Michigan Business Law Journal Summer 2017

The Michigan Business Law JOURNAL

CONTENTS Volume 37 Section Matters Issue 2 From the Desk of the Chairperson 1 Officers and Council Members 2 Summer 2017 Committees and Directorships 3 Columns Taking Care of Business Julia Dale 5 Tax Matters: Collection Update Eric M. Nemeth 7 Technology Corner: Data Breach and Cyber Incident Response Planning Michael S. Khoury, Martin B. Robins, Kimberly Dempsey Booher, and Geoffrey M. Goodale 8 In-House Insight: Expat Lessons: From Muskegon to China (and Back) Matthew J. Nolan 11 Articles In My Defense: The Author on the 25th Anniversary of the Michigan Sales Representative Commission Act Dave Honigman and Jordan B. Segal 14 Business Lawyers—What's New in Health Care Law? Theresamarie Mantese, Douglas L. Toering, and Fatima Bolyea 28 Sixth Circuit Court of Appeals Holds That a Perfected Assignment of Rents Enforced Pre-Petition Excludes Such Rents from Being Property of the Bankruptcy Estate Judith Greenstone Miller and Paul R. Hage 37 Case Digests 42 Index of Articles 44 ICLE Resources for Business Lawyers 48

Published by THE BUSINESS LAW SECTION, State Bar of Michigan The editorial staff of the Michigan Business Law Journal welcomes suggested business law topics of general interest to the Section members, which may be the subject of future articles. Proposed business law topics may be submitted through the Publications Director, Brendan J. Cahill, The Michigan Business Law Journal, 39577 Woodward Ave., Ste. 300, Bloomfield Hills, Michigan 48304, (248) 203-0721, [email protected], or through Kanika S. Ferency, ICLE, 1020 Greene Street, Ann Arbor, Michigan, 48109-1444, (734) 936-3432, ferencyk@icle. org. General guidelines for the preparation of articles for the Michigan Business Law Journal can be found on the Section's website at http://michbar.org/business/bizlawjournal.cfm.

Each issue of the Michigan Business Law Journal has a different primary, legal theme focused on articles related to one of the standing committees of the Business Law Section, although we welcome articles concerning any business law related topic for any issue. The primary theme of upcoming issues of the Michigan Business Law Journal and the related deadlines for submitting articles are as follows:

Issue Primary Theme/Committee Article Deadline Spring 2018 Debtor/Creditors Rights Committee November 30, 2017 Summer 2018 Nonprofit Corporations Committee March 31, 2018 Fall 2018 Uniform Commercial Code Committee July 31, 2018 Spring 2019 Commercial Litigation Committee November 30, 2018

ADVERTISING

All advertising is on a pre-paid basis and is subject to editorial approval. The rates for camera-ready digital files are $400 for full-page, $200 for half-page, and $100 for quarter page. Requested positions are dependent upon space availability and cannot be guaranteed. All communications relating to advertising should be directed to Publications Director, Brendan J. Cahill, the Michigan Business Law Journal, 39577 Woodward Ave., Ste. 300, Bloomfield Hills, MI 48304, (248)203-0721.

MISSION STATEMENT

The mission of the Business Law Section is to foster the highest quality of professionalism and practice in business law and enhance the legislative and regulatory environment for conducting business in Michigan.

To fulfill this mission, the Section shall: (1) expand the resources of business lawyers by providing educational, networking, and mentoring opportunities; (2) review and promote improvements to Michigan's business legislation and regulations; and (3) provide a forum to facilitate service and commitment and to promote ethical conduct and collegiality within the practice.

The Michigan Business Law Journal (ISSN 0899-9651), is published three times per year by the Business Law Section, State Bar of Michigan, 306 Townsend St., Lansing, Michigan.

Volume XXII, Issue 1, and subsequent issues of the Journal are also available online by accessing http://www.michbar.org/business/bizlawjournal.cfm From the Desk of the Chairperson By Judy B. Calton

The Business Law Section on October 6, 2017, in Grand Rapids; three issues a year Strategic Plan and Directives of the Michigan Business Law Journal, with substantive legal articles written by Section members; the Business The Business Law Section recently Boot Camp (the next session of which is scheduled for updated its Strategic Plan. The March November 6-7, 2017 in Grand Rapids and January 29- 2017 Updated Strategic Plan can be 30, 2018 in Plymouth), currently offered in two yearly reviewed at http://connect.michbar. sessions over a three-year period with each session ad- org/businesslaw/council/councilinfo. dressing seven or eight core topics; and legal advocacy, The Strategic Plan’s purpose is to pro- such as legislative change and amicus curae briefs. Also, vide goals to achieve the Section’s Mission Statement, volunteers are solicited to work on special projects, such specific objectives to achieve those goals, and policies as the competency map discussed above. and procedures to administer the Section. The 2017 Please visit the Section’s webpage, http//connect. Update was based in part on the results of a 2016 survey michbar.org/businesslaw, to learn about the Section’s of Section members and to incorporate recommenda- st quarterly Council meetings that are open to members, tions of the State Bar of Michigan’s 21 Century Task Committees and Directorships and their activities, and Force. upcoming events. The Strategic Plan was previously updated in 2010, under the leadership of then Section Chair Tania E. (Dee Dee) Fuller. Ms. Fuller also led the recent Strategic Plan update with an ad hoc committee of Jonathan Berg (Section member), Kevin T. Block (Council treasurer), Judy B. Calton (Council chair), Francine Cullari (Section member), Brandon M. Dalziel (Section member), Mar- guerite Donahue (former Council chair), John Dresser (Section member), Michael Khoury (former Council chair), and Mark Peters (Council vice-chair). The mission of the Business Law Section is to foster the highest quality of professionalism and practice in business law and to enhance the legislative and regulatory environment for conducting business in Michigan. To fulfill this mission, the Section shall: (1) expand the resources of business lawyers by providing educational, networking and mentoring opportunities; (2) review and promote improvements to Michigan’s business legislation and regulations; (3) provide a forum to facilitate service and commitment and to promote ethical conduct and collegiality within the practice; and (4) assist section members in leveraging technology to more effectively provide legal services. Some of the Task Force recommendations the Section will try to advance are to (i) provide emphasis on technical competency and ethics training, baseline competency training and support, (ii) employ innovative, customiz- able delivery methods for specific legal training, and (iii) develop convenient self-assessment for continuing legal education. One such project involved 12 Section volunteers working with Michigan’s Institute of Continuing Legal Education to create “competency maps” of what a mergers and transactions attorney should know. The major work of the Section is done by its Commit- tees and Directorships, such as educational programs; educational or substantive law Committee meetings; the Section’s annual Business Law Institute, this year 1 2016-2017 Officers and Council Members Business Law Section

Chairperson: Judy B. Calton, Honigman Miller Schwartz & Cohn LLP 660 Woodward Ave., Ste. 2290, Detroit, MI 48226, (313)465-7344 Vice-Chairperson: Mark W. Peters, Bodman PLC 201 W. Big Beaver, Ste. 500, Troy, MI 48084, (248)743-6043 Treasurer: Kevin T. Block, Kerr, Russell and Weber, PLC 500 Woodward Ave., Ste. 2500, Detroit, MI 48226 (313)961-0200 Secretary: Jennifer E. Consiglio, Butzel Long PC 41000 Woodward Ave., Bloomfield Hills, MI 48304 (248)593-3023

TERM EXPIRES 2017: Lee B. Durham, Jr.—1021 Dawson Ct., Greensboro, GA 30642 Jennifer Erin Consiglio—41000 Woodward Ave., David Foltyn—660 Woodward Ave, Ste. 2290, Detroit, 48226 Bloomfield Hills, 48304 Richard B. Foster, Jr.—4990 Country Dr., Okemos, 48864 Shane B. Hansen— 111 Lyon St. NW, Ste. 900, Grand Rapids, Tania E. Fuller—300 Ottawa NW, Ste. 220, Okemos, 49503 49503 Connie R. Gale—P.O. Box 327, Addison, 49220 Daniel M. Morley— 101 N Park St., Ste. 100, Traverse City, Mark R. High—500 Woodward Ave., Ste. 4000, Detroit, 49684 48226 Michael S. Khoury—6632 Telegraph Rd., Ste. 240, Bloom- TERM EXPIRES 2018: field Hills, 48301 Julia Ann Dale—7150 Harris Dr., Lansing, 48909 Justin G. Klimko—150 W. Jefferson, Ste. 900, Detroit, 48226 Eric I. Lark—500 Woodward Ave., Ste. 2500, Detroit, 48226 Mark W. Peters—201 W. Big Beaver Rd., Ste. 500, Troy, 48084 Tracy T. Larsen—171 Monroe Ave., NW, Ste. 1000, Grand Rapids, 49503 John T. Schuring—200 Ottawa Ave NW, Ste. 1000, Edwin J. Lukas—1901 St. Antoine St., Ste. 2500, Detroit, 48226 Grand Rapids, 49503 Hugh H. Makens—111 Lyon St. NW, Ste. 900, Grand Rapids, Aaron M. Silver—30001 Van Dyke Ave., Warren, 48093 49503 James R. Waggoner—151 S Old Woodward, Ste. 200, Charles E. McCallum—111 Lyon St. NW, Ste. 900, Grand Birmingham, 48009 Rapids, 49503 Daniel H. Minkus—151 S. Old Woodward Ave., Ste. 200, TERM EXPIRES 2019: Birmingham, 48009 Keven T. Block—500 Woodward Ave., Ste. 2500, Detroit, Aleksandra A. Miziolek—39550 Orchard Hill Place Dr., 48226 Novi, 48375 Judy B. Calton—660 Woodward Ave., Ste. 2290, Detroit, Cyril Moscow—660 Woodward Ave., Ste. 2290, Detroit, 48226 48226 Seth A. Drucker—150 Stephenson Hwy., Troy, 48083 Ronald R. Pentecost—124 W. Allegan St., Ste. 1000, Lansing, Mark E. Kellogg—124 W. Allegan, Ste. 1000, Lansing, 48933 48933 Ian M. Williamson—1361 E. Big Beaver Rd., Troy, 48083 Donald F. Ryman—313 W. Front St., Buchanan, 49107 Hon. Christopher P. Yates—180 Ottawa Ave., NW, Ste. Robert E. W. Schnoor—6062 Parview Dr. SE, Grand Rapids, 10200B, Grand Rapids, 49503 49546 Laurence S. Schultz—2600 W. Big Beaver Rd., Ste. 550, Troy, EX-OFFICIO: 48084 Diane L. Akers—1901 St. Antoine St., 6th Fl., Detroit, 48226 Lawrence K. Snider—410 S. Michigan Ave., Ste. 712, Jeffrey S. Ammon—250 Monroe NW, Ste. 800, Grand Rapids, Chicago, IL 60605 49503-2250 Douglas L. Toering—1361 E. Big Beaver Rd., G. Ann Baker—P.O. Box 30054, Lansing, 48909-7554 Troy, MI 48083 Harvey W. Berman—201 S. Division St., Ann Arbor, 48104 John R. Trentacosta—500 Woodward Ave., Ste. 2700, Bruce D. Birgbauer—150 W. Jefferson, Ste. 2500, Detroit, Detroit, 48226 48226 Jeffrey J. Van Winkle—200 Ottawa Ave. NW, Ste. 500, James C. Bruno—150 W. Jefferson, Ste. 900, Detroit, 48226 Grand Rapids, 49503 James R. Cambridge—500 Woodward Ave., Ste. 2500, Detroit, Robert T. Wilson—41000 Woodward Ave., Bloomfield Hills, 48226 48304 Thomas D. Carney—820 Angelica Circle, Cary, NC, 27518 James L. Carey—23781 Point o’ Woods Ct., South Lyon, COMMISSIONER LIAISON: 48178 Jospeh P. McGill—38777 Six Mile Rd., Ste. 300, Livonia, Timothy R. Damschroder—201 S. Division St., Ann Arbor, 48152 48104 Alex J. DeYonker—850 76th St., Grand Rapids, 49518 Marguerite M. Donahue, 2000 Town Center, Ste. 1500 Southfield, 48075

2 2016-2017 Committees and Directorships Business Law Section

Committees

Business Courts Financial Institutions Nonprofit Corporations Chairperson: Douglas L. Toering Chairperson: D.J. Culkar Co-Chair: Celeste E. Arduino Mantese Hongiman, PC Comerica Inc. Bodman PLC 1361 E. Big Beaver Rd. 1717 Main St., Ste. 2100 1901 St. Antoine St., Fl. 6 Troy, MI 48083 Dallas, TX 75201 Detroit, MI 48226 Phone: (248) 457-9200 Phone: (214) 462-4401 Phone: (313) 393-7593 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Co-Chair: Jennifer M. Oertel Commercial Litigation In-House Counsel Chairperson: Douglas L. Toering Co-Chair: Dawn A. Reamer Jaffe Raitt Heuer & Weiss, PC Mantese Hongiman, PC Aisin Holdings of America, Inc. 27777 Franklin Rd., Ste. 2500 1361 E. Big Beaver Rd. 15300 Centennial Dr. Southfield, MI 48034 Troy, MI 48083 Northville, MI 48168 Phone: (248) 727-1626 Phone: (248) 457-9200 Phone: (734) 582-5495 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Regulation of Securities Corporate Laws Chairperson: Patrick J. Haddad Chairperson: Justin G. Klimko Co-Chair: MaryAnn P. Kanary Kerr, Russell and Weber, PLC Butzel Long Toyoda Gosei North America Corp. 500 Woodward Ave., Ste. 2500 150 W. Jefferson, Ste. 900 1400 Stephenson Hwy. Detroit, MI 48226 Detroit, MI 48226-4430 Troy, MI 48083 Phone: (313) 961-0200 Phone: (313) 225-7037 Phone: (248) 280-7386 E-mail: [email protected] E-mail: [email protected] E-mail: maryann.kanary@ toyodagosei.com Small Business Forum Debtor/Creditor Rights Chairperson: Bruce W. Haffey Co-Chair: Judy B. Calton Law Schools Giarmarco Mullins & Horton, PC Honigman Miller Schwartz & Cohn LLP Chairperson: Mark E. Kellogg 101 W. Big Beaver Rd., Fl. 10 660 Woodward Ave., Ste. 2290 Fraser Trebilcock Davis & Dunlap Troy, MI 48084 Detroit, MI 48226 PC Phone: (248) 457-7140 Phone: (313) 465-7344 124 W. Allegan St., Ste. 1000 E-mail: [email protected] E-mail: [email protected] Lansing, MI 48933 Phone: (517) 482-5800 Co-Chair: Judith Greenstone Miller Uniform Commercial Code E-mail: [email protected] Jaffe Raitt Heuer & Weiss, PC Chairperson: Darrell W. Pierce Dykema 27777 Franklin Rd., Ste. 2500 LLC & Partnership Southfield, MI 48034-8214 Chairperson: James L. Carey 2723 S State St, Ste 400 Phone (248) 727-1429 Carey Law Offices, PC Ann Arbor, MI 48104 E-mail: [email protected] 23781 Point o’ Woods Ct. Phone: (734) 214-7634 South Lyon, MI 48178 E-mail: [email protected] Co-Vice Chair: Paul Hage Phone: (248) 605-1103 Jaffe Raitt Heuer & Weiss, PC E-mail: [email protected] 27777 Franklin Rd., Ste. 2500 Southfield, MI 48034-8214 Phone: (248) 351-3000 E-mail: [email protected] Co-Vice Chair: Marc Swanson Miller Canfield 150 W. Jefferson Ave., Ste. 2500 Detroit, MI 48226-4415 Phone (313) 496-7591 E-mail: swansonm@millercanfield. com

3 Directorships

Communication and Development Legislative Review Publications Kevin T. Block Eric I. Lark Brendan J. Cahill Kerr, Russell and Weber, PLC Kerr, Russell and Weber, PLC Dykema 500 Woodward Ave., Ste. 2500 500 Woodward Ave., Ste. 2500 39577 Woodward Ave., Ste. 300 Detroit, MI 48226 Detroit, MI 48226-5499 Bloomfield Hills, MI 48304 Phone: (313) 961-0200 Phone: (313) 961-0200 Phone: (248) 203-0721 [email protected] E-mail: [email protected] E-mail: [email protected] Nominating Jennifer E. Consiglio D. Richard McDonald Tania E. (Dee Dee) Fuller Butzel Long PC Dykema Fuller Law & Counseling, PC 41000 Woodward Ave., 39577 Woodward Ave., Ste. 300 300 Ottawa NW, Ste. 220 Stoneridge West Bloomfield Hills, MI 48304 Grand Rapids, MI 49503 Bloomfield Hills, MI 48304 Phone: (248) 203-0859 Phone (616) 454-0022 Phone (248) 593-3023 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Programs Liaisons Julia A. Dale Tania E. (Dee Dee) Fuller LARA Corporations, Securities & Fuller Law & Counseling, PC ICLE Liaison Commercial Licensing Bureau 300 Ottawa NW, Ste. 220 Marguerite M. Donahue PO Box 30054 Grand Rapids, MI 49503 Seyburn Kahn Ginn Bess & Serlin PC Lansing, MI 48909 Phone (616) 454-0022 2000 Town Center, Ste. 1500 Phone (517) 241-6463 E-mail: [email protected] Southfield, MI 48075 E-mail: [email protected] Phone: (248) 351-3567 Eric I. Lark Mark R. High E-mail: [email protected] Kerr, Russell and Weber, PLC Dickinson Wright, PLLC 500 Woodward Ave., Ste. 2500 500 Woodward Ave., Ste. 4000 Probate & Estate Planning Section Detroit, MI 48226-5499 Detroit, MI 48226-5403 Liaison Phone (313) 961-0200 Phone (313) 223-3500 John R. Dresser E-mail: [email protected] E-mail: [email protected] 67621 Crooked Creek Rd. Daniel H. Minkus White Pigeon, MI 49090 Clark Hill, PLC E-mail: [email protected] 151 S. Old Woodward, Ste. 200 Birmingham, MI 48009 Phone: (248) 988-5849 E-mail: [email protected] Mark W. Peters Bodman PLC 201 W. Big Beaver Rd., Ste. 500 Troy, MI 48084 Phone: (248) 743-6043 E-mail: [email protected] John T. Schuring Dickinson Wright, PLLC 200 Ottawa Ave. NW, Ste. 1000 Grand Rapids, MI 49503 Phone (616) 336-1023 E-mail: jschuring@dickinsonwright. com

