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.
Thursday, October 30, 2008
Monday, October 27, 2008
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.
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.
Thursday, October 23, 2008
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.
**
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.
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.
**
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.
Monday, October 20, 2008
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.
***
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.
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.
***
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.
Thursday, October 16, 2008
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.
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.
Monday, October 13, 2008
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.
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.
Friday, October 10, 2008
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.
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.
Wednesday, October 8, 2008
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.
***
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.
***
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.
Monday, October 6, 2008
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.
***
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:
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.
***
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:
- current rent as it becomes due
- acceleration of the rent during the remaining term of the lease
- 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.
Friday, October 3, 2008
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.
***
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)
***
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)
Wednesday, October 1, 2008
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.
***
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.
***
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 |
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