Chapter 11 Bankruptcy & Creditors

A long time purchaser of your inventory has just filed bankruptcy under Chapter 11 of the Bankruptcy Code while still owing you a large sum of money. A creditor's initial reaction is often despair. They believe that it is the end of the world and that they will be lucky to recover a few cents on the dollar. Do not despair! There is some hope for recovery of your money.

Plan of Reorganization

In a Chapter 11 bankruptcy, the debtor's goal is to reorganize and reemerge as a functioning entity. This goal is accomplished by developing a business plan, which must be approved by the bankruptcy court.

A Chapter 11 bankruptcy may be beneficial to both debtors and creditors. Debtors benefit because they continue to operate their businesses while creditors cannot seize their assets. Creditors benefit because there is the possibility for recovering the debt owed and because long standing business relations can be continued. The theory behind allowing debtors to remain in possession of operations is that current management is familiar with the business dealings and is best equipped to restore it to viability.

The Automatic Stay

Debtors also benefit from the "Automatic Stay in Bankruptcy". The Automatic Stay is immediately effective, and operates to prohibit actions against property of the debtor's estate. It provides the debtor with breathing space to allow it to formulate how best to pay off its creditors and reorganize its affairs.

Debtors are also provided with additional benefits under Chapter 11 of the bankruptcy code. Under certain circumstances, debtors may sell property free and clear of liens. In addition, when appropriate, the debtor in possession may assume, reject or assign executory contracts or unexpired leases, even if the terms of the contract do not permit it. Nevertheless, creditors may be surprised to discover that the Automatic Stay not only assists the debtor, but can also serve to protect a creditor. By staying all actions against property of the debtor's estate, the assets of the debtor can be preserved and a single creditor cannot deplete all of the debtor's assets to the detriment of other creditors. The Stay allows for orderly distribution of assets to creditors and/or time for the debtor to formulate a plan to treat all of its creditors fairly.

Creditors may also obtain relief from the Automatic Stay upon a showing of cause warranting such relief, such as the proof of a lack of adequate protection for creditors or failure to pay post-filing obligations on contracts and leases. Property with no equity and that is not necessary for an effective reorganization may be subject to relief from the Stay.

Benefit to Creditors

Creditors can also benefit from a Chapter 11 reorganization if the debtor is able to reemerge as a functioning entity. A Chapter 11 reorganization plan may lead to payment of the debt. While the payment may not be immediate or in full, it is often more than what would have been received in a Chapter 7 liquidation.

Finally, creditors will have an element of control over the debtor. Upon the filing of a Chapter 11, the debtor provides the court with schedules listing all of its assets and liabilities. These schedules inform the creditor as to where all of the debtor's assets are located and what priority will apply to the creditor. The creditor can therefore monitor the debtor's reorganization and assert some control over the debtor's actions. In short, a creditor will discover that the filing of a Chapter 11 bankruptcy is not necessarily the end of the world and that the creditor as well as the debtor can actually benefit.

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The above is not meant to replace legal counsel. If you'd like to speak to an attorney, please contact the offices of Gross & Romanick by calling 703-273-1400 or by filling out our online information request form.

Gross & Romanick Has New Blog

We're proud to announce our new Legal Collection Blog. At http://www.legalcollectionblog.com/ you can expect to find insightful articles and commentary by attorneys who practice at the law firm of Gross & Romanick, P.C.,regarding recent cases, basic concepts and state of the art principles relevant to the collection of debts and judgments through the United States legal system. The blog will also present articles on many creditor issues, as well as asset protection.

At-Will Employment: The Employee Handbook

WHAT CONSTITUTES AN EMPLOYEE HANDBOOK: An employee handbook can consist of a two page memo informing your employees of specific rules regarding a certain aspect of their employment or it can be a three volume epic covering every aspect of employee behavior, benefits and duties.

DOES A HANDBOOK CREATE A CONTRACT? Not under Virginia law unless there is a written or oral agreement referencing the handbook. However, there are certain conditions in which a handbook or manual can be relied on to establish an employee's rights against an employer. These conditions are: 1) when the wording appears to take the relationship out of an at-will context by fixing the duration of the term of employment, and 2) if its terms constitute a binding promise. An employer may be unhappy to find that a jury or a judge will make the final decision as to whether the wording of the handbook changed the relationship from at-will employment to something more binding.

ACTION ADVICE: Always have your employee handbooks or handbook modifications written by an attorney. Make sure that the handbook states that the terms of employment are "at will". Avoid vague language that may promise benefits that the company does not wish to provide. When discussing disciplinary procedures, give the employer broad discretion to impose probation, demotion and termination. Have employees sign for receipt of the handbook. Finally, follow the handbook when making decisions about employee benefits and discipline.

The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's lawyers, call us today at 703-273-1400 or fill out our Online Information Request form.

Management Issues in LLC Operating Agreements

Upon forming a limited liability company (LLC), the founding members should have an operating agreement prepared by a lawyer. The operating agreement is the document that will govern the operations of the company and establish the rights and duties of the members. In most jurisdictions the law allows the parties to decide how the LLC will operate (with some limitations), even if a provision in the operating agreement varies from the LLC statute of that state. Therefore, preparing an operating agreement is an opportunity for the founding members to establish their own set of rules and regulations.

The members may want the company to be managed by a single managing partner or by multiple persons. The members need to carefully consider the implications of such shared management and artfully draft the operating agreement to account for potential disagreements amongst the managers and potential manager misconduct. The members also need to decide whether or not the managers will be able to engage in other businesses. If the members do not want the managers to be able to engage in other businesses (especially competitive businesses), the operating agreement must include such restrictions.

Some other issues to consider with regard to management of the LLC are:

1. If there are multiple managers, how will decisions be made (majority vote?)?
2. What will be the duties of the manager(s)?
3. How much power will be invested in the manager(s)?
4. What limitations will be placed on managers and reserved to the members?
5. How can managers be removed?
6. What will managers be paid?

Founding members of a limited liability company should not assume that the law will protect their interests when there are disputes amongst the members and managers. Rather, they need to make sure that the operating agreement clearly reflects their intentions and goals. Few, if any, of the form operating agreements found or purchased on the internet adeq uately address many of the concerns that will be important to the members of the LLC. Every LLC is different, and the operating agreement must be designed to afford the member the best chance for business success and the avoidance of conflict.

The attorneys at Gross & Romanick, P.C. have considerable experience drafting LLC Operating Agreements that effectively resolve management issues endemic to LLC governance. If you have an LLC and are unsure of how to organize the structure of management or want to memorialize the management structure that you have created, contact the attorneys at Gross & Romanick, P.C.