4 Taking Care of Business By Julia Dale

In March 2017, administration of death under either a guaranteed or no additional charges for the items the Mortuary Science occupation nonguaranteed price contract. The covered under a guaranteed contract. was transferred to the Corporations, Act requires all prepaid funeral con- Funds remitted for a guaranteed pre- Securities and Commercial Licens- tracts to be in writing or risk being paid contract must be held by a third- ing Bureau (CSCL) from the Bureau voided by either party. party escrow agent, which is defined of Professional Licensing within the Prepaid contracts may be utilized as a depository (bank, savings and Department of Licensing and Regula- to pay in advance for cemetery goods loan, savings bank, credit union), tory Affairs (LARA). This move con- and services, and funeral goods and trust company, or the Michigan Fu- solidated Mortuary Science, Ceme- services. All funds received for a pre- neral Directors Association (MFDA). teries, Prepaid Funeral and Cemetery paid contract must be escrowed, and The funds may only be invested in Sales, and the Cemetery Commis- the funds remitted for the benefit of accordance with section 7803 of the sioner into a single bureau charged the contract buyer or beneficiary. The Estates and Protected Individuals with overseeing the death care indus- contracts are legally the property of Code.4 In the event the escrow ac- try, resulting in greater efficiencies the contract buyer until the funds are count contains insufficient funds to and improved customer service. utilized for the funeral. Funds are re- provide the funeral when needed, Death care is a unique industry— quired to be held in escrow until they the funeral home cannot charge ad- one often avoided by those outside of are utilized for the funeral or refund- ditional amounts to cover the short- it unless forced to confront it through ed to the customer upon cancellation. fall yet must still provide the funeral the loss of a loved one. Indeed, on a As mentioned above, a seller of a items purchased. However, if the es- bright and sunny spring day it seems prepaid contract is required to be reg- crow account contains more than is a morose topic to dwell on. There istered with the Department. A pre- required, the surplus belongs to the is, however, one area of the indus- paid contract must have a provider. funeral home. Guaranteed prepaid try that invites and encourages con- A “provider” is defined as: contracts are unique in that they can templation, interaction, and inquiry any person who furnishes or be designated as irrevocable upon before death becomes us. Each of us agrees to furnish merchandise approval by the U.S. Department of will at some time require death care. or funeral or cemetery servic- Health and Human Services. This is In Michigan, the Prepaid Funeral and es pursuant to a prepaid con- significant in that an irrevocable con- Cemetery Sales Act (the “Act”), 1986 tract, whether or not that per- tract is not used in determining the PA 255, MCL 328.211 et seq., regulates son is the contract seller. In the eligibility of an applicant or recipi- the sale and provision of prepaid fu- case of merchandise, provider ent for assistance under the Social neral and cemetery merchandise and means the person who arrang- Welfare Act. An irrevocable contract services, and the use of funds re- es for delivery of the merchan- cannot be canceled and can be trans- ceived by sellers and providers of dise at the time of the death of ferred to another funeral home (pro- these goods and services. Individuals the contract beneficiary and not vider). An irrevocable contract may or companies who sell prepaid funer- the manufacturer of the mer- be escrowed as either a guaranteed al and cemetery contracts in Michi- chandise. In the case of funer- contract or as a nonguaranteed con- gan must be registered with LARA.1 al services, a provider means tract at the discretion of the provider. The Department currently oversees a person who possesses all Nonguaranteed contracts may re- the practice of approximately 575 licenses necessary to perform quire additional future payments to prepaid contract sellers. the funeral services specified provide for the goods and services in the prepaid contract. In the contained in the contract if the es- What is a Prepaid Contract? case of cemetery services, a crow account is not sufficient to cover Before diving into the details of what provider means a person who the costs at the time of need. Yet, in a prepaid contract is, it is important possesses all licenses and reg- the event there are excess monies in make clear what they are not. A pre- istrations necessary to provide escrow that were not needed to pro- paid contract is not an insurance pol- the cemetery services specified vide the contract’s items, they will be icy and is never related to an insur- in the prepaid contract.3 refunded to the buyer or the buyer’s ance product.2 And, prepaid con- For purposes of this discussion, estate. All funds received in connec- tracts do not include contracts for the we will be focusing on funeral homes, tion with a prepaid contract must be at need sale of merchandise or funeral as in the vast majority of situations, held in escrow by an escrow agent for or cemetery services entered into after the seller (a funeral home) is also the the benefit of the contract beneficiary. the death of the contract beneficiary. provider. However, with a nonguaranteed con- What then is a prepaid contract? A There are two kinds of prepaid tract, the escrow agent can either be prepaid funeral contract allows indi- contracts—guaranteed and nonguar- a third-party escrow agent, seller, or viduals to pay in advance for funer- anteed. Prepaid contracts, which are the provider. No matter who the es- al goods and services to occur after guaranteed, are just that; there will crow agent is, the funds must be in- 5 6 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017 vested in an interest-bearing account is entitled to. It is highly recommend- tions in connection with a prepaid at a depository. Furthermore, a non- ed that the yearly statement require- contract. Our office may be reached guaranteed contract must have it ment not be waived. at (517) 241-9221. clearly indicated on the contract that After purchasing a contract, the it is nonguaranteed. That is, that the buyer should expect to receive a no- actual costs of the merchandise or fu- tification from the escrow agent indi- neral or cemetery services delivered cating that their guaranteed prepaid at the time of death may be greater or contract funds were deposited with NOTES less than the amount of principal and them. This notification is mandatory. income in the escrow account, and It is also required that prepaid con- 1. MCL 328.216(1). 2. Funeral Insurance is regulated under that the buyer, the buyer’s estate, or tract funds be deposited with an es- Section 500.2080 of the Michigan Insurance the person or persons legally entitled crow agent within 30 days; therefore, Code which is under the jurisdiction of the to make funeral or cemetery arrange- the buyer should expect to receive no- Department of Insurance and Financial ments, or both, are not obligated to Services. tification within 45 days of paying the 3. MCL 328.215(f). purchase specific merchandise and funeral director. However, it must be 4. MCL 700.7803 requires that a trustee act services that were selected before the understood that this notification is “as would a prudent person in dealing with the death of the contract beneficiary or not required when a nonguaranteed property of another, including following the standards of the Michigan prudent investor to expend a specific amount on mer- contract is purchased, and the seller rule.” chandise or funeral or cemetery ser- has elected to be the escrow agent. vices. Make sure there is a clear understanding of the refund provisions Tips to Consider When available under a prepaid contract. Advising the Prepaid For nonguaranteed price contracts, Customer in the event a 10 percent commission First and foremost, ensure that the was taken when the contract was purchased, the contract buyer is entitled prepaid seller is currently registered Julia Dale is the and that the funeral home that is to to 100 percent of the contract funds Director of the Corpo- provide the goods and services is currently held in escrow, including rations, Securities & licensed. This can be checked through the earnings. In the event a 10 percent Commercial Licensing the Department’s Verify a License/ commission was not taken when the Bureau for the State Registration page found at www. contract was purchased, the contract of Michigan; Depart- mi.gov/licenselookup. buyer is entitled to only 90 percent of ment of Licensing and When purchasing a prepaid con- the contract funds currently held in Regulatory Affairs. She is a member of the State Bar of Michigan tract, the check should be made pay- escrow, including the earnings. How- ever, for guaranteed price contracts, and serves on the Business Law able to the escrow agent and not the Section Council. funeral home or funeral director. A the principal and income held by contract seller may collect up to ten the escrow agent goes to the funeral percent of the contract amount as home. A contract buyer is entitled to commission; the commission amount a refund at any time before the death is in addition to the contract amount of the beneficiary. After the death of a and must clearly state so on the con- beneficiary, a refund is only required tract. In the event the seller is exercis- when the family did not know of the ing their right to collect commission, existence of the prepaid contract, or a write a separate check to the seller for body is not retrievable for a funeral. the commission. And, while this may If a family knows that a prepaid con- seem obvious, make sure your client tract exists and chooses not to utilize receives a copy of the signed prepaid it, they are not entitled to a refund; contract, as it is the only document however, this does not prevent the that sets forth exactly what is pur- transfer of a contract from one funer- chased. al home to another. The prepaid con- The Act requires that a year- tract is required to clearly indicate ly statement from the escrow agent that the buyer is entitled to a refund if be sent to the contract buyer unless the contract is canceled by the buyer. waived in writing. The statement will Contact the Securities & Audit give an accounting of the status of the Division of the Corporations, Secu- contract, its current value, and the rities and Commercial Licensing amount of refund the contract buyer Bureau with any problems or ques- Tax Matters By Eric M. Nemeth Collection Update

The IRS has announced several neglect. That is not an effective strat- What? important changes to their collection egy for delinquent tax filings or pay- Former United States Tax Court policies. The passport restriction for ments. A delinquent filing or pay- Judge Diana Kroupa was sentenced certain unpaid taxes is now being ment can reduce penalties and inter- to 34 months in prison following her implemented. IRS 7545 authorizes est. Many times a taxpayer is owed a guilty plea for tax fraud. A remark- the IRS to certify to the U.S. Depart- refund. Tax refunds must be claimed able downfall. Kroupa retired from ment of State that an individual has within three years of the return due the Tax Court on June 16, 2014, short date or the refund is lost. If your cli- seriously delinquent tax debt that is of completing her 15-year term. The ent is concerned about tax return or unresolved (no installment agree- years of tax fraud range from 2002- ment, pending OIC, etc.). If a taxpayer payment delinquencies, the most 2012, when Kroupa was adjudicating received Notice CP 508C, then the IRS important step is the first step – seek the tax disputes of other taxpayers. has notified the Department of State. competent assistance. IRS staffing As of June 2016, 76 countries have The Department of State may revoke shortages generally mean that pro- agreed to adopt multi-lateral tax trea- a passport or deny the renewal or active taxpayers are in much better ties in a further global crackdown granting of a passport. The threshold shape for favorable resolution terms of treaty abuse and tax avoidance for this procedure is $50,000, indexed than those that wait for the dreaded schemes. for inflation, including penalty and certified mail or the knock on the interest. Reversal of the revocation door. Celebrity Tax Malaise will take at least 30 days. Taxpayers If you need a roadmap of the IRS Boxing champion Floyd Mayweather, that travel overseas for business or focus for Large Business and Inter- Jr. is in Tax Court requesting judicial pleasure have a significant motiva- national (LB&I), the IRS released intervention for time to pay his 2015 tion to proactively address their tax their FY2017 Focus Guide. The Focus taxes. Mayweather is asking the court obligations. Guide reiterates the IRS enforcement to prohibit the IRS from levying cur- The IRS has also recently an- priorities and methods. The docu- rent investments and allow him to nounced that under most circum- ment should be consulted by your cli- pay the taxes from the proceeds of a stances, taxpayers who owe less than ent prior to an examination, so they scheduled fight with MMA fighter $100,000 may establish installment better understand the process. Colin McGregor. agreements over seven years without IR2017-93 publishes how eligible Famed rapper DMX, a/k/a Earl detailed financial statements. Tax- small business (ESB) startups may Simmons, was indicted in New York payers must remain currently com- now choose to utilize their research pliant with their tax payment and fil- credit against their payroll liability. on various counts of tax fraud. He is ing obligations during their payment This is an important tax benefit in held on a $500,000 bond. plan. business planning. As with most ben- Who said taxes are boring? efits, strict adherence to the election Michigan Enforcement process is required. The State of Michigan has undertak- A recent GAO report to the House en more aggressive tax enforcement Committee on Budget estimates tax with a dedicated group of assistant underpayment (tax gap) and errone- attorney generals and investigators ous government program payments for sales and use tax enforcement. account for more than 93 percent of Eric M. Nemeth of Prior to the commencement of an the 2016 federal budget deficit. De- Varnum LLP in Novi, “examination,” investigators may spite those figures, IRS enforcement Michigan practices have made purchases at the target personnel and the budget continue to in the areas of civil business. The investigators will probe shrink. and criminal tax con- to see if the Point of Sale (“POS”) sys- The Michigan Supreme Court re- troversies, litigating matters in the vari- tem correctly records the invoices the cently refused to consider an appeal ous federal courts and administra- by Kimberly-Clark Corp denying the investigators received from the busi- tively. Before joining Varnum, he company’s bid to use the Multistate ness. Clients should be advised that served as a senior trial attorney for no examination is routine. Tax Compact to calculate its income the Office of Chief Counsel of the in Michigan. Internal Revenue Service and as a General Update The ruling leaves in place a low- special assistant U.S. attorney for Did you or your client miss the tax er court ruling that Kimberly Clark the U.S. Department of Justice, as filing deadline? Human nature often must use the formula provided under well as a judge advocate general takes the path of denial or benign the Michigan Business Tax. for the U.S. Army Reserve. 7 By Michael S. Khoury, Martin B. Robins, Kimberly echnology orner T C Dempsey Booher, and Geoffrey M. Goodale Data Breach and Cyber Incident Response Planning This column has often reviewed plan and communicating contract counterparties, as developments in the law dealing with and overseeing with mem- well as governmental and data breaches and obligations of com- bers of the response team. In non-governmental agencies panies when they face such an inci- larger organizations, this will that may need to get notice dent. There is a significant concern, often be the responsibility of under applicable law? To however, that the prevalence of data someone in the compliance this end, your organization breaches may desensitize organiza- or legal department. should keep and update a tions that collect and maintain per- • Who will be on the team? matrix of contracting par- sonal information to the risks and con- These will be resources ties that have contractual sequences of a cyber incident. While that have critical skills and cybersecurity requirements some industries, such as healthcare, knowledge that will be need- and that require notice in the financial services, and aerospace and ed and usually include rep- event of an incident. defense, are required by law to plan resentatives from executive • Does your organization have for the incidents, the risks extend management, IT, HR, legal, cyber insurance coverage? to most organizations. Apart from public relations, and risk Should you? Who will initi- statutory obligations, many private management. A back up per- ate claims? If you do have contracts impose requirements for son in each category should cyber insurance coverage, security and breach notification. Of also be identified as should consult your policy about course, even in the absence of legal the principal contact with actions that are required in obligations, prompt remediation is cloud and similar vendors. the event of a breach and often essential to maintain continuity • How do you contact mem- incorporate them into the of business operations. bers of the team? This is not plan. As with other types of For this article, members of our a “business hours” respon- insurance, process may be firm’s Data Breach and Incident Re- sibility. Contact information important; certain actions sponse Team collaborated to provide must be shared and updated. or inactions may lead to the this summary for you. The actions re- • Understand what data the insurer declining coverage. quired by companies in the event of organization has, placing a cyber incident are considerable and emphasis on personally iden- Special Rules and Guidance the potential liability can be substan- tifiable information, personal Numerous agencies have issued tial. The following are some sugges- health information, finan- requirements and guidelines regard- tions for planning for your company cial information, defense ing key issues that should be consid- and responding in the event of an in- contract-related information, ered when formulating a cyber inci- cident. and mission critical business dent response plan. These rules are databases, where it is kept, especially important for federal gov- The Response Plan how is it secured, and where ernment subcontractors. For exam- In developing your incident response backups are maintained. ple, in May 2016, the U.S. Depart- plan, each company needs to evalu- • Who is responsible for pre- ment of Defense (DoD), the General ate its own internal processes and the venting an incident from Services Administration (GSA), and information it maintains. Contrary happening? Who is responsi- the National Aeronautics and Space to some views, the use of cloud ven- ble for detecting one when it Administration (NASA) published dors and other third parties does not does? This may be the same a final rule that amended the Fed- negate the need for such a plan. You person, but it may include eral Acquisition Regulation (FAR) can delegate some tasks and obtain outsourced functions. and served to impose a set of fifteen indemnification from other parties • How will the organization “basic” security controls for govern- for their failures, but you cannot del- work to contain the breach, ment contractor information systems egate the compliance obligations that such as disconnecting from upon which “Federal contract infor- exist, especially those obligations to the Internet, impacted hard- mation” transits or resides.1 government agencies and consumers. ware and removing mali- The DoD also promulgated addi- The specific parts of the plan may cious code, and investigate tional requirements in October 2016. include the following: the incident? To begin with, on October 4, 2016, the • Who will be the point per- • How will the organization DoD issued a final rule that imple- son? This person is respon- provide legally required mented mandatory cyber incident sible for execution of the notices to individuals and reporting requirements for DoD con- 8 TECHNOLOGY CORNER 9 tractors and subcontractors who have The U.S. Federal Trade Commis- the legal aspects, determine “agreements” with the DoD.2 Subse- sion (FTC) also has provided a good which notices are required quently, on October 21, 2016, the DoD deal of specific guidance on this top- (including under securi- published a final rule that imposed ic, which should be considered when ties law, if you are public), additional safeguarding and cyber formulating a plan. Two very useful and who provides them and incident reporting requirements on FTC publications are Protecting Per- coordinate the response. The defense contractors whose informa- sonal Information: A Guide for Busi- retention of some profession- tion systems process, store, or trans- ness and Start with Security: A Guide als should be through your mit “covered defense information” for Business, both of which can be ac- outside counsel to potential- (CDI).3 cessed at https://www.ftc.gov/tips- ly preserve the confidential- The U.S. Department of State’s Di- advice/business-center/privacy- ity of any information. rectorate of Defense Trade Controls and-security/data-security. • Identify any potential indem- (DDTC) also imposes mandatory nity claims from service pro- reporting requirements on U.S. and Employee Training viders and quickly put those U.K. companies with respect to cy- Once the incident response plan is entities, as well as any insur- ber incidents involving technical data developed, it is important to deter- ance carrier that may have controlled under the International mine how employees within the orga- provided coverage for a Traffic in Arms Regulations (ITAR) nization should be provided informa- cyber incident, on notice. in their possession being acquired tion and be trained. Each member of • As part of the investigation by foreign nationals of any countries your organization needs to be sensi- of the incident, determine tive about the privacy of information listed in Section 126.1 of the ITAR, if a security or forensic firm and understand why access to some which include, among others, China, should be brought in to information must be restricted. Your Cuba, Iran, North Korea, Syria, and assist. (Hint: the answer is organization should train your work- Venezuela. In such instances, the almost always yes.) ers, especially those dealing with compromised companies must im- • Complete remediation, if sensitive information, to recognize a mediately notify DDTC of the breach necessary, of your informa- potential problem and to know what of ITAR-controlled technical data. tion systems and determine to do and who to call. The National Institute of Standards whether consumer, counter- and Technology (NIST) also has es- Response party, or agency notification tablished important requirements If your organization learns about a obligations exist. Depending and guidelines in this area. Most re- cyber incident, implementation of on the scope of the breach, cently, on December 20, 2016, NIST the response plan and developing an you may also need to retain published Revision 1 to Special Publi- action plan are important, and some the services of a public rela- 4 cation (SP) 800-171 (the “Revision”). aspects are legally required. As you tions firm and/or a data Among other things, the Revision, are assembling the team, you should monitoring firm to tailor the which relates to protecting controlled begin to assess the threat level and disclosure and the message. unclassified information (CUI) in the nature of the response. nonfederal systems and organiza- These are some suggested points Post-Incident Actions tions, adds a new control requiring a to consider: After the incident is addressed, your System Security Plan (SSP) that must • Determine the kind of data organization should then do the post- “describe the boundary of [a gov- that has been compromised mortem. Evaluate what weaknesses ernment contractor’s] information and the manner in which the existed in your systems, processes, system; the operational environment incident occurred. Does it and policies and implement fixes for the system; how the security re- contain personally identifi- and updates to your systems. Also, quirements are implemented; and the able information? Is it sub- review and update your incident relationships with or connections to ject to regulatory compliance response plan. other systems.”5 If requested, govern- (such as health related data ment contractors will be required to subject to HIPAA)? Conclusions provide the government with its SSP • Determine if the incident Planning for a cyber incident is seri- and any associated Plans of Action is potentially ongoing (for ous business. Responding in the event and Milestones (POAM), and fed- example, through a com- of such an incident needs to hap- eral agencies may consider SSPs and promise of your information pen quickly and in compliance with PAMs as critical inputs when decid- systems) or a one-time inci- applicable contracts, laws, and regu- ing to award a contract that requires dent (such as, through the lations. Botched responses become the processing, storing, or transmit- loss or theft of devices stor- case studies used to teach others. You ting of CUI on a contractor informa- ing information). don’t want those case studies to be tion system.6 • Contact counsel to assist in about your company! 10 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

NOTES Michael S. Khoury is 1. See 81 Fed. Reg. 30439 (May 16, a partner in the De- 2016). In this final rule, “Federal contract troit office of Fisher- information” is defined as “information, not Broyles, LLP. He spe- intended for public release, that is provided by or generated for the Government under cializes in business, a contract to develop or deliver a product or technology transac- service to the Government, but not including tions, privacy and information provided by the Government data security and international to the public (such as on public Web sites) law. He is a past Chair of the State or simple transactional information, such as necessary to process payments.” 81 Fed. Reg. Bar of Michigan Business and In- at 30446. formation Technology Law Sec- 2. See 81 Fed. 68312 (Oct. 4, 2016). In the tions. preamble to this final rule, the DoD clarified that the mandatory requirement to report cyber incidents to the DoD within 72 hours Martin B. Robins is a of their occurrence applies to “all forms partner in FisherBro- of agreements [involving the DoD] (e.g., contracts, grants, cooperative agreements, yles LLP’s Chicago other transaction agreements, technology office and an adjunct investment agreements, and any other type of professor at DePaul legal instrument or agreement).” 81 Fed. Reg. University College of at 68314. Law in Chicago. His . 3. See 81 Fed. Reg. 72986 (Oct. 21, practice includes information secu- 2016). In this final rule, “Covered defense information” is defined as “unclassified rity and privacy matters, as well controlled technical information or other as a wide variety of corporate and information (as described in the Controlled commercial transactions. Unclassified Information (CUI) registry at http://www.archives.gov/cui/registry/ category-list.html) that requires safeguarding or dissemination controls pursuant to Kimberly Dempsey and consistent with law, regulations, and Booher is the Man- government-wide policies, and is – (1) marked aging Partner of the or otherwise identified in the contract, task Palo Alto, Los Ange- order, or delivery order provided to the contractor by or on behalf of DoD in support les and Seattle offic- of the performance of the contact; or (2) es of FisherBroyles. collected, developed, received, transmitted, She concentrates her used, or stored by or on behalf of the practice on technology, commercial contractor in support of the performance of transactions and privacy and data the contract. 81. Fed. Reg. at 72998. security. 4. See 22 CFR 126.17(h)(8). 5. See Revision at p. 9. 6. See Id. Geoffrey M. Goodale is a partner in the Washington, D.C. office of FisherBro- yles, LLP, and focus- es his practice on cybersecurity and data privacy and security and international trade and customs law, with an emphasis on trade- related IP compliance and litigation matters. He currently serves as Vice Chair of the ABA Intel- lectual Property Law Section’s IP Practices Division ITC Commit- tee and Co-Chair of the ABA Sec- tion of International Law’s Export Controls and Economic Sanctions Committee. In-House Insight By Matthew J. Nolan Expat Lessons: From Muskegon to China (and Back)

