Wait a Second Before Choosing Who Prepares Your Minutes

If you own a business registered with the Minnesota Secretary of State, you my have received a recent mailing that appears to be a “Notice” or “Disclosure Statement” from the State of Minnesota advising you to get your annual meeting minutes prepared. See example here: Mailer: Annual Meeting Disclosure Statement. The company behind the mailing, the Minnesota Corporate Minutes Company, is using these mailings to present an offer to prepare Minutes of Directors and Shareholders Meetings (for a corporation) or Minutes of Member and Governor Meetings (for a limited liability company –or LLC) for a fee. However, it’s important to know the company is a commercial enterprise that is neither affiliated with the State of Minnesota nor is it providing legal representation. I have had multiple clients contact me confused about their obligations and asking me what they need to do with this “notice.” Fortunately, they contacted me before sending their money or turning over potentially sensitive business and personal information.

The mailing requests, among other things, the identity of officers, directors, and even shareholders, including their names, email addresses, and/or mailing addresses. This information, once turned over, is subject to use for whatever means Minnesota Corporate Minutes Company may wish. Despite requesting personal information about anyone involved with the business, the mailing contains no indication of a privacy policy or a limit to the soliciting company’s permitted use of the information. The requested information is the kind of data advertisers and marketers often purchase so they can target their efforts at certain groups, such as a list of confirmed business owners and operators in Minnesota. We are not aware of information suggesting that Minnesota Corporate Minutes Company has sold or intends to sell the business or personal information it receives. But in general, if you are the officer or manager of a business, and you turn over information about your company’s shareholders to an entity with which you are not familiar, with which there is no attorney-client relationship, which is not a government agency, and which has no bounds on its ability to use that personal information, you have the potential to face some tough questions from those shareholders, or worse.

The mailing does highlight important statutes relating to a corporation’s or limited liability company’s obligations to maintain books and records. It also refers to the concept of “piercing the corporate veil,” which means a court may decide to hold the owners of a company personally liable for the debts or obligations of that company if it has not observed the proper corporate formalities. Maintaining updated books and records, complete with meeting minutes, is one of those formalities. Moreover, this article is not intended to comment on the propriety of having another party prepare your meeting minutes or advise you on what they should contain. Nevertheless, businesses and business owners should fully understand with whom they’re sharing information, and of the other purposes to which that information may be put without the business or business owner’s knowledge or further consent.

Business owners can receive guidance on how to prepare annual meeting minutes from their lawyers, or they can have their lawyers prepare the minutes for them. Like many things, there are proper ways to establish and maintain a business identity and to protect the business owners from liability, but there are many mistakes that can be made along the way –any of which could be very costly to the business and its owners. In addition, your business lawyer has professional and ethical obligations to ensure the confidentiality and proper handling of your company’s information, and that of its owners. If you have any questions about a notice or offer that your business receives, or maintaining the protections against personal liability that your company was intended to provide, it usually pays to consult with a lawyer before acting on it.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues . He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Bank agrees to postpone foreclosure sale; forecloses anyway and obtains dismissal of lawsuit against it

The Minnesota Federal District Court recently dismissed the legal action that Etta Bracewell and her husband commenced against U.S. Bank for allegedly breaking its promise that it wouldn’t foreclose on them. Ms. Bracewell and her husband sued the Bank because it foreclosed on them on December 29, 2011, even though just days earlier they say the Bank had promised it would cancel the foreclosure sale.

The case was dismissed because of the Minnesota Credit Agreement Statute (“MCAS”). Minn. Stat. § 513.33. The MCAS insulates banks from lawsuits claiming they made promises or agreements relating to the grant, extension, or even holding off on the collection of loans unless the bank and the borrower have signed a credit agreement specifically stating the terms of the bank’s obligation and the value the bank is receiving in return.

The MCAS exists for a reason. Many people have sued banks claiming they were supposed to get a loan or that they had received an extension of time to pay the bank back, but the promise either was not made or someone within the bank without authority to make such a deal said they would try to get it approved. Sometimes, however, the results can appear unfair to the borrower. If the allegations by Ms. Bracewell and her husband are true, this may be one of those instances, as they alleged they might have taken other action to stop the foreclosure sale if they had known the Bank would not follow through with, or be bound by, its alleged promise.

