Wilmington North Carolina Business Law and Litigation Attorney Blog

Port City Java Sues Founder

Wilmington-based coffee-house chain Port City Java has filed suit against its founder and former COO Don Reynolds.  The suit, filed in New Hanover County Superior Court, alleges that Reynolds, his wife, and an LLC held by Reynolds, diverted funds from the company for personal use, including the purchase of real estate in Highland, NC. 

According to the Star-News, the suit was filed on December 23, and in keeping with the Rules of Civil Procedure, does not specify the dollar amount sought, but instead recites the claim for damages as "in excess of $10,000."

NC Gas Stations Settle Price Gouging Cases

The Star-News is reporting that several North Carolina gas station owners have agreed to settle price gouging cases.  The cases were brought by state Attorney General Roy Cooper after Governor Mike Easley invoked a state law prohibiting the charging of prices that are "unreasonably excessive."

The statute - N.C. Gen. Stat. § 75-38 - prohibits such prices on goods that are "consumed or used as a direct result of an emergency or which are consumed or used to preserve, protect, or sustain life, health, safety, or economic well-being of persons or their property."

In order for the law to apply, however, the Governor must first make a finding that there has been an "abnormal market disruption."  This is defined in subsection (d) of the statute to include any declaration of a state of emergency or disaster is issued by the President, or the Department of Homeland Security advisory system issues a Code Red alert.  Triggering events can include war, a terrorist attack, a natural disaster, power outage, or other "extraordinary adverse circumstances."

In the case of the recent September price spikes, the trigger was hurricane Gustav - and the fear that gripped the oil markets - as it moved into the Gulf.

Kerner & Betts Partner Quoted in Article on Economic Downturn and the Legal Industry

Partner Tom Kerner was quoted in The Glass Hammer on how the legal industry is being effected by the economic downturn.

Converting a North Carolina Corporation to An LLC

Many clients have sought to convert their closely held corporations to LLC's lately, and with good reason.  Very few small business owners actually do anything with their corporations that couldn't also be done under an LLC.  And let's face it:  very few closely held corporations do an adequate job of keeping up with corporate formalities.  In the event of a lawsuit, this can result in "veil piercing" which, as we have discussed here previously, is much harder to do to an LLC. 

So for this reason alone -- simpler management, fewer formalities, and less risk of a court overlooking the corporate entity to reach the assets of business owners -- many clients are choosing wisely to convert to an LLC.

While this seems like just a simple bit of paperwork (you can download Articles of Conversion from the secretary of state's website, after all) there can be a few catches.  There are also other methods for accomplishing the same result, without using the state conversion form.  A careful review of the tax implications involved should be undertaken prior to making a final decision on conversion.  For one, the conversion could trigger a taxable gain.  For another, there could be an effect on employment tax wage bases.  These effects could, of course, be quite sizable, and result in the need for additional planning, or foregoing conversion altogether. 

NC Business Court Hailed as a Model For the Nation

In North Carolina, the ability to assign cases involving complex questions of business law can be designated to be heard by the Business Court, rather than the general courts.  The Business Court uses specialized judges, with extensive knowledge of business law, like the Uniform Commercial Code, the LLC Act, and the North Carolina Business Corporations Act.

Over at the North Carolina Business Litigation Report, Mack Sperling points us to an article in Directorship Magazine's annual Guide to State Ligitation.  In that article, North Carolina's Business Court is hailed as a model for the rest of the nation.

It's no surprise.  Our out-of-state clients are often thrilled when I tell them their complex business cases can be heard by a specialized court, with specialized judges.  That is usually not an option available to them in their home states, so in many cases, litigants will opt to forego "home field advantage" and instead allow their cases to proceed here. 

Judgment Enforcement: An Overview

Many companies, individuals, and attorneys have found, to their dismay, that they've gone through the entire litigation process and won their case, only to find that they are unable to collect any money from the losing party. 

Judgment Enforcement is a term that specifically applies to the process of collecting that money.

Once a judgment is entered, there is still no guarantee that the judgment debtor (as the losing party is called) will pay the winning party (called the judgment creditor). In fact, in most instances, some degree of post-judgment enforcement will become necessary to ensure that the judgment creditor receives payment.   In North Carolina, the process begins by filing a Writ of Execution, once the time for filing an appeal has passed.  The county sheriff then serves the writ on the judgment debtor and attempts to locate and seize assets with which to pay the judgment. 

More often than not, if a Writ has to be filed, the judgment debtor will not have assets readily available for seizure.  If, as usual, the sheriff returns without locating enough assets, more advanced judgment enforcement techniques must be employed.  I will discuss these techniques in more detail in future posts.

Enforcing Judgments In North Carolina - Wage Garnishment

Enforcing (i.e. - collecting) unpaid judgments in North Carolina is much more difficult than in many other states.  Much like Florida -- North Carolina is something of a "debtor's haven."   Among the biggest hurdles is that, aside from judgments ordering child support awards, taxes, student loans, and payment for ambulance services, wage garnishment is not available to judgment creditors.   

