October 2019 Legal News & Notes


The October 2019 issue of Miller, Miller & Canby's Legal News & Notes quarterly email newsletter discusses 6 Key Factors for Business Succession Planning, an Upcoming Estate Planning Seminar, the Importance of Signed Corporate Legal Documents, 5G and Small Cell Legislation updates, MM&C Attorney Awards and Recognition, and much more.  Click here to view newsletter.





Merging Businesses Beware: MD Court Case Demonstrates Importance of Signed Legal Corporate Documents


A recent decision by the Maryland Court of Appeals serves as a cautionary tale for business owners in Maryland.  In MAS Associates v. Korotki, the parties intended to merge their businesses with an existing limited liability company (LLC), but never signed the requisite corporate documents to solidify their intention. When a dispute arose, two of the owners claimed a partnership existed while one disagreed.  Taking their dispute to the courts, the Court of Appeals ultimately determined that, while intent can be explicit or based on the parties’ conduct and the surrounding circumstances, there was insufficient evidence of a partnership here. Thus, the failure to document the relationship proved fatal to the argument of the majority owners.

Background

During the economic recession of 2009, Harry Korotki sought to initiate a merger with the mortgage lending company he owned, Savings First Mortgage, LLC ("Savings First"), and two other licensed mortgage entities: Greentree Mortgage Corporation ("Greentree"), owned by Joel Wax ("Mr. Wax"), and MAS Associates, LLC d/b/a Equity Mortgage Lending ("MAS"), owned by Saralee Greenberg ("Ms. Greenberg") and Ken Venick ("Mr.Venick"). Post-merger, the three companies were to operate as one, with MAS absorbing Greentree and Savings First, and becoming the surviving entity.

In an effort to memorialize their merger, each party was represented by its own counsel.  However, due to complex regulations governing mortgage companies, the parties selected an independent regulatory counsel to navigate the merger process. At the time of the pre-merger negotiations, it would have been impossible to combine all 3 businesses without some interim steps for the purposes of licensing.  Accordingly, the independent regulatory counsel prepared an "Issues Outline," which served as an outline for an "Interim Agreement." It included arrangements, obligations, and the structure of the business prior to the completion of the merger.

During the fall of 2009, the independent regulatory counsel drafted a new agreement between the parties, memorializing their intention to "ultimately change the membership of [MAS] and the membership percentages . . ."  However, the parties intended for this agreement to take effect once the requisite regulatory approvals had been obtained, which was slated to be three years or more.  The agreement was intended to provide time for each jurisdiction to process such approvals, namely MAS’ change in ownership paperwork, and to act as a limitations period to insulate MAS from potential creditors.

The independent regulatory counsel circulated the initial draft agreement to the parties and their attorneys for review. Two days later, regulatory counsel forwarded the parties a draft Operating Agreement for the new MAS.  Negotiations over the terms of the agreement and the Operating Agreement lasted for several months. However, an agreement over the language of the documents was not finalized, and the parties decided to proceed with business operations without executing the agreement. The parties concluded, because they were not generating revenue, it was not financially sound to continue absorbing legal fees with the regulatory counsel. Rather, they decided to proceed without signing any documents (except for a lease between Wax Properties and MAS).

By summer 2010, the combined mortgage lending business had finally begun turning a profit. Shortly thereafter, the parties agreed to start receiving a salary of $10,000.00 per month each. At that time, they informally agreed that all business decisions and day-to-day executive functions of MAS were to be unanimously approved between them.

At the end of the year, the three men divided MAS's profits evenly among themselves, each receiving $120,000.00. The next week, they each made an additional contribution of $125,000.00 to the business. Then they drew a second profit distribution, totaling $64,500.00 each.  Thereafter, as MAS began to grow, so did its need to secure additional lines of credit. As collateral to secure a line of credit, Mr. Greenberg and Mr. Wax agreed to pledge their own, personal resources. However, Mr. Korotki refused to be personally liable for any amounts exceeding his one-third share; which eventually led to the unraveling of the venture.

