Dividing Business Assets When One Spouse Owns the Business

By John M. Bovis April 9, 2018 Articles

Dividing assets in a divorce will have a lasting impact on your personal and professional future. Many couples share ownership of a business, making it subject to equitable distribution. But dividing a business when one spouse owns the business may lead to other challenges that both parties need to understand.

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David Harris Co-Authors Article in ABA TIPS Law Journal

By April 2, 2018 News/Events/Seminars

David Harris recently co-authored a summary of recent fidelity and surety cases in the Tort Trial & Insurance Practice Law Journal. This is David’s second year contributing to the annual summary. “RECENT DEVELOPMENTS IN FIDELITY AND SURETY LAW” Tort Trial & Insurance Practice Law Journal, Winter 2018 (53:2). [This article or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.]

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Current Issues Under the Indemnity Agreement

By David A. Harris March 23, 2018 Articles

The issue arising under the indemnity agreement in the last few years that has likely received the most inconsistent treatment by courts is the surety’s claim for preliminary injunctive relief on collateral demands.  To obtain a preliminary injunction a surety must establish: 

1. Substantial likelihood of success on the merits;
2. Irreparable harm absent injunctive relief;
3. That the threatened harm outweighs any harm that will result if the injunction is granted; and
4. If issued, the injunction will not be adverse to the public interest.

Courts that deny these injunctions usually get hung up on the surety’s claim of irreparable harm and whether the harm claimed by the surety outweighs the harm the indemnitors claim they will incur if the injunction is granted. For example, one court held that, because the surety presented no evidence it would be unable to obtain a monetary judgment without a preliminary injunction, it had not established irreparable harm. Ignoring the surety’s particular relationship and obligations, the court declared that “to find that irreparable harm exists in this instance would set a precedent for irreparable harm in any breach of contract case where a plaintiff may potentially have a right to a defendant’s assets.” Western Sur. Co. v. Rock Branch Mech., Inc., 5:16-CV-09550, 2016 WL 6462100 (S.D. W. Va. Oct. 31, 2016).

In another case, where the surety showed the indemnitors were transferring assets, the court still denied the motion for preliminary injunction. The court accepted the indemnitors’ argument that because the transfers were to a trustee “for the benefit of its creditors” there was no evidence the transfers risked dissipation of assets. According to the court, the surety did not meet its burden of showing irreparable harm or that monetary relief later, in the form of a final judgment, was inadequate. Westchester Fire Ins. Co. v. DeNovo Constructors, Inc., 177 F. Supp. 3d 810, 811 (S.D.N.Y. 2016).  

One court denied the surety’s request for collateral and instead fashioned its own relief by freezing the indemnitors’ assets (subject to some exceptions). The court got there by reasoning that the alternative relief would better balance the equities. The court was also influenced by the principal’s argument that it would be forced to close its doors and lay off 200 employees if ordered to post the collateral security demanded by the surety. The court found that as a result the public interest justified a change in relief to save the business. Western Sur. Co. v. Futurenet Grp., Inc., No. 16-CV-11055, 2016 WL 3180188 (E.D. Mich. June 8, 2016).  

Is all hope lost? Can the surety ever prevail on a preliminary injunction and obtain an order requiring the indemnitors to post collateral security as agreed and as required in the indemnity agreement?  

There is good news. Sureties can and should prevail.

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Separating Business Assets in a Divorce: Separate vs. Marital Property

By February 26, 2018 Articles

Separating the assets involved in a divorce is a complex process that can be overwhelming to many. It’s more difficult when these assets are related to a business.

Laws related to the valuation and division of property vary between states. That’s why it’s critical that you consult with a skilled family law attorney in order to protect your business and personal assets in a divorce.

The following helps you understand how to put the right legal strategies in place to secure your financial wellbeing.

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Indemnitors: Not A Surety’s Sureties

By David A. Harris February 21, 2018 Articles

When a surety sues to enforce its indemnity agreement, it is not uncommon for the indemnitors to argue they are the surety’s “sureties” and so entitled to all the same legal protections of a surety.

On its face, the argument might seem plausible. After all, according to Black’s Law Dictionary, a surety is “[s]omeone who is primarily liable for paying another's debt or performing another's obligation.” And aren’t the indemnitors being asked by the surety to pay for the principal’s debt? Or so the argument goes.  

A recent Georgia Court of Appeals case shot down this argument. Zambetti v. Cheeley Investments, L.P., 343 Ga. App. 637, 808 S.E.2d 41 (2017). The plaintiff sued to enforce the defendant’s oral agreement to pay the plaintiff’s attorneys’ fees. The defendant argued the statute of frauds precluded the enforcement of his oral agreement. The court held that the statute of frauds did not apply and distinguished a contract of indemnity from a guaranty.  

A guaranty or surety relationship is created when “one party promise[s] the original creditor that he would pay the debt of the original debtor if that debtor fail[s] to pay.” This is contrasted with a contract for indemnity, where “the indemnitor, for a consideration, promises to indemnify and save harmless the indemnitee against liability of the indemnitee to a third person, or against loss resulting from such liability.” Id.  

The key difference between the two relationships is that the surety’s obligation is to the original obligee. The indemnitors’ obligations are to reimburse the surety. Under Georgia law, this distinction determines whether or not the statute of frauds and other protections enjoyed by the surety apply.  

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