Six Ways Business Brokers Can Avoid Litigation
GABB member Lawrence Domenico, an experienced litigator, spoke to the Georgia Association of Business Brokers about how you can avoid litigation. Here’s what he had to say:
For you guys as Business Brokers, it almost always is better to avoid litigation if you can. Courts and Arbitration proceedings take a long time to complete and lawyers are expensive. The quickest you can expect to have a trial in Fulton County is a year after you file suit. Most business cases take several years. Moreover, there are lots of lawyers out there who are very happy to litigate to the death.
Before I tell you how to avoid litigation, please keep in mind, I don’t see most deals of business brokers because most go through to closing or the listing expires without success.
I only see the matters where brokers contact me because something is wrong with the listing.
It is probably not possible to never have a problem listing. There is a percentage of people that you cannot please and you will be in conflict them.
There are people that do not care about living up to their obligations, be it in a contract or otherwise.
These are often the same folks who have a tenuous grasp on reality and have a hard time telling the truth.
But there is good news, because these kinds of people exist, I will always have work to do.
What I would like to help you all with today is not dealing with these folks that I have just described. You will either have to sue those folks or walk away from them.
What I want to help you with today is minimizing the number of times you have to sue folks who have a grasp of reality, who generally do respect their obligations, but for some reason or another don’t see things the way you see them.
I have 6 recommendations for you to avoid litigation.
- First, avoid these problem clients. Easier said than done, I know, but I think you already know how to spot these people. First and most importantly, trust your gut. Call it instinct or experience or karma, whatever, when you have a bad feeling about working with a client, you are probably right. Almost all my clients say at some point, “You know, I had a bad feeling about this guy way back when, but I went ahead with the engagement.”
In my own practice, I know this is true. The greatest regrets and biggest losses of money in my practice were when I blindly trusted a client, or thought they would change once they saw how sincere and diligent I worked for them, or got blinded by the potential fee.
If your gut is not warning you about a client, there are still things you need to do to avoid problems.
Ask yourself, what do you really know about new client?
Sometimes the concern is not so much stealing money from you as wasting your time. A referral is the best, in my experience
This is true for hiring help, too. I far prefer to hire someone already known to me or someone at my firm. I always ask, “Are they crazy?” If not, you are way ahead.
Other options: make a personal visit to business; Google them; D&B; check references.
What do you know about the business? Co-broker if you’re not comfortable with the business or your experience.
- Next, you must, must, must have a written listing agreement. Since the late Middle Ages, there has been a law called the Statute of Frauds that says certain contracts have to be in writing. Real estate contracts have to be in writing. Contracts which take more than a year to perform have to be in writing. So, if you want to sell a business, your listing agreement has to be in writing.
Don’t call me if you don’t have a listing agreement. I won’t have anything to work with.
Use the GABB form listing agreement. If not that, at least look at it to see if there is something you should add or change in the form you use.
The listing agreement must be in writing. If the seller is hesitant to sign, that is another strong sign that you may have a problem client. You should think long and hard about continuing your efforts for that client.
Also, if the client only wants to sign a listing agreement in the name of the company, and not individually as an owner, that is another strong indication that you have a problem client. Most of the business sales I have ever seen are really asset sales. The selling company still exists after the sale, but it has no assets. If you have a listing agreement only signed by a company with no assets, you have a problem.
- Once you think you know something about the potential client, one of the best things you can do to avoid problem clients is to ask for a modest upfront fee. I know you guys typically get paid your fee at closing, but you do all your work before closing. If a client is not willing to pay you a small fee up front, and you can call it a marketing fee or an administrative fee or a listing fee, that is a strong indication that the client is going to be a problem going forward.
It’s the same in my business. If someone is not interested in paying me a retainer, that is a red flag.
- Include a minimum fee in your listing agreement. I have had a number of cases where the listing agreement said the fee was a percentage of the consideration paid at closing. But what if there was no closing? Most of the cases in which I represent business brokers are cases in which there was no closing. The seller withdrew the business from the market or sabotaged the sale. If you don’t have a minimum fee listed, and there is no closing, the judge or arbitrator is going to have a difficult time awarding you any damages.
Judges and lawyers are familiar with contingency fees. If you don’t have a minimum fee provision in your listing agreement, it is going to look like a contingency fee agreement to the judge or arbitrator.
- Put a mandatory arbitration clause in your listing agreement. Arbitration is slow and expensive. Litigation is painfully slow and painfully expensive.
In arbitration, you get a lawyer to make the decision as to who wins and who loses. In litigation, 12 people off the street make that decision. A jury is a crazy way to make decisions. In my humble opinion, juries make sense in criminal cases. They are a check on the government. But in a business case, I don’t think they make any sense. If you have ever interviewed jurors after a case, you would hear the most random explanations for why they made the decisions they did. Your jury may think $20,000 is a lot of money to award you for a year’s worth of work. Speak with an arbitrator after he or she makes a decision, and you’ll get a thoughtful, reasoned decision, even if you don’t agree with it.