In the spring, Mr. Korotki informed Mr. Greenberg and Mr. Wax of his decision to quit. When Mr. Greenberg and Mr. Wax allegedly refused to negotiate the terms of his departure and buyout, Mr. Korotki filed a complaint in the Circuit Court for Baltimore County for breach of contract and declaratory judgment under RUPA. After several years of litigation and the associated legal costs, the trial court ruled that the parties intended to form a partnership.

The appeal by MAS Associates was elevated to the Maryland Court of Special Appeals.  The ruling at the Court of Special Appeals affirmed the trial court.  Specifically, the Court of Special Appeals ruled that the parties entered a “joint venture” in the short period of time between not signing the agreement and when they couldn’t agree to the terms of the merger.  

MAS Associates appealed to the Maryland Court of Appeals and Judge Adkins reversed the lower court, holding: “The party asserting the existence of a partnership bears the burden of producing sufficient facts to conclusively demonstrate the parties’ intent to form a partnership. Intent can be explicit or based on the parties’ conduct and the surrounding circumstances. Sharing profits and losses, equal management authority, making capital contributions, and whether the parties were concurrently seeking to form another type of business entity can all be factors the courts consider when evaluating intent.

Here, the trial court made an error of law when it concluded that Harry Korotki’s $275,000 in payments to Saralee Greenberg were capital contributions for a new entity, and to the extent that it applied a presumption of partnership based on receipt of profits, it also made an error of law. As for the other factors and evidence, taken together, the record lacks competent material evidence to conclude the parties formed a partnership and the trial court was clearly erroneous in concluding that they did.”


The Court of Appeals concluded that the parties, throughout the course of their business relationship and dealings, demonstrated that they never abandoned their pursuit of acquiring the membership interest in MAS.  Specifically, the Court ruled that it is a contradiction of Maryland law to simultaneously sustain the dual intention of acquiring an existing LLC’s membership interest and of forming a partnership or joint venture. The Maryland Court of Appeals reversed the Court of Special Appeals (and the trial court).  

Important Factors for Businesses Considering a Merger

  1. Hire Business Law Counsel 
    The parties in this case hired independent regulatory counsel to guide them through the merger as well as personal business law attorneys.  The regulatory counsel devised a plan whereby the parties would eventually become members of the LLC. 

  2. Negotiate and Execute Agreements
    The regulatory counsel drafted documents per the instructions of the parties, the parties just couldn’t come to an agreement with certain aspects of the agreements – so instead of resolving them, they just never signed them and conducted business without certainty.

  3. Understand the Risk of Operating a Business Without Executed Agreements
    Independent counsel warned the parties and their representatives that it would be difficult to determine their rights and obligations without signed agreements.  While the parties disagreed over some points, namely liability, had they executed the agreements or more effectively communicated with regulatory counsel, it could have protected their interests as it related to their business relationship with one another.  Instead, the parties conducted business activities as though an agreement was executed – in other words, they didn’t let the lack of a signed business contract get in the way of transacting business.  Despite their regulatory counsel’s repeated recommendations and warnings, they ignored his advice. 

  4. Trusted Business Law Advice May Reduce Your Future Legal Fees
    The lesson here is that your actions and conduct today can potentially be used either against you, or in your favor, in the future.  In the absence of signed agreements, the Court had to look to the actions and conduct of the parties.  The parties ignored the independent regulatory counsel’s warnings and advice because they didn’t want to pay the legal bills (based on the testimony of one party).  A trusted business law attorney makes sure their clients understand that they are looking out for their best interests.  Clients are better served by paying legal fees to structure their business appropriately, rather than incur problems and costly litigation later.

Chris Young is an associate in the Business & Tax practice at Miller, Miller & Canby. He focuses his practice on corporate legal agreements, business formation, tax controversy work and helping clients deal with new tax regulations. He may be reached at 301-762-5212 or via email.  View more information about Miller, Miller & Canby's Business & Tax practice by clicking here.

