Atlanta Business Attorney Blog

In Atlanta, Georgia, non-compete agreements are generally analyzed the same, but differing levels of scrutiny can apply. The level of scrutiny is determined based on the circumstances surrounding the entry of the non-compete and the roles of the parties. There are two main types of non-competes in Georgia: those an employee enters into with his employer, and those a business seller enters into with a business buyer.

When an employee enters into a non-compete related to the term of his employment, such non-compete will be assessed using strict scrutiny. Beacon Security Technology, Inc. et. al v. Beasley, 286 Georgia Appeals at 12 (2007). This means that courts will not rewrite or strike portions of unreasonable non-competes related to employment, regardless of whether such contracts contain severability clauses. Ceramic v. Hizer, 242 Georgia Appeals 391, 394 (2000). Instead, the entire covenant will be stricken. This rejected principle is referred to as the “blue pencil theory of severability.” Id. These non-competes deal with employers who want to prevent employees from competing directly with them for a certain period of time after the termination of employment.

Non-competes that are “ancillary to a sale of business” may be blue penciled, and are analyzed using a lesser degree of scrutiny. Habif, Arogeti & Wynne, P.C. v. Baggett, 231 Georgia Appeals 289-290 (1998). This means that courts have much more freedom to uphold and actually edit these non-competes if they were incorrectly drafted in the first place. These types of non-competes usually deal with a business purchaser who wants to prevent the business seller from directly competing with the business he’s acquiring for a certain period of time.

Now that the basic litigation terms have been defined, how does the process actually work in the business litigation context? One of the most commonly litigated issues is breach of contract. Here is an example of how the process would unfold.

First, the parties must enter into a contract.

Johnny and Penny have three small children and recently realized that they have outgrown their current residence. In order to purchase a larger home, they would first need to sell their current house. Unfortunately, in the current housing climate, they fear their house would sell for less than it is worth so they decide to finish their basement instead of purchasing a new home.

Johnny and Penny start interviewing contractors for the job. A+ Home Solutions puts in a bid, or an offer, to do the job for $30,000.00. Johnny and Penny submit a counteroffer, asking that A+ Home Solutions do the work for $25,000.00. The $25,000.00 counteroffer acts as a rejection of A+ Home Solutions’ initial offer. A+ Home Solutions accepts Johnny and Penny’s offer. Johnny and Penny wisely consult with their attorney who drafts a written contract for the project outlining each party’s responsibilities and duties. All of the parties sign the contract. In consideration for agreeing to finish the basement, Johnny and Penny gave A+ Home Solutions $5,000.00 to begin the work.

Continue reading "Georgia Business Litigation Terms - Example of use of terms" »

Georgia Business Litigation: Definitions of Common Terms associated with Business Law and Litigation:

Affidavit: Written testimony under oath - usually sworn to in front of a notary.

Alternative dispute resolution (ADR): Methods of resolving legal disputes without going to trial, in a less adversarial manner, such as through arbitration or mediation.

Appearance: Coming into court as a party to a case or voluntarily submitting to the power of a court. Usually this is not a physical act, but a lawyer filing a document.

Arbitration: Submitting a disputed matter for decision to a person who is not a judge. The decision of an arbitrator is usually binding and final.

Arrearage: The amount of money that is past due.

Attorney (at Law): An advocate or counsel employed to prepare, manage and try cases in court. Must be licensed by the state. Lawyer and attorney are usually synonymous.

Damages: Compensation sought by the party filing a lawsuit and awarded by the court for the loss or injury allegedly suffered.

Decree: The court's written order or decision.

Default: Failing to answer a petition or complaint. Failing to file an answer or appear in court as required can result in the court awarding everything requested by the filing party.

Deposition: Part of the discovery or information-exchanging process of a legal proceeding, in which the attorney for the other party asks you questions, you answer with your attorney present, and a transcript of the proceedings is prepared.

Continue reading "Georgia Business Litigation & Law Terms - Part 2: General Legal Terminology Used In Litigation" »

Georgia Business Litigation: Definitions of Common Terms associated with Business Law and Litigation:

Affirmative Defenses: The defendants defenses to the allegations in the complaint included in the defendant’s Answer filed with the court.

Answer: A document used to respond to the complaint or petition. Answers usually admit or deny specific allegations or claims in the document being answered. Also called a response.

Appeal: A procedure to ask a higher court to review the ruling of a lower court.

Cause of Action: Failure to perform a legal obligation to do, or refrain from doing, some act that gives rise to liability for which a plaintiff seeks a legal remedy. Also called a claim.

Complaint: The document filed by the plaintiff that initiates a lawsuit. The complaint provides information regarding what harm the plaintiff is alleging and what relief the plaintiff is seeking.

Counterclaim: The claim asserted by the defendant against the plaintiff after the plaintiff files the initial lawsuit, or complaint, against the defendant. The counterclaim is asserted in the same lawsuit and is often filed with the defendant’s answer to the complaint.