“What would you think about an came from common impressions of Mexico City have all gone through expat assignment in China?” One China held by many people—poor, phases of incredible pollution (in ad- unexpected question and some care- polluted, disorganized, corrupt, dan- dition to London, famous for its smog ful consideration with my wife later, I gerous. China is half a world away back in the day)—the difference is that was on my way to eventually spend- and, given language and cultural they went through this period before ing two years living and working in barriers, the picture many of us have we knew what AQI was, understood Shanghai for Dow Corning Corpo- drawn is comprised of political rheto- its impact on long-term health, or ration. While there, I managed Gov- ric, news stories odd enough to make were pushing for global standards to ernance & Compliance for the busi- our twitter feed, and possibly a gen- reduce it. China is caught trying to do ness’s 1,700+ employees and over eral fear of a large country we don’t both at the same time, and if you ask $1 billion in sales in the region. This know much about. No human brain Chinese citizens, most understand article shares some of my reflections in history has ever or will ever hold this and recognize that solutions will on that experience, in hopes of both detailed facts regarding everything in be long-term instead of short-term. (a) helping you to consider whether the world, and we each compensate an expat assignment may be right for by filling in the gaps with educated “I Thought I’d See More of you, and (b) allowing you to share in guesses based upon the inputs we do Those Rice Hats” some of the insights I picked up dur- have. Upon entering Shanghai for the first ing the process. Living in China forced us to, and time, most Americans’ impression is While reflecting on my expat as- allowed us to, replace many of those similar—“is this really China?” At signment, the Medici family comes assumptions regarding the world’s first, it feels very similar to New York to mind. A few years ago I read The most populous country with facts. City or Los Angeles—construction Medici Effect: Breakthrough Insights Doing so reinforced some precon- and buildings as far as the eye can at the Intersection of Ideas, Concepts ceived notions, but also gave us the see, hundreds of high-end shopping and Cultures, by Frans Johansson. Jo- opportunity to see many issues with malls (I could literally see two sepa- hansson’s title comes from the 15th a bit more nuance. rate multi-story Prada stores from century Medicis, a banking family my apartment window, on the same who helped break down traditional Shades of Gray—Literally street), Bentleys and chrome-finished barriers between different fields and Netizens love posting side-by-side Rolls Royces rolling down the road. who, he theorizes, helped ignite the pictures of Chinese landmarks on China doesn’t seem very poor when Renaissance. Johansson’s argument clear and not-clear days, giving the driving through certain portions of is that most innovation in the world impression to outsiders that China the city. One of my Dad’s reactions comes not from truly novel thoughts, exists in a perpetual cloud of smog. but from applying lessons from one Unfortunately, this is too often true – during a visit, when I asked him how field or culture to another—essen- our home in Shanghai had two HEPA China matched his expectations, was tially, from the intersection and inter- certified air filters running 24/7 at all “I thought I’d see more of those rice play of culture and ideas. Others have times, and in addition to checking hats.” similarly argued that the Renaissance temperature and precipitation when What this increasingly conspicu- came about in large part due to in- heading out, we had to check the Air ous wealth hides, however, is the creased travel between the various Quality Index (AQI) posted by the vast gulf that separates rich and poor regions of the world, leading to shar- U.S. Consulate when determining Chinese—even in its wealthier citing and combining learnings and les- what activities could take place out- ies, China’s median income hovers sons at an accelerated rate. Taking an side as well. around $8,000/year, and estimates expat assignment is one way to accel- Pollution in China is a more nu- are that there are still 600 million erate the collision of these things in anced problem than is often por- Chinese living in the countryside on your life and career. trayed, though. While there are days less than $1,000/year. Shanghai’s of- that really do require masks, on a plu- ficial population is 23 million, but Fear of the Unknown rality of days I felt perfectly comfort- that number hides the 5 million mi- When I asked my wife, Nina, whether able running outside, playing on my grant laborers living off the grid and she would ever like to live and work touch rugby team and exploring the trying to grind out enough money overseas in the early days of our mar- city on bike. The Chinese people (and to bring a bit home to support their riage, she originally told me “sure— thus, government) really do want families far away once per year at anywhere but China.” This aversion cleaner air, but they also are still in a Chinese New Year. Is China still to the middle kingdom did not come phase of economic development that poor? Is China rich? The answer is a from past experience or a detailed requires large amounts of manufac- bit of both. China’s median income in examination of the pros and cons; it turing. New York City, Tokyo, and 1978 was approximately $400/year, 11 12 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017 meaning it has increased 20 times in ples, the point is that right and wrong tening and thinking, you will not be a generation. Ask yourself how much can at times be in the eye of the be- understood and will not understand. sense our communities, schools, so- holder (and depend upon cultural Second—one aspect of Chinese cial structures, and economies would context) before appropriate training, communications has rubbed off on make with that degree of change, and explanation, and standard setting are me—the use of silence. Americans the sense of disorganization and dis- implemented. have an incredible aversion to pauses location that modern China feels will in conversation, and it has been jar- make a bit more sense too. Danger? Where? ring to me at times upon return (al- While China and the U.S. are often though I’m unfortunately readjusting Bribery for Food thought of as geopolitical rivals, faster than I’d like) to feel like I’m Corruption is a very real problem which could cause Americans to constantly being interrupted in con- in China, something I had to think be wary of danger during an expat versation. This style is completely deeply about often in my role in the assignment, at no time did my wife normal here back home, but after ex- region. While direct and open brib- or I feel threatened in any way. While periencing something else – well, I’m ery and lavish entertainment is being I don’t spend my days studying a convert. When conducting an inves- drastically reduced by President Xi geopolitical positioning, my impres- tigation or interview, it’s incredible Jinping’s anticorruption campaign sion was that the Chinese people I what someone else will say if you just of the past few years, businesses still encountered lacked interest in, and leave pregnant pauses and let them rely upon good governmental rela- generally have a strong aversion to, fill the silence. tions, and the further you get from conflict with the U.S. Most embrace Third—allow time to see the full Shanghai, the murkier these relation- American culture (and quite a few picture before acting. This was a ne- ships (and how they are formed) get. American ideas), many have studied cessity when operating in a new cul- Businesses need to approach bribery in the U.S. or dream of having their ture (and somewhat obvious), but is with a nuanced view in China—tell- children do so, and in general are just as critical when taking on a new ing employees that no business meals focused on building their own nation role or encountering a new problem should be allowed, but having your rather than engaging in conflict with within American operations. How American sales teams take customers others. often do we react to an initial report to baseball games and concerts, will Additionally, Chinese streets in before understanding its full context? not reinforce the desired culture and each and every city we visited are How often does this drive a wedge behaviors locally. Be careful to distin- between us and our clients, or cause some of the safest we have experi- guish appropriate business behavior, us to implement an imperfect or in- enced. There is virtually no physical in the context of local culture and complete solution? crime, stories of petty theft and con international law, from true bribery games are drastically overblown, and or corruption. The latter should be Reintegration there were no neighborhoods I was dealt with swiftly and sternly, but Returning from assignment is one ever advised to avoid. Of modern im- restricting the former without appro- of the most interesting challenges of pressions of China, this may be one of priate context can backfire. the process. In many ways now, I feel When I got to Shanghai, I was the most skewed. like I have two homes—one here in shocked to learn that some parents Repatriation – What Stays, the Midwest, and another 7000 miles routinely bring groceries and money away. While it is important to get to their children’s teachers around What Returns? back into the routines and flow of the time of a test to “ensure fair treat- So back to the Medici Effect—by defi- life back home once repatriated, that ment” in the assignment of test scores. nition, two years of breaking down can’t and won’t look like or work like When I asked a colleague about this, old thoughts, learning new ways of it did before you left. Seeing an old he gave me a bit of perspective by thinking, and expanding my facts friend after a couple of years can be relating a similar experience many and firsthand impressions about a surprising in how much you have Chinese have when visiting the U.S. huge portion of the world impacted each changed in any circumstance— “Why do I have to bribe my waiter?” the way I see, think about, and oper- and the further apart your respective he asked. Tipping doesn’t exist in ate in my practice and counseling. experiences of those two years were, Chinese culture, and the idea of pay- First—learning how much can the more work it takes to reconcile ing a fee above the charged amount, get lost in cultural translation first them and find a way forward. that is discretionary but expected, hand has taught me to slow down, I’ve been fortunate to find a and risking poor service upon return ask questions in multiple ways, and role that allows me to leverage the if you don’t do so, seemed just as in- work harder to ensure alignment on experiences I’ve had to date in new appropriate to him. While discerning important directions or decisions. If and challenging ways, and over time thinkers can probably draw plenty of you spend most of a call with interna- the definition of old relationships with distinctions between the above exam- tional colleagues talking, and not lis- family and friends is renormalizing as IN-HOUSE INSIGHT 13 well. As time passes, I get to leverage Matthew J. Nolan is the benefits of the assignment more Vice President and and more—the ability to draw on General Counsel, China-related experiences, examples Ancra Group and and metaphors, and even things Director of Global Compliance for the as simple as better pronouncing Heico Companies, a Chinese words and names. My role family-owned and diversified port- as a cultural ambassador (in both folio of companies headquartered directions) allows me to bridge gaps in Chicago, Illinois. He is a mem- in understanding, which ultimately ber of the State Bar of Michigan helps get more done, break through and currently serves as Chair of barriers that would otherwise exist, the Association of Corporate Coun- and problem solve. sel’s Law Department Manage- If you have the opportunity to ment Committee. spend some time on assignment overseas, I strongly encourage you to think hard before saying no. If you are friends or colleagues with someone who is or has had the experience, push yourself to think harder about how you can tap into and benefit from their successes and failures. Our success or failure in further bridging gaps between East and West has a lot riding on it—perhaps, even, the next Renaissance. In My Defense: The Author on the 25th Anniversary of the Michigan Sales Representative Commission Act

By Dave Honigman and Jordan B. Segal1

“[T]the Court examines first the language of merely “intentional” to trigger the statute’s the statute. In this regard, the Court finds this enhanced damages/penalty provision; (3) statute to be one of the most haphazardly and whether the law applies to out-of-state princi- inartfully drafted pieces of legislation that it has pals who have sales representatives in Michi- ever been called upon to review.”2 gan; (4) the types of transactions to which the MSRCA applies; and (5) the MSRCA’s anti- It has been said that an actor should never waiver provision. Finally, this article will read his own reviews. Indeed, nobody likes review Judge Rosen’s criticisms, and will to be criticized; least of all by a jurist of Judge argue that the courts have overwhelmingly Gerald Rosen’s stature. In his ruling in Ken- interpreted the law as its creators intended. neth Henes Special Projects Procurement, Mktg v Continental Biomass Indus, Judge Rosen The Michigan Sales described the Michigan Sales Representative Representative Commission Act: Commission Act (the “MSRCA”)3 as “hap- Purposes and Principles hazardly and inartfully drafted,” and he suggests that the Legislature revisit the statute to Compensation and Deterrence cure the interpretive difficulties he confront- The law itself is quite simple: a principal ed. As the law’s primary sponsor and author must pay his sales representatives all com- (albeit subject to editing by my Senate and missions due at the time of termination of House colleagues and the Governor), I took the sales commission agreement or thereafter his comment on the chin—as an actor might within 45 days of when such commissions do upon reading a bad review of his perfor- become due. If the principal intentionally mance in a play. Yet now, twenty-five years fails to do so, he is liable for the actual dam- since its passage, a review of the decisions ages, plus a penalty equal to two times the both in Michigan and elsewhere regarding amount of the unpaid commissions (up to a the MSRCA (and its analogs) show that Judge cap of $100,000) and reasonable attorneys’ Rosen’s concerns proved to be largely unnec- fees and court costs. essary. As intended, the MSRCA has promot- The primary feature of the law is its en- ed the necessity for parties of commissions hanced damages and fee provision.4 Simply contracts to be bound, notwithstanding the put: ordinary contract damages do not fully many incentives to dishonor such obligations compensate a sales representative when a and has been a valuable protection to ensure principal has broken his promise to pay a timely payment to sales representatives, who commission. Ordinary contract damages are are often at a practical disadvantage in dis- inadequate in this context because prosecut- putes with principals. ing commission claims can be uniquely dif- This article will review the construc- ficult. tion and interpretation of the MSRCA and In the sales commission context, post- take stock of how the law, now twenty-five termination sales enjoyed by a principal are years old, measures up to the author’s, the frequently procured by a former sales rep- Michigan Legislature’s, and the Governor’s resentative before termination. Sales rep- original intentions. It will discuss Michigan resentatives are often entitled to product courts’ evolving interpretation of the MSRCA commissions over the life of a sales contract with regard to: (1) the enhanced damages and commissions on those sales often extend and fee shifting provisions; (2) whether the beyond the life of the commission contract. principal’s conduct must be in bad faith, or These post-contract termination sales are fre- 14 IN MY DEFENSE 15 quently difficult to unearth or establish ex- enhanced damages remedy and is served by cept through discovery. the MSCRA is the principle that the rich and Without enhanced penalties for conceal- the poor are equal in the eyes of the law and ing these commissions, the utilitarian cal- ought to have an equal opportunity to seek culus favors promise breaking and conceal- legal redress. The double damages $100,000 ment of the contract breach. If principals pay maximum remedy, along with the statute’s the commissions they wrongfully retain only fee shifting provision, express the State’s when they are caught, and keep the proceeds commitment to the principle that wealthier the rest of the time, then principals have a and more powerful parties to contracts will perverse incentive to wrongfully retain com- be held to account for their promises to the missions. Similarly, if victims recoup only the relatively weaker parties to contracts. ordinary contract damages (i.e. the amount of Even though society’s faith in the integ- the commissions due, and no more) and face rity of free markets and the system of volun- the burdens and uncertainties of the legal tary exchange may be seriously damaged by process plus the costs of their own counsel, the cumulative injury wrought by rampant then victory will not make them whole. The promise breaking by more powerful and shortfall may mean that victims will not vig- wealthy parties to contracts, the damages to orously investigate and litigate. As Judge an individual victim of such promise break- Posner noted: “[i]f, because of concealabil- ing is frequently too small to warrant hiring The law itself ity, the probability of being punished for a an attorney to sue on the victim’s behalf. particular…violation is less than unity, the There can be no free market if only wealthy is quite simple: prospective violator will discount (i.e. multi- victims of promise breaking have access to a principal ply) the punishment cost by that probability the courts to obtain relief. Enhanced dam- in determining the expected punishment cost ages and fee shifting not only encourage the must pay for the violation.”5 Thus, enhanced statutory enforcement of promise keeping in a general his sales damages and fee shifting are critical to pro- sense, but are often necessary to permit or- representatives duce proper incentives. dinary people to have any access to the ma- Because of the concealability of future chinery of the State that enforces promise all commissions, the likely cost for not disclos- keeping in commercial trade. commissions ing and paying commissions is severely dis- Work compensated by commission for a counted in favor of the unscrupulous princi- profitable outcome rather than payment for due at the pal. Thus, civil suits may be deterred where time spent without regard to the outcome is, time of an aggrieved plaintiff must invest a great deal by definition, compensation deferred until termination of time and money to prove his claim and the the outcome manifests itself days, months financial reward for successful prosecution and sometimes years after the work is per- of the sales of the claim is not sufficiently large. No ra- formed. Sales representatives frequently commission tional prospective plaintiff would invest in cultivate sales over months and years, travel agreement prosecuting a suit, if the expected costs (in- large distances to cultivate potential custom- cluding financial costs, opportunity costs, ers, incur entertainment expenses, invest in or thereafter and the distraction and diversion of time and samples, models, demonstrations, and mar- within 45 days emotional resources) exceed the anticipated keting materials, and painstakingly build re- recovery. In other words, justice is a mirage lationships for the benefit of their principals. of when such if civil remedies do not take into account the These and other investments, including ad- commissions costs of and obstacles to seeking relief. ministrative overhead (copying, telephones, become due. computers, and the like) are costs that sales The Sanctity of Promise and Equality Before representatives are frequently required to the Law pay out of pocket. These large, sunk costs Public purposes are served by statutes like make a sales representative inherently vul- the MSRCA, and litigation to enforce those nerable to extortionate demands by princi- statutes uphold the sanctity of promise keep- pals who refuse to pay commissions even ing. Viable free markets and the culture of though the principal knows that the com- voluntary exchange are based on widely missions have been earned and should right- shared expectations that promises can be fully be paid. Faced with the total loss of a relied on and, when broken, the state will large investment the sales representative has umpire disputes and enforce promises. In made over a long period of time in the form addition to the sanctity of promise keeping, of unpaid commissions and a recalcitrant ex- another public purpose which undergirds the principal, the cessation of at least one stream 16 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

of future income from at least one principal ed. Because double damages and fee shifting (or many principals in the case of a retiring empower sales representatives to enforce sales representative), principals frequently promises and they raise the costs of promise withhold commissions they know are earned breaking by principals, that motivates princi- and due to induce sales representatives to ac- pals to state the terms of their promises with cept a distressed settlement or, especially in clarity. It is no wonder that passage of the the case of a vulnerable sales representative MSRCA led to the publication of advice by with modest resources who is owed a rela- corporate law firms to avoid vague commis- tively small amount of money relative to the sion agreements. In one case, a law firm ad- cost of litigation, even to forego remunera- vised its clients that “[t]he bottom-line is that tion entirely. To avoid paying commissions, such agreements should be as specific as pos- principals have a financial incentive to com- sible. The more ambiguous an agreement is, mit opportunistic terminations of sales rep- the more likely it is that the provisions of the resentatives just prior to the consummation SRCA—with its harsh remedies—will come of sales procured by the sales representative. into play.”6 Indeed, the statute encourages principals to express sales representatives’ Clarity of Draftsmanship duties and rights with clarity, because am- If the meanings of contract terms are clear, biguity opens the door to a double damages Principals parties need consume few resources to adju- remedy plus fee shifting whenever a judge or dicate their meaning. On the other hand, if jury concludes that the principal breached a are usually the meanings of contract terms are ambigu- contract clause whose meaning is disputed. the primary ous, parties must consume a great deal of resources to establish their meaning. A con- Jurisprudence of the MSRCA: A drafters tracting party with modest resources is less Review of MSRCA Litigation Over of sales able to afford protracted litigation involv- the Last Twenty-Five Years commission ing a contract with ambiguous terms than a wealthy party. Indeed, the weaker party The Ten-Year War Over Statutory Damages agreements may only be able to afford to enforce a con- and Their Conditions Precedent and they tract whose terms are clear. In many cases, Over time, and with not too many missteps, usually principals bully sales representatives into the courts correctly divined the Legislature’s accepting less money than they are entitled intent by focusing on the plain meaning of the possess to, because sales representatives often can statute’s language and ultimately refusing superior ill-afford to pursue protracted litigation. to be sidetracked by lobbying by litigants— Principals are usually the primary drafters of both sales representatives and principals—to resources sales commission agreements and they usu- rewrite the law to favor their interests. The relative ally possess superior resources relative to courts correctly declared that the statutory to sales sales representatives. In the absence of mul- penalty was neither as dreadfully large as tiple damages and fee shifting, principals are principals initially feared and sales represen- representatives. therefore incentivized to draft agreements tatives hoped, nor did the statutory language with ambiguous terms, because ambiguity sharply limit the availability of what turned favors the more powerful party to a bargain. out to be the anything-but-annihilating dou- If litigation becomes mired in a swamp of ble damages/$100,000 maximum penalty warring interpretations of multiple, fuzzy as sales representatives initially feared and contract terms dictating, for example, when principals hoped. In other words, the courts sales commissions are due, the amount of the arrived at the more temperate interpretive sales commissions, whether the agreement destination contemplated by the statute’s provides for the payment of a “commission” drafters and did so by carefully studying the at all, or whether there is even an enforce- map that the Legislature and the Governor able contract, summary disposition is not left behind—the words of the statute and available. In that event, parties—usually the the legislative history. Although the courts sales representative—who cannot afford to did not arrive at the right destination in an consume substantial resources to adjudicate uninterrupted straight line and without los- those issues are at a disadvantage. ing their way on occasion, over a series of Multiple damages and fee shifting change decisions they correctly divined both the size that calculus. Their presence incentivizes the of the statutory penalty and the scope of its drafting party to be clear about when com- application, which were crafted to reflect missions are due and how they are calculat- a restrained balancing of interests and to IN MY DEFENSE 17 put in place incentives and tools that have rendering of the statute, the recalcitrant prin- proven to be effective and well-tailored to cipal above would owe his former sales rep- achieve the ends the Legislature intended— resentative actual damages in the amount of to effectively bind contracting parties to their $1,200,000 ($60,000 x 20 = $1,200,000), plus a promises, to reliably fulfill the expectations $100,000 statutory penalty, which equals a of transacting commercial parties, to encour- $1.3 million total award. The penalty under age due consideration and prudent reflection this interpretation of the statute amounts to before entering into sales commission agree- 8% of the unpaid commissions due the sales ments, to promote clarity in the language of representative. such agreements, and to encourage the just Before it was settled that $100,000 capped and efficient adjudication of disputes con- the aggregate penalty that a sales representa- cerning such agreements. tive could collect from a principal, principals The early cases following the enactment feared that the statute might permit a pen- of the MSRCA into law tested both the maxi- alty up to $100,000 for each and every unpaid mum extent of the statutory penalty, and the commission. Thus, principals were under- conditions that must be satisfied to trigger standably desperate to avoid the imposition any statutory penalty at all. The two issues of such large penalties. As a result, advocates were frequently raised together because the for principals championed strained statu- threat of a large statutory penalty motivated tory constructions that, if adopted by courts, Over time, anxious principals to argue that the statute would radically limit the circumstances sharply restricted the circumstances under under which a failure to pay commissions and with not which the enhanced penalty in excess of ac- would trigger the ostensibly additive statu- too many tual damages was available. These princi- tory penalty. They argued that an “intention- pals and some courts alternatively called the al” failure to pay means a “bad faith” failure missteps, MSRCA remedies “a heavy penalty against to pay, or, more specifically, that “Defendant the courts violating principals,”7 “double damages,” knew a commission was due to the Plaintiff correctly “treble damages,” and “triple commissions and chose not to pay it.”9 In other words, and attorney fees,” and commentators char- when principals feared that courts might divined the acterized the statute as “scary,” “harsh,” and construe the statute to permit the awarding Legislature’s even a fearsome “dragon” (and comically de- of cumulative penalties amounting to mil- picted as spewing fire).8 lions of dollars in addition to actual damages intent by Thus, the earliest cases involving the as well as attorneys’ fees and costs, they went focusing on MSRCA frequently questioned whether the to great lengths to avoid the MSRCA statu- the plain statutory penalty (and its cap) applied to tory penalty by arguing that a refusal to pay each unpaid commission, or to all unpaid is not “intentional” if the principal reason- meaning of commissions in the aggregate. Many plain- ably and in good faith disputes any element the statute’s tiffs argued that the MSCRA requires that of the sales representative’s MSRCA claim, language and an additional $100,000 maximum statutory including: (1) the date when the sales repre- penalty is to be exacted for each and every sentative claims commissions are due, (2) the ultimately unpaid commission. If these plaintiffs were amount that the sales representative claims refusing to be right, then a principal who wrongfully with- is due, (3) that commissions are called for in held 20 commissions in the amount of $60,000 the contract, or (4) that a contract has been sidetracked each would be liable to his victim sales rep- formed. by lobbying resentative for actual damages in the amount Over time, court decisions revealed that by litigants[.] of $ 1,200,000 ($60,000 x 20 = $1,200,000), plus the gnashing of teeth about ostensibly large a $2 million ($100,000 x 20 = $2 million) statu- statutory penalties by lawyer-commentators tory penalty, which equals a $3.2 million total in the initial years following the statute’s award. The penalty under that interpretation enactment was unnecessary. The courts uni- of the statute amounts to 167 percent of the formly rejected the more severe construction unpaid commissions due the sales represen- of the double damages provision urged by tative. Such an interpretation would indeed plaintiff sales representatives and declared make the statute “scary” to principals. that the statutory penalty was, in fact, calcu- On the other hand, if the $100,000 maxi- lated in the aggregate—the cap of $100,000 mum statutory penalty applies once to un- applies to the total statutory penalty and is paid commissions in the aggregate and not not a “per-commission” cap of $100,000. This separately to each unpaid commission, then construction of the statute was consonant the penalty is far from fearsome. Under this with my personal intentions regarding the 18 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