Protecting Confidential Information from Employee Theft

In today’s electronic age, most employers maintain proprietary, confidential information in electronic form accessible to its employees. This access can be particularly problematic when an employee resigns from employment or is terminated. In a matter of minutes, the employee can discreetly copy the employer’s electronic data onto a disk or flash drive. The former employee can use this information to compete against the employer, to solicit the employer’s clients or for other improper purposes. While the law does provide certain protections to an employer against such behavior after the fact, the employer’s business can still be irreparably damaged.

These issues were raised in Tryco, Inc. v. U.S. Medical Source, LLC, et al., a recent case before the Fairfax County Circuit Court. In that case, a sales representative of a small business resigned from employment and accepted a position with a competing company owned by his sister-in-law. Before leaving, he copied onto his flash drive all of his personal files and two documents containing confidential company information. He also sent an e-mail to each of his clients from his company e-mail address informing them that he was no longer with the company; these e-mails were sent as a blind copy to his personal address (and thus, he retained the e-mail address of each of his clients).

Shortly after commencing work for his new employer, his former employer filed a lawsuit against the employee on various theories including breach of fiduciary duty, civil conspiracy and computer trespass. The former employer alleged that the copied documents contained confidential information which was misappropriated and used by the employee and his new employer for competitive purposes. However, the employer was unable at trial to demonstrate that the documents were used for an improper purpose. Making the case harder for the employer was that the employee did not have a non-compete provision in his employment agreement.

This case is a warning to employers that, even when former employees retain their confidential information without authorization, they may not find a remedy in court. This case can be easily contrasted with other Virginia cases in which employers were able to obtain judgments against former employees that used confidential information to the detriment of the Employer. For example, in Banks v. Mario Industries, 274 Va. 438 (2007)  the Virginia Supreme Court affirmed a Circuit Court judgment against a former employee who: (a) had established a competing company, (b) solicited other employees and contractors of the employer to work for the competing company, (c) used the employer’s business plan as a model for the competing company, and (d) used the employer’s business phone book (which contained valuable and confidential contact information for Mario's customers, vendors, and sales representatives) as a resource for the competing company. The evidence in that case also demonstrated that the employee diverted valuable contracts from the employer to his new company. The employer was able to obtain a judgment for lost profits and punitive damages, despite the fact that the employee did not have a non-compete agreement.

These cases demonstrate the ease with which an employee can convert an employer’s confidential information following the termination of his/her employment. If the employee is not bound by an enforceable non-compete agreement, he/she is free to work for a competing business. In most cases, the employer will not know for certain whether or not the employee is actually using confidential information to the detriment of the employer. The employer may be forced to file a lawsuit to ascertain the scope of the misappropriation, to enjoin the use of confidential information and to recover compensatory damages. Without a good non-compete agreement, the employer will have to prove that it has suffered actual damages as a result of the misappropriation, which may not be easy to do. In any event, the employer’s business may have suffered irreparable injury (e.g. loss of customers) by the end of the expensive court process.

Therefore, it is important for employers to take preemptive steps to protect against an employee’s unauthorized taking of confidential information. The employer can utilize various protection measures, including but not limited to the following:

Technological

a. limit employee access to proprietary information and documents
b. monitor employee use of computers and files
c. restrict employees from taking laptop computer off-site
d. limit use of smart phones at the office
e. restrict employee sending business e-mails to personal accounts

Legal

a. warn employees that there is no expectation of privacy for data on company computers
b. have employees sign confidentiality agreements
c. have employees sign non-compete provisions
d. include liquidated damages provisions within confidentiality/non-compete agreements to avoid having to prove losses in Court
e. adopt and distribute an employee handbook with clear restrictions on use of documents and other protections for the company
f. in the event of a breach of confidentiality or non-compete agreement, take immediate legal action such as obtaining a restraining order and an order allowing search of ex-employee’s computers/phones
g. take aggressive legal action against offending ex-employee based upon use of trade secrets, conspiracy to harm business, tortious interference, conversion, etc.

Proper Termination Procedures

a. Create termination procedure guidelines
b. Supervise employee use of computers following termination/resignation
c. Check computer logs for downloads and printing
d. Check e-mails that are sent by terminated employee
e. Immediately retrieve all company computers, phones and files
f. Contact your lawyer

Gross & Romanick, P.C. featured in Virginia Lawyers Weekly

Click here for the article in PDF format

Contractor's Hit Hard By Taxes/Licenses

If you do construction contract work in Virginia, you may wonder when the taxes end and the profits begin. Both federal and state laws require income taxes, but you may not realize the extent to which localities can pick your pocket. Here is a brief summary of some of the taxes and fees that Virginia counties, cities and towns can levy on your business:

�58.1-3703 - Counties, cities and towns can require a license, impose a fee and assess a license tax.

�58.1-3706 - Under the new BPOL tax restrictions, localities cannot impose a license tax on gross receipts of $100,000 if the locality has more than 50,000 people or $50,000 to $25,000 if the locality has between 25,000 and 50,000 people. For contractors, the rate can be no higher than 16 cents per $100 gross receipts. However, BPOL rates can be set higher if a locality had such rate set on January 1, 1978.

�58.1-3714 - Contractors subject to a license tax can also be required to post a bond and prove maintenance of workers' compensation coverage before getting a business license.

�58.1-3715 - Contractors are exempt from paying to other localities if they pay the required license tax in their office locality. However, if the work in another locality exceeds $25,000, that locality may assess a license tax.

Virginia also has no shortage of licensing requirements, including:

�54.1-1106 - Class licenses are required by all contractors doing work valued over $70,000 in a single contract or project; or $500,000 over a twelve month period.

�54.1-1108 - Class B licenses are required by all contractors doing work valued over $7,500 in a single contract or project but less than $70,000; or a total of $150,000 but less than $500,000 over a twelve month period.

�54.1-1108.2 - Class C licenses are required by all contractors doing work valued over $1,000 in a single contract or project but less than $7,500; or a total of less than $150,000 over a twelve month period.

�54.1-1111 - Before issuing a building permit, a locality can require proof of licensing or an affidavit demonstrating that a license is not required. In addition, an applicant must prove that required license fees and taxes have been paid.

�54.1-1113 - Nonresident bidders cannot bid on jobs in Virginia without appointing the Director of the Department of Professional and Occupational Regulation as their agent for lawful process.

�54.1-1115 - A fine of $500 per day can be assessed for failure to obtain a valid Virginia contractor's license or certificate, as well as conviction of a Class 1 misdemeanor.

�54.1-1117 - Counties, cities and towns can require local licenses if contractors do not have a Class A license.

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The above is not meant to replace legal counsel. If you'd like to speak to one of the lawyers at Gross & Romanick, call our offices at 703-273-1400 or fill out our online Information Request form here.