Michael Campbell
is a partner in the litigation group at Miller, Miller & Canby. He focuses his practice on commercial, real estate and construction litigation.  Please feel free to contact Mr. Campbell at 301.762.5212 or send him an email for an inquiry.  For more information about the firm’s litigation practice, click here. For more information about the firm’s business and contract law practice, click here.





Join MM&C Attorney David Lucas for an Estate Planning Seminar on October 29, 2019


Estates & Trusts Attorney, David A. Lucas, will be hosting an Estate Planning Insights Seminar on October 29, 2019 from 8 - 9:30 a.m. at Miller, Miller & Canby's Rockville Office in the Founders' Room.

  • Learn about the “nuts and bolts” of estate planning and probate

  • Hear about fascinating real-life case studies that illustrate what can go wrong without proper planning

  • Gain a greater understanding of the most beneficial approach for you and your family

  • Learn about the latest Maryland estate tax exemptions

REFRESHMENTS WILL BE SERVED I REGISTRATION IS REQUIRED I ATTENDANCE IS LIMITED

David A. Lucas is an attorney in the MM&C's Estates & Trusts and Business & Tax practice groups, focusing his practice in Estate Planning, and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.





Does Your Small Business Have a Succession Plan? 6 Key Factors to Consider


After years of blood, sweat, and tears, you have built a successful small business, but have you considered what will happen to your business when you retire or pass away, or in the event you become disabled? It is often hard to fathom an event that may not occur for many years, but it is critical to put plans in place in advance. Failure to plan for the inevitable could result in the eventual loss of the business. All small business owners should genuinely consider the following factors in making plans for the future of their business.

  1. Identify a successor. Many small business owners plan for the eventual transfer of their business to a child or children, or even grandchildren. If you have more than one child or potential successor to the business, it is essential to consider which of them has an interest in stepping into your shoes and whether the successor(s) has the skills needed to do so successfully. For example, you should not assume that control of the business should automatically go to the oldest child. The continued success of the business requires that the member(s) of the next generation who will take over the reins will have the business acumen and commitment needed to run it well.

  2. Train the successor. Consider participation in the business by the next generation before transferring ownership and management duties. For the continued success of the business, your successor(s) should know the ins and outs of the business and be able to run it before you depart. Training the successor can occur over several years, after which you can start the process of transferring management and ownership of the business. Some business owners choose to transfer management control of the business to the next generation first, while staying involved to a limited extent as an advisor. Then, after some time has passed, transferring ownership of the business can be completed.

  3. Determine whether to transfer the business by gift or sale. Each family must make its own decision about how the transfer should occur and the circumstances of when that might happen. Many business succession professionals recommend that the members of the next generation have an economic stake in the success of the business by purchasing at least part of their ownership interest. If your successor does not have the money to pay a lump sum for the business, the sale can occur as a buyout that happens over several years. Alternatively, the next generation can work for the company at a reduced salary to earn ownership interest in the business. Transfer of the ownership interest in the business can happen in several ways. If the transfer happens due to a sudden illness or death, have you considered the need for an income stream to support a surviving spouse?  The business and estate planning attorneys at Miller, Miller & Canby can help you explore options best suited to your particular circumstances.

  4. Create a structure for multiple successors.  If more than one successor is well-suited to run the business, put a business structure in place that enables a smooth transition to multiple successors with minimal conflict. Incorporate provisions facilitating a smooth transfer into your partnership agreement or LLC operating agreement. If one or more family members are not interested in participating in the ownership of the business, consider providing an inheritance for them from other assets or making them the beneficiary of a life insurance policy.

  5. Think about your own needs for your retirement. Will you need a continuous stream of income during your retirement years? If the answer is yes, consider continuing to play a limited ongoing role in the business, for which you receive a salary. Another option is to require the next generation to purchase the business; this would provide the funds needed for your retirement.