meaning of the statute and, as best as I can Henes trial court’s conclusion regarding the remember, the intentions of my colleagues. compensatory nature of the MSRCA. While it is impossible to know if my un- Observing that “the Lynch opinion did derstanding was universally shared by my not indicate what specific intent standard ap- colleagues, to my knowledge not even one plies and the appeal turns on what level of legislator expressed a diverging interpreta- intent is needed to invoke the double-dam- tion over the course of the law’s enactment ages provision,”14 the Sixth Circuit certified or thereafter. the following question to the Michigan Su- With this issue resolved, the courts quick- preme Court: ly, and correctly, dispensed with defendants’ What standard is appropriate in evalu- attempts to read into the law a “good-faith” ating the mental state required for dou- safe harbor. Under the MSRCA, a principal ble damages under the Michigan Sales 15 is liable for enhanced damages in excess of Representative Commission Act? actual damages when he has “intentionally” The Michigan Supreme Court answered that failed to pay a commission when due. In good faith is not a safe harbor from MSRCA Henes, the defendant principal requested a double damages and that a principal who new trial, claiming that the court had erred deliberately fails to pay a commission when in refusing the principal’s requested jury due is liable for double damages under the The court instruction defining “intentional failure to statute even if the principal did not believe, reasonably or otherwise, that the commis- also rightfully pay” to mean that “Defendant knew a commission was due to the Plaintiff and chose sion was owed. “The clear and unambiguous rejected the not to pay it.” The trial court ruled that it language of the statute penalizes intentional relevance had not erred by failing to define “intention- failure to pay, without regard to the motiva- ally” to require bad faith. It had neither mis- tion of the principal. … The only cognizable to statutory instructed nor confused the jury by simply defense to a double-damages claim is if the construction parroting the language of the statute and in- failure to pay the commission were based on inadvertence or oversight.”16 structing the jury to award double damages of speculation In contrast with the U.S. District Court’s if the “principal is found to have intention- view of the statute as beset with ambiguities, about ally failed to pay commissions.”10 The trial the Michigan Supreme Court held that the whether the court concluded that even though it did not language of “the statute is clear, there is no assist the jury in understanding “intention- Legislature ambiguity that would permit or justify look- ally” by further defining it, the instruction ing outside the plain words of the statute.”17 intended created no prejudicial error because “inten- To aid its goal of construing the term “intentionally” is defined in the dictionary and is the double tionally” in accordance with its ordinary and commonly understood by ordinary men and damages generally accepted meaning, the court looked women who serve on juries to mean “will- provision to the dictionary definition of “intentional” ful and voluntary,” which is the meaning as “done with the intention or on purpose; to be the Michigan Legislature intended. In addi- intended.”18 The court concluded that “noth- compensatory tion to its dictionary definition and common- ing in the generally accepted meaning of the understanding rationales, the trial court also word leads to the inference that a good faith or punitive. arguably based its holding—a voluntary, belief on the part of the principal precludes non-accidental failure to pay a commission is recovery.”19 sufficient to trigger MSRCA double damag- In Henes, and in many instances, the de- es; “bad faith” is not a prerequisite—on the fendant-principal argued that (1) because the “’compensatory’ nature of the double com- purpose of the enhanced damages provision missions provision.” is punitive, and (2) because courts and legis- While defendant’s appeal was pending lators typically require some sort of wrong- in the Sixth Circuit Court of Appeals, the ful intent before punishing a civil defendant, Michigan Supreme Court issued Frank W the MSRCA enhanced damages must require Lynch & Co v Flex Techs Inc.11 In Lynch, which some sort of wrongful intent or bad faith. addressed the MSRCA’s retroactivity, the The court also rightfully rejected the rel- Michigan Supreme Court stated that “the evance to statutory construction of specula- [M]SRCA clearly serves a punitive and de- tion about whether the Legislature intended terrent purpose,”12 and the MSRCA was “in- the double damages provision to be compen- disputably punitive, not compensatory.”13 satory or punitive. The court noted—com- Those statements arguably contradicted the mendably from this former legislator’s point IN MY DEFENSE 19 of view—that there is no need to resort to leg- the product sold by the sales represen- islative history or to speculation about legis- tative (or the product for which the lative purpose based on that history because sales representative solicits orders). the language of the MSRCA is unambiguous. Under this interpretation, the statute would apply if orders were solicited The Judicial Interpretation of “Principal” in Michigan or the product was sold in A good deal of MSRCA litigation addresses Michigan.22 the question “who is a Principal” under the The court resolved the ambiguity by resort- statute. Section 2961(1)(d) defines “Principal” ing to (1) a core purpose of the statute that it as a person that does either of the following: deduces from the legislative history and (2) (i) Manufactures, produces, imports, the rule against surplusage. According to the sells, or distributes a product in this bill analysis, prepared by the Senate staff, the state. rationale for enacting the sales representative (ii) Contracts with a sales representa- statute was to protect Michigan sales repre- tive to solicit orders for or sell a prod- sentatives and “to ensure that they would uct in this state.20 timely receive payment for commissions This definition was the very issue that Judge earned by them. . . regardless of geographic Rosen was facing when he described the law territory or type of product sold.”23 as “inartfully drafted.” He writes: Along with the legislative purpose de- The remedial [A]lthough the Court finds the first rived from the legislative history, the court definition of the term in § 2961(1)(d) also relies on the rule against surplusage to intent (i) to be reasonably clear—i.e., a “prin- construe section (1)(d)(ii). (See endnote 2 for of the law, cipal” is a person who manufactures, the full statutory text.) A basic principle of produces, imports, sells or distributes statutory interpretation is that courts should as a product in Michigan—the Court can “give effect, if possible, to every clause and Judge Rosen envision several plausible construc- word of a statute, avoiding, if it may be, any noted, was to tions of subsection (ii) due to the string construction which implies that the Legis- of four prepositional phrases and the lature was ignorant of the meaning of the protect obviously inartful placement of the last language it employed.”24 A statute should Michigan prepositional phrase “in this state” be construed so that “effect is given to all its 21 sales within § 2961(1)(d)(ii). provisions, so that no part will be inoperative Thus, Judge Rosen wonders, whether the or superfluous, void or insignificant…”25 representatives. location of the contract or the principal The rule against surplusage in combina- makes the principal subject to the law. He tion with the legislative history are, at least continues: here, more probative of legislative intent As written, subsection (ii) states that a than the rule of the last antecedent (the canon of principal is a person who “[c]ontracts construction that a limiting clause or phrase with a sales representative to solicit should ordinarily be read as modifying only orders for or sell a product in this the noun or phrase that it immediately fol- state.” One could read this subsection lows)26—the rule of statutory interpretation with the phrase “in this state” modify- advocated by the defendant. Judge Rosen ing the verb “contracts.” As such, the doesn’t seem to be aware that the defendant- statute would apply to a principal who principal’s argument was premised on this enters into a contract in Michigan with grammatical canon known as the rule of a sales representative who may or may the last antecedent and that courts should not be based in Michigan. Under this assume, if possible, that a legislative drafter view, it would be the place of contract- writes in accordance with the rules of gram- ing that governs. However, one could mar. Applying the rule of the last anteced- also read this subsection with “in this ent to section (1)(d)(ii), and ignoring all other state” describing the situs of the sales canons of statutory construction would yield representative with whom the prin- the conclusion that “in this state” modifies cipal has contracted. Under this con- either (1) “solicit orders for or sell a product“ struction, the statute would apply to or (2) “sell a product.” This interpretation sales representatives who have their would at most permit the statute to apply businesses based in Michigan, regard- only if orders were solicited in Michigan or less of the place of contracting. Or, one the product was sold in Michigan. Judge could read “in this state” as modifying Rosen astutely observed that the defendant’s 20 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

interpretation would render subsection (ii) definitions ofprincipal and sales representative. to be duplicative of subsection (i) and, there- A principal is one who either “[m]anufac- fore, superfluous, thereby violating the rule tures, produces, imports, sells, or distributes against surplusage—that statutes should be a product in this state” or who “[c]ontracts construed “so as to avoid rendering super- with a sales representative to solicit orders fluous” any statutory language: for or sell a product,”31 whereas a sales repre- To read the statute as Defendant CBI sentative is employed by a principal “for the suggests construing the phrase “in the solicitation of orders or sale of goods.”32 Col- state” in both parts (i) and (ii) of (2) loquially, “goods” and “products” are used 2961 (1) (d) as calling for application of interchangeably, but the difference in statu- the statute only when the sale occurs tory language has created some confusion. in Michigan would render subsection For example, in two separate cases, Klapp v (ii) duplicative of subsection (i). As United Ins Group Agency33 and Mahnick v Bell Defendant CBI acknowledges, the Leg- Co,34 decided approximately two months islature is presumed to have had a pur- apart, the Michigan Court of Appeals decid- pose in mind in inserting every clause ed that some “products”—insurance policies in the statute here, the court presumes (Klapp) and construction estimator services that, by subdividing the statutory defi- (Mahnick)—are not “goods” for which com- If the MSRCA nition of “principal,” the Legislature missions are subject to the MSRCA. intended to delineate separate and dis- In Mahnick, the plaintiff sued the defen- applies, its tinct occasions when the statute would dant construction company for (among other anti-waiver apply, i.e., one when a sale (or produc- causes of action) MSRCA violations. As a tion) of a product occurs in Michigan project estimator, plaintiff estimated the provision in one when a contract is entered into cost of completing a construction project on forbids with the sales representative in Michi- which defendant intended to bid. Plaintiff’s principals gan to procure orders or to sell goods estimate served as the basis of a bid submit- on the principal’s behalf.27 ted by defendant on competitively bid con- and sales Although it does not label it as such, the struction projects. According to plaintiff, representatives court effectively adopts the rule against sur- defendant agreed to pay plaintiff a regular plusage and rejects the rule of the last ante- salary, plus a “bonus” of four percent of from cedent as its primary interpretative canon. It, project revenues generated by plaintiff that contractually therefore, reaches the correct conclusion: the exceeded $600,000.35 The Michigan Court of opting-out application of the statute is not intended to Appeals held that the “SRCA is inapplicable be limited by the place where the sales rep- to the employment relationship between of its resentative solicits the order or sells a prod- plaintiff and defendant because plaintiff was requirements uct. Consequently, the court ruled that the not a salesperson who sold ‘goods,’ and de- and liabilities. MSRCA applies where “a sale (or produc- fendant did not produce, sell, or distribute a tion) of a product occurs in Michigan and [] ‘product,’ as we interpret those terms as used when a contract is entered into with a sales in the act.”36 Central to the court’s analysis representative in Michigan to procure orders was the dictionary definitions of the words or to sell goods on the principal’s behalf.”28 “product” and “goods”: Thus, Judge Rosen was able to appropriately The word “product” is defined as “a read the statute, using the judicial interpre- thing produced by labor,” “the total- tive tools at his disposal. Michigan state ity of goods or services that a compa- courts have applied the same analysis.29 ny produces,” and “material created or produced and viewed in terms of Judicial Interpretation of “Sales potential sales.” Random House Web- Representative” ster’s College Dictionary (2001), p. The remedial intent of the law, as Judge 1055. “Goods” are defined as “posses- Rosen noted, is to protect Michigan sales sions, esp[ecially] movable effects or representatives. The statute defines a “sales personal property” and as “articles of representative” as “a person who contracts trade; merchandise.” … Here, apply- with or is employed by a principal for the ing the fair and natural import of the solicitation of orders or sale of goods and is paid, SRCA’s use of the terms “goods” and in whole or in part, by commission.”30 “product” to the facts of this case, we Admittedly, there exists a discrepancy be- find that plaintiff, as a project estima- tween what should have been mirror-image tor, was not engaged in soliciting for IN MY DEFENSE 21

the order or sale of goods on behalf of vide.”42 Thus, the court held that the choice the defendant.37 of law clause would deprive the plaintiff of Because construction estimation is a “ser- the protection of Michigan’s law safeguard- vice,” and not a “good,” the plaintiff was ing sales representatives. Here, the court cor- not a “sales representative” as defined in the rectly understood that the MSRCA imposes statute. Similarly, in Klapp v United Ins Group certain mandatory statutory requirements Agency, the Michigan Court of Appeals for principals who do business within the looked to the UCC definition of “goods” state of Michigan: they must pay their sales to determine that insurance policies were representatives what they owe and in a time- not “goods” and so an insurance salesman, ly manner. Parties cannot contract around paid on commission, could not maintain an this obligation, whether by attempting to se- action under the MSRCA.38 The courts cor- lect a different state’s laws as governing or rectly held that the MSRCA does not apply otherwise. to sales representatives who sell intangibles However, it should be noted that some or services. However, the boundary between courts have enforced choice of law clauses goods and services can be murky, especially where the chosen state law is similar, but not the boundary between intangible goods and identical, to the MSRCA. Shortly after the services. Bryan Custom Plastics case was decided, Ohio enacted Ohio Rev Code § 1335.11, which A principal Opting-Out of the MSRCA amended Ohio’s sales representative com- One of the primary features of the MSRCA is mission statute so that it was a lot more like may, its anti-waiver provision, which states “a pro- the MSRCA than it was when the Bryan Cus- therefore, be vision in a contract between a principal and a tom Plastics case was decided.43 Thus, in 2012, sales representative purporting to waive any because of the change in the Ohio law, the able to choose right under this section is void.”39 Such pro- Western District of Michigan came to a dif- a state law visions are common in consumer protection ferent conclusion than the Eastern District in that provides statutes and in federal and state blue sky and Bryan Custom Plastics.44 In Volunteer Energy securities regulations.40 The intention of the Servs, Inc, the Western District Court held: for relief anti-waiver provision should be clear, and [A]fter Howting-Robinson and Johnson comparable to is entirely consistent with the law’s purpose: were decided, Ohio enacted a statute that the principal cannot contract around the provides for relief comparable to the [M] the MSRCA, requirements of the law by foisting abusive SRCA.… In light of the comparable but it cannot contract clauses on its sales representatives. Ohio statute, application of Ohio law evade the core Although law is sparse on the anti-waiver would not be contrary to Michigan provision in the MSRCA, in other contexts, public policy. Accordingly, any action requirements statutory anti-waiver clauses are an impor- for commissions owed under the con- of Michigan’s tant tool that prevents powerful companies tract must be predicated on Ohio law sales from defrauding consumers. If the MSRCA in accordance with the parties’ choice applies, its anti-waiver provision forbids of governing law in the Agent Agree- commission principals and sales representatives from ment.45 statute contractually opting-out of its requirements Thus, if a choice of law clause is at issue in and liabilities. a sales commission case, whether the chosen altogether. In Howting-Robinson Assocs v Bryan Cus- state has enacted a MSRCA analog may well tom Plastics, the Eastern District of Michigan be the decisive factor. A principal may, there- federal court considered whether a choice fore, be able to choose a state law that proof law clause in an employment contract vides for relief comparable to the MSRCA, that allows the contracting parties to opt- but it cannot evade the core requirements out of Michigan law, including the MSRCA, of Michigan’s sales commission statute alto- is void.41 The court held that a choice of law gether. clause in a sales commission agreement that Or can it? selected Ohio law as governing was unen- In Reicher v SET Enters,46 the court held forceable, because “Ohio law contains no that the MSRCA’s anti-waiver provision such protection or provision. In this case, the does not apply to a settlement agreement parties have selected, through their choice of waiving a sales representative’s rights under law provision, a jurisdiction in which there is the MSRCA: a substantial erosion of the quality of protec- [T]he [M]SRCA provides that “[a] pro- tion that the [MSRCA] would otherwise provision in a contract between a principal 22 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

and a sales representative purporting tive purporting to waive any right under the to waive any right under this section is bill would be void.”49 void.” MCL 600.2961(8). Unfortunately, the Michigan Court of Ap- By its plain language, this prohibi- peals has opened a good-sized door to eva- tion against waiving rights under the sion of the statute’s application by improp- [M]SRCA applies only to a contract erly cabining the reach of the statute’s all- between a principal and a sales rep- important anti-waiver provision. The court’s resentative. We conclude, therefore, strained interpretation creates an exit door that by its clear intent and import, the from MSRCA liability that a principal may be [M]SRCA prohibition applies only to able to open simply by disputing any term of waivers contained in sales representa- the agreement, such as the time when a com- tion contracts. In the present case, the mission is due, the amount of a commission, release or waiver is contained, not in a or which items entitle the sales representative sales representation contract, but rath- to a commission when sold. To constitute a er in the settlement agreement.47 “settlement agreement” of the sort that the The court is not only wrong—it is very wrong. Court believes is necessary to overcome the The purpose of the anti-waiver provision was MSRCA’s blanket anti-waiver provision, it to prevent principals with superior resources is not clear if such a “settlement agreement” Unfortunately, from extorting waivers from vulnerable sales waiving MSRCA rights must be made while litigation is pending, or merely threatened, representatives, and forcing them to accept the Michigan or simply looming unspoken as it always is distress settlements. The statutory language, as soon as any term of the original sales com- Court of the statute’s structure as a whole as well as mission contract becomes the subject matter the relationship between its constituent pro- Appeals has of disagreement. In Reicher, the agreement visions, and the legislative history all argue opened waiving MSRCA rights (and amending the for a conclusion contrary to the one the court initial sales commission agreement) was ex- a good-sized reached. ecuted while litigation concerning the initial Confirming the statutory purposes that door sales commission agreement was pending. an ordinary reader would infer from the lan- The court states that “the release or waiv- to evasion of guage of the statute itself, both the Senate er [of MSRCA rights and remedies] is con- and House of Representatives staff analysis the statute’s tained, not in the sales representation con- of Senate Bill 717 declare that a core purpose application tract, but rather in a settlement agreement. of the statute is to prevent exactly what the … Given the discrete differences between a by improperly Reicher court allows when it ignores the stat- settlement agreement and the sales represen- cabining the ute’s absolute prohibition against any con- tation agreement, we conclude that plaintiff’s reach of the tract provision waiving the MSRCA rights of settlement with Noble [the defendant] falls a sales representative or a principal: 50 statute’s all- outside the scope of the MSRCA.” The court Knowing that recovery through the is guilty of several errors here. important courts can be a costly and time-con- First, the court insists that a settlement anti-waiver suming proposition that many sales agreement cannot be both a settlement con- representatives would wish to avoid, tract and a sales commission contract. But, provision. some principals allegedly withhold the two are not mutually exclusive. The court earned commissions, which forces conjures a false choice—a contract is either a sales representatives either to accept settlement contract or a sales representation distress settlements (i.e., a portion contract; it cannot be both. In fact, a contract of their earned commissions not yet can be both a settlement contract and a sales received) or forego the remuneration commission contract at the same time. In fact, completely. To ensure that sales rep- what the Reicher court called a “settlement resentatives receive the commissions agreement” was both a sales commission to which they are entitled, it has been contract and a settlement agreement. suggested that prompt payment of Second, the MSRCA expressly applies post-termination commissions, and to all contracts concerning the payment of penalties for failing to pay them, be a commission. Any settlement agreement statutorily mandated.48 concerning the payment of a commission is The analysis of the legislative staff goes on controlled by the MSRCA without regard to state that “a provision in the contract to whether it also settles a dispute about the between a principal and the sales representa- meaning of a prior sales commission agree- IN MY DEFENSE 23 ment and notwithstanding that it amends “all” “contract[s] between a principal and that prior sales commission agreement. The the sales representative,” and is not limited Reicher settlement agreement purported to only to what the court calls a “sales repre- govern the obligation of the principal to pay sentation contract” (a term invented by the commissions and the right of the sales repre- court that appears nowhere in the statute), sentative to receive commissions. It is, thereby which the court appears to mean only the fore, “a contract between a principal and a initial contract establishing the relationship sales representative purporting to waive any of principal and sales representative and not right under [the MSRCA].”51 subsequent contracts amending or abrogat- The MSRCA irrevocably governs the ing that relationship, The court is, therefore, amount of statutory damages and the pay- effectively amending the statute, changing ment deadlines that trigger statutory dam- the indefinite article “a” into the definite ages. The parties have unfettered freedom to article “the,” which would denote a single, set the dates when commissions are due, the definite, specific or particular instance ofa amount of the commissions, and all the other contract, that is, the initial contract regarding terms of a sales commission agreement, ex- the payment of commissions by the principal cept for the statutory damages and the statu- to his sales representative as opposed to any tory conditions precedent to those statutory instance of a contract regarding the payment damages, such as the 45-day grace period for of commissions by the principal to his sales The MSRCA the payment of commissions subsequent to representative.53 the due dates set by the parties in their agree- We hope that subsequent decisions cor- is one of a ment. The parties are free to waive the dates rect this errant ruling. handful of when commissions are due, the amount of the commissions, and most other terms of an Attorney’s Fees statutes that agreement between a principal and a sales MCL 600.2961(6) provides that “if the sales mandates representative. However, the conditions representative brings a cause of action pur- an award of precedent to the statutory damages and pen- suant to this section, the court shall award to alties and the statutory damages and penal- the prevailing party reasonable attorney fees attorneys’ ties themselves cannot be waived—period— and court costs.” fees to the because “a provision in a contract between Of course, in Michigan, attorneys’ fees a principal and a sales representative pur- cannot be recovered unless expressly au- prevailing porting to waive any right under this section thorized by statute, court rule, contract, or a party. is void.” The statutory damages and their judicially created exception to the American statutory conditions precedent are “right[s] rule that each party is responsible for paying under this section.” its own attorneys’ fees. More than 80 Michi- The court is effectively adding words gan statutes authorize an award of attorneys’ to the statute excepting contracts between fees and most Michigan statutes leave an a sales representative and a principal that award of attorneys’ fees to the discretion of simultaneously settle a dispute about the the court.54 The MSRCA is one of a handful initial agreement governing the parties’ of statutes that mandates an award of attor- commission rights and obligations. But if a neys’ fees to the prevailing party.55 settlement contract amends a prior commis- MCL 600.2961(1)(c) defines a prevailing sion obligation, it is simply a new contract party as “a party who wins on all the allega- between the principal and his sales represen- tions of the complaint or on all of the respons- tative—and all contracts between principals es to the complaint.” In HJ Tucker & Assocs v and their sales representatives are subject to Allied Chucker & Eng’g Co, a sales representa- the MSRCA. tive sued a manufacturer to recover unpaid Third, the anti-waiver provision, MCL commissions.56 In its complaint, plaintiff al- 600.2961(8), states that “a provision in a con- leged breach of contract, fraudulent mis- tract between a principal and the sales rep- representation, innocent misrepresentation, resentative purporting to waive any right detrimental reliance, quantum meruit, unjust under this section is void.”52 The diction- enrichment, and breach of fiduciary duty. ary denotes that “a” means “any” or “all” Plaintiff later added an additional count for members of a class, whereas “the” means damages under the MSRCA. Following a one or several specific, but not all or any, nine-day bench trial, the trial court found members of a class. The anti-waiver provi- that the defendant had intentionally with- sion, therefore, applies to “a” or “any” or held sales commissions in violation of the 24 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