Criminal Defense Practice

Here at Gross & Romanick we're proud of our reputation as an experienced Northern Virginia & Fairfax Virginia criminal defense law firm. Gross & Romanick is led by managing partner Edward Gross, who has practiced criminal defense law in Virginia since 1980. Our Criminal Practice is managed by partner Jeffrey S. Romanick, a skilled trial lawyer who appears in Court on a daily basis. We represent clients in DWI, DUI, reckless driving or other traffic offenses as well as clients charged with assault, drug offenses, computer crimes or other criminal charges. We represent clients in General District Court, Circuit Court and Juvenile Court in Fairfax, Loudoun, Arlington, Alexandria, Prince William and Northern Virginia.

To speak to one of our criminal defense lawyers, call us today at 703-273-1400 or fill out our Online Information Request Form.

The Statute of Frauds

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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For more information about contract law or to consult with one of Gross & Romanick's lawyers, contact us by calling 703-273-1400 or by filling out our online Information Request form.

Acts Of God

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.

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To learn more about Acts of God or to speak to one of the lawyers at Gross & Romanick, call 703-273-1400 or fill out our online Information Request form here.

Security Deposits & 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 about landlord/tenancy law and bankruptcy contact the lawyers at Gross & Romanick by calling 703-273-1400 or by filling out our online Information Request form here.

Construction Law At Gross & Romanick

Gross & Romanick, P.C., located in Northern Virginia represents contractors, owners and suppliers in Virginia, Maryland and Washington, DC. Our goal is to find solutions for our clients through understanding and respect for their business concerns. We strive to keep our clients out of court with proper advice, timely action and effective contracts. When necessary, our lawyers draw upon their very significant experience in construction litigation in state and federal courts, as well as arbitration.

Some of the areas of law in which we can help are:

Business Formation
Avoid exposure of your personal assets by conducting business as a Corporation or Limited Liability Company. We have organized simple and complex business structures. After formation, we can assist with matters from annual Board of Directors meetings to complex corporate reorganizations.

Mechanic Lien's
Our firm has represented claimants in very large mechanic lien cases. In addition, we understand surety law and Miller Act Claims.

Contracts
We can prepare, review and advice on a broad range of contracts from Construction Contracts to Joint Check Agreements. Because we understand the construction industry, our clients use us to negotiate terms and draft their agreements.

Credit Extension/Collections
From credit application through bank garnishment, we can help at every step to lessen your company's risk. We provide credit investigations, seminars and collections. Furthermore, our bankruptcy experience allows us to effectively pursue many debtors even after bankruptcy is filed.

Litigation
Our lawyers have represented companies in the construction industry in hundreds of cases in state and federal courts. These cases range from simple collections to complex breach of contract disputes.

Registered Agent
Edward Gross acts as registered agent for many corporations and limited liability entities. Included in the annual fee is assistance in preparing annual reports, as well as acceptance of legal service of process.

To speak to one of the lawyers at Gross & Romanick, call us today at 703-273-1400 or by filling out our online information request form.

Lease Survives Bankruptcy

An individual who owned a business filed a personal Chapter 7 Bankruptcy. The business remained at the premises and continued to pay the rent, but the bankruptcy trustee failed to accept the Lease. Under bankruptcy rules such failure is an automatic rejection of the Lease. The Landlord filed a Motion to Lift Stay to eject the business from the space based upon the rejection of the Lease.

The Court ruled that the rejection of the Lease on behalf of the bankruptcy estate was not a termination of the Lease. So long as the debtor did not default on the Lease, the Landlord could not evict the business. Federal Realty Investment Trust v. Park, U.S. Bankruptcy Court for the Eastern District of Virginia (2002)

For more information about commercial landlord law or to speak to one of our attorneys, contact Gross & Romanick today by calling 703-273-1400 or by filling out our online information request form.

Corporation vs. LLC

Perhaps the most common question we receive from individuals looking to start a new business is: “What is the difference between a corporation and an LLC?” This is a very important question because understanding the differences between these two entities is essential to making the right choice for your new business. Or, in some cases, making a decision regarding whether to convert your existing company to a corporation or an LLC.

The first chart below addresses some of the important differences between Corporations and LLCs. The second chart below, which naturally flows from the first, lists some of the pros and cons of forming either entity.

These charts are not intended as a substitute for the advice of an attorney and a CPA. Many of the issues, especially the tax issues, are presented in a simplified form; therefore, in some situations the issue may be more complex with a different result than described below. You should speak with an attorney and a CPA about which entity is best for you based upon your needs and circumstances. Furthermore, these charts are based on the laws of the Commonwealth of Virginia. State law varies in the treatment of Corporations and LLCs
[SEE CHARTS BELOW]