The case, which is currently available only if you have a subscription to the Federal Courts electronic case filing system or if you subscribe to a legal research publishing service, is Bracewell v. U.S. Bank National Association. In its decision, the court explains the application of the MCAS as follows:

The Eighth Circuit has held that a creditor’s promise to postpone a foreclosure sale constitutes a “financial accommodation” for purposes of the MCAS. Brisbin v. Aurora Loan Servs., 679 F.3d 748, 753 (8th Cir. 2012). Therefore, Plaintiffs may only maintain an action on U.S. Bank’s alleged promise to cancel the sale if that promise “is in writing, expresses consideration, sets forth relevant terms and conditions, and is signed by” Bracewell and U.S. Bank.

Bracewell v. U.S. Bank (citing Minn. Stat. § 513.33, subd. 2). The Court went on to cite to several other recent cases where plaintiffs’ claims were barred by failure to verify their arrangements in signed agreements, including where the bank did not dispute that it made a promise to postpone the foreclosure sale. The Court found that, because Ms. Bracewell and her husband could not, and had not, asserted any of these requirements had been met, their claims are barred.

It may be that the MCAS was applied in the proper manner in this case, and that Ms. Bracewell and her husband did not receive the promise they say they did. But the case nevertheless represents a word to the wise; be sure to get that promise in writing, especially where the MCAS may apply.

Real Estate Buyers Beware: Supreme Court opinion demonstrates importance for investors and developers to perform due dilligence before closing

We’ve all heard the old adage: An ounce of prevention is worth a pound of cure. It surprises me how frequently I learn that clients or other savvy investors or businesspeople proceed to purchase real estate without receiving critical advice or performing adequate due diligence.

The Minnesota Supreme Court’s decision in Mattson Ridge, LLC v. Clear Rock Title, LLP, et al. demonstrates why, when purchasing land for investment, development, or even for personal enjoyment, due diligence is so important. The case involves Mattson Ridge, a real estate firm seeking investment opportunities in real estate, and presumably a savvy real estate investor in its own right. The company purchased 64 acres of farmland with the intent to hold it as an investment to sell to another party for future development.

Mattson Ridge read the market perfectly. It closed on its purchase of the property in September 2005 for $1.286 million and by the end of October 2005 had a purchase agreement in place to sell the property for $2.9 million. The sale was scheduled to close in May 2006, but a problem with the legal description of the property prevented the sale because it constituted a defect in the title to the property. In real estate terms, the seller was unable to provide “marketable title” to the property as of the date the buyer was ready, willing and able to close.

Mattson Ridge did take one step to protect itself that a surprising number of parties fail to do, which was to secure title insurance to protect against any title issues that might arise based on defects existing at the time it purchased the property. Unfortunately, that wasn’t enough to completely protect it. The limits under the title insurance policy were set at Mattson Ridge’s purchase price ($1.286 million), rather than at a higher figure that would have covered the full market value of the property (which the evidence suggests was $2.9 million, in light of the purchase agreement it entered into to sell the property).

In its opinion in the Mattson Ridge case, the Supreme Court held that the title to the property was defective, but that Mattson Ridge was not permitted to recover more on its insurance than the policy limits. This means Mattson Ridge is entitled to recovery $1.286 million, plus about $11,000 of out-of-pocket expenses, but it will not recover the profits it lost as a result of the failed closing; more than $1.6 million beyond those policy limits. An ounce of legal advice and assistance with due diligence in this matter would have prevented the need to seek more than a pound of cure -a cure that the buyer was denied because just buying title insurance was not enough.

What’s even more alarming than the $1.6 loss that wasn’t covered by insurance was that the case could have turned out even worse for Mattson Ridge. The Supreme Court declined to decide certain additional issues, which included whether a clause in the insurance policy called a “coinsurance provision” or “coinsurance clause” should reduce the coverage available to Mattson Ridge. A coinsurance provision in an insurance policy states that, if the insured purchases a policy with limits that are more than a certain percentage below the actual extent of potential loss that may arise (often 80 percent), the insured’s recovery may be reduced significantly. This issue did not affect Mattson Ridge because the title insurer did not raise it before the case reached the Supreme Court, but it certainly could have done so and if it had, the buyer could have lost even more money. This represents yet another reason to get advice and assistance when performing the proper due diligence required to make a sound real estate purchase.