- If you have a signed listing agreement, I encourage you to communicate regularly with your client. In my experience, clients don’t really understand what you do to market their business. Either through ignorance or willful ignorance, some clients think all you do is show up at closing to get a check. To fight against that ignorance, I recommend that you send regular letters or emails to the client detailing what you have been doing. Don’t go 3 months without communicating with your client. Regular updates to your client will not only combat the notion that you are not working for the client, it will be great evidence at a trial or a hearing if you end up in a dispute with the client.
Document your disputes. Lawyers are always asking clients whether they have anything in writing to document a dispute. I find that many people think that the kind of writing that lawyers are looking for is only a document that says Contract at the top of the page and is signed and notarized. That is not the case at all.
What is a “writing?” It can be a letter, or email, or a check. And here’s your tip of the day, confirm your agreement in a writing even without client’s signature. Send your client an email, “Jim, thanks for meeting with me today. I appreciate your promise to get me those financial statements by Monday. I’ll contact the buyers today and tell them the financial statements are on the way. As we discussed, this is one of the things you promised in our engagement agreement and if we don’t get those financial statements we cannot market your business.”
There is an assumption in the law that the recipient of a communication will respond if he or she does not agree with the communication.
This kind of email will give the judge, jury, or arbitrator a date, time, and the precise terms of the communication. It is not a “he said, she said” matter.
That’s my 6 recommendations. Probably not worth thousands of dollars. Don’t be afraid to call me or another lawyer before your relationship with the client has totally fallen apart. A good lawyer will tell you the good and the bad of your situation. Most times there are things you can do to save the situation. With counsel, you can make a bad situation better. And even if things fall apart, and you want to litigate, having a lawyer involved earlier will probably help you prepare your case for litigation which will increase your chances for winning.
Read More
Don’t Want to Get Sued? Come to GABB on Tuesday, Feb. 23
Lawrence Domenico is the kind of lawyer you hire when you litigate, or sue someone. And he’s represented a lot of Georgia business brokers in disputes over the years.
On Tuesday, Feb. 23, Larry will offer advice worth hundreds, if not thousands, of dollars to members of the Georgia Association of Business Brokers and their guests. Namely, how NOT to need to hire Larry or someone like him. How to avoid legal disputes will be the topic of the GABB meeting on Feb. 23. The GABB, the state’s only professional association dedicating to buying and selling businesses and franchises, will meet at 10:30 a.m. at the South Terraces Conference Center, preceded at 9:45 a.m. by a free light breakfast and networking session. The South Terraces Conference Center is at 115 Perimeter Center Place, Atlanta, near Perimeter Mall. The meeting is open to the public at no charge.
Samantha Martin, SBA lending specialist with the Fifth Third Bank, is sponsoring the meeting.
Mr. Domenico is a managing partner of the law firm of Mozley, Finlayson & Loggins. He practices extensively in the areas of commercial and business litigation, products liability defense, and general litigation. Mr. Domenico also has extensive experience in assisting start up and existing businesses. In addition, Mr. Domenico has broad experience in alternate forms of dispute resolution including arbitration and mediation.
Mr. Domenico received a B.A., cum laude, from the University of the South in 1985. He attended the University of Georgia School of Law where he received a J.D., cum laude, in 1988. Mr. Domenico is a member of Phi Beta Kappa and Omicron Delta Kappa honorary fraternities. He belongs to the Atlanta and American Bar Associations, the State Bar of Georgia, and the Defense Research Institute. Mr. Domenico is active in a number of civic organizations and is a member of the 1995 class of Leadership DeKalb and the Rotary Club of Dunwoody.
The Georgia Association of Business Brokers (GABB) maintains a website that lists hundreds of businesses and franchises for sale throughout Georgia in a variety of fields, including automotive, business services, child care, cleaning, construction, electronics equipment, fitness, flooring, floral, food, gas stations, landscaping, manufacturing, medical, shipping, restaurants, retail, security, signs, and businesses related to the internet.
According to GABB President Greg DeFoor, selling a business is a complicated process with multiple steps and a lot of moving pieces.
“Our broker members are licensed business brokers, whereas everyone in the industry may not be properly licensed,” said DeFoor, who owns DeFoor Business Services, Inc. “GABB members benefit from continuing education, networking, promotion of professionalism and ethics in the industry, research tools, and forms prepared by a team of attorneys specifically for our association.”