	Corporation	LLC
Formation	Corporations are formed by filing Articles of Incorporation with the State Corporation Commission (the “SCC”).	LLCs are formed by filing Articles of Organization with the State Corporation Commission (the “SCC”).
Ownership	Corporations are owned by “Shareholders”. Shareholders can be either individuals or business entities. Upon formation, each Corporation is authorized by the Commonwealth to issue a particular number of shares of stock. The Corporation then issues physical stock certificates to its Shareholders. The Corporation may elect to issue different classes of stock (i.e. common stock and preferred stock) which afford different rights to the Shareholders, such as voting rights and profit distribution rights. If the corporation elects to be taxed under Subchapter “S” of the Internal Revenue Code (see below), it can issue only one class of stock. In addition, it can have a maximum of 100 shareholders, all of which must be individuals (with some exceptions) residing in the United States.	LLCs are owned by “Members”. A Member can be an individual or a business entity. A Member’s ownership interest in an LLC is usually referred to as a “Membership Interest”. Most LLCs do not require membership certificates; instead the percentage of an individual’s Membership Interest is documented as an attachment to the LLC’s Operating Agreement. The Operating Agreement can afford different rights to different Members, such as voting rights and profit distribution rights.
Management	Corporations are typically managed by the Officers and the Board of Directors (“BOD”), who are elected by the Shareholders. The Officers (i.e. President, Secretary and Treasurer) run the day-to-day affairs of the Corporation and report to the BOD. Typically, the BOD votes on the major decisions of the Corporation.	LLCs can be “Member Managed” or “Manager-Managed”. That is to say, the LLC can elect to have its day to day affairs controlled by a Manager or a Board of Managers, or can elect to have its day to day affairs controlled by all or some of the Members. Typically, Members vote on the major decisions of the LLC. LLCs can give the Managers common titles, such as President, CEO, etc., but is not required to do so.
Governance	Corporations are governed by state law and the agreements of the Shareholders. State law governing corporations is well-developed, and typically addresses all aspects of corporate governance. Bylaws and Shareholder Agreements can also govern the Corporation if adopted by the Shareholders. With some exceptions, Bylaws and Shareholder Agreements will trump state law when inconsistent. If the Bylaws and Shareholder Agreement fail to address a particular issue, state law will control.	LLCs are governed by state law and the LLC’s Operating Agreement. State law governing LLCs mirrors state law governing Corporations in many respects, but is not as well-developed or tested in Court. In almost all circumstances, an LLC’s Operating Agreement is what controls and governs the LLC. However, if the Operating Agreement fails to address a particular issue, state law will control.
Protection from Personal Liability	A Corporation is an entity separate from its Shareholders. Shareholders cannot be personally liable for corporate debts unless a creditor is able to “pierce the corporate veil”. This is rare, but may occur when the Corporation was established to perpetrate a fraud, fails to follow the corporate formalities required by the Commonwealth or is merely an “alter ego” for the Shareholders (i.e. the Corporation does not actually operate as a separate entity). Shareholders must be careful to keep corporate affairs separate from personal affairs, and must be sure to sign “on behalf of” the Corporation whenever engaging in corporate transactions.	An LLC is an entity separate from its Members. Members cannot be personally liable for corporate debts unless a creditor is able to “pierce the corporate veil”. This is rare, but may occur when the LLC fails to follow the legal formalities required by the Commonwealth or is merely an “alter ego” for the Members (i.e. the Corporation does not actually operate as a separate entity). Members must be careful to keep LLC affairs separate from personal affairs, and must be sure to sign “on behalf of” the LLC whenever engaging in LLC transactions.
Taxation	Corporations are taxed under Subchapter “C” of the Internal Revenue Code, unless the Corporation elects to be taxed under Subchapter “S” of the Internal Revenue Code. If taxed under Subchapter “C”, the Corporation itself must pay a corporate tax on its net income. Shareholders must then pay personal income taxes on the distributions they receive from the Corporation. If taxed under Subchapter “S”, the income and losses of the Corporation “pass through” to the shareholders, based upon each shareholder’s percentage ownership in the corporation. No corporate tax is required for a Corporation taxed under Subchapter “S”.	LLCs are taxed under Subchapter “K” of the Internal Revenue Code. The income and losses of the LLC “pass through” to the owners of the LLC based upon each Member’s percentage ownership in the LLC. No income tax is paid by the LLCs. Unless otherwise elected by the LLC, the LLC is taxed like a partnership and each member receives a “K-1” form each year from the LLC.
Ongoing Formalities	Corporations must: (a) file annual reports with the SCC and pay an annual fee, (b) hold annual meetings, (c) must keep the SCC advised of the officers and directors of the Corporation, (d) comply with formalities found in the Virginia Code, and (e) comply with its By-laws.	An LLC need only pay an annual fee to the SCC. The LLC’s Operating Agreement determines what formalities, if any, will be required by the LLC.
Case Law	Corporations have been recognized as separate business entities for many years. Accordingly, there is well developed case-law which Courts will follow in the event of a corporate dispute or attempt to pierce the corporation.	The LLC is a relatively new business form, and as a result, the Courts have not addressed all issues regarding LLCs. Nevertheless, it appears that the Courts will be following corporate case law precedent, where applicable.

	Corporation	LLC
Pros	• Shareholders protected from personal liability. • Well suited for large businesses due to the fact that it is easy to raise capital and take on investors by simply issuing additional stock certificates. • Easy transfer of shares in case of sales. • Well developed (and litigated) statutory and case law provides guidance to Shareholders and reduces risk of doing business. • Uniformity between states with respect to laws governing Corporations.	• Members protected from personal liability. • No corporate tax required. Income of LLC passes through to its owners. • LLC is principally governed by an Operating Agreement. The Members can draft this document however they choose. This results in LLCs being very flexible with respect to management and distributions of profits/losses. • LLCs typically require fewer formalities. • CPA’s find tax advantages.
Cons	• Shareholders must follow many corporate formalities. • Not very flexible with respect to distributing profits/losses to Shareholders. • Not flexible with respect to management. • Must pay corporate tax unless a Subchapter “S” election is made. Requires significant planning to avoid double taxation.	• Less developed statutory and case law to guide Members. • Lack of uniformity between states with respect to laws governing LLCs. • Not well suited for large businesses with many investors or businesses with regular changes of ownership.

Fairfax Reckless Driving Lawyer

Update! Be sure to check out our new dedicated site: Fairfax Reckless Driving Lawyer

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Recently attorney Jeffrey S. Romanick defended a client with a DC license in a Reckless Driving case. The client was alleged to be driving 79 MPH in a 55 MPH zone.  On the scheduled Court date, the client was on assignment overseas. We were able to obtain a waiver of her appearance and then negotiated a plea with the Commonwealth of Virginia reducing the charge from Reckless Driving to Failure to Obey a Highway Sign with only a $25 fine assessed as the penalty.


Afterward, the client wrote: “I cannot thank you enough for your help. This is wonderful news. I will recommend your services should anyone I know find themselves in a similar predicament. Your guidance was invaluable.”

To learn how the lawyers at Gross & Romanick can help you with your Reckless Driving, DWI/DUI or Traffic Defense case, contact us today by calling 703-273-1400 or by filling out our Online Information Request Form or learn more about our Fairfax reckless driving lawyers.

Federal Privacy Policy

Does the Gramm-Leach-Bliley Act (The GLB ACT) affect the operations of your company?
The GLB Act seeks to protect disclosure of non-public personal information about individuals to non-affiliated third parties. Such information includes names, addresses, dates of birth, social security numbers, etc. If the GLB Act applies, your company is required to give notice of its privacy policy, by July 1, 2001, to customers who have provided individual non-public personal information. In addition, your company is required to annually provide notice of its privacy policy to these customers. The GLB Act is intended to apply to banks, thrifts, credit unions and other "Financial Institutions". The term "Financial Institutions" is very broadly defined under the act. The broad definition of "Financial Institutions" may result in the GLB Act applying to your business. "Financial Institutions" under the GLB Act include those companies that are deemed to be a "lender".

DOES THE GLB ACT APPLY TO YOUR BUSINESS?
Do you regularly obtain non-public personal information about individuals? Do you extend payment terms and charge an interest component? If the answer is yes, then it is quite possible that your company may be defined as a "lender" under the GLB Act. The GLB Act does not specify how often this has to occur before your company will be deemed a lender. If you do so on rare occasions, you are probably not a "lender" subject to the GLB Act. However, if it is a normal part of the business to extend payment terms and charge interest, you may be deemed a lending institution subject to the GLB Act. The GLB Act is unlikely to apply to a situation where the interest is only charged upon the event of a default of the payment terms. However, the closer an agreement looks to be a loan of any kind, the more likely it is that the GLB Act applies to the information obtained in the transaction.