MSRCA and awarded plaintiff commissions, of actual damages awarded by the trial court statutory damages, attorneys’ fees, costs, was only $8,102.26. The court found that the expert witness fees, and statutory interest.57 actual damages, statutory double damages, The defendant appealed the award of at- and attorney fee award combined exceeded torney’s fees, arguing that plaintiff was not $25,000, which was sufficient for the sales a prevailing party because he won on only representative to prevail on his jurisdiction- his MSRCA and breach of contract claims al allegation of the amount in controversy and he did not prevail on his other alterna- at the time he filed the complaint. Since the tive theories of liability. The Michigan Court plaintiff-sales representative did prevail on of Appeals upheld the attorneys’ fees award, his jurisdictional allegation as well as his stating that “Defendant’s construction of the MSRCA claim for past-due commissions, the statute is too narrow and would defeat the court found that he had prevailed on all of purpose of MCR 2.111(A)(2) to allow incon- the allegations of his MSRCA cause of action sistent claims or alternative theories to be and was, therefore, entitled to attorneys’ fees. pleaded for a single cause of action.”58 However, it is not clear if the Peters court re- Although more explanation why de- garded the jurisdictional allegations to be fendant’s construction of the statute was constituent allegations of an MSRCA cause too narrow would have been helpful, the of action that a plaintiff must win to recover court’s decision was the correct one. The attorneys’ fees. It is not clear whether the Court of Appeals decision is grounded in a court would have awarded attorneys’ fees to careful reading of the statutory text of MCL plaintiff had he not prevailed with respect to 600.2961(6), which states that “if the sales his jurisdictional allegations that the amount representative brings a cause of action pur- in controversy exceeded $25,000. suant to this section, the court shall award to The court further held that a manufactur- the prevailing party reasonable attorney fees er’s success on his countercomplaint against and court costs.” A “cause of action pursu- a sales representative has no bearing on the ant to this section” is exclusively an MSRCA sales representative’s entitlement to attor- cause of action and is not an unjust enrich- neys’ fees, because the MSRCA attorneys’ ment, breach of contract, fraud or any other fees provision only requires that the sales cause of action. Thus, a plaintiff who wins on representative prevail on all the allegations all the allegations of the complaint that con- of the MSRCA cause of action in his com- stitute his MSRCA cause of action is the “pre- plaint and does not require the sales repre- vailing party” and is entitled to an award of sentative to prevail on his defenses against a attorneys’ fees. manufacturer’s countercomplaint, holding: Albeit in dicta, three years after its ruling “[b]ecause the attorney fees provi- in HJ Tucker & Assocs, the Michigan Court of sion of the SRCA relates only to pre- Appeals again construed “prevailing party” vailing parties on original causes of to require only that the sales representative action under the SRCA and responses prevail on all of the allegations of his MSRCA to those actions, we conclude that the claim and not on all of the allegations of al- disposition of defendant’s counter- ternative theories of liability other than the complaint has no bearing on plaintiff’s MSRCA: “a party cannot be deemed a pre- entitlement to attorney fees and costs vailing party entitled to reasonable attorney under the SRCA.”60 fees and court costs unless that party is found to have prevailed fully on each and every as- Conclusion pect of the claim or defense asserted under the Far from a mythical beast in need of “slay- [M]SRCA.”59 ing,” the MSRCA is a sensible policy that Unlike HJ Tucker & Assocs, the Peters v protects vulnerable commissioned sales rep- Gunnell, Inc court also grappled with what resentatives. The law upholds the sanctity constitutes “all” of the allegations of an of promise; sustains the system of voluntary MSRCA cause of action. The defendant-prin- exchange and free markets that are ground- cipal argued that the sales representative- ed in a widespread expectation of promise plaintiff did not prevail on “all” of the allega- keeping; and equalizes the bargaining power tions of his MSRCA cause of action, because between powerful principals and relatively his complaint’s jurisdictional allegation weaker sales representatives. Moreover, the stated that the amount of damages in con- law encourages careful and clear drafting, troversy exceeded $25,000 and the amount which makes litigation less likely in the long- IN MY DEFENSE 25 term. However, the statutory text cannot (5) A principal who fails to comply with this section answer every possible question. As all laws is liable to the sales representative for both of the following: do, it relies on the judiciary to determine (a) Actual damages caused by the failure to pay the its proper application. To abuse the meta- commissions when due. phor used to describe the law, the holes in (b) If the principal is found to have intentionally the dragon’s scales can be—and largely have failed to pay the commission when due, an amount equal to 2 times the amount of commissions due but not paid been—filled by the judiciary. as required by this section or $100,000.00, whichever is less. (6) If a sales representative brings a cause of action pursuant to this section, the court shall award to the NOTES prevailing party reasonable attorney fees and court costs. 1. The authors give special thanks to the many (7) In an action brought under this section, judges who have labored to flesh out the meaning of jurisdiction shall be determined in accordance with the law, and to apply and understand the statute in chapter 7.1 the context of live disputes. The authors also express (8) A provision in a contract between a principal their gratitude to the many lawyers who have dedicated and a sales representative purporting to waive any right themselves to divining the practical meaning of the under this section is void. law in the crucible of representing their clients in the (9) This section does not affect the rights of a adjudication of disputes, the review and negotiation of principal or sales representative that are otherwise contracts, and in scholarly writings. The statute has been provided by law. blessed to have attracted the attention of some great 4. MCL 600.2961(5)(b)-(c). lawlerly minds over the years, including many who have 5. Richard Posner, Antitrust Law: An Economic written about the law, such as Randy J. Gillary, Kevin Perspective 223 (1976). Albus, Stephen M. Wolock, and, of course, Judge Gerald 6. See, e.g., http://www.fosterswift.com/ Rosen. communications-Michigan-Sales-Rep-Act-Review- 2. Kenneth Henes Special Projects Procurement, Mktg v Commission-Agreements.html. Continental Biomass Indus, 86 F Supp 2d 721, 728–29 (ED 7. Howting-Robinson Assocs v Bryan Custom Plastics, 65 F Mich 2000) (Rosen, J). Supp 2d 610, 613 (ED Mich 1999). 3. MCL 600.2961: 8. See, e.g., Daniel N. Sharkey & Brent W. Warner, (1) As used in this section: Treble Damages and Other Dragons: Slaying the Sales (a) “Commission” means compensation accruing to Representative Commission Case, Mich B J 34 (2014). a sales representative for payment by a principal, the rate 9. 86 F Supp 2d at 731. of which is expressed as a percentage of the amount of 10. See, generally, 86 F Supp 2d 721. orders or sales or as a percentage of the dollar amount of profits. 11. Frank W Lynch & Co v Flex Techs Inc, 463 Mich 578, 624 NW2d 180 (2001). (b) “Person” means an individual, corporation, partnership, association, governmental entity, or any 12. Id. at 586. other legal entity. 13. Id. at n. 4. (c) “Prevailing party” means a party who wins on 14. Kenneth Henes Special Projects Procurement, Mktg, & all the allegations of the complaint or on all of the Consulting Corp v Continental Biomass Indus (In re Certified responses to the complaint. Question), 468 Mich 109, 118, 659 NW2d 597 (2003). (d) “Principal” means a person that does either of 15. Id. the following: 16. Id. (i) Manufactures, produces, imports, sells, or 17. Id. at 116. distributes a product in this state. 18. Id. at 114. (ii) Contracts with a sales representative to solicit 19. Id. orders for or sell a product in this state. 20. MCL 600.2961(1)(d). (e) “Sales representative” means a person who 21. 86 F Supp 2d at 729. contracts with or is employed by a principal for the 22. Id. solicitation of orders or sale of goods and is paid, in whole or in part, by commission. Sales representative 23. Senate Legislative Analysis, SB 717, April 30, does not include a person who places an order or sale 1992 quoted in 86 F Supp 2d at 729. for a product on his or her own account for resale by 24. E.g. Nelski v Ameritech, No 244644, 2004 Mich that sales representative. App LEXIS 1798 at *13 (June 29, 2004) (quoting United (2) The terms of the contract between the principal States v Menasche, 348 US 528, 538-539 (1955). and sales representative shall determine when a 25. E.g. Gusler v Fairview Tubular Prods, 412 Mich 270, commission becomes due. 294, 315 NW2d 388 (1981). (3) If the time when the commission is due cannot 26. See Generally Barnhart v Thomas, 540 US 20 be determined by a contract between the principal and (2003). sales representative, the past practices between the 27. 86 F Supp 2d at 730. parties shall control or, if there are no past practices, 28. Id. the custom and usage prevalent in this state for the 29. Walters v Bloomfield Hills Furniture, 228 Mich App business that is the subject of the relationship between 160, 164–65, 577 NW2d 206 (1998) (also quoting the the parties. Senate Legislative Analysis, SB 717). (4) All commissions that are due at the time of 30. MCL 600.2961(e)(emphasis added). termination of a contract between a sales representative 31. MCL 600.2961(1)(d) supra (emphasis added). and principal shall be paid within 45 days after the date of termination. Commissions that become due after the 32. MCL 600.2961(1)(e), supra (emphasis added). termination date shall be paid within 45 days after the 33. 259 Mich App 467 (2003). date on which the commission became due. 34. 256 Mich App 154 (2003). 26 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

35. Mahnick v Bell Co, 256 Mich App 154, 155, 662 “general.”14 Given that subsection *15 (2) immediately NW2d 830 (2003). follows subsection (1), which limits its application 36. Id. at 162. to “county highway[s],” “the highway” referred to in 37. Id. subsection (2) must be the same highway referred to 38. Klapp v United Ins Group Agency, 259 Mich App in subsection (1)—the county highway.” Robinson v City 467, 471, 674 NW2d 736 (2003) (“’Goods’ means all of Lansing, 486 Mich 1, 14–15, 782 NW2d 171, 179– things (including specially manufactured goods) which 80 (2010). Emphasizing that it is our task to give the are movable at the time of identification to the contract words used by the Legislature their common, ordinary for sale other than the money in which the price is to meaning,” the court states that “’the’ does not mean ‘a’.” be paid, investment securities (article 8) and things in Massey v Mandell, 462 Mich at 384. action.”) (overruled on other grounds, Klapp v United Ins 54. Mich Law of Damages §29.9 Group Agency, 468 Mich 459, 663 NW2d 447 (2003)). 55. Use of term “shall” in a statute means that an 39. MCL 600.2961(8). act is mandatory unless other considerations compel 40. See e.g. 15 USC 77n; also see MCL 451.2509(12) a contrary conclusion. Sears v Department of Treasury, (“[a] condition, stipulation, or provision binding a 57 Mich App 218, 226 NW2d 63 (1974); Lundberg v person purchasing or selling a security or receiving Corrections Comm’n, 57 Mich App 327, 225 NW2d 752 investment advice to waive compliance with this act or a (1975). rule adopted or order issued under this act is void.”). 56. HJ Tucker & Assocs v Allied Chucker & Eng’g. 41. Howting-Robinson Assocs, Inc v Bryan Custom Plastics, Co, 234 Mich App 550, 555–56, 595 NW2d 176 65 F Supp 2d 610 (ED Mich 1999). (1999). In its complaint, plaintiff alleged breach of 42. Id. at 613. contract, fraudulent misrepresentation, innocent 43. Ohio Rev Code § 1335.11 (“A principal who misrepresentation, detrimental reliance, quantum fails to comply ... with any contractual provision meruit, unjust enrichment, and breach of fiduciary duty. concerning timely payment of commissions due upon Plaintiff later added an additional count for damages termination of a contract with a sales representative under the MSRCA. is liable in a civil action for exemplary damages in an 57. The MSRCA itself provides that a principal “is amount not to exceed three times the amount of the liable to the sales representative for… actual damages commissions owed to the sales representative if the caused by the failure to pay the commissions when due.” sales representative proves that the principal’s failure MCL 600.2961(5)(a). (Emphasis supplied). Interest to comply . . . the contractual provision constituted is a universally accepted measure of the damages willful, wanton, or reckless misconduct or bad faith.”). caused by the loss of funds. By statute, when a money See also Steven M. Wolock, Michigan’s Sales Representative judgment is entered, interest accrues on the judgment Act Revisited, Mich B J 1532, 1535 (2000) (“The court’s from the time of the filing of the complaint until the analysis, although flawed by its error regarding Ohio judgment is paid. MCL 600.6013. Michigan courts law, seems generally correct, at least compared to states therefore recognize a distinction between interest as an that do not afford their sales representatives protections element of actual damages and interest on a judgment. similar to those in Michigan.”). Gordon Sel-Way, Inc v Spence Bros, Inc, 438 Mich 488, 44. Volunteer Energy Services, Inc v Option Energy, LLC, 499 n. 9, 475 NW2d 704 (1991); Moore v Department of No. 1:11-CV-554, 2012 US Dist LEXIS 115170 (WD Military Affairs, 88 Mich App 657, 660, 278 NW2d 711 Mich Aug 16, 2012) (unpublished). (1979). In a suit for commissions due a salesperson, 45. Id. (emphasis added). the jury should be instructed to include interest from 46. Reicher v SET Enters, 283 Mich App 657, 770 the date the commissions became due. Under the NW2d 902 (2009). MSRCA, a prevailing sales representative may recover 47. Id. pre-complaint, pre-judgment and post-judgment 48. Staff of Labor Comm. on Senate Bill 717 interest. Kenneth Henes Special Projects Procurement, Mktg v with Senate Amendments and House Committee Continental Biomass Indus, 86 F Supp 2d 721 737-8 (2000). Amendments, First Analysis (Comm. Print 1992) Importantly, Interest is not subject to doubling when a principal intentionally fails to pay a commission. The 49. Id. MSRCA provides for a double commissions remedy, not a 50. 283 Mich App at 664. double damages remedy. MCL 600.2961(5)(b) states that 51. MCL 600.2961 (8). a principal is liable to the sales representative for “an 52. Id. (emphasis added). amount equal to 2 times the amount of commissions due 53. “Second, not only do the placement of but not paid as required by this section or $100,000, subsection (2) and the absence of language in subsection whichever is less.” (Emphasis added). (2) distinguishing it from subsection (1) suggest that 58. 234 Mich App at 561. subsection (2), as with subsection (1), only applies to 59. Peters v Gunnell, Inc, 253 Mich App 211, 223, 655 county highways, but the syntax of subsection (2) also NW2d 582 (2002). (Emphasis added). suggests that both these subsections apply only to county highways. Subsection (2) refers to “the highway.” 60. Id. at 224–25. (Emphasis added.) As this Court has explained: “The” and “a” have different meanings. “The” is defined as “definite article. 1. (used, [especially] before a noun, with a specifying or particularizing effect, as opposed to the indefinite or generalizing force of the indefinite article a or an)....” Random House Webster’s **180 College Dictionary, p. 1382. Massey v Mandell, 462 Mich 375, 382 n 5, 614 NW2d 70 (2000). Because subsection (2) refers to “the highway,” we must determine to which “specific or particular” highway subsection (2) refers to. That is, because subsection (2) does not refer to “a highway,” we cannot read subsection (2) as applying to highways in IN MY DEFENSE 27

Dave Honigman is a partner at Mantese Honigman, P.C. in Troy, Michigan who was elected to two terms in the Michigan Senate and three terms in the Michigan House of Representatives. In 1992, while serving in the Senate, Mr. Honig- man authored and introduced the bill that enacted the Michigan Sales Representa- tive Commission Act. Mr. Honigman represents businesses and individuals in complex litigation, administrative proceedings and alternative dispute resolution.

Jordan B. Segal is an asso- ciate at the firm of Man- tese Honigman, PC, where he practices in business, employment, and healthcare litigation. Business Lawyers—What’s New in Health Care Law?

By Theresamarie Mantese, Douglas L. Toering, and Fatima Bolyea

Introduction authority to make rounds and house calls;2 3 It is common for physicians and other health (2) the ability to prescribe drugs; and (3) the care providers1 to retain business lawyers for ability to perform routine visual screening or matters involving business transactions or testing, postoperative care, or assistance in 4 litigation. Business lawyers and business liti- the care of medical diseases of the eye. The gators have the best skill set to advocate for statute further eliminates the requirement the business interests of health care provid- that physician’s assistants be supervised at ers in court and other forums. These business all times by a physician. matters include: corporate formations, con- A physician’s assistant’s ability to provide tracts, general business litigation, and busi- these expanded health care services requires ness dispute resolution. Experienced busi- that physician’s assistants enter into a prac- ness lawyers know how to easily navigate tice agreement with a participating physician these complex business matters for a variety or podiatrist. The practice agreement5 must of industries. Yet, there are certain health include all of the following terms: care law issues that business lawyers should 1. A process for communication, avail- recognize in their representation of health ability, and decision-making be- care providers. tween the physician and the phy- This article is intended to provide busi- sician’s assistant when providing ness lawyers with an overview of the key medical treatment to a patient.6 The health care law developments of the last year agreement must provide that the that may have an impact on physicians and physician’s assistant and physician other health care providers. This list is not use the knowledge and skills based exhaustive, but it covers the critical topics on their education, training, and that business lawyers may confront in their experience in the performance of practice. The article also provides some use- this process. A practice agreement ful tips on proposed language to use in busi- should not give responsibilities to ness agreements and other strategy ideas. physician’s assistants that are out- The topics addressed in this article are: (1) Li- side their scope of license. For exam- censing, (2) Stark Law Clarifications, and (3) ple, a physician’s assistant should Staff Privileging and Credentialing Issues. not be given responsibility to per- Business lawyers should understand how form heart surgery under a practice these changes affect the legal landscape for agreement. Thus, business lawyers physicians and other health care providers in should review the powers of physi- the business context. cian’s assistants as outlined in MCL Licensing 333.18051 before drafting a practice agreement. This is necessary to Michigan Physician’s Assistant Statute— avoid giving physician’s assistants Statutory Practice Agreement authority over health care matters Often, business lawyers are retained to write outside the scope of their license. agreements related to physician practices. 2. A protocol for designating an alter- Licensing statutes can have an impact on native physician for consultation these agreements. In 2016, the Michigan Leg- in situations when the participat- islature enacted a significant statute related to ing physician is not available.7 The physician’s assistants, who are increasingly purpose of this protocol is to create being employed in physician practices. 2016 a chain of authority, such that the PA 379 gives greater autonomy to physician’s physician’s assistant always has ac- assistants to perform health care services cess to a physician if a medical situa- under the terms of a practice agreement. The tion occurs in which the physician’s expanded health care services include: (1) the assistant may need advice or infor- 28 BUSINESS LAWYERS—WHAT’S NEW IN HEALTH CARE LAW? 29

mation from a physician. agreements related to the employment of a 3. A termination provision that allows physician’s assistant. the physician’s assistant or physician Finally, the practice agreement should be to terminate the practice agreement consistent and not conflict with other physi- by providing at least 30 days’ writ- cian’s assistant’s agreements such as employ- ten notice before the date of termi- ment agreements or independent contrac- nation.8 It appears that this require- tor agreements. Caution should be taken to ment is to provide for a continuity of make sure that terms related to job duties, patient care and to avoid abrupt ter- scope of practice limitations, and termination mination in the patient care by either notice period are consistent with the statuto- a physician or physician’s assistant. ry requirements. 4. The duties performed by the physi- Business lawyers should also carefully cian’s assistant must not include any consider entity formation issues related to act or function that the physician’s physicians having a practice agreement with assistant or physician is not quali- a physician’s assistant. Specifically, MCL fied to perform or is not within their 333.17048(3) addresses business entity for- license to perform.9 It is advisable for mation by physician’s assistants. Under the a business lawyer to carefully review statute, if physicians and physician’s assis- the scope of license for a physician’s tants organize a professional corporation or Often, assistant10 and a physician11 in order professional limited liability company after to avoid including any activities that July 19, 2010, then the physician who is a business are beyond the scope of the license party to a practice agreement with the phy- lawyers are of either the physician’s assistant or sician’s assistant must also be a shareholder physician. or member in the same corporation or lim- retained 5. The physician must verify the physi- ited liability company as the physician’s as- to write cian’s assistant’s credentials.12 While sistant. Professional corporations and pro- agreements this provision is to be included in fessional limited liability companies formed the practice agreement, it should before July 19, 2010 may be made up solely related to be remembered that the physician of physician’s assistants, but the participat- physician must actually verify the credentials ing physicians who are parties to the practice of the physician’s assistant. Often- agreements must satisfy the requirements of practices. times, physicians prefer to delegate their medical discipline.15 Licensing credentialing to administrative staff. statutes However, physicians will ultimately Michigan Midwifery Legislation— be responsible for any mistakes in Statutory Implied Consent Authorization can have the credentialing of the physician’s On January 3, 2017, House Bill 4598 (“HB an impact assistant. 4598”) was enacted by the Michigan legisla- on these 6. The practice agreement must be ture. HB 4598 adds Midwifery to the Public signed by the physician’s assis- Health Code and provides new licensure agreements. tant and the physician.13 As with requirements for the practice of midwifery all agreements, business lawyers in Michigan. The statute establishes mid- should make sure it is both signed wife licensure and scope of practice require- and dated by both parties, and that ments. The statute: (1) prohibits the practice the parties keep a fully executed of midwifery without a license;16 (2) enables copy for their records. the midwife to directly obtain supplies and Business lawyers should emphasize that devices, to order and obtain screening tests failure of a physician or physician’s assistant including ultrasound tests, and to receive to comply with the practice agreement may verbal and written reports of the results be grounds for a disciplinary action.14 of those tests;17 (3) requires a midwife to No specific form is required for a prac- obtain informed consent from a patient;18 tice agreement. The statute gives the busi- (4) requires a midwife to establish a proto- ness lawyer flexibility. Therefore, business col for the transfer of care to a physician or lawyers may opt to draft a separate practice hospital;19 and (5) prohibits a midwife from agreement to comply with the statutory re- using certain surgical instruments, prescrib- quirements or to draft a single agreement ing medications, or performing surgical pro- that incorporates the statutory requirements cedures other than episiotomies or repairs to along with provisions contained in other perineal lacerations.20 30 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