  6. Plan with an eye toward minimizing your tax liability. Many business owners choose to transfer ownership in the business gradually by making gifts of shares in the business to family members each year that are equivalent to the amount of the annual federal gift tax exclusion (currently $15,000). Our estate planning attorneys can help you establish a gifting plan to accomplish the transfer of your business in a way that minimizes your income, gift, and estate tax liability.

You have invested time, effort and collateral in making your business a success and it may be difficult to think about relinquishing ownership or control of it. Nevertheless, advance planning is of utmost importance in creating a lasting legacy for your family. Miller, Miller & Canby’s business, tax and estate planning attorneys can work with you to put a plan in place that helps you pass your business on to the next generation and takes into account your financial needs in retirement. Contact our office today to set up a meeting by clicking here.

David A. Lucas
is an attorney in Miller, Miller & Canby’s Estates & Trusts and Business and Tax Practice Groups. David has focused his practice on helping families preserve their financial wealth and legacies for future generations through the use of Trusts, Wills, Powers of Attorney, Advance Medical Directives, Living Wills, and other estate planning strategies. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

Contact David
to discuss your estate plan to take advantage of the laws available today and ensure flexibility for future changes. For more information on Miller, Miller & Canby’s Business and Tax Practice Group, click here.
 





Attorneys James Thompson and Jody Kline Selected for 2020 Best Lawyers in America® for 14th Year


Miller, Miller & Canby’s James (Jim) Thompson and Joel (Jody) Kline have been named Best Lawyers for the 2020 edition of Best Lawyers in America.®  Both attorneys have been recognized on the Best Lawyers list in their respective areas of practice every year since first being named in 2007. Mr. Thompson has been recognized for Eminent Domain and Condemnation Law and Mr. Kline for Land Use and Zoning Law.  Mr. Thompson is also named a “Best Lawyer of the Year” for 2020 for his accomplishments.   This is the second year Mr. Thompson has achieved this recognition.

Jim Thompson
has been a leader in Miller, Miller & Canby's Litigation Group for more than 35 years, concentrating his practice in eminent domain (with partner Joseph Suntum) and in real estate valuation litigation, as well as in property tax assessment appeals (with partner Michael Campbell) and general civil litigation. For more than a decade, Mr. Thompson represented Maryland as the sole member in the Owners’ Counsel of America, a national network of property rights attorneys with demonstrated excellence in this area, focusing upon the representation of landowners in eminent domain litigation. He has also served in numerous leadership roles within the legal community in Maryland, including President of the Maryland State Bar Association.

Jody Kline
has led Miller, Miller & Canby’s Land Development department since 1981, focusing his practice in land use, zoning and subdivision law and representing clients in many of Montgomery County’s planning and economic development initiatives. In addition to zoning and subdivision law, he represents clients in matters related to master planning, zoning text amendments, conditional use permits, building permit issuance, and other administrative and real estate matters related to land use and development. His clients include residential and commercial developers, private individuals, religious institutions, private schools, non-profit entities and municipal corporations and agencies.

Best Lawyers in America is the oldest and most respected attorney ranking service in the country. Recognition is based entirely on peer review. For more than 30 years, the organization has assisted those in need of legal services to identify the attorneys best qualified to represent them across hundreds of areas of practice.

Best Lawyers publishes a stand-alone publication which announces recognized attorneys. Best Lawyers lists are also published in local, regional, and national print and digital versions of leading publications, including The Wall Street Journal, The New York Times, and the Washington Post.

For more information about Jim Thompson and Miller, Miller & Canby’s Eminent Domain and Condemnation Law practice click here or for information about Jody Kline and Miller, Miller & Canby's Land Use and Zoning Law practice click here. View the firm press release by clicking the Download button below.
 





MM&C Attorney James Thompson Selected 2020 Best Lawyers in America® “Lawyer of The Year"


Miller, Miller & Canby’s James (Jim) Thompson has been named a Lawyer of the Year for the 2020 edition of Best Lawyers in America.®  This is the second year Mr. Thompson has achieved this recognition.  