WHAT SHOULD YOUR COMPANY DO?
Even if you do not disclose to third parties the nonpublic personal information you obtain from customers, the safest route is to establish a Privacy Policy and provide a copy of it to your customers by July 1, 2001 and annually thereafter. Whether you actually fall under the Act or not, you can establish a privacy policy, prepare a Federal Privacy Disclosure Form, and send a copy of it to all of your customers. You may be able to utilize it as a marketing tool. The privacy policy will need to advise your customers of their right to "Opt Out" of your disclosure of information to third parties. Please contact us if we can help you create and effectuate a proper Privacy Policy to comply with the GLB Act.

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The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's attorneys please contact us by calling 703-273-1400 or by filling out our online Information Request form.

Contracts: Prebankruptcy Provisions

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.

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The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's business lawyers, contact us by calling 703-273-1400 or by filing out one of our online Information Request form.

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!


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The above is not meant to replace legal counsel. If you'd like to speak to one of the lawyers at Gross & Romanick, call 703-273-1400 or fill out our online Information Request form.

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!

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The above is not meant to replace legal counsel. If you'd like to meet with one of Gross & Romanick's lawyers, please call 703-273-1400 or fill out one of our online Information Request forms.

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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The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's lawyers, please call 703-273-1400 or fill out our online Information Request Form.

The Automobile Injury Patient: How to get paid

Many doctors who have treated personal injury victims have themselves become victims due to nonpayment of the medical bills. The desire of physicians to help the personal injury patient is often peppered with the fear that the mounting bills will not be paid or may not be paid for several years. However, there are ways to significantly reduce the risk of delayed or nonpayment for this type of care. In fact, the automobile injury case affords the doctor many avenues of insurance coverage not available in other types of case.

This article will discuss the best means of protecting your rights to be paid, utilizing available insurance and avoiding the pitfalls inherent in these cases.

Know Your Patient's Attorney
Contrary to political grandstanding, not all injuries are compensated by the court system through awards of millions of dollars. In fact, a great number of juries render verdicts for the defendant and give no money to the injured party. Ask the patient's attorney for an evaluation of the likelihood of success, especially if you are asked to wait for your money until after settlement or trial. Your bill is an extension of credit and you are entitled to consider whether you should invest in this case. A skilled attorney will want to cooperate with the doctor for many reasons including the need for medical reports and expert testimony at trial.

The good attorney should search for and help process insurance in order to pay the medical bills as they accumulate. Unfortunately, many attorneys believe that their only obligation is to handle the legal case without regard to payment of the medical bills. Even worse, many lawyers will help clients obtain the insurance coverage payments and advise them that they are entitled to keep this money even if it means a failure to pay the doctor.

While competent counsel cannot guarantee a win at trial, an inexperienced or ineffective attorney will have a difficult task contending with the high-caliber law firms hired by the insurance companies. Even if no suit is filed, an attorney who does not specialize in this area of law will generally not obtain the same level of settlements as experienced counsel. Finally, be extremely skeptical of the patients who are handling their own personal injury cases; insurance companies will take advantage of this situation. Doctors treating self-help patients should insist on "pay as you go" or refer them to a lawyer.

Medical Payments Coverage
Most automobile insurance policies have medical payments coverage, which is a "no-fault" source of payment for medical bills. If this type of coverage is included in a Virginia policy, there must be a minimum of $2,000 available (typical coverage is $5,000) over a maximum period of 3 years treatment. Policies issued in other States have similar provisions. The medical office should process these bills to obtain direct payment to the office. Allowing the patient, to process these bills may result in loss of this income. Before you rely on the attorney, find out his philosophy in this respect because many attorneys consider this money to be the property of the client. The patient's insurance agent can explain the amount of coverage available.

Do not expect the insurance company to offer information regarding the availability of coverage. Quite often, the insurance company will tell you to go to the liable party's insurance even when there is medical payments coverage. An attorney's call or letter should overcome this difficulty.

Reimbursement is only required for "reasonable and necessary expenses." Under this standard the insurance companies regularly claim that the treatment was excessive, that certain procedures were not needed or that the bills were abnormally high for the type of injury. They will request the medical records, narratives and other proof; give them what is reasonable, but do not accept a determination not to pay. The doctor's office must often advocate on behalf of the patient and should get the lawyer to insist on payment.

Do not assume a lack of coverage. Medical expense coverage may be available to many unexpected parties, such as relatives of policyholders even when they are in someone else's vehicle or are pedestrians. Read the policy. Ask the lawyer to make inquiries.

Health Insurance
Under Virginia law, medical bills must be paid by the health insurance carrier even if there is a personal injury-third party claim. Health insurance should be handled in the normal manner.

The medical office should not agree to any reimbursement to the health insurance company by way of assignment, subrogation or other type of pay back. Except in limited circumstances, health insurance policies issued in Virginia cannot require repayment to the insurance company. Therefore, do not reimburse any insurance company for payment received on a paid bill without the specific permission of the patient, as this may cause tremendous problems in obtaining return of this money by the patient from the insurance company.

Lien or Assignment
The patient and the lawyer should always be required to sign a lien/assignment form which requires the lawyer to pay the medical office out of the patient's portion of any settlement or judgment. Be sure the form is sent to the law firm. Current billing should be sent in order to be sure that the latest amount is paid.

Oral promises to pay out of settlement are not enforceable. Just sending the bills to the law firm will only amount to a total lien of $300 under the Virginia Code. Do not send this billing and medical records information directly to the insurance companies, unless instructed to do so by the law firm.

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The above is not meant to replace legal counsel. To speak to a lawyer at Gross & Romanick, contact us today by calling 703-273-1400 or by filling out our online Information Request Form.

Collecting the Professional Debt: Discretion with Aggression

Harry has been a client of your firm for several years. Eventually, you have come to regard him as a trusted client who promptly pays for services rendered. This morning he called you with an urgent message. It seems that he is involved in a large matter and your fees will go well beyond any amount previously billed to him by your firm. If you are successful, you know there will be funds available to cover your fees and costs, but you are not certain it will succeed.

While all businesses have credit extension concerns, professionals have factors to consider that require special considerations. The services of a lawyer, doctor, CPA, architect and other professional are unique and, once engaged, cannot generally be suddenly terminated. The savvy professional improves the chances of avoiding collection problems by conducting prudent credit checks like other businesses, even for existing clients who request more extensive credit.

Prevention

Additionally, the professional should candidly discuss the prospects of success in the enterprise, e.g. the risks of the medical procedure or the likelihood of reversal of the IRS ruling. Explain in detail the estimated fees and what factors can effect these charges. Do not forget to reveal expenses such as photocopies, travel, filing fees, investigations, subcontractors, etc. Tell the client how to keep the total bill down. Very importantly, tell the client when bills are expected to be paid. Not only will these types of explanations allow the client to budget, but it will avoid surprising the client with an unexpectedly large bill.