“We are the go-to organization for business sales and acquisitions as a result of our dedication to the profession and our members being among the best in the state at what we do,” said DeFoor. “Our members have represented probably over a thousand transactions, and we have a dedicated membership of business brokers, lenders, attorneys and other professionals to assist business buyers and sellers at every step of the process. We work behind the scenes and go mostly unnoticed, but we’re an integral part of Georgia’s business community.”
For more information about GABB, email georgiabusinessbrokers@gmail.com or call 404-374-3990.
Read MoreHow to avoid ligitation: GABB Lawyer tells all on Feb. 23
Lawrence Domenico is the kind of lawyer you hire when you litigate, or sue someone. And he’s represented a lot of Georgia business brokers in disputes over the years.
On Tuesday, Feb. 23, Larry will offer advice worth hundreds, if not thousands, of dollars to members of the Georgia Association of Business Brokers and their guests. Namely, how NOT to need to hire Larry or someone like him. How to avoid legal disputes will be the topic of the GABB meeting on Feb. 23. The GABB, the state’s only professional association dedicating to buying and selling businesses and franchises, will meet at 10:30 a.m. at the South Terraces Conference Center, preceded at 9:45 a.m. by a free light breakfast and networking session. The South Terraces Conference Center is at 115 Perimeter Center Place, Atlanta, near Perimeter Mall. The meeting is open to the public at no charge.
Samantha Martin, SBA lending specialist with the Fifth Third Bank, is sponsoring the meeting.
Mr. Domenico is a managing partner of the law firm of Mozley, Finlayson & Loggins. He practices extensively in the areas of commercial and business litigation, products liability defense, and general litigation. Mr. Domenico also has extensive experience in assisting start up and existing businesses. In addition, Mr. Domenico has broad experience in alternate forms of dispute resolution including arbitration and mediation.
Mr. Domenico received a B.A., cum laude, from the University of the South in 1985. He attended the University of Georgia School of Law where he received a J.D., cum laude, in 1988. Mr. Domenico is a member of Phi Beta Kappa and Omicron Delta Kappa honorary fraternities. He belongs to the Atlanta and American Bar Associations, the State Bar of Georgia, and the Defense Research Institute. Mr. Domenico is active in a number of civic organizations and is a member of the 1995 class of Leadership DeKalb and the Rotary Club of Dunwoody.
The Georgia Association of Business Brokers (GABB) maintains a website that lists hundreds of businesses and franchises for sale throughout Georgia in a variety of fields, including automotive, business services, child care, cleaning, construction, electronics equipment, fitness, flooring, floral, food, gas stations, landscaping, manufacturing, medical, shipping, restaurants, retail, security, signs, and businesses related to the internet.
According to GABB President Greg DeFoor, selling a business is a complicated process with multiple steps and a lot of moving pieces.
“Our broker members are licensed business brokers, whereas everyone in the industry may not be properly licensed,” said DeFoor, who owns DeFoor Business Services, Inc. “GABB members benefit from continuing education, networking, promotion of professionalism and ethics in the industry, research tools, and forms prepared by a team of attorneys specifically for our association.”
“We are the go-to organization for business sales and acquisitions as a result of our dedication to the profession and our members being among the best in the state at what we do,” said DeFoor. “Our members have represented probably over a thousand transactions, and we have a dedicated membership of business brokers, lenders, attorneys and other professionals to assist business buyers and sellers at every step of the process. We work behind the scenes and go mostly unnoticed, but we’re an integral part of Georgia’s business community.”
For more information about GABB, email georgiabusinessbrokers@gmail.com or call 404-374-3990.
Read MoreThe Truth about Powers of Attorney
By Germaine Curtin
What exactly is a power of attorney? Does it give me the same power as if I were a lawyer? Do I become an attorney? What exactly does it allow me to do?
Most people believe they understand powers of attorney, but many people are wrong.
A power of attorney is simply a signed document that gives another person (the “agent” or “attorney in fact”) the power to act for the person giving the power (“principal”). The agent’s power is limited to the power actually given in the written instrument. The power may say “Joe has the right to sell my truck for whatever amount he believes to be fair market value.” In this case, Joe can sell the truck for $500, if he believes $500 to be the fair market value. The concept is very simple, but the law around powers of attorney has grown complicated.
The first concept that one should understand is that a power of attorney, generally, only allows the agent to act IF the principal was able to act at that time. Consequently, the power of the attorney in fact ceases when the principal no longer has the capacity to act herself.
But what good does that do? Don’t I want to act for someone only if they are unable to? My mother doesn’t want to give me power of attorney if she thinks I’ll act for her when she is able to act for herself.
