The Ongoing Wayne County Jail Debacle

Sad as it is to say, there’s been a lot in the media about Michigan’s jail over-population problems. A few years back it was decided to create a new jail in Wayne County to begin housing some of the overflow. A noble plan, no?

You know what they say about good intentions and the road to hell. The project quickly turned into a quagmire, with each side blaming the other one for mismanagement and the delay of construction. By 2013, the building had sat unfinished for so long the management of Wayne County began to debate the merits of selling the lot and converting it to retail and hotel space.

On Halloween of that year, Wayne County put forth a pretty scathing lawsuit suggesting that AECOM Services, the contractor behind the project, had mismanaged the project to such a degree that the project could no longer be completed as originally designed.

The lawsuit (text of which is viewable here) cites that the contractor violated their agreement to keep costs under the agreed price of $220 million and that the obligations of their contract were not performed in a timely manner.

But a year later, the contractors fired back with a countersuit alleging that the Wayne County Building Authority committee that oversaw the project was grossly incompetent and too prone to leadership and personnel changes to really effectively manage the project. And it shows: the project’s first chief left for a job at Metro Airport, his replacement left due to scandal regarding his predecessor’s severance package, and then his replacement was fired because of contract issues.

And that’s really all it comes down to: contracts. Too many times a construction project encounters issues because of a lack of agreement on one side; if a contract holds the builder to certain standards but not the contract holder, is that really a fair deal? I’ve seen too many examples of contractors held to expectations that the contract holder is unable to assist with or meet as well. And while it’s maybe unreasonable to ask that a company not change leadership in the middle of a project, some stronger guidelines on how to proceed in such an event would have helped keep work progressing on the matter.

All I ask is that you have any public works contracts looked over before you sign them. If you want to look a little further into it, I’ve seen Howard and Howard give some good advice on their website, and Denewith, Dugan, and Parfitt  is a name that comes up a lot too.

Electronic Signatures – Upholdable in Michigan?

There’s been a lot of advancement lately in the field of electronic contracts and electronic signatures. You’ve probably seen one yourself – many businesses are switching over to digital means of capturing signatures for, say, credit card transactions. You know those little squares that coffeeshops and smaller restaurants have sticking out of their iPads? If you’ve used one of those, you’ve done an electronic signature.

But there’s been some talk these days about if Michigan can actually consider those, or other forms of e-signed documents, valid.

The Michigan Uniform Electronic Transactions Act (also referred to as UETA) was passed in 2000 and validated many types of electronically signed documents, such as tax forms and insurance papers. There are the usual rejoinders to prove context and circumstance of the document’s creation and validation, but nothing unusual.

The law’s stated intent was to put e-commerce and physical transactions on “equal footing” (check out the Michael J. Hamblin blog for more specifics) by making electronic signatures and agreements enforceable and legally binding when appropriate. However, just as with any emerging technology, there were a few hiccups along the way.

In 2012, Zulkiewski v. American General Life Insurance Co. began – a court case wherein the family of a man who had committed believe the changes he had made online to his life insurance policy were done fraudulently to benefit his new spouse.

Sad stuff, but a pretty common sight in estate law these days. The previous beneficiaries of the policy contested the payout, as there was no proof the deceased had actually made the changes himself. An electronic ‘paper trail’ was sniffed out, showing that the proper steps and security measures had been taken to verify the policyholder’s identity and intent to change the policy as best as can be done online versus in-person.

The court found that the insurance company made reasonable effort to include security steps taken to validate a customer’s identity, the policyholder had a history of being “computer literate” to the point where he can properly operate similar transactions, and that the new spouse had been made sole beneficiary on a number of other documents around the same time.

So what does this mean for your business? Simple: if you’ve got electronic transactions, pardon my French but cover your ass. Make sure your identify verification steps are still deep without being labrynthine, and make sure it would continue being difficult for anyone to fake an e-signature for any reason. Got all that? You’ll be fine.

Student Loans and Bankruptcy

This one hit a little close to home for me, given as I’m still enrolled in college and all, but I thought it worth mentioning.

I’ve had some friends who have filed for bankruptcy – a sad reality at our age, but it’s something a lot of people face and will continue to at any given point in their lives. Maybe their spending got too out of control, maybe they were saddled with debt because of bad relationships. Whatever the reason, I try not to judge.

But it has recently come to my attention that not all debts are considered equal in bankruptcy proceedings. The first things to be discharged are the major ones like credit card debt, maybe vehicle financing, things like that.

You might be shocked and dismayed (if you’re in circumstances not unlike mine) to learn, however, that while student loans might be discharged under bankruptcy, there is a very high bar to have it considered.