Do not assume that your client can afford your services. Ask for an upfront retainer even with a good credit history. Bills can be monthly, at project stages or other predetermined dates. For example, architects normally obtain a 5% retainer, 15% upon production of the schematic design, 20% upon detailed sketches drawn to scale, and so on with varying percentages due at specific phases of construction. Put the payment agreement in writing to avoid differing recollections.

Unless the matter is handled on a total contingency fee, the final bill should not be the majority of the account due. The final bill is the most difficult to collect, especially if the work is unsuccessful or the bill is unexpected.

Dunning the Client

When, despite your efforts, your receivables become delinquent, the part of the business that most professionals find disagreeable has to be undertaken. Most lawyers would rather argue before a jury than with a slow paying client. Furthermore, if you too vigorously emphasize prompt payment of bills, your client may feel you are more concerned about your fees than his case. Still a balance must be struck between a too-strident policy, at the cost of a lost client, and one that is too permissive, at the cost of profitability.

When it becomes necessary to go after a delinquent client, the question arises as to how the contact should be made and who in the firm should make it. A carefully edited letter, which is sent soon after payment is due, can be a good reminder. Relationships will not be damaged if regular, reasonable reminders are provided. In some cases a letter will not be sufficient and a telephone call must be made. A call from the professional handling the matter is not advisable because it can tarnish the working relationship and can be very awkward for the professional and the client. The bookkeeper or a secretary, whose duties are removed from the client, should place the call. As a final effort, an associate or partner should speak to the client about the implications of a failure to pay.

Firing the Client and the Fear of Counterclaim

Firing the nonpaying client creates a set of particular concerns to the professional.

1. Do you have the right to discontinue services? For example, can an orthodontist leave complex and potentially dangerous devices in a patient's mouth?
2. Must the client's records, books and your work product be given over?
3. Are you going to be sued for malpractice despite competent efforts to that stage of the work? Should you worry about the next psychologist ruining all the progress and you getting the blame?

Answers to many of these questions can be obtained from professional associations and by reference to ethical codes; get a written opinion for your files.

If you perform your work to the best of your abilities and meet the standards of your profession, sue your former client if they owe you a significant fee. Threats of a counterclaim based upon negligence are usually just a ploy to avoid payment. Of course, you will need some nerve and confidence in your performance, as well as good documentation. Finally, hire a good collection lawyer who can be your professional.

A Final Thought

Remember a line from the classic 1967 movie Cool Hand Luke: "What we've got here is a failure to communicate." If you keep the lines of communication open with your clients, you will establish mutual trust and will probably be rewarded by prompt- paying clients.

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The above is not meant to replace legal counsel. To speak to an attorney at Gross & Romanick, call 703-273-1400 or fill out our Online Information Request form here.

Parking Spaces... Assigning Equals Licensing

Before you start assigning your tenants parking spaces, be sure you are not excluding anyone. In a recent Fairfax Circuit Court case a judge struck down an assignment of parking spaces to non-garage owning association members. The garage owning members took the association to court, which found that the association was not propounding a rule, but in fact it was giving a license to its non-garaged owners. Because the lots were assigned only to some owners and not others, those owners with the assigned spots were able to exclude the other owners from the use of those spots in the common area. This exclusion is the essence of a license. The Court concluded that the community association did not have the authority to issue a license to its owners and ruled in favor of the excluded owners.

One would expect this ruling to apply in many other parking assignment situations.

The above is not meant to replace legal counsel: if you'd like to speak to one of the attorneys at Gross & Romanick, call us today at 703-273-1400 or fill out our online Information Request form.

Fictitious Name Filing: Where to File?

Many corporations mistakenly only file their tradename (also called fictitious name) certificates with the Virginia State Corporation Commission. In fact Va. Code §59.1-69 states that a proper certificate must be filed in "the same office of the clerk of the court in which deeds are recorded in the county or city wherein the business is to be conducted." File them with the SCC and the County.

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The above is not meant to replace legal counsel. If you'd like to speak to one of our attorneys, contact Gross & Romanick by calling 703-273-1400 or by filling out our online information request form.

Liquidated Damages

Liquidated Damages is the dollar amount stipulated in a contract which the parties agree is a reasonable estimation of the damages that would be owed to one party in the event of a breach by the other party. Companies often rely on liquidated damages clauses to assure performance of the contract. Since the amount of damages is often difficult to ascertain when there is a breach, a liquidated damages provision attempts to fix the amount. Even if the parties agree to a liquidated damages clause, the Court will only award the actual damages suffered if they can be ascertained. In theory, the clause also saves litigation time and legal fees.

WHEN VALID: The Commonwealth of Virginia recognizes liquidated damages clauses in contracts as valid under the following conditions:

(1) The figure must be a reasonable amount contemplated at the time of contract to be the probable loss to the non-breaching party in the event of a breach;

(2) The amount cannot be punishing or punitive damages, grossly in excess of the actual damages; and

(3) The damages must not be susceptible of a definite measurement. The Court examines the conditions at different times of the contracting parties' relationship. When looking at the first and third conditions, the court examines them from the time of the contract. The second is examined at the time of breach.

ACTION ADVICE: In order to improve the likelihood of enforcement of a liquidated damages provision, a contract clause should state that the opposing party waives their right to contest the enforceability of the liquidated damages clause. In Gordonsville Energy v. PEPCO (1999) the Virginia Supreme Court upheld such a waiver of rights provision.

INTERESTING NOTE: Virginia 6.1-330.63 allows credit card companies to charge any amount of liquidated damages as late fees.

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The above is not meant to replace legal counsel. If you'd like to speak to one of the attorneys at Gross & Romanick, call our offices at 703-273-1400 or fill out our online Information Request form.

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 above is not meant to replace legal counsel. To speak to one of Gross & Romanick's atttorneys, contact us at 703-273-1300 or fill out our online Information Request form.

Gross & Romanick Collects $525,000 Judgment

The Law Firm Gross & Romanick, P.C. located in Fairfax, Virginia, is pleased to announce that, on April 20, 2010, it was able to successfully collect in excess of $500,000 on a judgment rendered by the Fairfax County Circuit Court in 2008. Despite facing stiff opposition from both the judgment debtor and numerous garnishees represented by some of the nation's largest and best known law firms, the attorneys of Gross & Romanick prevailed in recovering a judgment from a debtor with seemingly unlimited resources that considered the judgment to be a great miscarriage of justice.

