a.                Facts: puppy is owned by Anne who is away.  Bonnie is looking after the puppy for Anne.  For some reason Bonnie gives the puppy to Charlie.  Now Anne has returned from her trip and wants her puppy back. She’s willing to pay Charlie but Charlie doesn’t want to give up the puppy.  What can Anne do?

b.                Analysis: An ordinary lawsuit cannot force Charlie to return the puppy. That’s because animals are property and all the court can do is force Charlie to pay Anne the value of the puppy.  But Anne doesn’t want the money, she wants the puppy.  The best solution is for Anne to invoke a special set of procedures best used when the property is unique.  These procedures (the name varies by state) are Warrant in Detinue and/or Replevin.  Warrant in Detinue means, in essence that “you’re holding my property unlawfully, give it back.  In court, you prove superior ownership & the court issues a judgment that the property is yours, and orders the other party to give it back.  This judgment is enforceable by the sheriff’s office. Replevin means that you are holding property to which you have no right and you must give it back.  If you win, this too is enforceable by the Sheriff.

c.                Note: Anne will have to add Bonnie to the lawsuit against Charlie too.

d.                2^nd note: a possible defense by Charlie is that Bonnie was acting as Anne’s agent and therefore had the right to give the puppy away.

e.                As I said, a simple case that got very complicated very quickly.

Alternatively, how do you deal with lawyers like the one who has a fax but refuses to accept any fax longer than 10 pages or refuses to communicate at all via e-mail.

For some attorneys, usually but not always, older lawyers, this is normal.  For others, it is a way to upset you and (they hope) distract you. For the clients, this will slow down the case and possibly increase costs.  But in some states (like Maryland and Virginia) you must mail as well as fax (or email) the other lawyer for it to be effective.  Please don’t ask me why.  It appears to be some sort of hang-over from before.  Still, the solution is what is called the “mailbox rule.”  Send stuff by snail mail on the day it’s due and let the other lawyer worry about getting short notice because it took three days to get to him. Just keep a log of everything you send and on what day. Then every time he does the same to you, routinely request an extension. Or, Fed Ex it and insist that he do the same.

Like many legal questions, a great deal depends on what state you are in.  But, generally, in Virginia, the answer to this question is “Yes, you can.”  The analysis is fairly simple: the contract is not with the employee, it is with another business.  You are not limiting (except indirectly) the employee’s freedom to work, you are freely contracting with another business to provide a service and part of your price is that the other business not destroy yours.  There are exceptions and limitations to this rule, however.  For example, the entire U.S. Government is not considered a single customer.  Another example: If the employee’s skills are so esoteric that only 1 or 2 firms could possibly employ him, it is possible that the agreement would be likened to indentured servitude and struck down.  So care is required.

Make sure your buy/sell agreement is up to date. Circumstances change. Needs change. Maybe your business had a liquidity problem initially, and now it doesn’t. Maybe one of your heirs was a spendthrift (or worse) at 25; now he’s matured and this is no longer an issue. Divorce, remarriage, new children or grandchildren… all can impact the agreement, whether the changes take place in your life or those of your business partners. Goals change, too, as does the law itself.

Bottom line: make sure your agreement addresses life changes and changes to the law. Or chances are, you’ll be in a big bad business brawl soon enough.

Funding the Buy/Sell. Dealmakers and “allegators” are more creative than I am at funding things. One piece of advice is to carefully monitor the installment agreement and the loan from the bank. Especially the installment agreement. Heirs don’t like to read. They will sign anything and then get buyer’s remorse.

Partial or complete liquidation. Do I even need to describe how much of brouhaha that issue can create? Assume that neither owner wants to let the other get anything more than the minimum.  This is one fight that can destroy virtually any company.

Next post: one final piece of advice.

Setting the purchase price. How will it be set? Book value?  Real value?  How will you calculate either or both?  Especially since prices rise, fall and shift around all the time.  The value of a buggy business in 1909 was high. In 1910, when the Model T came out, let’s just say it wasn’t worth quite as much. If you decide to set the value using an appraisal, what if you don’t like the appraiser? What if you don’t like the value set?  Should you use a Dutch auction? You can do that if you want to. I don’t care how the price is set, but you have to agree to the methodology and put something in the buy/sell agreement that’s enforceable.

Next post: two more issues that can lead to a business brawl.

Once you have made plans to get the money needed to implement a buy/sell agreement, other issues can arise which are often fought over.

Triggering events. Many different things can trigger the buy/sell agreement but, equally important, many things can be excluded from triggering the agreement. The brawls start when there is a triggering event that is unanticipated—and there is no way to anticipate every possible triggering event. Just read your insurance policies and you’ll see what gets excluded: death, retirement, disability. A lot of buy/sell agreements have termination of employment as a triggering event. But what if one owner tries to fire the other so as to trigger the buy/sell agreement? Speaking from experience, involuntary termination of employment always leads to a brawl. Always.

Next post: another issue that can lead to a business brawl.

To secure the money necessary to make a buy/sell agreement work, creative financing is often required. One option is a life insurance policy with a cross-purchase agreement. Each owner buys a policy on the other owners. That may not be enough either, however. What happens if one of your partners becomes disabled but does not pass away, as in one of the examples we cited earlier? Disability insurance could protect against such a scenario, but a large policy is hard to come by, especially when it involves buyouts. Another option could be Key Employee insurance. The point is, there are options out there, but you (or your attorney) must really dig to find them.

Next post: other buy/sell agreement issues that can lead to business brawls.

What if two partners, let’s call them Joe and Steve, have irreconcilable differences? Particularly since Joe put up the money while Steve put in the sweat-equity. They have built a business that’s worth several million dollars, but Steve is hacked-off because Joe’s draining the business. Unfortunately, Steve doesn’t have the money to buy Joe out. So basically, Steve’s screwed. But if he’d used a little creative financing, this might not have been the case.

Next post, we’ll look at some solutions our hypothetical examples could have adopted.

Let’s say your business partner is a semi-retired older gentlemen everyone around the office affectionately calls “Grandpa.” Tragically, Grandpa dies in a car accident. Even more tragically, he has a number of children and grandchildren, and his Will divides everything equally among all of them. Not just the children, but the grandchildren as well, including his young granddaughter whose fiancé has a nose ring, studs in his lips and a tattoo of Charles Manson on his forehead. Guess what? He’s your new partner, and you don’t have the money to buy him out.

Again, what are you going to do now?

Next post: one more example.