Business lawyers should be aware that administrative law judge who found in favor the Midwifery legislation requires that a of Serven and issued a proposal for a deci- midwife “shall obtain informed consent sion to this effect. Instead of adopting the from a patient at the inception of care and decision of the administrative law judge, the continuing throughout the patient’s care.” 21 disciplinary subcommittee found that Ser- Informed consent is continuing and is of crit- ven was negligent and put him on probation ical importance for patient care issues related claiming that he had not reviewed Health to using a midwife in a physician’s practice. Quest’s chiropractic records before issuing The Michigan Midwifery licensing statute his opinion regarding the independent chi- provides guidance on informed consent. At ropractic examination. Cogan was present at a minimum, informed consent shall include: the disciplinary subcommittee meeting. (1) a requirement that at the inception of care Serven appealed the disciplinary sub- for a patient, the midwife provide a copy of committee’s decision. The Michigan Court the rules promulgated by the Michigan De- of Appeals held that the disciplinary sub- partment of Health under the Midwifery li- committee erred, reversed the decision, and censing section; and (2) a requirement that at remanded with instructions to expunge the inception of care for a patient, the mid- Serven’s record.24 Thereafter, Serven filed a wife orally and in writing disclose whether lawsuit against the disciplinary members, Accordingly, the midwife has malpractice liability insur- including Cogan. Serven claimed that Cogan ance coverage and, if so, the policy limita- was an equity partner in Health Quest and business tions of that coverage.22 Accordingly, busi- bore a financial interest in the outcome of attorneys ness attorneys should draft informed consent Serven’s disciplinary matter and, therefore, forms that, at a minimum, include these stat- should have played absolutely no role in should draft utory provisions and should revisit the pro- the decision. The appellate court held the informed fessional standard of care related to informed board’s disciplinary subcommittee was im- consent forms consent that applies to a health care provider. mune from a lawsuit because it was cloaked with absolute quasi-judicial immunity, and that, at a Business Litigation – Spillover Licensing the case was remanded to the trial court for minimum, Proceedings dismissal. include these In 2017, the Michigan Court of Appeals dealt As noted in Serven, spillover disciplin- with a licensing action that arose out of a ary proceedings and litigation resulted statutory collection lawsuit for the payment of medi- from a seemingly straightforward collection provisions cal bills to a chiropractic business. In Serven lawsuit for medical bills. Serven provides v Health Quest Chiropractic, Inc,23 Bruce Ser- several lessons for business lawyers. First, and should ven, a licensed chiropractor, was retained business lawyers should keep in mind that revisit the by State Farm Insurance Company to per- parties involved in a business matter cannot professional form an independent chiropractic examina- agree to refrain from filing a licensing com- tion on a patient who was treated by Health plaint against a medical provider as part of standard of Quest. Health Quest was owned, in part, by a business transaction. Michigan law recog- care related Solomon Cogan and Silvio Cozzetto. Cogan nizes that medical providers may not absolve was also the chairman of the Michigan themselves from professional liability via an to informed Board of Chiropractic. Serven advised State exculpatory agreement because of the great consent that Farm that Health Quest’s services were not importance of medical services to the pub- 25 applies to a medically necessary in connection with the lic. However, a business lawyer could use treatment of a patient. Based in part on this other drafting techniques in order to protect health care advice, State Farm denied payment to Health a medical provider from subsequent licens- provider. Quest. Health Quest filed suit against State ing proceedings. For example, a business Farm seeking payment. Serven testified on lawyer could draft detailed recitals indicat- behalf of State Farm, and Cogan testified on ing that licensing issues are not relevant to behalf of Health Quest. State Farm prevailed. the business matter. These recitals can be in- Shortly thereafter, Cogan’s business partner, valuable to provide a window into the rea- Cozzetto, filed a licensing complaint against soning of the parties and provide outside re- Serven with the Michigan Board of Chiro- viewers with information as to why licensing practic. Cozzetto accused Serven of improp- issues are not relevant. Finally, business law- erly rendering an opinion without reviewing yers should consider whether an indemnity Health Quest’s records in connection with clause would be valuable in connection with his consultation. The case was referred to an a business matter involving a medical pro- BUSINESS LAWYERS—WHAT’S NEW IN HEALTH CARE LAW? 31 vider. An indemnity provision would pro- United States v Marder31 is on point. In vide a means in which the medical provider this 2016 case, a qui tam action was brought could recover costs, including attorneys’ against a dermatologist and pathologist al- fees, to cover spillover proceedings resulting leging problems with the provision and the from a business matter. billing of dermatology services and related pathology services. Drawing every infer- Stark Law ence in favor of the defendants, the court could not determine as a matter of law that Stark Law Overview the purported employment relationship be- The Stark Law prohibits a physician from tween the dermatologist and pathologist for referring Medicare patients for certain “des- pathology services was a mere smokescreen ignated health services” to an entity with for kickbacks, sufficient to take it out of the which the physician or an immediate family safe harbor provisions expressly provided by member has a “financial relationship.”26 the Anti-Kickback Act and Stark Act. At the A Stark Law prohibited referral is broadly very least, there were factual issues remain- defined and includes more than just a com- ing on whether (1) defendant pathologist monly understood referral. A “referral” was an employee entitled to the applicable under Stark Law could include physician or- safe harbor protections and, (2) defendant ders for physical therapy, prescriptions, and dermatologist actually performed the profes- Business care plans. The general prohibition applies to sional components of the pathology services specific designated health services including: for which he billed. lawyers need (1) clinical laboratory services; (2) physical Importantly, as stated in Marder, because to be very therapy services; (3) occupational therapy compliance with the Anti-Kickback Law and services; (4) radiology services, including the Stark Act is a condition of payment for sensitive magnetic resonance imaging, computerized Medicare and Medicaid, claims submitted to create axial tomography scans, and ultrasound for services rendered in violation of these bona fide services; (5) radiation therapy services and statutes can form the basis of liability under supplies; (6) durable medical equipment and the False Claims Act.32 agreements supplies; (7) parenteral and enteral nutrients, in order to equipment, and supplies; (8) prosthetics, or- Stark Law Update: Final Rule thotics, and prosthetic devices and supplies; The Centers for Medicare and Medicaid Ser- fall within the (9) home health services; (10) outpatient vices (“CMS”) posted a final rule on Novem- safe harbors prescription drugs; (11) inpatient and out- ber 16, 2015 (“Final Rule”) modifying the of the Stark patient hospital services; and (12) outpatient regulations implementing the Stark Law.33 speech-language pathology services.27 The These new regulatory provisions became Law and the Stark Law’s prohibition applies only if the effective on January 1, 2016, with the excep- Anti-Kickback physician has a “financial relationship” with tions of a few clarifying changes of existing the recipient of the referral.28 A “financial re- policy, and amended the definition of “own- Law. lationship” can include a compensation ar- ership or investment interest,” which was rangement between the physician and the effective January 1, 2017. Business lawyers entity that receives the referral.29 should be aware of the following changes Physician agreements that implicate the that have a significant impact on business Stark Law must fall within a Stark Law ex- transactions related to physician agreements. ception. Stark Law exceptions include statutory and regulatory exceptions for in-office Clarification on the Writing Requirement ancillary services, bona-fide employment For business lawyers, the clarification of relationships, personal services, and physi- “agreement” is very significant. The Final cian recruitment. Business lawyers need to Rule comes in line with the business law be very sensitive to create bona fide agree- concept of an agreement. Stark Law formerly ments in order to fall within the safe harbors provided a strict definition of “a contract.” of the Stark Law and the Anti-Kickback Law. The Final Rule provides flexibility. With the For example, the Anti-Kickback Law is not Stark Law changes, a single “formal con- violated for a payment “by an employer to an tract” is no longer required. The following employee (who has a bona fide employment may satisfy the contract requirement: (a) relationship with such employee) for em- a collection of documents may satisfy the ployment in the provision of covered items writing requirement; and (b) a collection of or services.”30 documents may include “contemporane- 32 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

ous documents evidencing the course of organization are considered to be “par- conduct between the parties.”34 This change ties” to the compensation arrangement.38 is consistent with the business law concept that various writings can constitute “an Timeshare Arrangements Exception agreement” under certain circumstances. This exception covers “use” arrangements only, which includes the use of premises, Clarification on the One-Year Term equipment (excluding advanced imaging Requirement equipment, radiation therapy equipment, For business lawyers, the flexibility for the and (most) clinical or pathology laboratory duration requirement for office space rent- equipment), personnel, items, supplies, or al, equipment rental, and personal service services. Traditional office space leases and arrangements is important. The Final Rule arrangements conveying a possessory lease- clarifies that a formal “term” provision for hold interest in office space are not covered one year in a contract is not required under under this exception. Compensation for such the Stark Law. Instead, the duration require- arrangements must be carefully structured ment for one year can be shown through con- because percentage compensation and per- temporaneous documents establishing that unit services fees (i.e., “per-use” and “per- the contract lasted for at least one year. Fur- patient” rates) are prohibited. Hourly or half- day rates, however, are acceptable.39 The key ther, if the contractual arrangement is terminated during the first year, the parties must Staff Privileges and Credentialing statute be able to show they did not enter into a new business arrangement for the same space, equipment, Overview or services during the first year.35 Thus, this In general, business lawyers may be con- lawyers change allows more flexibility in establishing fronted with issues involving physician’s should review the one-year duration under the Stark Law. staff privileging and credentialing in several

in connection contexts, including: (1) business agreements, “Temporary Noncompliance With (2) settlement agreements, and (3) legal con- with staff Signature” Requirement sultation on whether litigation is proper aris- The Final Rule provides a blanket 90-day privileges ing from an adverse staff privileging deci- period to comply with the signature require- sion. Business lawyers should be aware of is the ment, regardless of whether the failure to 36 certain health care laws in the event they are Healthcare obtain a signature was inadvertent or not. retained by physicians for any of these mat- Quality ters. The key statute business lawyers should Holdover Arrangements Improvement review in connection with staff privileges is The Final Rule provides for an indefinite the Healthcare Quality Improvement Act of Act of 1986 holdover provision in the Rental of Office 1986 (“HCQIA”).40 (“HCQIA”). Space Exception, Rental of Equipment HCQIA was enacted by Congress to pro- Exception, and Personal Services Exception. mote peer review by providing certain im- CMS also finalized its proposal to amend the munity from civil money damages to par- Fair Market Value Compensation Exception ticipants who participate in the peer review to allow arrangements of any time frame to process. The goal of peer review is to identify be renewed for any number of times (as long potential violations of a standard of care by as the arrangement continues to comply with medical staff and to eliminate these issues as the other requirements of the exception). quickly and effectively as possible. HCQIA Previously, the Fair Market Value Com- also created the National Practitioner Data pensation Exception referred to renewals of Bank (“NPDB”). The NPDB receives and arrangements made for less than one year.37 maintains records of adverse actions taken by healthcare entities against physicians and Stand in the Shoes makes these reports available to all health The Final Rule clarifies that a physician who care entities for background checks and cre- is standing in the shoes of his or her physi- dentialing. The NPDB enables hospitals and cian organization has satisfied the signa- health care entities to obtain information ture requirement of an applicable excep- about physicians regardless of state lines. tion when the authorized signatory of the Federal reporting requirements codified physician organization has signed the writ- in HCQIA require health care entities to re- ing. For purposes other than the signature port certain “reportable events” to the Board requirement, all physicians in a physician of Medical Examiners. These events include: BUSINESS LAWYERS—WHAT’S NEW IN HEALTH CARE LAW? 33

(1) a professional review action that adverse- Thereafter, he took the fetus home to show ly affects the clinical privileges of a physician his daughters, who were interested in attend- for a period longer than 30 days; (2) the sur- ing medical school, and also displayed it on render of clinical privileges of a physician (i) other occasions. The physician was summar- while the physician is under an investigation ily terminated from employment because of by the entity relating to the physician’s pos- the handling of the fetus, which the employ- sible incompetence or improper professional er determined was “unethical behavior.” conduct, or (ii) in return for not conducting In Taylor, the court held that the facts fell such an investigation or proceeding; or (3) in squarely within the employer’s right of sole the case of a professional society, a profes- discretion to determine what constituted sional review action by the professional soci- “unethical behavior,” and thus the employer ety which adversely affects the membership could terminate the physician under the cir- of a physician in the society.41 cumstances.44 Michigan reporting requirements are To further illustrate, in Murphy v Goss,45 codified in MCL 333.20175 and are broader the physician, while on cardiac call, con- than those found in the federal statute. The sumed one or two glasses of wine. The Or- Michigan statute requires that a health facili- egon Medical Board found, in a final order, ty must report: (1) a disciplinary action based that the physician violated Oregon law by on the health professional’s competence, (2) engaging in unprofessional conduct. Specifi- Business a disciplinary action that results in a change cally, the board found that “consuming alco- of employment status, or (3) disciplinary ac- hol while on cardiac call places the physician lawyers tion that adversely affects the professional’s at risk of impaired function, and as such, should clinical privileges for a period of more than constitutes conduct which does or might ad- 15 days. The health facility must also report versely affect a physician’s ... ability to safely carefully its restriction or acceptance of a profession- and skillfully…practice medicine.”46 The review al’s surrender of clinical privileges, if the pro- board reported its final order to the NPDB. physician fessional is under investigation by the health Taylor and Murphy demonstrate how phy- facility or if there is an agreement in which sician agreements can result in termination agreements the health facility agrees not to conduct an or credentialing issues, depending on the for the investigation. Lastly, the health facility must facts of the situation and the particular pro- presence of report a case in situations in which the provisions of the physician agreement. fessional resigns or the health facility does As such, business lawyers should analyze triggering not renew the professional’s contract in ex- whether vague or ambiguous provisions in events that change for the facility’s not taking disciplin- physician agreements are in their physician- ary action. Such reporting must take place client’s best interest. This is particularly im- could lead to within 30 days of the disciplinary action.42 portant because, as illustrated by Taylor and termination Murphy, issues related to staff privileges and of the Business Agreements credentialing can fall into vague or broad Business lawyers should carefully review language of an agreement covering “unethi- physician’s physician agreements for the presence of cal behavior” or “unprofessional conduct.” employment. triggering events that could lead to termina- Likewise, business lawyers should be tion of the physician’s employment. Physi- aware that a physician’s contract may contain cians can more easily be terminated where unique representations. For example, before the conduct triggering such termination or being employed at a facility, physicians are professional review action is vague or broad. typically asked to represent that they have: For example, in Taylor v Spectrum Health Pri- (1) no limits on a license to practice mary Care Partners,43 the court was faced with medicine in a specialty; (2) no convic- interpreting whether a physician engaged in tion of, or plea of nolo contendere to, “unethical behavior” warranting summary any felony or misdemeanor related termination. In Taylor, there had been reports directly or indirectly to the practice of that the physician engaged in angry out- medicine; (3) no conviction of, or plea bursts at work and that the physician acted of nolo contendere to, a felony or mis- unethically in the handling of a patient’s demeanor of any kind; (4) no exclu- deceased fetus. In particular, the physician sion or suspension from the Medicare preserved a fetus in a jar of formalin that was or Medicaid program, and any other turned over to him for disposal by one of third-party payer program; (4) no his patients who had suffered a miscarriage. revocation, suspension, or disciplinary 34 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

action related to medical staff privi- legal dispute, made strictly to avoid leges; (5) no revocation, suspension, the expense and stress of the hearing limitation, or probation related to the process and litigation. This Agree- practice of medicine; (6) maintenance ment, including the [specific actions, of active hospital staff privileges; (7) e.g., withdrawal of application], shall participation in Medicare and Medic- not under any circumstances be inter- aid and other third-party payer pro- preted or used by either party as evi- grams. dence of anything inconsistent with or Business lawyers should take care to review contrary to this Agreement. these provisions carefully with their physician-clients to ensure compliance. Legal Consultation Arising From an Adverse Staff Privileging Decision Settlement Agreements Many times when physicians obtain an Oftentimes, physicians and other health care adverse decision that terminates their staff providers are involved in business litiga- privileges, they request consultation from a tion involving a variety of matters including, business lawyer on whether they can seek billing issues, vendor issues, and business relief in court. Oftentimes, the peer review break-ups. Most litigation results in a settle- process has been exhausted, and physicians ment agreement, so business lawyers should desire to consult with a business lawyer on consider some important factors before rec- whether the court system may afford them ommending that their physician clients sign a remedy. It should be noted that immunity a settlement agreement. Specifically, busi- under HCQIA covers only liability for dam- ness lawyers should consider what reporting ages; it does not shield covered defendants requirements might arise under federal and from a lawsuit or from other forms of relief.47 state law (such as HCQIA, discussed herein), One of the most significant defenses to a and what licensing issues might arise after lawsuit for damages arising from an adverse settlement. decision during the peer review process is Business lawyers may want to consider immunity. HCQIA provides that hospitals asking opposing parties whether they in- and other participants are immune from tend to file a collateral peer review proceed- claims for damages during a peer review if ing after the dispute has been settled. In this the following requirements are met: (1) the case, business lawyers may want to advise reason for the peer review is patient care, (2) their client to reject such a settlement until the peer review is based on a reasonable in- there is a final decision on the peer review vestigation, (3) the physician was given fair proceeding. In any settlement agreement in- process during the peer review, and (4) the volving challenges to staff privileges, busi- investigation justifies taking an adverse ac- ness lawyers should include a provision that tion against the physician.48 As a statutorily the settlement is a compromise and is not created immunity, HCQIA immunity is most an admission of liability. Further, the settle- commonly raised in a motion for summary ment agreement should include a provision judgment or motion to dismiss. describing if or how the resolution will be Insofar as the peer review process does reported to the NPDB or other entity. With- not comply with all four HCQIA require- out these provisions, physicians may become ments, then the participants lose their immu- involved in another dispute with the hospital nity from a lawsuit for damages. over the characterization of the staff privileg- Specifically, HCQIA provides physicians es settlement. Below is sample language to with the rights: (1) to representation by an include in a settlement agreement that may attorney or other person of the physician’s be helpful to address this issue: choice; (2) to have a record made of the Physician and [other party] acknowl- proceedings; (3) to call, examine, and cross- edge that Physician’s actions under examine witnesses; (4) to present relevant this paragraph are not an admission evidence regardless of its admissibility in a or finding of any mistake by Phy- court of law; and (5) to submit a written state- sician or of any lack on the part of ment at the close of the hearing.49 After the Physician to qualify for medical staff hearing, the physician has the right to receive privileges. This Agreement, including the written recommendation of the arbitra- the [specific actions, e.g., withdrawal tor, officer, or panel, including a statement of application], is a compromise of a of the basis for the recommendations, and to BUSINESS LAWYERS—WHAT’S NEW IN HEALTH CARE LAW? 35 receive a written decision of the healthcare navigate these changes and avoid confusion entity, including a statement of the basis for and disruption to their busy practices. the decision. If such rights are not provided to the physician, then the hospital may lose its HCQIA immunity for damages claims. Brandner v Providence Health & Servs,50 which was decided by the Alaska Supreme NOTES 1. Health care provider” or “provider,” defined in Court in 2017, provides an excellent legal MCL 550.1105(4), “means a health care facility; a person discussion of the fact-intensive analysis that licensed, certified, or registered under parts 161 to 182 should be undertaken to determine whether of Act No. 368 of the Public Acts of 1978, as amended, being sections 333.16101 to 333.18237 of the Michigan a hospital is entitled to immunity for dam- Compiled Laws; any other person or facility, with the ages claims. In Brandner, the Alaska Supreme approval of the commissioner, who or which meets Court found that the hospital had lost the the standards set by the health care corporation for all contracting providers; and, for purposes of section immunity defense because the physician was 414a, any person or facility who or which provides not given any opportunity to be heard prior intermediate or outpatient care for substance abuse, as defined in section 414a.” to the termination of his hospital privileges. 2. MCL 333.17076(1). The court held that the physician was entitled 3. MCL 333.17076(2). to the notice and hearing protections under 4. MCL 333.17074(3). HCQIA prior to the termination of his hos- 5. MCL 333.17047. pital privileges. Brandner is also significant 6. MCL 333.17047(2)(a). because the court disagreed with the hospi- 7. MCL 333.17047(2)(b). 8. MCL 333.17047(2)(d). tal on whether dishonesty was grounds for 9. MCL 333.17047(2)(e). summary suspension. The court stated, “We 10. MCL 331.18051. therefore disagree with the superior court’s 11. MCL 333.17001. determination that the connection between 12. MCL 333.17047(2)(f). Dr. Brandner’s “dishonesty” and patient 13. MCL 333.17047(2)(c). 14. MCL 333.16221(u). safety was sufficient to override Dr. Brand- 15. MCL 333.17048(3). ner’s due process right, and we conclude that 16. MCL 333.17105(2). Providence violated Dr. Brandner’s right to 17. MCL 333.17112(1). due process by terminating his hospital priv- 18. MCL 333.17109. ileges without a pretermination opportunity 19. MCL 333.17107. 20. MCL 333.17111. to be heard.”51 21. MCL 333.17109. Thus, business lawyers should perform 22. MCL 333.17117(d). a fact-intensive review to determine if the 23. No 330983, 2017 Mich App LEXIS 547 (Apr 6, HCQIA requirements were met during the 2017). staff privilege proceedings. If the require- 24. Bureau of Health Professions v Serven, 303 Mich App 305; 842 NW2d 561 (2013). ments are not met, then a lawsuit for dam- 25. Cudnik v William Beaumont Hosp, 207 Mich App ages may be possible. However, it is impor- 378, 386; 525 NW2d 891 (1994). tant for business lawyers to cautiously advise 26. 42 U.S.C. § 1395nn. their physician/clients that if they are unsuc- 27. 42 USC 1395nn(h)(6). 28. 42 USC 1395nn(a)(1). cessful in proving that the hospital did not 29. 42 USC 1395nn(a)(2)(B). comply with HCQIA that they could be sub- 30. 42 USC 1320a-7b(b)(3)(B). ject to costs and attorneys’ fees arising out of 31. 183 F Supp 3d 1231 (SD Fla 2016). the lawsuit as provided in the statute.52 32. Marder at 1316. 33. See, Medicare Program; Revisions to Payment Policies under the Physician Fee Schedule and Conclusion Other Revisions to Part B for CY 2016, 80 Fed. Reg. There is still much uncertainty about how 70886 (Nov. 16, 2015) (to be codified in 42 CFR pts. health care law changes will affect physicians 405, 410, 411, et al.) 34. See 80 FR 71315. and other health care providers and the deliv- 35. See, 42 CFR 411.357(a), 42 CFR 411.357(b), 42 ery of health care in the United States. The CFR 411.357(d). health care industry is never static, and now, 36. See, 42 CFR 411.353(g). health care law is in a state of flux. There will 37. See, 42 CFR 411.357(l). likely be many more changes facing health 38. See, 42 CFR 411.354(c)(3)(i). 39. 42 CFR 411.357(y). care providers in the years to come. Busi- 40. 42 USC 11101–11152. ness lawyers should be prepared to be on 41. 42 USC 11133. the front line to help their health care clients 42. MCL 333.20175(5). 36 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

43. No 323155, 2015 Mich App LEXIS 2311 (Dec Theresamarie Mantese of 10, 2015 (unpublished). Mantese Honigman concen- 44. Id. at *4. trates her practice on health 45. 103 F Supp 3d 1234 (ED Or 2015). care and business litigation. 46. Id. at 1237. Her clients include licensed 47. 42 USC 11111(a)(1) (specifying immunity from damages only and not mentioning other relief); Singh v health care professionals, Blue Cross/Blue Shield of Massachusetts, Inc., 308 F3d 25, 35 physicians, and health care (1st Cir 2002). and business entities. 48. 42 USC 11112(a). 49. 42 USC 11112(b)(3)(D). 50. 394 P3d 581 (2017) (subject to rehearing). 51. Id. 52. 42 USC 11113 (2011). See, Dunning v War Memorial Hosp, No 12-2540, 2013 US App LEXIS 16504 (6th Cir Aug 6, 2013) (district court did not abuse its discretion by awarding fees and costs for its defense as to physician’s claims that were subject to immunity Douglas L. Toering of Man- under Health Care Quality Improvement Act). tese Honigman, PC, is the immediate past chair of the SBM’s Business Law Sec- tion, for which he chairs the Commercial Litigation Com- mittee and the Business Courts Committee. His practice includes commercial litigation including shareholder litigation and insurance litigation, business transactional matters, health care law, and business ADR. .