For considering the discharge of student loans under bankruptcy proceedings, a standard of measurements knows as the Brunner Test is employed:

-The plaintiff must be able to prove that they cannot afford a minimum standard of living for themselves and their dependents if forced to continue repaying the loans
-Additional circumstances must exist to prove that the plaintiff’s current state of financial hardship is likely to continue for some time
-And lastly (perhaps most importantly), it must be shown that a good faith effort was made to pay the loans back

If these criteria are not met – sorry to say, you’re still likely to be saddled with student debt even through Chapter 7 bankruptcy proceedings.

A recent court case found a student named Warner who had filed for Chapter 7 and was working as a clinical psychologist was not able to repay his loans solely on failing that third criteria. While the circumstances preventing his repayment were proven to exist for the time being and may proceed into the future, it was shown he had not made a good faith effort to attempt repayment – all but about $400 of the payments that had been made to this point were done by his mother, and it was shown he had not used any of the nearly $6000 he had collected in tax refunds in the year 2013 to make loan payments.

This all came together to show he had not previously made a good faith effort to repay his loans, and they were not found dischargeable.

Just goes to show everyone, even in bankruptcy you’re likely to be stuck with your loans.

The Ongoing Michigan Tesla Ban, and Franchise Laws in General

It seems that anyone or anything named “Tesla” is constantly going to run into problems with their competitors, their government – really, anyone but the actual consumers.

Later last year, Michigan passed an amendment to their already pretty deep laws regarding business franchises preventing automotive dealers from selling directly to customers. Michigan law right now requires that all vehicles be sold through franchised dealerships and allows those dealerships to independently determine what fees are charged to the customer during the process.

This new bill both prohibited the creation of company-owned automobile “stores” and further prevented the manufacturers from dictating the sort of fees that can be charged. Surprise surprise, the only automobile company that doesn’t really play by that model right now is Tesla.

For reference, Michigan defines a “franchise” as having these three elements:

-A marketing plan wherein the franchise is granted the right to distribute goods under a marketing plan or system designed and administered by the franchisor company
–Association with trademark meaning the franchisee’s business is associated with trademarks of the parent company (logos, service marks, etc)
–Required fee, which is exactly as it sounds!

However, a handful of states such as Minnesota include additional terms, including one that has proven pretty sticky in a lot of business matters: community of interest, generally defined as the franchisor and franchisee having a mutual interest and stake in the selling and production of the franchise’s goods. One would be hard pressed to find a franchisee/franchisor relationship that doesn’t match that criteria, but is Gov. Snyder attempting to create that sort of provision for car dealerships? By maintaining that automobiles still cannot be sold directly from the manufacturer, he almost seems to be creating that community externally by ensuring all dealerships have to be independent but beholden to a parent company.

And while car dealerships are allowed to dictate what fees they charge, I would like to go back to the required fee provision. Tesla retailers presumably don’t have that sort of fee structure as they operate more like locations in a grocery store chain and less like an independent vendor, and it’s not likely that they have room in their business plan to include one to skirt this rule. Strange that, of all the reasons to prevent a business from operating in your state, these are the two that they seem to have chosen.

Staying informed of your rights and abilities as a franchise owner (or as a company that operates through franches) is vital. Vinson Franchise Law is a good place to start.

Michigan Real Estate Law Changes

Hello world! My name is Eric Patrick, I’m a law student in Michigan and I’ve decided to begin publishing a blog during my studies of recent Michigan law issues and my stance on the matters. I will admit this was partially inspired by the Arrested Development joke involving a lawyer character named Bob Loblaw running a Law Blog – but I fear mine won’t be nearly as funny.

Anyway, with that done, on to business. As a burgeoning student of Property Law, it came to my attention that in the tail end of last year (December 29 – cutting it awfully close, wouldn’t you say?) a Legislative Update was passed that affected real estate investors and their ability to buy property at the time of (or shortly after) foreclosure.

Now before we proceed I would like to make clear that the idea of buying foreclosed property tends to be a pretty emotional process – that was someone’s house, after all. But the fact remains that plenty of people look for ways to monetize foreclosed property – or in this case, prevent its sale.

Previous Michigan law allowed homeowners the right to a “quitclaim deed” that would allow them to quickly transfer ownership of their property to a third party, thus allowing that third party to manage the sale during something like a tax sale, divorce filing, or property foreclosure. (More information on quitclaims can be found here) Often times, an investor would look for homes that are soon to be foreclosed on and offer a quitclaim deed in exchange for a sum of money, thus allowing them to get the house more cheaply than buying it at auction and preventing any other investors from staking a claim to the property.

The new Michigan legislation requires the deeds to be properly recorded and filed away prior to redemption. Sounds a little obvious, right? Under the previous laws there was no way of verifying a quitclaim deed prior to sale, which stymied many property investors as the burden was on them to try to retain the house, not on the claimee to prove they have right to the property.

Not a huge change, but perhaps a more fair one in the world of real estate. People still have the ability to file quitclaims on property they’re in danger of losing, but now it just requires that the claims are documented a little better.

For more insight on the ruling, check out Jeshua Lauka’s post, or if you’re feeling especially crunchy you can read the actual legislation here.