In 2008, Xyrous Communications, LLC obtained a judgment in excess of $800,000 against the Bulgarian Telecommunications Company. Through various collection proceedings, Xyrous was able to recover a little over $300,000 before reaching a dead-end and turning to Gross & Romanick. The attorneys of Gross & Romanick began investigating and, almost immediately, found bank accounts of the judgment debtor with Citibank that contained over three million euro. Garnishment of these accounts, however, proved to be extremely difficult as Citibank removed the garnishment proceedings to federal court and interposed a defense to the garnishment proceedings based upon the New York separate entity doctrine. The judgment debtor also appeared in the garnishment action seeking to have the entire proceeding dismissed for lack of jurisdiction and service of process. Gross & Romanick successfully rebuked the judgment debtor's attacks in the opinion reported by Virginia Lawyers' Weekly. While continuing to pursue the garnishment against Citibank, Gross & Romanick began additional collection procedures by garnishing T-Mobile USA, Inc. and AT&T Corp. While AT&T confessed that it maintained a relationship with the judgment debtor that was financially significant enough to pay off the judgment, the judgment debtor again intervened and suggested various technical defenses.

During a specially set hearing in the Fairfax County Circuit Court, the attorneys of Gross & Romanick successfully persuaded the Court to order payment to the judgment creditor. In a span of less than two years, Gross & Romanick will have managed to collect the entire balance of a judgment against a large foreign corporation with nearly unlimited assets that the judgment creditor had once thought to be uncollectible. In addition, the attorneys of Gross & Romanick obtained a favorable reported decision from the Eastern District of Virginia that will be of immense aid to judgment creditors in maintaining jurisdiction in Virginia.

Fresh off victory against the Bulgarian Telecommunications Company, Gross & Romanick has now turned its attention to other international collection matters, including pursuing an energy conglomerate.

It is through collection proceedings that creditors and individuals that have been wronged are able to obtain actual recovery. Many companies and individuals overlook the collections process when hiring a law firm, but the attorneys of Gross & Romanick, P.C. have the rare combination of experience, intelligence, legal acumen and tenacity to succeed in recovering money when other attorneys and law firms have reached a dead end. If you have a judgment or a legal claim for the collection of money against a difficult debtor, consider using a law firm experienced in succeeding against the most difficult of foreign debtors: Gross & Romanick.

Financing a Company in Chapter 11

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.

For more information speak to one of Gross & Romanick's lawyers by calling 703-273-1400 or by filling out one of their online Information Request forms.

Abandoned Property

ISSUE: A Landlord must often deal with property seemingly abandoned by a former tenant. While the Landlord would like to dispose of or sell this abandoned property, the Landlord may not know who owns the property or if there is a recorded security interest. In some instances, the Landlord may want to sell the property to satisfy unpaid rent or transfer it to the next tenant. Before any decision can be made, the Landlord must determine whether the property is truly abandoned and whether other parties may have a legal claim to the property.

THE LAW OF FINDS: "Abandonment" according to the Law of Finds, means that the owner of the goods has voluntarily relinquished "possession with the intention of terminating his ownership and with no intention of vesting title in another."

ACTION ADVISE: If the Landlord wishes to transfer or sell the property, it should: (1) Do a complete inventory of the property by 2 witnesses; (2) Examine the property for evidence of ownership; and (3) Conduct a UCC search for recorded liens or leases.

NOTICE: The Virginia Residential Landlord and Tenant Act requires a letter to be sent to the former tenant giving a 10 day notice that unless the property is retrieved it will be considered abandoned. Normally Residential Landlords are held to a higher standard than Commercial Landlords when dealing with their tenants. Therefore, it would be appropriate to provide a 10 day notice to any person who you believe has an interest in the property, including parties with UCC claims, tenants, or names which are found on the property.

DISPOSITION: If none of these parties make a claim, the property is probably abandoned. This determination will have to be made in each situation on a case-by-case basis in conjunction with a lawyer. Non-legal factors may impact on your determination of how to dispose of the property, i.e. the value of the equipment or if it can be transferred to a new tenant in the same space. A carefully worded sale agreement of the equipment may provide some protection for the Landlord from a subsequent claimant.

The above article is not meant to replace legal counsel. If you'd like to speak to one of the attorneys at Gross & Romanick, call us at 703-273-1400 or fill out our online Information Request form.

Selling & Buying Business Assets

Ed Gross, Gross & Romanick's managing partner, discusses the purchase and sale of the assets of a business in this recent video.



Some of Gross & Romanick's business practice areas include business formation, business acquisition, merger, spin-off and reorganization, buy-sell agreements, computer law, collections, contracts/agreements, corporate formalities, employment law, franchise law, and limited liability companies.

To speak to one of our lawyers, contact us by calling 703-273-1400 or by filling out our online information request form.

Wolftrap and Marijuana Possession

Summer in Northern Virginia means the start of the concert season at the Wolftrap National Park for the Performing Arts. For individuals that attend concerts and events at Wolftrap, it is important to realize that Wolftrap is not your ordinary concert venue. Unlike Jiffy Lube Live or the Patriot Center, Wolftrap is considered a “federal enclave”. This means that any conduct at Wolftrap that leads to criminal charges can result in those charges being filed in the United States District Court for the Eastern District of Virginia, Alexandria Division and not necessarily in the state courts of Fairfax County. Depending upon where you are located on the Wolftrap property and what officer issues you a citation impacts whether you must appear in the Fairfax County Courts or in the federal court.

Put more simply, simple possession of marijuana and underage possession of alcohol quite literally can become a federal case if committed at Wolftrap. Moreover, the United States Park Police are routinely patrolling the parking areas and concert grounds along with Fairfax County Police Officers and are usually in plainclothes and not easily identifiable. These officers can sometimes be rather aggressive in attempting to ferret out marijuana and alcohol possession. In one recent case, our attorneys successfully persuaded that United States Attorney’s Office that the arresting officer had been overly aggressive and had violated an individual’s constitutional rights. It is therefore extremely important that individuals charged in federal court retain an experienced attorney to ensure that their rights are fully protected.

Under federal law, marijuana is a Schedule I substance under the federal Controlled Substances Act, and possession of marijuana is a misdemeanor offense. If convicted of possession of any amount, first time offenders face the possibility of being sentenced to up to one year in prison and being assessed a minimum fine of $1,000. For a second conviction, the penalties increase to a 15-day mandatory minimum jail sentence with a maximum of two years in prison and a minimum fine of $2,500. Persons charged may also be subject to an onerous pre-trial probationary period involving mandatory drug screens. Certain individuals may be eligible for a first-offender program that, in some limited circumstances, may result in dismissal and expungment upon completion of the program.