Fatima Bolyea of Mantese Honigman specializes in commercial litigation and shareholder disputes. Sixth Circuit Court of Appeals Holds That a Perfected Assignment of Rents Enforced Pre-Petition Excludes Such Rents from Being Property of the Bankruptcy Estate

By Judith Greenstone Miller and Paul R. Hage

On May 2, 2017, the Sixth Circuit Court of in the event of default. In the agreement to Appeals issued a decision in Town Ctr Flats, assign the rents, Town Center: LLC v ECP Commercial II LLC (In re Town irrevocably, absolutely and uncon- Ctr Flats, LLC), 855 F3d 721 (6th Cir May 2, ditionally [agreed to] transfer, sell, 2017), holding that a perfected assignment assign, pledge and convey to Assign- of rents that is enforced by a lender prior to ee, its successors and assigns, all of the the commencement of a chapter 11 case con- right, title and interest of [the debtor] stitutes a transfer of ownership of the rents in … income of every nature of and under Michigan law such that the rents do from the Project, including, without not become property of the bankruptcy limitation, minimum rents [and] addi- estate. In so ruling, the court affirmed the tional rents… decision of the United States District Court In re Town Center Flats, LLC, 855 F3d at 722. for the Eastern District of Michigan in In The agreement also purported to be a “pres- re Town Center Flats, LLC, No 15-cv-11881, ent, absolute and executed grant of the pow- 2016 US Dist LEXIS 42063 (ED Mich Mar 30, ers herein granted to the [lender],” and at 2016) (Judge Friedman), which vacated and the same time granted the debtor a license reversed the decision of the United States to collect and to retain rents until an event of default, at which point the license would Bankruptcy Court for the Eastern District “automatically terminate without notice to in In re Town Center Flats, LLC, 531 BR 176 [the debtor].” Id. The rents were the only (Bankr ED Mich 2015) (Judge Shapero). This source of income for the project. decision is important because it represents On December 31, 2013, the debtor de- the first ruling by the Sixth Circuit Court of faulted on its obligation to repay the loan. Appeals on this issue and resolves a split by Nearly a year later, on December 22, 2014, and amongst bankruptcy courts throughout the lender sent a notice of default and a re- Michigan regarding the rights of a debtor to quest for payment of rents to all known ten- use such rents, absent consent of the lender, ants of the property. The notice complied once a contractual perfected assignment of with the terms of the assignment of rents rents under Michigan law has been exercised agreement and applicable state law, to wit, and enforced by the lender. MCL 554.231, which allows creditors to collect rents directly from tenants of certain Factual Background mortgaged properties upon a default. The The underlying facts were not in dispute. following day, the lender, consistent with The debtor, a single asset real estate debt- the statutory requisites, recorded the notice or, owned a 53-unit residential complex in documents in Macomb County, thereby com- Shelby Township, Michigan. The debtor pleting the last step required by the Michigan financed construction of the building with a statute to perfect the assignment of rents and $5.3 million loan from Key Bank, which was make it binding against both the debtor and later assigned to ECP Commercial II LLC. the tenants of the property. The loan was secured with a mortgage and In January 2015, the lender commenced an agreement to assign rents to the creditor a state court action against the debtor alleg- 37 38 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

ing, among other things, breach of contract, assigned rents. What it does is allow for the foreclosure on the mortgage, and requesting assignment of rents as additional security.” a receiver to take possession of the property. Id. Second, while acknowledging the split of In response to the complaint, the debtor filed authority, as reflected inIn re Madison Heights a voluntary chapter 11 petition in the United Group, LLC, 506 BR 734 (Bankr ED Mich 2014) States Bankruptcy Court for the Eastern Dis- (Judge Tucker), which relied on In re Wood- trict of Michigan. mere Investors Ltd P’ship, 178 BR 346 (Bankr While the parties argued whether the SDNY 1995) (interpreting Michigan law) and rents constituted property of the estate, they In re Mt Pleasant Ltd P’ship, 144 BR 727 (Bankr reached an interim agreement that allowed WD Mich 1992) (Judge Stevenson), Judge the debtor to continue to collect the rents Shapero noted that he disagreed with these from the tenants, with $15,000 per month decisions, as reflected in Newberry Square. being used to pay down the debt owed to Third, he looked at the intent of the parties, the lender and with the remainder of the as reflected in the assignment agreement, rents being used for authorized expenses which in this case provided that “Assignor associated with the project. The rents were is desirous of further securing to Assignee the debtor’s sole source of income, and such the performance of the terms, covenants and funds were essential to the debtor’s hopes to agreements hereof….” Id. at 181. Moreover, This decision restructure in chapter 11. the assignment agreement provided that the assignment terminates upon satisfaction of is important Decision of the Bankruptcy Court the mortgage. These facts, according to the because it The bankruptcy court held that the assigned court, supported a finding that the assign- rents arising from the debtor’s residential ment was intended as additional security, as represents the complex were property of the bankruptcy opposed to a transfer of ownership. Fourth first ruling estate and, thus, were usable by the debtor, and finally, the court focused on the purpos- by the Sixth subject to the constraints set forth in the es of, and the policies underlying, chapter Bankruptcy Code on the use of cash collat- 11. In single asset real estate cases, the court Circuit Court eral. Judge Shapero’s decision was consistent noted, the rents are inseparable from the re- of Appeals with a prior opinion that he had issued over alty and, absent being able to use them, debt- twenty years earlier in In re Newberry Square, ors would not have the ability to reorganize. on this issue 175 BR 910 (Bankr ED Mich 1994). The bank- Based thereon, the court held that the rents and resolves ruptcy court found, after reviewing the were property of the estate and constituted a split by assignment agreement and the statute, that cash collateral under section 363(a) of the the parties intended the assignment of rents Bankruptcy Code. and amongst provision merely to provide additional secu- bankruptcy rity to the lender, as opposed to an absolute Decision of the District Court transfer of such rents upon a default. Accord- The lender appealed. On appeal, the sole courts ingly, the court held that the lender’s exer- question was whether the bankruptcy court throughout cise of the assignment of rents, in compliance erred as a matter of law in holding that the Michigan with the Michigan statute, did not terminate assigned rents were property of the debtor’s the debtor’s interest in such rents. bankruptcy estate. Although it acknowl- regarding the Although the lender asked the court to edged that there was a split in the caselaw in rights of a reconsider its ruling in Newberry Square, par- Michigan, and it recognized the significance debtor ticularly in light of a substantial body of case- of the decision to entities seeking to reorga- law ruling to the contrary since the issuance nize single asset real estate, the district court to use such of that opinion, the court declined to do so, reversed. See In re Town Center Flats, LLC, No rents[.] stating that “it still believe[d] in its sound- 15-cv-11881, 2016 US Dist LEXIS 42063 (ED ness and does not believe there are any sub- Mich Mar 30, 2016). sequent events that might cause it to change The court began its analysis by examin- its mind. In re Town Center Flats, LLC, 531 BR ing the Michigan assignment of rents statute, at 179. as federal bankruptcy courts are required to In support of its ruling, the bankruptcy ensure that a mortgagee is afforded in bank- court pointed to a number of factors. First, ruptcy court the same protection it would after examining the Michigan statute, the have under state law pursuant to the United court found that the statute “does not state States Supreme Court’s opinion in Butner v or indicate that an assignment of rents ex- United States, 440 US 48, 39 (1979). After ana- tinguishes all rights of the mortgagor in the lyzing the assignment statute and caselaw in- ASSIGNMENT OF RENTS 39 terpreting the statute, Judge Friedman held rule in Michigan, created by statute in 1843, that the decision of the bankruptcy court must was that an assignment of rents was unen- be vacated because it did not give proper forceable because it would interfere with a deference to the Michigan Court of Appeals’ mortgagor’s right of redemption. In 1925, decision in Otis Elevator Co v Mid-America Re- however, a statute created a right to assign alty Investors, 206 Mich App 710, 522 NW2d rents for properties subject to trust mortgag- 732 (1994), wherein the court interpreted the es. The Michigan Supreme Court determined statute and held that a mortgagor’s default is in Security Trust Co v Sloman, 252 Mich 266, sufficient to finalize the mortgagee’s interest 233 NW 216, 219 (1930) that the statute made in the rents as against the mortgagor. In so the collection of rents not merely incident to holding, the court in Otis Elevator found that the right of possession of the law, but a dis- the lender was entitled to the rents, and such tinct remedy and additional security. In 1953, rents could not be garnished by another cred- the statute was expanded to allow for assign- itor of the mortgagor because the mortgagor ment of rents for commercial and industrial “no longer had a valid property interest in property. the rents after its default on its mortgage.” Id. The court next looked at the current stat- at 714. ute, specifically MCL 554.231 (discussing the Relying on Otis Elevator, Judge Friedman assignment of rents as ownership transfers) held that “when a mortgagee perfects and and MCL 554.232 (containing a provision The opinion enforces an assignment of rents pre-petition about the validity of the assignment), as well and after an event of default, the mortgagor as the Michigan caselaw interpreting that by the Sixth no longer has a valid property interest in the statute. Consistent with Erie, the Sixth Circuit Circuit Court rents.” In re Town Center Flats, LLC, 2016 US predicted that the Michigan Supreme Court Dist LEXIS 42063 at *15. Thus, the rents were would treat a completed assignment of rents of Appeals is not part of the debtor’s bankruptcy estate. as a transfer of ownership of such rents. an important The court examined and rejected each of one for single Decision of the Sixth Circuit the arguments raised by the debtor. First, The Sixth Circuit Court of Appeals affirmed the debtor contended that the title and lan- asset real the district court. The Sixth Circuit began its guage of the Michigan statute—“Assignment estate debtors analysis by citing Butner and acknowledging of Rents to Accrue as Additional Mortgage that property rights are determined under Security”—make clear that only a security in- and lenders in the law of the state in which the real prop- terest, as opposed to an ownership interest, is Michigan and erty is located in order to promote uniform assigned under this law. In rejecting this ar- in other states treatment of property interests in both state gument, the court reasoned that the language and federal court, thereby serving to reduce of the statute did not foreclose an ownership where similar uncertainty, to discourage forum shop- transfer. Moreover, the parties’ assignment statutes exist. ping, and to prevent a party from receiving agreement used broad language and made a windfall merely by the happenstance of clear that the debtor “irrevocably, absolutely bankruptcy. The court then reiterated the and unconditionally” transferred its rights principle articulated by the United States in a “present, absolute and executed assign- Supreme Court in Erie RR v Tompkins, 304 US ment of Rents and Leases” from the prop- 64, 78 (1939), that when the highest court of a erty. In re Town Center Flats, LLC, 855 F3d at state has not spoken directly on an issue, the 726. According to the court, “[t]he only fair federal court must guess as to how that court reading of this language is that [the debtor] would resolve the issue and may look to deci- assigned the rents to the maximum extent sions of intermediate state appellate courts as permitted under Michigan law.” Id. More- persuasive authority; however, once proper- over, “[t]he broad language of the agreement ty rights have been determined under state evidence[d] an intention to transfer owner- law, federal bankruptcy law dictates to what ship.” Id. extent that interest is property of the bank- The debtor next argued that it clearly re- ruptcy estate. Applying these principles, the tained some rights in the rents under Michi- court analyzed the extent of property rights gan law after the assignment was exercised held by the assignor and assignee of rents because the mortgagee’s rights to collect the under Michigan law. rents terminated when the default was cured. The court began this analysis by review- According to the debtor, the purpose of the ing the history of the assignment of rents statute is to put the assignee in the shoes of statute. The court noted that the traditional the assignor “until the debt is paid.” Thus, the 40 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

debtor posited, it continued to hold a con- Petition for Writ of Certiorari tingent future interest in collecting the rents. On July 31, 2017, the debtor filed a petition for The court rejected this argument, responding writ of certiorari in the United States Supreme that “if the rents are thought of as payments Court contending, among other things, that that occur during the discrete time period be- the Six Circuit’s opinion conflicts with the tween the event of default and a (potential) Supreme Court’s prior decision in United future cure, then [the lender] has the sole in- States v Whiting Pools, Inc, 462 US 198 (1983) terest in those payments and [the debtor] has with respect to the issue of what constitutes no interest in them,” even if the debtor later “property of the estate” under section 541 of cures the default. Id. the Bankruptcy Code. The debtor contends The debtor also alleged a secondary re- that the Sixth Circuit improperly concluded sidual right in the rents based on restrictions that the assigned rents were not property of that the Michigan courts have created on how the debtor’s estate, despite the lender having the assignee can use rents collected under the taken all steps required to enforce its interest law. The court found that, while Michigan in the rents under applicable state law prior courts have indicated that rents collected by a to the commencement of the chapter 11 case. lender must be applied to the mortgage debt, It remains to be seen whether the Supreme nevertheless, such courts have not concluded Court will grant certiorari. that these restrictions on the assignee’s use of Conclusion the rents evidences the retention of a prop- The opinion by the Sixth Circuit Court of erty right by the assignor. The court declined Appeals is an important one for single asset to so rule, as to do so would contravene and real estate debtors and lenders in Michigan conflict with the language used by Michigan and in other states where similar statutes appellate courts concluding that the assignor exist. As a result of this ruling, there is now no longer has an interest in the rents once the binding precedent governing the treatment assignment is exercised. of rents in a bankruptcy case following a Finally, the court responded to the policy default and pre-petition exercise by a lender argument articulated by the debtor and the of its rights under an assignment of rents. bankruptcy court. Acknowledging that the The takeaway is that if a debtor fails to take goal of chapter 11 is to encourage reorgani- action prior to the lender completing all of zations for a broad range of debtors and their the statutory requisites under the assignment property, the court refused to decide this case of rents statute (i.e. declaration and filing of based on this policy goal as to do so would the default, service and notice upon the ten- contravene state law. The court stated: ants, and recording of the notice documents excluding the assigned rents from in the register of deeds where the property is the estate would effectively foreclose located), then the subsequent filing of a chap- Chapter 11 relief for companies like ter 11 petition will not enhance or otherwise [the debtor] that own a single property create property rights of the debtor in such and receive their sole stream of rev- rents because the rents no longer constitute enue from rents of the property. We property of the bankruptcy estate. recognize the concern of [the debtor] Without the ability to use such rents to – and the bankruptcy court – that sin- maintain the property and to fund its reorganization efforts, a single asset real estate debt- gle-asset real estate entities may have or, in most cases, will have nothing to reorga- limited options under Chapter 11 in nize. Absent consent of the lender, therefore, this situation. Michigan law, howev- such case may be dead on arrival. Thus, this er is clear on the matter and governs decision will create additional pressure on despite other policy concerns. single asset real estate debtors to act quickly Id. at 728. in the event of a default in order to prevent Accordingly, the court held that because the lender from completing its exercise of its all requisite action had been taken by the rights under the assignment of rents statute. lender pre-petition to effectuate its assign- However, when a case is filed at the elev- ment following a default, the debtor did not enth hour, as is often the case with single have rights in the rents post-petition under asset real estate cases, the advanced plan- Michigan law. Thus, the rents were not in- ning and time that would normally be avail- cluded in the debtor’s bankruptcy estate. able for debtors is missing, thereby making ASSIGNMENT OF RENTS 41 the success of the reorganization much more Judith Greenstone Miller is speculative and costly. Accordingly, single a partner in the Southfield asset real estate debtors should consult with office of Jaffe Raitt Heuer & Weiss, PC. She is a member experienced counsel as early as possible in of the Firm’s Insolvency and order to explore potential alternatives. Reorganization and Privacy and Datasecurity Practice Groups, specializing in creditors’ rights and commercial litigation. Her practice involves representing debtors, secured and unsecured creditors, creditors’ committees and trustees in bankruptcy proceedings, primarily involving Chapter 11 reorganizations. Judy also represents parties in litigation in complex commercial disputes.

Paul R. Hage is a partner in the Southfield office of Jaffe Raitt Heuer & Weiss, PC. He is a member of the Insolven- cy and Reorganization Prac- tice Group. Paul is Co-Vice Chair of the Debtor-Creditor Committee for the Business Law Section of the State Bar of Michigan. ership units in ePrize. The plaintiffs alleged that Linkner Case Digests had orally promised them their interests in ePrize would never be diluted or subordinated. In 2007, ePrize entered into loans with various investors and provided those Kern v Kern-Koskela, No 330183, 2017 Mich investors with ownership units in exchange for the loans. App LEXIS 1006 (June 20, 2017) In 2009, ePrize amended its operating agreement to pro- Plaintiff Frank Kern and his sister, Bonnie Kern-Koskela, vide the investors distribution priority over employees. In each owned a 50% interest in two companies, Maxitrol Co. 2012, ePrize sold most of its assets and ePrize’s investors and Mertik Maxitrol, Inc. Frank and Bonnie’s husband, received nearly $100 million in net proceeds. The former Larry Kern-Koskela, made up the Board of Directors for employees received nothing for their common shares. Maxitrol Co. Bonnie served as the Board’s Chair and as In 2013, the former employees brought a number of the Executive Vice President and Chief Executive Officer claims against the managers of ePrize including LLC of Maxitrol. Frank served as the Board’s Vice Chair and as member oppression, breach of contract, and breach of fi- President of Chief Operating Officer of Maxitrol. In 2012, duciary duty. The trial court granted the managers motion Frank sued Bonnie and Larry, as well as the Chief Finan- to dismiss, noting that the claims were untimely under the cial Officer and Company Counsel for shareholder oppres- three-year statute of limitations. sion and breach of fiduciary duty. Frank asserts that Bon- The court of appeals reversed the trial court and nie excluded him from any control of the corporation and held that the three-year limitation period under MCL was mismanaging the businesses with the sole purposes 450.4515(1)(e) only refers to the duration of time that a to enrich her. plaintiff can bring a claim after the cause of action has ac- Frank also asserted that corporate counsel owed a fidu- crued. The claims did not begin to accrue until ePrize sold ciary duty to him as a shareholder and breached that duty most of its assets in 2012. by performing legal work for Bonnie as the same time as The Michigan Supreme Court held that MCL Maxitrol’s corporate counsel. The trial court granted cor- 450.4515(1)(e) included a three-year statute of limitations porate counsel’s motion for summary disposition, finding based on accrual of a cause of action for member oppres- that there was no fiduciary relationship between plaintiff sion. It also includes an alternative two-year statute of and corporate counsel. limitations based on discovery of such a cause of action. A After the summary disposition was granted, Maxitrol member-oppression action accrues when a manager sub- moved for the appointment of a disinterested person un- stantially interferes with the interests of a member, regard- der MCL 450.1495 to investigate whether Frank’s contin- less of whether calculable monetary injury has occurred. ued derivative suit was in the best interests of the corpora- Because plaintiffs’ actions accrued in 2009 when the com- tion. After the appointment, the disinterested person, Joel pany subordinated plaintiffs’ shares, plaintiffs’ actions are Serlin, reported that it would not be in the best interests time-barred unless they can prove tolling under the fraud- for Frank to proceed with a derivative claim. Based off this ulent concealment provisions of MCL 600.5855 on remand. report, Maxitrol sought dismissal of the derivative action. The lower court dismissed most of the derivative claims Dawley v Hall, No 331800, 2017 Mich App under MCR 2.116(c )(10). LEXIS 748 (May 5, 2017) Frank appealed and raised a constitutional challenge, stating that MCL 450.1495 was in violation of the Michi- In 2013, Rodney Hall, a resident of New Mexico, and James gan’s separation of power’s doctrine. He further argued Armour II were in an automobile accident in Lake County. that the statute allowed for an improper delegation of the Armour was injured in the accident and ultimately passed judiciary’s powers to a non-judicial court-appointed indi- away. His wife, Dawley sued Hall for different tort claims vidual. Lastly, he alleged, even if the statute was constitu- on behalf of Armour’s estate as well as on her own behalf. tional, there were numerous questions of facts regarding She filed her action where she resided in Wayne County. his claims under MCR 2.116(C )(10). Hall moved to transfer the venue to Lake County, The court of appeals held that MCL 450.1495 of the where the accident occurred, or Mason County where he Business Corporation Act does not delegate the judicia- conducted business on behalf of Barothy Lodge. Wayne ry’s function by adopting findings of a court-appointed Circuit Court granted Hall’s motion and transferred venue disinterested person. The statute allows the disinterested to Mason County. After some discovery, it became clear person to only speak on behalf of the corporation to de- that Hall did not personally own Barothy Lodge, but man- termine whether the derivative suit is in the best interest aged it during certain times of the year as an agent of the of the corporation. Therefore, the statute is not unconsti- LLC. Hall Investment LLC, a Michigan company, owned tutional. Barothy Lodge. Dawley moved to return the lawsuit back to Wayne Frank v Linkner, __ Mich __, 894 NW2d 574 County, alleging that because Hall did not conduct busi- (2017) ness in Mason County, the county where she resided Defendant Joshua Linkner founded ePrize in 1999. Plain- would be proper. Mason County Circuit Court denied the tiffs are former employees of ePrize who acquired own- motion to transfer and held that Hall’s actions as a mem- 42 CASE DIGESTS 43 ber of the LLC constituted his conducting business for Planet Bingo, LLC v VKGS, LLC, No 328896, venue purposes. 2017 Mich App LEXIS 615 (Apr 18, 2017) The court of appeals looked at MCL 600.1621(a) for In 1992, Planet Bingo’s subsidiary, Melange, developed guidance. Under the statute, there is a priority for venue a software program called EPIC to be used on the elec- that favors the county where the defendant resides, has tronic bingo equipment manufacturer VKGS LLC d/b/a a place of business, or conducts business. If none of those Video King. In 2011, Video King allegedly used the EPIC criteria are met, then the statute places proper venue in the program to improperly develop and sell its own version, county where the plaintiff resides or has a place of busi- called OMNI. Plaintiffs Planet Bingo and Melange argued ness. that Video King developed their own version by using Here, the court found that Hall acted as an agent on confidential information from EPIC. The litigation for behalf of the LLC. Therefore, his actions were attributed these actions in 2011 spanned over three separate courts. to the LLC, not to him personally. Therefore, the court re- Plaintiffs first filed suit in the U.S. District Court for versed the Mason Circuit Court’s decision and remanded the Western District of Michigan in May 2011 with allega- with orders to transfer venue to Wayne County. tions of breach of contract, unfair competition, and unjust enrichment. On December 21, 2011, the court ultimately MAG IAS Holdings, Inc v Rainer Schmuckle, dismissed the case for lack of diversity jurisdiction. Prior th 854 F3d 894 (6 Cir 2017) to the dismissal in federal court, Video King filed an action MAG Group is an affiliation of entities that formed a mul- for declaratory judgment against Planet Bingo in Douglas tinational manufacturing-technology company providing County District Court in Nebraska. The Nebraska action production plants and machinery to make engine parts for was dismissed for lack of personal jurisdiction. It was later the automotive industry. One of these entities was MAG appealed and the Nebraska Supreme Court overturned Holdings, a Delaware corporation. Rainer Schmuckle, the dismissal and remanded to the district court. defendant, served as the CEO of MAG Group and manag- Also prior to dismissal, Planet Bingo refiled its action in ing director of MAG Germany from November 2014 until Ingham County Circuit Court. In this complaint, the plain- his termination in June 2015. He is a German citizen resid- tiffs acknowledged that both the federal action and the ing in Germany. Nebraska action were pending. Planet Bingo, LLC, alleged In August of 2015, MAG Holdings and MAG US sued that Video King (1) used its software to gain confidential Schmuckle in Macomb County Circuit Court for breach of information to create a software program, (2) sold the pro- fiduciary duty, professional negligence, waste of corporate gram based on its similarity to Planet Bingo’s software, assets, unjust enrichment, and tortious interference under and (3) falsely represented its use in bingo halls. Michigan law. The defendant removed the case to the US The Michigan Uniform Trade Secrets Act (MUTSA) District Court for the Eastern District of Michigan. He filed does not preempt all common-law unfair competition motions to dismiss for failure to state a claim, lack of per- claims. It only preempts those that are based on misap- sonal jurisdiction, and forum non conveniens. propriation of trade secrets. The Michigan court of appeals The District Court, without holding a hearing and re- found that only the first ground was preempted by MUT- lying on the affidavits alone, granted defendant’s motion SA as it involved the misappropriation of trade secrets; the for lack of personal jurisdiction as it would not comport other two grounds did not. The court further ruled that with due process. The district court did not make a find- the circuit court must stay proceedings if it is determined ing on the motion to dismiss for failure to state a claim or that the Nebraska action will ultimately resolve the claims involved in this action. whether the case should be dismissed on forum non conveniens grounds. The plaintiffs appealed and argued that in his capac- ity of a CEO in Germany, he directed certain subsidiaries and their employees in Michigan, met with clients in Michigan frequently, and held himself out as responsible for those subsidiaries. The defendant countered by stating his short tenure with MAG Group precluded a finding that he established an ongoing business relationship in Michigan. He also argued that he targeted his conduct only at the Plaintiffs, not at Michigan. The panel held that these actions were sufficient to create specific jurisdiction as Schmuckle had used his authority over the Michi- gan subsidiaries to transfer both work and money from Michigan to Germany for his own enrichment. The District Court’s order for dismissal was reversed and the case was remanded for further proceedings. Index of Articles (vol 30 and succeeding issues)*