Mattson Ridge ultimately was able to remedy the title defect, meaning it could be sold with a title that is now marketable (i.e., without the title defect that prevented its sale under the October 2005 purchase agreement). But the delays and defects that existed because the problem was not discovered prior to its own purchase means Mattson lost its opportunity to obtain a profit of more than $1.6 million in less than a year, and that kind of opportunity may not present itself again.

If you’re considering buying or selling real estate, or have a potential problem with providing or obtaining marketable title, consider taking a heavy dose of prevention and contact an attorney with Thomsen Nybeck. We have been assisting parties with real estate transactions and disputes for 40 years, and we can help you avoid the need for a painful cure that may never come. And, if need be, we can help administer the cure as well.

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Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Business owners – review your year now

Making an annual review or “check-up” part of your corporate routine

Now is the time, as the calendar year comes to a close, to have a business “check-up”.  This is particularly important in small to mid-size businesses, as they do not always have routines and practices where such check ups are automatic.  Large corporations have the benefit of deeply-entrenched and well established corporate policies, routine practices, and risk management procedures.  For many publicly-held companies and those with enough employees to have “mid-level-managers”, the corporate books and risk management oversight are often being tended to by specific employees within the company, in addition to outside advisors.

However, over my years of assisting clients with formation, organization and ongoing operation of small to mid-size businesses, I’ve realized that small business owners often tend to the fires that are burning, rather than the sparks that may ignite a fire.  Small businesses are often so focused on the details of day-to-day business, that it’s easy to overlook the big picture.  They may not see a problem arising until the fire has grown to a size that it cannot be easily contained.

Nearly every individual knows that an annual check up with a doctor and dentist is prudent.  Most small business owners probably know that a regular check-up with their accountant and their attorney may also be prudent, yet they aren’t always as diligent about getting it on the calendar.  Outside of those businesses who use an accountant for tax preparation or ongoing advising, many business owners fail to check in with an attorney or accountant regularly.  As a result, sometimes they miss the “spark” that may ignite the fire of a problem within their organization.  Far too often, it takes a lawsuit, shareholder dispute, breach of contract, or other controversy for a business to look at its internal records, contracts, and policies, only to find obvious deficiencies once it’s too late to correct them.

What kind of “check-up” should you do?

Rely on your accountant and attorney to help you identify what you may want to review in an annual or more regular check up.  Small to mid-size businesses may find that key issues to review include (but are not limited to) the following:

• Maintain good standing.  Verify that your entity is in good standing with the Secretary of State, and that it is authorized to do business in other states in which it transacts business
• Contract review.  Review contracts and vendor agreements to ensure the entity is meeting its obligations to others, and that others are meeting their obligations to your entity
• Lease and real estate status review.  Verify that any leases your company has entered do not expire or renew within the next year.  To the extent they do, identify an action plan for how those will be renewed, amended or what the company intends to do when they expire.
• Corporate record updating.  Review your “major actions” taken during the last year.  Did you hire employees, lease new space, take on new members/owners or take other action that should be properly documented by a written action or resolutions?   If so, your attorney can help you address these changes appropriately in your company records.
• Employment and personnel matters.  Does your company have employees or independent contractors?  If so, do you know how recently you have updated your employment agreement, policy manuals, and independent contractor agreements?  If you can’t remember when they were last updated, it’s probably been too long.
• Risk management review.  Does your company anticipate litigation or have any unresolved or outstanding issues which may be better handled proactively than re-actively?  It’s easy for companies to wait until the last possible moment to address potential controversies, when in fact that is sometimes the least successful approach.

Ultimately, businesses of all sizes should be proactive in their use of legal counsel just as individuals should be proactive in their use of doctors.  Diagnosis and prevention of problems can often be infinitely less expensive, less disruptive, and less challenging than “treating” a problem.  Allocating the time and relatively small expense of regular check-ups can be invaluable when it comes to risk reduction and  cost savings when compared against the clean-up required if a company runs on auto-pilot until a problem arises.