While the general rules for powers of attorney provide that the power terminates when the principal loses capacity, the legal system recognized the problem, and has passed laws that allow a power of attorney to act after the principal loses capacity under a document that is called a “durable” power of attorney. This document must clearly state that the power survives even if the principal loses capacity. Georgia has created a law that includes the text of a document called a “Georgia General Durable Power of Attorney.” The form includes answers to frequently asked questions. You can find easily by googling it on the Georgia’s state website or local county websites. The Georgia form is not the exclusive power of attorney form, but it is a practical way to create a document that you know is legal and covers all necessary items.
The Georgia General Durable Power of Attorney is considered a “financial” power of attorney because the twelve separate powers granted in the document relate to financial matters, such as the ability to sell real estate, resolve legal disputes, engage in monetary transactions with the principal’s bank accounts, and others. The principal can choose which powers she wants to grant to the agent by initialing next to the appropriate numbered power on the Georgia form.
Health Care Power of Attorney. In 1990, Georgia passed a law, which was amended in 2007, to allow a principal to grant durable powers for the purpose of authorizing the agent to make health care decisions for the principal when the principal is incapacitated. This is distinct from a durable power of attorney for financial purposes, which may be exercised not only when the person is incapacitated, but also when the principal has all of her capabilities intact. A health care power of attorney can be exercised ONLY when the principal can’t act on her own behalf. By signing an Advance Directive for Health Care the principal can ensure that she may be taken off life support if that’s what she desires rather than requiring the medical staff to continue to try to keep her alive, as the medical staff is otherwise required to do.
If You Think the Durable Financial Power of Attorney for Health Care Covers Everything, You Would be Wrong.
What other powers can be granted if I covered my health and my finances including all real property and personal property? What else is there? That’s a good question; the answer lies with bureaucracy.
- Taxing authorities. To deal with any state or federal taxing authority, you must submit to that tax authority a power of attorney signed by the taxpayer, and you also need to specify what type of tax (income, sale, etc.) and for what years. Each taxing authority has its own form, and you need to provide a separate power of attorney to each taxing authority you deal with.
For example, I submitted a power of attorney to the Georgia Department of Revenue for a taxpayer to discuss what I thought were income tax issues. It turned out that the taxpayer was personally responsible for unpaid sales taxes of his company, and the matter I was dealing with was a sales tax, not an income tax, matter. I learned it was a sales tax issue by speaking with the income tax revenue agent, after I had provided my power of attorney to her. As soon as the revenue agent learned it was a sales tax issue, she transferred my call to the sales tax area. She promptly told me she couldn’t speak with me because it was a sale tax issue and my power of attorney only covered income taxes. Unfortunately, my client was out of town so I wasted several days. Now when I submit a power of attorney to any taxing authority, I make sure it covers ALL taxes for at least 10 years.
- Power of Attorney for Care of a Minor Child. Georgia also created a power of attorney form for a parent to give a grandparent or great-grandparent permission to care for their minor grandchild. I was amazed when I found that form power of attorney; I always thought that grandparents had an automatic right to care for their grandchildren. I’m sure some lawyer thought it was necessary. Other states have a similar form, but the principal can grant the power to any person, not just a grandparent or great-grandparent.
So You have been named an Attorney in Fact, What can you do now? According to most Banks: NOTHING!!
By 2006 I had been practicing laws for more than 20 years and, over the years, advised my clients to protect themselves by granting a power of attorney to another trusted person so the agent can pay bills and otherwise take care of things if the principal is hospitalized. Many estate planning attorneys will have their client sign a power of attorney to take care of things in a client’s older years.
I was named as the attorney in fact for my mother. We set up a trust for her so we could avoid probate. In 2006, just two days before she died, I discovered that she had too much cash in her name to qualify for the $20,000 small estate exemption from probate. She was getting feeble and simply forgot. Using my power of attorney, I wrote a check from her personal checking account and into her trust, to remove the money from her estate. I went to the bank, feeling lucky that I had discovered the mistake before she died. Much to my surprise, the Bank WOULD NOT RECOGNIZE my power of attorney. I tried everything to convince them, to no avail. My mother’s attorney contacted the bank and confirmed that he had drafted the power of attorney, named me as the attorney in fact, watched my mother sign it and stated that she was in sound mind at the time. The Bank STILL would not honor it.
It appears that banks have much more power than we thought. After many calls to my contacts in the banking world, it seems there is an unwritten rule that banks DO NOT RECOGNIZE a power of attorney UNLESS it is on their form AND on file at the bank. I have checked with many banks since that time and have found the policy consistent throughout the industry.
WARNING: if you are the attorney in fact under a financial power of attorney, I strongly advise you to file it with your principal’s bank and make sure the bank finds it acceptable. Otherwise, you will not be able to exercise your powers with the bank.
Germaine Curtin, JD, LLM is a business, tax and transactional attorney.
404-869-0122
518-882-9091404-869-0441 fx
curtin@gcurtinlaw.com
www.gcurtinlaw.com
Read More