The attorneys at Gross & Romanick, P.C. has represented a number of individuals charged with possession of marijuana and underage possession of alcohol at the Wolftrap National Park for the Performing Arts. If you are charged with possession of marijuana or underage possession of alcohol, whether wrongfully or rightfully, it is imperative that you retain an attorney to represent you in Court. The attorneys at Gross & Romanick, P.C. are experienced in this area and can use their expertise to zealously defend your rights.

Charges For Drugs Not On List Of Banned Drugs

Why are you being charged if the drug that you had in your possession is not on the list of banned drugs?

The various schedules prohibiting certain drugs don’t always list the common or popular name of different substances. Sometimes the schedules list the scientific name of the prohibited substance. For example, a specific drug may not be listed on any of the schedules. Instead, the substances which are contained within the substance may be listed on the schedules. As you can see, in order to determine the potential for your defense, your attorney has to understand some of the chemistry involved in various drug offenses.

That is why hiring an experienced attorney like the lawyers at Gross & Romanick is so essential.

All drug charges, whether pending in state or federal court, are criminal in nature. These matters have serious financial and economic implications beyond the fines and costs assessed by the Court. For many, a drug charge is their first experience with the American legal system. This system has complex rules and procedures. An attorney knows how to navigate through the law, the rules and the court procedures. An experienced lawyer knows the law, as well as the procedures of the court.

Many drug defenses involve complex and technical issues, sometimes involving constitutional rights. A capable lawyer can assess and recognize whether the prosecution can prove its case. A lawyer can advise you regarding viable defenses; help you present defenses that work; and, when appropriate, can negotiate a satisfactory plea bargain. A lawyer can protect your rights and prevent you from being taken advantage of by an overloaded and impersonal legal system. In short, a lawyer is your ally in a complex and often hostile system.

If you’re facing a drug charge in Virginia, Maryland or the District of Columbia, contact the lawyers at Gross & Romanick today by calling 703-273-1400 or by filling out our online information request form.

COLLECTING THE INTERNATIONAL DEBT

As international business becomes more commonplace, the insidious side effect is international collections. It is a fact that whenever business is conducted, there are unscrupulous and financially unstable businesses that cannot or will not pay their obligations. When this occurs with a domestic entity, it is easy to invoke the US legal process, obtain a judgment and attempt to collect the debt utilizing statutory collection procedures. However, when a foreign company refuses to honor its debt obligations, collection is far more complex and difficult.

Most domestic businesses lack the resources to litigate a case or obtain a judgment in a foreign country. Fortunately, in many circumstances resorting to the judicial process of a foreign country is unnecessary. Most states, Virginia included, can obtain jurisdiction and render judgments against any individual or business that has “purposefully availed” itself of the privilege of doing business within the state. Virginia, for example, is known as a single-transaction state. So long as the dispute involves a relationship where a single business transaction took place in Virginia, Virginia courts can and will exercise jurisdiction over the dispute. However, jurisdiction is only one step in the process of getting the foreign business to appear before a domestic court. The next step is providing notice of the claim, i.e. “Service of Process”. The foreign entity must be provided with legal notice that an action has been commenced against it in a Court in the United States. In most cases the Service of Process must be provided in compliance with the Hague Convention, which has requirements that vary from country to country. The good news is that once you obtain jurisdiction and service of process on the foreign business, you can obtain a judgment just like in a case involving domestic parties.

After judgment is rendered by a court, the collection process can begin. Typically, a judgment creditor has three tools at its disposal: garnishment, debtor interrogatories and actual levy. In most cases involving a foreign debtor, actual levy is not available because none of the debtor’s property is not located in the United States; actual levy requires taking physical possession of a tangible item. Debtor Interrogatories is the process of bringing a debtor or representative of the debtor before a court to answer questions about the debtor’s assets. Debtor Interrogatories may also not be a viable collection tool, because such proceedings require a judgment creditor to obtain personal service on an individual representative of the debtor and, although the Hague Convention allows for Service of Process, it is not considered personal service. Therefore, unless a judgment creditor is aware of an individual representative being physically located in the United States, serving debtor interrogatories may not be possible. Thus, in order to successfully collect, the judgment creditor must rely upon the garnishment process.

For the garnishment process to be effective, a judgment creditor needs to identify potential garnishees (companies who owe debts to the debtor or who hold money of the debtor). Business relationships within the industry and large international banks are the most likely target to be garnishees. In Virginia, a valid garnishment requires not only obtaining jurisdiction and Service of Process on the garnishee, but also on the judgment debtor. Gross & Romanick, P.C. is at the forefront of these issues, having recently convinced a federal judge that jurisdiction in a garnishment action is an extension of the jurisdiction to render a judgment. Xyrous Communications, LLC v. Bulgarian Telecommunications Company AD, 74 Fed. R. Serv. 3d 629 (E.D.Va. 2009).

Garnishment of an international bank may generate its own set of challenges as many U.S. banks that operate internationally have corporate structures in place designed to insulate the foreign operation from U.S. legal process. In these cases, the bank, not the judgment debtor, may push litigation in order to protect its corporate structure and customers.

In short, while collection of domestic debt is difficult, collection of debt owed by a foreign business presents additional challenges. Foreign entities often will fight with all their resources to avoid having to pay debts owed in the United States in order to shield the company from the United States judicial system. The attorneys at Gross & Romanick, P.C. are uniquely poised to successfully collect these international debts. Collection of international debt requires an exceptional understanding of the law, as well as tenacity and experience.

Traffic Ticket: A Satisified Client Writes In

After hiring Gross & Romanick to handle his recent traffic ticket, a client wrote the following to Jeff Romanick:

Jeff,
I received your letter noting the disposition of my traffic ticket.
 
I deeply appreciate the efforts you have went to on my behalf. The professionalism of your firm has impressed me. While I hope not to ever need your services again, I would utilize Gross & Romanick in the future and recommend you to anyone.

For more information about Gross & Romanick's criminal traffic practice, click here or call us at 703-273-1400.
 

Gross & Romanick's Fairfax injury lawyers provide serious results for individuals in the Washington DC metro area. If you have a personal injury, wrongful death or accident case in Maryland, Northern Virginia, or Washington DC we have experienced attorneys that can help you.


If you've been injured in a car accident or have lost a loved one as the result of the negligent or intentional conduct of another individual, we can help you. We 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 involving:

* Truck, SUV & Car Accidents
* Traumatic Brain Injuries
* Truck Collisions
* Motorcycle Accidents and Bicycle Accidents
* Pedestrians Hit by Motor Vehicles
* Slips and Falls
* Attacks in Buildings/Premises Liability
* Escalator and Elevator Accidents

To find out more about how the attorneys at Gross & Romanick can help you with your personal injury case, contact us today by calling 703-273-1400 or by filling out our online Information Request form.