross & Romanick attorney Ashely Dean was able to obtain a dismissal of both charges.) The father wrote to Gross & Romanick to say:

"Indeed a very good result. If we need legal help in the future, we certainly will call you. Also, if we hear of anyone else needing assistance we will recommend you, and would be glad to give a recommendation at your request."

If you or a loved one need legal representation, contact the attorneys at Gross & Romanick today.

Who Is Gross & Romanick?

Gross & Romanick, P.C. is a law firm located in Fairfax, Virginia. We provide practical solutions for our client's legal problems. The law firm built its success by being responsive to client concerns and applying hard work with integrity to find creative legal solutions. We meet our client's legal needs by using cost saving technology and combining sophistication with sensitivity. We are proud of our reputation for being knowledgeable, responsive, accessible, aggressive and professional. The law firm is led by our managing partner Edward Gross. Our attorneys are licensed in Virginia, the District of Columbia and Maryland.

A firm with great experience, Gross & Romanick is cited in Martindale-Hubbell® as having “an exemplary reputation and well established practice” with “high professional standing.” The firm received Martindale-Hubbell’s® highest ethical rating.

Our firm has extensive experience, expertise and diversity to enable us to provide our clients with a full range of legal services. We effectively and efficiently handle legal matters of all levels of complexity. Our proximity to the Fairfax County/City Courthouses and our years (since 1980) of representing litigants makes us very familiar with the practices and procedures of the courts of Northern Virginia.

Courts in which our attorneys are admitted to practice:

State Courts: Virginia, Maryland and the District of Columbia.

Federal Courts: United States Supreme Court; Court of Appeals for the 4th Circuit and the District of Columbia; U.S. District Courts for Virginia, Maryland and the District of Columbia; U.S. Bankruptcy Courts for The Eastern District of Virginia and Maryland.

We handle criminal and traffic cases in Fairfax County, Loudoun County, Arlington County, Alexandria City & Prince William County.

Would you like to contact us with respect to your legal concerns? Please fill out our Information Request Form.

Check: To Cash Or Not To Cash

You receive a check for less than the amount owed from a company. The company has stated that they owe you less than you contend is owed. Should you cash the check?

Virginia Law: In the 2002 case of Gelles & Sons General Contracting, Inc. v. Jeffrey Stack Inc., the Virginia Supreme Court for the first time interpreted Virginia Code §8.3A-311 which is a 1992 statute enacted to address the issue of cashing such checks. According to the Supreme Court opinion, the test is whether "a reasonable person" would consider the check to be a tender in full satisfaction of the claim.

Facts of Case: A general contractor ("general") and its subcontractor ("sub") dispute the amount owed by the general to the sub. The general wrote two letters to the sub setting out its position and included a check with the second letter which stated that it represented "final payment". The sub cashed the check but sued for the balance it claimed was due. The trial court found (and the Virginia Supreme Court agreed) that the letter and check was a "drop-dead letter" offer of final payment. By cashing the check, the sub could not sue for any additional sums.

Advice: If there is a question about whether a check is tendered as final payment, look at the correspondence and notations on the check to determine the intent of the maker. Cashing checks may be risky if there is some evidence for an accord and satisfaction.

For more information or to seek legal counsel for your business, contact the attorneys at Gross & Romanick today.

Guarantees - Should the Spouse Sign?

As part of its Business Law practice, the attorney's at Gross & Romanick frequently receive questions about whether or not a spouse can--or should--serve as Guarantor in a business debt. As part of their client education initiative, they've prepared the following article.

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Often, a guaranty of a debt or lease may mean the difference to the creditor between getting paid and taking a loss. The first to get paid when a business is failing are the creditors who can pursue the operators of the business. Guarantors, who are not operators of the business, have a unique incentive to pressure the business to pay.