ADR plaintiff’s standing under Article III of the Fair ADR provisions in business agreements, 36 No 2, p. 18 Credit Reporting Act of 1970, 36 No 2, p. 39 Affordable Care Act, business of medicine for independ- Contracts. See also Automotive suppliers ent practitioner, 33 No 2, p. 46 agreements to agree, drafting tips, 32 No 1, p. 25 American Taxpayer Relief Act of 2012, 33 No 1, p. 7 dual-source requirements contracts, automotive sup- Automotive acquisitions, current risks, 33 No 2, p. 36 pliers, 32 No 3, p. 19 Automotive suppliers electronic contracting, 31 No 2, p. 9 dual-source requirements contracts, 32 No 3, p. 19 exclusivity and requirements contracts, automotive Bankruptcy. See also Preferences suppliers, 32 No 1, p. 44 Bankruptcy Court Rules, amendments to Rule 3001 indefinite duration contracts, risks and strategies, 32 and 3002.1, 33 No 1, p. 18 No 3, p. 13 expert witnesses, avoiding traps for the unwary, Conversions of entities, 31 No 1, p. 7; 32 No 2, p. 6 34 No 2, p. 18 Copyrights, tax treatment of protected property, 32 No 3, foreclosure, bankruptcy forum to resolve disputes p. 37 30 No 1, p. 17 Corporate counsel. See In-house counsel fraudulent transfers and In re Tousa, reasonably equiv- Corporations. See also Nonprofit corporations; Securities alent value, 33 No 1, p. 31 benefit corporation and constituency statutes, 35 No 2, proof of claim, whether and how to file, 30 No 1, p. 10 p. 35 Stern v Marshall and bankruptcy court authority, 33 Business Corporation Act amendments, 33 No 2, p. 18 No 1, p. 12 corporate governance, 31 No 3, p. 29 Banks. See Financial institutions Delaware and Michigan incorporation, choosing Benefit corporation and constituency statutes, 35 No2, between, 34 No 3, p. 13 p. 35 director and officer liability insurance fundamentals, Bitcoin and the future of currency, 34 No 2, p. 25 31 No 3, p. 17 Builders Trust Fund Act debts, conversion as basis for dissolution agreements, 36 No 2, p. 44 nondischargeability, 33 No 1, p. 25 dissolution, corporate existence after, 32 No 3, p. 5 Business Court in Michigan fiduciary duties in corporate and LLC context 36 No 1, arbitration and pre-suit mediation 35 No 3, p. 21 p. 48 Business Court Act presents opportunities and chal- S corporations, 31 No 2, p. 7 lenges 33 No 2, p. 11 Section 488 revisited, opportunities for flexible gover- insurance coverage disputes and early expert evalua- nance, 31 No 3, p. 10 tion 32 No 3, p. 26 Creditors’ rights. See also Bankruptcy; Judgment lien Business identity theft, 34 No 3, p. 36 statute CFIUS annual report, 33 No 2, p. 40 Builders Trust Fund Act debts, conversion as basis for Charities. See Nonprofit corporations or organizations nondischargeability, 33 No 1, p. 55 China debtor exemptions, history and future, 30 No 2, p. 57; doing business in China, 34 No 2, p. 13 31 No 2, p. 14 set up a wholly-owned enterprise, how to, 36 No 2, p. 34 garnishment, growing menace for Michigan employ- unique registered numbers, operation of business ers, 31 No 2, p. 17 licenses in China, 35 No 2, p. 51 plaintiff’s standing under Article III of the Fair Credit Commercial litigation Reporting Act of 1970, 36 No 2, p. 39 claim preclusion in Michigan, call for clarity, 36 No 1, Crowdfunding, 34 No 1, p. 5; 34 No 3, p. 28; 36 No 1, p. 5 p. 38 Cyberinsurance, 32 No 3, p. 9 common-interest or joint defense agreements, 32 No 1, Cybersecurity risks and disclosure, 32 No 2, p. 10; 35 No p. 11; 36 No 1, p. 32 1, p. 9; 35 No 2, p. 26; 35 No 3, p. 41 diversity jurisdiction and LLCs, 32 No 1, p. 21 Data breach legislation, 31 No 3, p. 9 Competitor communications, avoiding sting of the un- Delaware and Michigan incorporation, choosing between bridled tongue, 18 No 1, p. 18 34 No 3, p. 13 Computers. See Technology Corner. Did You Know? Consumer protection claims Corporate Division information, 33 No 2, p. 5 Dodd-Frank Wall Street Reform and Consumer Protec- corporate existence after dissolution, 32 No 3, p. 5 tion Act and the Consumer Financial Protection crowdfunding, 34 No 1, p. 5 Bureau, 20 No 2, p. 13 dissolution of nonprofit corporation, 33 No 3, p. 5

*For cumulative index from volume 16, go to http://connect.michbar.org/businesslaw/newsletter. 44 INDEX OF ARTICLES 45

electronic seals, 34 No 1, p. 5 Franchises entity conversions, 31 No 1, p. 7 Introduction to franchising law, 35 No 3, p. 46 intrastate offering exemption, 34 No 2, p. 5 Fraudulent transfers, reasonably equivalent value, 33 No medical marijuana, 31 No 2, p. 5; 31 No 3, p. 5 1, p. 31 nonprofit corporations amendments, 33 No 3, p. 5 Garnishment, growing menace for Michigan employers, professional corporations, 33 No 1, p. 5 31 No 2, p. 17 Regulatory Boards and Commissions Ethics Act, 34 Identity theft, 31 No 1, p. 11; 34 No 3, p. 36 No 3, p. 5 Immigration service of process on business entities and other ICE employer audit campaign, 30 No 2, p. 63 parties, 30 No 1, p. 5 Indemnification clauses, 32 No 1, p. 31 summer resort associations, 35 No 1, p. 5 In-house counsel what’s in a name, 32 No 1, p. 5 consulting, 26 No 3, p. 11 Dissolution from law school to in-house counsel, 35 No 3, p. 12 corporate existence after dissolution, 32 No 3, p. 5 leveraging public section skills, 35 No 2, p. 11 dissolution agreements, 36 No 2, p. 44 make yourself marketable for other jobs, 36 No 2, p. 12 Diversity jurisdiction and LLCs, 32 No 1, p. 21 new job considerations, 36 No 1, p. 11 Dodd-Frank Wall Street Reform and Consumer Protection professional development plan, 36 No 3, p. 29 Act and the Consumer Financial Protection small legal department but big job, 35 No 1, p. 11 Bureau, 30 No 3, p. 13 transitioning from law firm to in-house, 34 No 2, p. 11 Emergency Financial Manager Law and impact on credi- transforming a career from legal office to business tors, 32 No. 1, p. 52 office, 34 No 3, p. 11 Employment. See also Noncompetition agreements Insurance ICE audit campaign, 30 No 2, p. 63 business courts, coverage disputes, and early expert social networking, management of legal risks, evalution, 32 No 3, p. 26 30 No 2, p. 44 cyberinsurance, 32 No 3, p. 9 Estate tax uncertainty in 2010, 30 No 1, p. 8 Intellectual property Exclusivity and requirements contracts, automotive supp- IP license rights in mergers & acquisitions, 33 No 2, p. 9 liers, 32 No 1, p. 44 RICO and theft of trade secrets, 31 No 2, p. 23 Federal goverment International Trade Commission acquisition of federal government contractor, avoiding preventing importation of goods, 32 No 1, p. 39 pitfalls, 32 No 3, p. 30 unfair trade relief actions (ITC Sec. 337), 36 No 2, p. 9 selling goods and services with reduced risk through International transactions commercial item contracting, 31 No 1, p. 41 forum selection clauses, enforceability, 30 No 3, p. 40 Fiduciary duties unfair trade relief actions (ITC Sec. 337), 36 No 2, p. 9 fiduciary duties in corporrate and LLC context, 36 No Internet. See also E-mail; Privacy; Technology Corner 1, p. 20 Michigan Internet Privacy Protection Act, 33 No 1, p. 10 Financial institutions Investing by law firms in clients, benefits and risks, 22 disparate impact and its effect on financial services, 33 No 1, p. 25 No 3, p. 22 Judgment lien statute Dodd-Frank Wall Street Reform and Consumer Prote- shortcomings of judgment lien statute, 31 No 1, p. 48 ction Act and the Consumer Financial Protection Bureau, Lawyers and the economy, greasing the gears of 30 No 3, p. 13 commerce, 32 No 2, p. 46 good faith approach to lender liability, 33 No 3, p. 29 Limited liability companies (LLCs) insolvent counterparty, strategies for dealing with, 33 2010 LLC Act Amendments, 31 No 2, p. 10 No 3, p. 11 dissolution agreements, 36 No 2, p. 44 loan modification procedures and exclusive statutory diversity jurisdiction and LLCs, 32 No 1, p. 21 remedy, 33 No 3, p. 17 fiduciary duties and standards of conduct of members, mapping fall from troubled company to bank fraud, 36 No 1. p. 20 33 No 1, p. 42 limitations on transfer of membership interests, troubled banks mean trouble for bank directors, 31 No 1, p. 31 30 No 3, p. 22 meaning of operating agreement, 30 No 2, p. 2 Foreclosure, use of receiver or bankruptcy as alternative single-members LLCs, 30 No 2, p. 20 to, 30 No 1, p. 17 Litigation. See Commercial litigation Foreign defendants, serving in Michigan courts, 30 No 1, Medical marijuana, 31 No 2, p. 5 p. 49 Mergers and acquisitions Forum selection clauses, enforceability of international automotive acquisitions, 33 No 2, p. 36 clauses, 30 No 3, p. 40 class action settlements, 37 No 1, p. 26 46 THE MICHIGAN BUSINESS LAW JOURNAL — SUMMER 2017

federal government contractor, avoiding pitfalls when appointment, 35 No 1, pp. 19, 30, 32; 36 No 3, p. 13 acquiring, 32 No 3, p. 30 flexibility of receiverships vs. certainty of bankruptcy, personal goodwill in sales of closely-held businesses, 35 No 1, p. 32 33 No 3, p. 37 forms, 35 No 1, p. 13; 36 No 1, p. 44 Minority oppression overview, 35 No 1, p. 13 Existence and scope of claims, 36 No 2, p. 25 payment of receiver, 35 No 1, p. 24 Naked licenses, trademark abandonment, 32 No 1, p. 35 qualifications under MCR 2.622, 35 No 1, p. 27 National Highway Traffic Safety Administration, the statutory and court rule requirements for appointment, regulatory era, 26 No 3, p. 17 35 No 1, p. 30 Noncompetition agreements view from the bench, 35 No 1, p. 37 choice of law, 36 No 1, p. 26 Retirement plan assets to fund start-up company, 30 enforceability, reasonableness, and court’s discretion No 2, p. 34 to “blue pencil,” 31 No 3, p. 38 RICO and theft of trade secrets, 31 No 2, p. 23 protecting competitive business interests, 30 No 2, ROBS transaction to fund start-up company, 30 No 2, p. 40 p. 34 recent cases (2015), 35 No 2, p. 56 S corporations trade secrets and noncompetition agreements, impact synthetic equity, avoiding tax traps when planning for of murky definitions, 36 No 1, p. 12 key employees, 35 No 1, p. 64 Nonprofit corporations or organizations Securities 2015 amendments to Nonprofit Corporation Act, 35 caselaw regarding Michigan’s Uniform Securities Act, No 2, p. 13 37 No 1, p. 13 avoiding pitfalls in nonprofit practice, 32 No 2, p. 12 crowdfunding for small businesses in Michigan, 34 No benefit corporation and constituency statutes, 35 No 2, 3, p. 28 p. 35 fairness hearing procedures, 36 No 1, p. 5 cybersecurity responsibilities of nonprofit officers and form S-8, 37 No 2, p. 20 directors, 35 No 2, p. 26 going public is not merely the S-1 registration state- political activity by nonprofits, 32 No 2, p. 19 ment, 34 No 1, p. 28 protecting charitable assets, new model act, 32 No 2, intrastate offering exemption, 34 No 2, p. 5 p. 25 investment securities, revised UCC Article 8, 19 No 1, review of federal and state requirements affecting tax- p. 30 exempt organizations, 35 No 2, p. 20 overview of Michigan securities regulation, social enterprise structures in tax-exempt public 31 No 1, p. 12 charities, 35 No 2, p. 29 Plain English movement of SEC, FINRA, and OFIR, youth camp programs, assessment of risks for nonprofits, 32 No 2, p. 31 31 No 1, p. 19 Partnerships SEC whistleblower program, what employers need to dissolution agreements, 36 No 2, p. 44 know, 34 No 1, p. 13 tax audit procedures, changes to agreements in light secondary liability and “selling away,” 30 No 2, p. 49 of, 36 No 2, p. 14 short selling regulation, alternative uptick rule, unintended partnerships, 33 No 2, p. 24 30 No 3, p. 32 Personal property liens, secret liens in need of repair, 35 simplifying securities regulation of M&A brokers, 34 No 3, p. 31 No 1, p. 21 Physicians, business of medicine under the Affordable Sixth Circuit opinions concerning securities, 31 No 3, Care Act, 33 No 2, p. 46 p. 29 Preferences Service of process earmarking defense, gradual demise in Sixth Circuit, business entities and other parties, 30 No 1, p. 5 30 No 1, p. 25 foreign defendants, 30 No 1, p. 49 minimizing manufacturer’s exposure by asserting Shareholders PMSI and special tools liens, 30 No 1, p. 41 Madugala v Taub, clarification by Michigan Supreme ordinary terms defense, 30 No 1, p. 34 Court, 34 No 3, p. 20 Privacy minority shareholder oppression suits, 36 No 2, p. 25 workplace, clarification by US Supreme Court, recent cases addressing oppression, 31 No 3, p. 25; 34 30 No 2, p. 11 No 3, p. 23 Professional corporations, 33 No 1, p. 5; 33 No 2, p. 18 use of bylaws to shape proceedings for shareholder Proof of claim, whether and how to file, 30 No 1, p. 10 claims, 35 No 2, p. 40 Public debt securities, restructuring, 22 No 1, p. 36 Short selling regulation, alternative uptick rule, 30 No 3, Public records, using technology for, 19 No 2, p. 1 p. 1 Receiverships Single-member LLCs, 30 No 2, p. 20 INDEX OF ARTICLES 47

Social networking, management of legal risks, 30 No 2, cyberinsurance, 32 No 3, p. 9 p. 44 cybersecurity, 34 No 1, p. 10; 35 No 1, p. 9 Taking care of business data breach legislation, 31 No 3, p. 9 Corporations Online Filing System (COFS), 36 No 1, developing policies—the forest and the trees, 33 No 3, p. 5; 36 No 2, p. 5 p. 10 Corporations, Securities & Commercial Licensing escrows of technology, relevance, 30 No 3, p. 10 Bureau, 36 No 3, p. 5 European Union, 32 No 1, p. 9; 36 No 2, p. 9; 36 No 3, LARA organizational changes, 35 No 2, p. 5 p. 9 State Authorization Reciprocity Agreement, 35 No 3, identity theft protection act amendments, 31 No 1, p. 11 p. 5 international trade, IP, and unfair trade practices, 36 Transportation, 37 No 1, p. 5 No 2, p. 9 Taxation and tax matters Internet of things, 35 No 3, p. 10 2012 year-end tax planning, 32 No 3, p. 7 Internet Privacy Protection Act, 33 No 1, p. 10 American Taxpayer Relief Act of 2012, 33 No 1, p. 7 IP license rights in context of mergers and acquisitions, audit procedures for state taxes, 34 No 1, p. 32 33 No 2, p. 9 Brownfield Project State Sales and Income Taxes, IT project management, 35 No 2, p. 9 36 No 3, p. 7 ITC Section 337 actions for relief from unfair trade, 36 budget cuts at IRS, practical impacts, 35 No 1, p. 7 No 2, p. 9 cash deposits and suspicious activity reports, 33 No 3, privacy in the workplace, 30 No 2, p. 11 p. 8 SEC guidelines on cybersecurity risks and disclosure, clearance procedure for state taxes, 34 No 1, p. 32 32 No 2, p. 10 copyright-protected property, tax treatment of, 32 No trademark and business names, 34 No 3, p. 9 3, p. 37 Trade secrets corporate income tax, 31 No 3,p. 7; 32 No 3, p. 6 International Trade Commission, misappropriated disclosure requirements for uncertain tax positions, trade secrets, 32 No 1, p. 39 30 No 3, p. 34 noncompetition agreements and trade secrets, impact enforcement priorities, 34 No 1, p. 8 of murky definitions, 36 No 1, p. 12 estate tax planning after 2010 Tax Act, 31 No 1, p. 9 RICO, 31 No 2, p. 23 estate tax uncertainty in 2010, 30 No 1, p. 8 Trademark abandonments, naked licenses, 32 No 1, p. 55 goodwill in sale of closely-held businesses, 33 No 3, Transfer tax considerations for business entities, 30 No 2, p. 37 p. 20 identity thefts and other scams, 34 No 3, p. 7 Uniform Commercial Code IRS Organizational Changes, 37 No 1, p. 9 Model Administrative Rules and UCC filings, 35 No 3, late filing, practical solutions, 33 No 2, p. 7 p. 13 Michigan Business Tax, 30 No 2, p. 27 “only if” naming of debtor under MCL 440.9503, 33 offshore accounts, 32 No 1, p. 7 No 1, p. 38 partnership audit procedures, 36 No 1, p. 8; 36 No 2, Youth camp programs, assessment of risks for nonprofits, p. 14 32 No 2, p. 31 passports and tax delinquencies, 36 No 1, p. 8 Zappers, automated sales suppression devices, 32 No 2, political uncertainty, advising clients in times of, 36 p. 8 No 2, p. 7 property and transfer tax considerations for business entities, 30 No 2, p. 27 reclassification of property by State Tax Commission threatens loss of tax incentives, 30 No 3, p. 28 refund procedures for state taxes, 34 No 1, p. 32 S corporations, 31 No 2, p. 7 statutes of limitations and filing dates, 35 No 3, p. 8 sunset for tax cuts (2010), 30 No 2, p. 9 Swiss bank accounts disclosures, 34 No 2, p. 9 U.S. citizenship and taxation, 35 No 2, p. 7 zappers, automated sales suppression devices, 32 No 2, p. 8 Technology Corner. See also Internet business in cyberspace, 31 No 2, p. 9 compliance, 37 No 1, p. 11 contracts, liability, 31 No 2, p. 9 ICLE Resources for Business Lawyers

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BUSINESS LAW SECTION State Bar of Michigan 306 Townsend Street Lansing, Michigan 48933-2012

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SECTION CALENDAR

Council Meetings DATE TIME LOCATION

October 7, 2017 9:00 a.m. Grand Rapids

December 2, 2017 10:00 a.m. Detroit

29th Annual Business Law Institute DATE LOCATION

October 6, 2017 Amway Grand Hotel, Grand Rapids