January 2013

Olson v. The Curators of the University of Missouri

Loreen Olson brought an action alleging breach of contract and related claims, in which she asserted that the Dean of the College of Arts and Sciences had offered her the job as chair of the Communications Department at a meeting, and she had accepted. The dean then sent Olson two offer letters, one for a three-year contract period and the other for the preceding two-month period. When Olson emailed the dean about other terms of employment — which she claimed had been discussed at the meeting — the dean instructed his assistant to email Olson to inform her that the dean would be contacting the faculty to select another chair due to irreconcilable differences. The Missouri Court of Appeals, Western District reversed the trial court’s grant of partial summary judgment in favor the university and remanded the case to the trial court, because the undisputed facts didn’t negate Olson’s contention that a contract had been formed during her meeting with the dean.
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In my recent piece about properly signing contracts, I gave a plug for a video called “How to Research a Company on the Interwebs” on Katie Lane’s Work Made for Hire blog. The video takes you step-by-step through basic due diligence, including searching the Secretary of State’s records.

Yesterday, Paula Brillson, a New York lawyer based in California, posted another practical piece, A Street-Smart Guide to Investigating Your Business Partners. It’s worth checking out.

 

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FH Partners, LLC v. Complete Home Concepts, Inc.

I wrote about this case, which involves backdating contracts, in Backdating Contracts Is Tricky Business. In addition to the loan I discussed in that post, the appellate court considered FH Partners’ ownership of another loan and held that FH Partners had a partial ownership interest in the loan, reversing the trial court.

Frontenac Bank v. T.R. Hughes, Inc.

On review of the trial court’s granting of summary judgment in favor of Frontenac Bank, the Missouri Court of Appeals, Eastern District found that there were genuine issues of material fact as to whether the bank breached several promissory notes, based on an improper declaration of insecurity and a breach of the bank’s duty of good faith and fair dealing, when it called the notes based on an insecurity provision.

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It’s not unusual for parties to a contract to want the written agreement to cover a period before it’s actually signed. There are any number of contexts where this comes up — some legitimate and others not exactly aboveboard — but the logistics of negotiating and signing contracts are such that the issue is unavoidable. (Jason Mark Anderman illustrates the logistics problem well in this comment to a backdating post on Ken Adams’s blog.)

There’s nothing inherently illegal or unethical about backdating contracts, although backdating can certainly be both unethical and illegal, depending on the situation. For those with an hour to kill thinking about the issues, Jeffrey Kwall and Stuart Duhl wrote an excellent article on backdating that was published in Business Lawyer in 2008. For a shorter piece with a few practical tips see Backdating – it’s illegal isn’t it?

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Arvest Bank v. Uppalapati

The United States District Court for the Western District of Missouri held that the spouse of a debtor was liable under a personal guarantee that she signed. The spouse argued that she was protected by the Equal Credit Opportunity Act (ECOA), which prohibits a creditor from discriminating against any applicant for credit on the basis of race, color, religion, national origin, sex or marital status, age, or because the applicant is on public assistance.

Regulation B, which was promulgated under the ECOA, limits when a creditor can require the signature of persons other than the applicant on the credit documents. The regulations provide:

Except as provided in this paragraph, a creditor shall not require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor’s standards of creditworthiness for the amount and terms of the credit requested. A creditor shall not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit. [12 C.F.R. § 202.7(d)(1)]

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When people enter into a contract, everything changes. Before the contract is formed, people can change their minds. They can walk away from negotiations, ask for a higher price, or decide to do business with someone else. After the contract is formed, they have to do what they promised.

Contracts are promises that courts will enforce, but courts won’t get involved for just any promise. Courts require that the parties intend to be bound by their promises at the time of their contracting. And they require contracts to be a two-way street. That’s where consideration comes in. Each party has to bring something to the table.

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Midwest Coal LLC v. Cabanas

In an action for fraudulent misrepresentation, the Missouri Court of Appeals, Western District affirmed the trial court’s grant of summary judgment in favor of the defendant, concluding that the plaintiff, a coal company, was unable to prove damages for lost profits.

Lost profits are generally not recoverable as damages, because they are too speculative; however, they are recoverable with sufficient proof to provide a rational estimate of the amount of lost profit. In this case, however, the plaintiff had never turned a profit and was unable prove its case. (“With no history of profitability, Plaintiff cannot present sufficient evidence to prove lost profits from an existing commercial business.”)

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The Missouri Supreme Court decided an important case a few months ago involving non-competition and non-solicitation provisions in employment agreements. In Whelan Security Co. v. Kennebrew, the Supreme Court enforced a non-competition agreement and modified non-solicitation agreements against out-of-state former employees.

My labor and employment colleague, Gerry Richardson, wrote a blog post about the Whelan decision soon after it was filed in August 2012, and he included the following takeaways for employers:

  • Limit post-employment restrictions on customer solicitations to those customers with whom the employee interacted.
  • Use the one-year safe harbor for post-employment restrictions on a former employee’s solicitation of employees.
  • Include a statutorily recognized purpose for an employee non-solicitation obligation longer than one year in the text of the non-compete agreement, such as protection of confidential or trade secret business information, relationships with customers or suppliers, the employer’s goodwill, or loyalty to the employer.
  • Avoid general post-employment non-compete obligations with geographic scopes of more than a 50-mile radius from the employee’s last workplace with the employer and durations of greater than two years after the termination of employment.

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West Bend Mutual Insurance Co. v. Arbor Homes LLC

A recent Seventh-Circuit case should serve as a cautionary tale that business owners need to consider the requirements of applicable insurance policies when trying to resolve a quality issue with a customer.

When Arbor Homes LLC’s plumbing contractor, Willmez Plumbing Inc., made a major mistake, Arbor worked with its customers, the Lorches, to make them whole. Unfortunately for Arbor, it didn’t comply with the requirements of the plumber’s commercial general liability insurance policy with West Bend Mutual Insurance Co. — under which Arbor was an additional insured — which allowed West Bend to successfully deny the claim.

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Lafarge North America, Inc. v. Miller

The Missouri Court of Appeals, Western District reversed the trial court’s grant of summary judgment in favor of Lafarge North America in its claim against Miller, the sole owner of a limited liability company, holding that material facts were in dispute as to whether Miller had agreed to personally guarantee Tiger’s obligations.

An employee of Tiger Ready Mix LLC, Miller’s company, had stamped Miller’s signature on a credit application and agreement to buy bags of concrete from Lafarge. When Tiger failed to pay several invoices, Lafarge sued Tiger for the debt and Miller on his purported personal guarantee. The appellate court quoted at length from Capitol Group, Inc. v. Collier, an opinion from earlier in the year in which the court stated that it would be difficult to prevail in an action to enforce a personal guarantee contained in a commercial contract where the individual didn’t sign the agreement twice — once in his capacity as an agent of the company and once in his individual capacity. (“While our caselaw does not hold that the only way an agent can be liable under a guaranty of this nature is by signing twice, this is the preferred method because it ‘clearly manifests his intent to assume personal liability.'”)

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