There is one narrow avenue for more typical judgment creditors to obtain wage garnishments, however.  The NC Department of Labor has taken the position that if a creditor obtains a lawful garnishment order against the debtor's employer in another state, and the debtor works for the same company in North Carolina, our state courts will permit the garnishment on the same company here.

While for some companies (e.g. privately owned Wal Mart) the applicability of this rule would be obvious, what is not clear is whether franchises from a larger corporate chain such as McDonald's would also be included in this ruling, as many are held by smaller companies.   Creditors - even judgment creditors - can easily run afoul of the maze of debt collection rules, both federal as well as North Carolina's much stricter laws, and find themselves on the hook  for large fines and personal liability for failing to understand the  many laws that apply to them.   

Forming a New Business in North Carolina: Additional Resources

In my last post, I listed some resources for starting a new business in Wilmington, North Carolina.  Each of those were local to the area.  The additional resources below can help you start a business statewide.

Business ServiCenter.  Sponsored by the North Carolina Department of Commerce.  The ServiCenter provides assistance with business plans, hiring, expansion, development, marketing, operations, and logistics for most types of businesses.  Additionally, the ServiCenter offers specific advice for companies involved in manufacturing, workforce training, exporting, and government contracts.

Contact:    North Carolina Department of Commerce
                    Business ServiCenter
                    4310 Mail Service Center
                    Raleigh, NC 27699-4310
                    919-715-2864
                    Toll-Free:  1-800-228-8443
                    Fax:  919-715-2855
                    http://www.nccommerce.com/servicenter

SBA - United States Small Business Administration

Contact:        SBA
                        North Carolina District Office
                        6302 Fairview Road
                        Charlotte, NC 28210-2227
                        704-344-6563

The SBA’s Small Business Guide for North Carolina can be found at:

http://www.reni.net/guides/pdf/english/northcarolina.pdf

Starting a Business in Wilmington, NC: Some Resources

If you are starting a business in North Carolina, particularly in the Wilmington area, here are some resources to help you get started.  Note that even if you are not around Wilmington, many of these services have offices in your area.  If you have any questions or would like a list of similar services in your area, please contact us. 

Small Business Technology Development Center.  Assists new businesses with planning, operation, human resources, marketing, government contracts, and other aspects of business.

Contact:    SBTDC
                5051 New Center Drive
                Wilmington, NC 28403-3297
                910-962-3744
                http://www.sbtdc.org

Wilmington SCORE.  Provides free business counseling and mentoring.  Holds seminars on topics such as accounting, business planning, and marketing.

Contact:  Wilmington SCORE
                    4010 Oleander Drive, Suite 6
                    Wilmington, NC 28403
                    910-452-5395
                    http://www.wilmingtonscore.org

Cape Fear Community College - Small Business Center.  Provides classes and counseling for small businesses.  Also offers a library of resources for new and small businesses, including books, pamphlets, videos and software.

Contact:        CFCC Small Business Center
                    419 North Third Street
                    Wilmington, NC 28401
                    E-mail:  sbc@cfcc.edu
                    910-362-7216

 

Unfair Commercial Practices in the U.K. - Stealth Marketing Illegal

At seomoz.org, attorney Sarah Bird has posted a summary of the portions of a new U.K. law against stealth marketing - the practice of manufacturing an imaginary groundswell of support for a product in an effort to raise brand awareness and facilitate "buy-in" from the target market.  The U.K. law implements portions of an E.U. directive 2005/29/EC, prohibiting Unfair Commercial Practices.

Examples of the newly prohibited practices include:  paid reviews or "advertorials" in magazines that fail to disclose the commercial relationship between the magazine and the advertiser; paid blog comment seeding; fake blogs (like the kinds used to promote new movies); and fake comments praising books on amazon.com.

While here in the U.S. we have laws against false advertising, for the most part these laws are only designed to protect competitors, not consumers.  Consumers have recourse to warranty law in regard to false claims, but so far have no recourse against viral marketers who somehow quietly influence them to purchase a particular product.  Two things about this stand out:  (1) It is not immediately clear what the harm of this is, odd though it may seem to us older folks, and (2) how little consideration is given to the protection of speech in Europe.  While here in the U.S., commercial speech is not entitled to the same level of protection as non-commercial speech, we are nevertheless far removed from having the power to enact this sort of sweeping legislation.

For the record, neither seomoz nor anyone affiliated with the company paid me to link to their article.

Final note:  if you are a North Carolina company doing business in Europe, or targeting customers there, European courts may be able to exercise jurisdiction and subject to you being sued in their courts.  Accordingly, a full review of this new law should be undertaken to assess its applicability to your overseas marketing.