Jim Thompson
has been a leader in Miller, Miller & Canby's Litigation Group for more than 35 years, concentrating his practice in eminent domain (with partner Joseph Suntum) and in real estate valuation litigation, as well as in property tax assessment appeals (with partner Michael Campbell) and general civil litigation. For more than a decade, Mr. Thompson represented Maryland as the sole member in the Owners’ Counsel of America, a national network of property rights attorneys with demonstrated excellence in this area, focusing upon the representation of landowners in eminent domain litigation. He has also served in numerous leadership roles within the legal community in Maryland, including President of the Maryland State Bar Association.

The “Lawyer of the Year” recognition is exclusive, meaning there is only one attorney selected for each metropolitan area and practice area. Mr. Thompson also won this recognition in 2013.

Best Lawyers in America is the oldest and most respected attorney ranking service in the country. Recognition is based entirely on peer review. For more than 30 years,  the organization has assisted those in need of legal services to identify the attorneys best qualified to represent them across hundreds of areas of practice.

Best Lawyers publishes a stand-alone publication which announces recognized attorneys. Best Lawyers lists are also published in local, regional, and national print and digital versions of leading publications, including The Wall Street Journal, The New York Times, and the Washington Post.

For more information about Jim Thompson and Miller, Miller & Canby’s Eminent Domain and Condemnation Law practice click here or for information about the Maryland Property Tax Appeals practice click here. View the firm press release by clicking the Download button below.
 





Michael Campbell Begins Presidency of Montgomery County Inn of Court


Miller, Miller & Canby’s Michael Campbell has begun a one-year term as President of the Montgomery County Inn of the American Inns of Court.  The American Inns of Court is a national association of lawyers, judges and other legal professionals who share a passion for legal excellence.  The mission of the organization is to “inspire the legal community to advance the rule of law by achieving the highest level of professionalism through example, education and mentoring.”

“I am honored to assume this role for the coming year, and look forward to continuing to work with my colleagues and our legal community, furthering the mission of the American Inns of Court,” said Mr. Campbell.

Through monthly meetings, the Inn hosts a dinner followed by a presentation, demonstration or guest speaker. In this collegial environment, outside the courtroom and pressure of daily practice, members discuss legal practice, principals and methods and provide mentorship to new lawyers.  The Montgomery County Inn of Court boasts 136 active members. Its meeting in September will feature Maryland Attorney General Brian Frosh.

Mr. Campbell is a partner in Miller, Miller & Canby’s litigation group, with a practice that is diverse and extensive. He focuses his practice on real estate and construction disputes in state and federal courts in Maryland, Virginia and the District of Columbia and before arbitration panels. He handles cases relating to commercial and residential construction projects, property and lease disputes, property tax appeals, and other commercial matters.

View the firm press release by clicking the Download button below.





25 States Have Supported 5G by Passing Small Cell Legislation to Promote Rapid Deployment of 5G


In May 2019, Nebraska passed its “Small Wireless Facilities Deployment Act” becoming the 25th State to pass legislation implementing the 5G and Small Cell deployment.   Thus, half of the Country now has state-wide legislation (versus just municipality or county specific legislation) to facilitate the deployment of 5G small cells.  While Maryland has introduced legislation the past two years on the topic, it has yet to pass a law.  Meanwhile, its neighboring States of Virginia, Delaware and West Virginia are among the 25 States.

These State laws take into consideration the unique circumstances of their State and local environment, but baseline principles can be established and are consistent with wireless industry standards, including:

  • Streamlined applications to access public rights of way

  • Caps on costs and fees

  • Streamlined timelines for the consideration and processing of cell siting applications

The Wireless Infrastructure Association (WIA and National Conference of State Legislatures) are tracking Mobile 5G and Small Cell 2019 Legislation. Click here to view the current legislation by State.