Consider the month of December as an opportune time to check in with your company’s legal counsel to address these issues and more.  If your company does not have counsel, now may be an opportune time to get that resolved.  Mark the issue on your calendar for follow-up, before the pace of day-to-day business takes you to the next issue without getting a proactive plan set into motion.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  Brad has worked with a wide array of small and mid-size businesses through all stages of the business life-cycle, from formation, to ongoing operation, to shareholder disputes, work-outs, and sale or dissolution.

Are the “mortgage cops” coming after strategic defaulters?

Recent press, including this article in the Chicago Tribune, indicate that the FHFA’s Office of Inspector General may have mortgage cops on the prowl for strategic defaulters.  However, that’s not the only side of the story.  A commentary article I wrote for the National Association of Realtors Realtor Magazine was published yesterday.  If you would like to know more about the issues and controversy surrounding whether and how strategic defaults are being pursued, please take a moment to review the article linked below:

Commentary: Hunt for Strategic Defaulters Overstated

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.

 

 

Conciliation Court Limit in MN increased to $10,000 Today

In Minnesota, Conciliation Court (the term used for small claims court) has been the forum to resolve legal disputes concerning a smaller amount of disputed damages than would otherwise be pursued in District Court.  Until today, the limit on the amount in controversy that can be pursued in Conciliation Court was capped at $7500.

Due to the Minnesota Legislature changing that cap, an amount in controversy up to $10,000 may now be pursued in Conciliation Court.  The $10,000 limit became effective today (August 1, 2012).  While it is still possible to handle a Conciliation Court matter without utilizing an attorney, having the possibility of obtaining a judgment for $10,000 (or conversely having a judgment against you for $10,000) is likely a sufficiently significant financial proposition that is its prudent to consider hiring an attorney to at least advise you about your options, help you prepare for Conciliation Court and so forth.

Now that a dispute up to $10,000 can be held in Conciliation Court, determining whether a matter is “worth litigating” and whether or not to enter an arbitration agreement in various business or real estate transactions is something to consider anew.  If you are faced with a Conciliation Court action, or are contemplating initiating one, some preliminary information can be found at the Minnesota Judicial Branch website (mncourts.gov).  Separately, you might find the guide available at the Attorney General’s Office website useful.  They have a “User’s Guide to Small Claims Court”, which you can find here.  Once you’ve reviewed that information, your next step should be to contact your attorney.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.

Minnesota Supreme Court Holds That The “Cause of Loss” Is To Be Determined By the Insurance Appraisal Process

In a decision issued on June 13, the Minnesota Supreme Court analyzed whether the cause of loss, in addition to the amount of the loss, was a determination to be made by the insurance appraisal process.

In Quade v. Secura Insurance, there was a dispute regarding property damage from a windstorm.  The insurance company took the position that some of the damage claimed by the insured was not caused by the windstorm, but rather continual deterioration over time.  The insurance policy required that the appraisal process be initiated prior to a lawsuit being commenced.  The insured did not initiate the appraisal process, but instead brought an action directly in district court.  The insured contended that the appraisal clause didn’t apply because the dispute was about whether the damage was covered by the policy, not the cost of that repair, and that the question was a coverage question inappropriate for an appraisal panel.  The district court disagreed with the insured and held that the appraisal process had to be used.  The court of appeals reversed.  The Supreme Court then took up the case.

The Supreme Court held that the insurance policy’s language concerning the appraisal process’s determination of the amount of loss includes a determination of the cause of the loss.  As a result, where there is a dispute about what the cause of certain damage was, the question is one to be determined by an appraisal panel.  The Court was careful to clarify that the appraisal process can’t construe the policy or decide whether an insurer can pay, but it does determine the amount of loss, which includes determining what the cause of the loss claimed was.  The Court noted the public policy in favor of appraisals.

A copy of the decision can be found here.

This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, insurance law, townhome and condominium law, and criminal law.  Chris and his colleagues at Thomsen Nybeck have extensive experience representing clients in insurance appraisal hearings.  More regarding the firm’s abilities in that area can be found here.