Spouses may be particularly attractive as co-guarantors because an individual guarantor's principal asset is often a residence or some other asset owned as "tenants-by-the-entirety," which cannot be seized unless both spouses are judgment debtors. (See The Edward Gross Report, Spring 1992.) However, several recent cases indicate that enforcing guarantees against spouses may violate the Equal Credit Opportunity Act, 15 U.S.C §1691, when the guarantees were required solely on the basis of marital status. NationsBank v. Sarelson, (Fairfax Circuit Court, 1992); CMF Virginia Land, L.P. v. Edward L. Brinson, et.al., (U.S. District Court, Eastern District of Virginia, 1992). These cases indicate that creditors may have difficulty enforcing guarantees against spouses who are not parties to the contract when the applying spouse would independently qualify for credit under the creditor's standards.

In order to protect yourself, be sure to document your reasons for requiring a spouse to sign as a guarantor. Make sure that you can prove a legitimate business purpose behind your requirement, such as showing that the spouse was an owner, officer, or other active participant in the business at the time the contract was made, or, alternatively, that the spouse in the business would have been ineligible for credit without the spouse's co-guaranty. Since circumstances will often have changed, accurate documentation of your reasons at the time guaranty is executed is critical to the successful enforcement of the guaranty at any later date.

Beware! These same rules will apply to consumer debts, for which the Equal Credit Opportunity Act was originally intended.

For more information or to seek legal counsel, contact the attorneys at Gross & Romanick today.

More Praise For Ash Dean

The team here at Gross & Romanick continues to earn the respect of its clients. A client wrote to us about his experiences with attorney Ash Charles Dean.

Dear Ash,

I wanted to thank you again for your representation in my case. If I get a chance, I will definitely refer people over to you. I appreciate your help, and now I can move on with my life with more of a peaceful mind.

Sincerely,

NL


To seek legal counsel, please don't hesitate to contact Gross & Romanick today!

Piercing the Corporation: The Veil Becomes a Wall

As a result of a recent decision by the 4th U.S Circuit Court of Appeals, the "veil" of immunity protecting the officers of a corporation from individual liability has become a "wall."

Proving Fraudulent Intent

In Perpetual Real Estate v. Michaelson Properties, the Court held that, in order to hold the officers or directors of a corporation personally liable for acts of that corporation, a plaintiff will have to prove actual legal wrong on the part of the officers or directors. This standard provides tremendous protection to officers and directors of corporations by dramatically increasing the burden of proof placed on the plaintiff.

By requiring evidence of actual legal wrong, the Court has placed an imposing barrier in front of every unpaid creditor. "Fraudulent intent" has always been something extraordinarily difficult to prove, since it requires a psychological probe into the mind of the defendant. In corporate fraud cases the actual wrong standard is particularly burdensome, since the only evidence of any such intent is likely to be in the form of letters and similar correspondence, all of which will be tucked away in the files of the defendant corporation-if the evidence exists at all.

Traditional Standards

Despite the seemingly far-reaching implications of the Court's ruling, the traditional evidence required to "pierce a corporation" will still figure prominently in any suit seeking to hold corporate officers or directors personally liable for corporate acts. In addition to evidence of actual intent, the plaintiff will generally need to prove that the corporation was really just an alter ego of the directors, and had no independent financial existence apart from the directors. In this vein, successful cases prove that:

1. The directors and officers have co-mingled corporate funds/assets with their own personal assets, or diverted the corporation's assets for purely personal use or
   
   
2. The corporation was so undercapitalized that it was clearly incapable of operating as a successful business and was, thus, merely a "nominal" corporation, consisting only of business cards and stationery.

Perhaps the most successful means of piercing a corporation is based upon the corporation's failure to maintain the "formalities" required by law. Most importantly, that it failed to file various documents with the State Corporation Commission. At the very least, its Articles of Incorporation must have been accepted by the State and a charter number issued.

Now more than ever, creditors should investigate corporations to whom they extend credit and insist on personal guarantees or collateral security. Corporate borrowers should maintain their corporate formalities, not commingle funds, and avoid even the appearance of fraud.

For more information or to retain legal counsel, please contact the attorneys at Gross & Romanick today.