The telecommunications land use attorneys at Miller, Miller & Canby are experienced in Maryland, D.C. and Virginia and are closely monitoring the impacts of the FCC order and the efforts of State and local governments to craft small cell legislation in order to advise telecommunications and property owner clients.

Sean P. Hughes
is an attorney in Miller, Miller & Canby’s Land Use practice group. His career spans more than two decades of focus in legal and wireless telecommunications and he has represented clients in land use and zoning matters throughout the Mid-Atlantic.  To learn more about the firm’s Land Use and Zoning practice, click here.

Cathy Borten
is an attorney in Miller, Miller & Canby’s real estate practice group. She focuses in commercial real estate transactions and leasing, real estate litigation, land use and zoning and commercial financings and settlements. Cathy has over 10 years' experience in leasing, land use and zoning in the wireless telecommunications industry. Cathy also participated in the drafting of the Montgomery County and City of Gaithersburg original small cell ordinances. To learn more about the firm’s Real Estate practice, click here.





Promoting 5G: Two US Senators Re-Introduce Legislation to Streamline Rapid Deployment of Small Cells


On June 3, 2019, U.S. Senators John Thune (R-SD) and Brian Schatz (D-HI) re-introduced the Streamlining the Rapid Evolution and Modernization of Leading-edge Infrastructure Necessary to Enhance Small Cell Deployment Act, or STREAMLINE Small Cell Deployment Act.

The bipartisan legislation updates the Communications Act to better reflect developing technology and facilitate the rapid deployment of 5G networks. It also sets reasonable standards for local government review of infrastructure siting while recognizing the unique challenges for smaller municipalities.

Key Provisions of the STREAMLINE Small Cell Deployment Act:

  • Permits must be approved or denied on publicly available criteria that are reasonable, objective and non-discriminatory.

  • Small cell applications may be denied or regulated for objective and reasonable structural engineering standards, safety requirements or aesthetic or concealment requirements.

  • Applications must be acted on no later than 60 days for requests to co-locate equipment and 90 days for other requests.

  • Flexibility and additional time is allowed for small municipalities (fewer than 50,000 residents).

FCC Commissioner, Brendan Carr, released the following statement. “I commend Senator Thune and Senator Schatz for their leadership on smart infrastructure policies.  Their bill demonstrates bipartisan support for fee limits, timelines, and other reforms that are key to accelerating the buildout of 5G infrastructure in communities across the country.  If passed, their work to modernize our country’s approach to small cells would notch another solid win for the U.S. in the race to 5G.”

The telecommunications land use attorneys at Miller, Miller & Canby are experienced in Maryland, D.C. and Virginia and are closely monitoring the impacts of the FCC order and the efforts of State and local governments to craft small cell legislation in order to be able to advise telecommunications and landlord clients.

Sean P. Hughes
is an attorney in Miller, Miller & Canby’s Land Use practice group. His career spans more than two decades of focus in legal and wireless telecommunications and he has represented clients in land use and zoning matters throughout the Mid-Atlantic.  To learn more about the firm’s Land Use and Zoning practice, click here.

Cathy Borten
is an attorney in Miller, Miller & Canby’s real estate practice group. She focuses in commercial real estate transactions and leasing, real estate litigation, land use and zoning and commercial financings and settlements. Cathy has over 10 years' experience in leasing, land use and zoning in the wireless telecommunications industry. Cathy also participated in the drafting of the Montgomery County and City of Gaithersburg original small cell ordinances. To learn more about the firm’s Real Estate practice, click here.
 





May 2019 Legal News & Notes


The May 2019 issue of Miller, Miller & Canby's Legal News & Notes quarterly email newsletter announces Litigation Attorney Donna McBride admitted to the American College of Trial Lawyers, five attorneys named DC Super Lawyers, Should Maryland Property Tax Owners Complete Questionnaires, 5G and Small Cell Legislation updates and much more.  Click here to view newsletter.





More Entries