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Wednesday, June 23, 2010

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.

Wednesday, June 16, 2010

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.

Monday, June 14, 2010

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.

Wednesday, June 2, 2010

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.