Cross-Claim: In a lawsuit where there are multiple defendants, a claim or cause of action filed by one defendant against another defendant.

Continue reading "Georgia Business Litigation & Law - Part I: Pleadings & Related Litigation Terms" »

A Georgia court must have power to rule over both parties in order for a lawsuit to be properly filed in Georgia. This concept is known as jurisdiction under the law. If a Georgia court does not have jurisdiction over both parties, then the defendant, the party against whom a lawsuit is filed, may have grounds to file a motion to dismiss the case.

O.C.G.A. § 9-10-91, commonly known as the Georgia Long Arm Statute, defines when a lawsuit may be filed against a business not located in Georgia. The statute provides a list of conditions, one of which must be met, in order to file a lawsuit in Georgia against a nonresident defendant. The statute sets forth the following grounds:

(1) If the defendant transacts business in Georgia;
(2) If the defendant “commits a tortious act or omission” in Georgia;
(3) If the defendant “commits a tortious injury” in Georgia that was caused by an act in another state if the defendant “regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this state”; or
(4) If the defendant “owns, uses, or possesses any real property situated within this state.”

Continue reading "How to sue a Business that is Not Located in Georgia: The Long Arm Statute" »

Do you want to file a lawsuit in Georgia for breach of contract? Are you being sued in Georgia for breach of contract? If so, one of the most important considerations you may have is how a Georgia court would assess damages either for or against you.

The sensationalized litigation stories in the news would lead one to believe that there are hundreds of thousands, if not millions, of dollars at stake in any given law suit. Generally, these large awards are the result of an award of “punitive damages.” Punitive damages are essentially awarded to punish the wrongdoer. Today, punitive damages are often capped. Nonetheless, punitive damages are not available in a law suit for breach of contract.

In awarding damages for a breach of contract claim, Georgia courts attempt to place the non-breaching part in the same position it would have been in if the contract had not been breached. The measure of breach of contract damages is the amount that would compensate the injured party for the loss which fulfillment of the contract would have prevented or the loss that the breach caused.

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As a general rule, when a Georgia corporation (which would include a Limited Liability Company) is formed, it becomes a living entity that “exists” separate from its owners. The Georgia Corporate Code allows the corporation’s owners to operate a business under a legal “veil” of protection. That veil can provide certain layers of protection from certain kinds of liability.

There are three broad categories of potential liability: tort, contract, and tax. An example of a “tort liability” would be an employee causing an automobile accident while working for the corporation. Contract liability arises out of a breach of a contract between the corporation and an individual or another business. An example of a tax liability would be the corporation making a sale and it fails to collect the necessary sales tax.

If Georgia business owners take the right steps, they can shield themselves from a variety of liabilities by incorporating their business in Georgia. Incorporating, however, is just the first step. Many business owners fall prey to self-help incorporation services and find themselves in legal trouble later. Competent legal counsel can make sure that business owners do the right things to stay incorporated.

Most small business owners form what are called “pass-through” entities. Two examples of a “pass-through” entity are S-corporations and Limited Liability Companies. A pass-through entity means that, for tax purposes, the income of the business passes through to the business owners, and the business owners are taxed themselves. Large corporations such as Coca-Cola are generally C-corporations and the corporations are taxed on the profits that are generated, and then taxed again on the money that is passed onto the shareholders.

As a general rule, forming a Georgia corporation or LLC does not provide liability protection to its business owners for tax liabilities. This rule was made clear in the case of Littriello v. United States, 484 F.3d 372 (6th Cir. 2007). In this case, the Plaintiff, Frank Littriello, challenged the validity of the Treasury Department’s “check-the-box” regulations, 26 C.F.R. §§ 301.7701-1 to 301.7701-3. Littriello had incorporated several separate LLC’s, and he was the sole owner of each LLC. The operations of the LLC resulted in unpaid federal employment taxes totaling $1,077,000. Of course, the Internal Revenue Service brought actions against Littriello personally for these unpaid taxes. One of Littriello’s arguments to the Court was that the IRS had disregarded the separate existence of an LLC under state law. In their seven page opinion, the Court discussed the history of the “check-the-box” regulations and the difference between pass-through taxation and corporate taxation. After an extensive analysis, the Court found that the IRS may seek unpaid employment taxes from the sole owner of an LLC.

Despite the existence of LLCS for almost two decades, many Atlanta business owners still have questions about the extent of protection an LLC provides to its owners in contract disputes. Fortunately, Georgia appellate courts are upholding the corporate veil of the LLC. In the case of Milk v. Total Pay and HR Solutions, Inc., 634 S.E.2d 208 (Ga. App. 2006), Joseph Milk formed Burrito Joe’s Holding, LLC (“Burrito Joe’s”) to open a fast food Mexican restaurant in Canton, Georgia. Milk was the sole managing member and Jay McGhee and Frank Struck were to manage the restaurant without compensation with the goal of eventually becoming LLC members if the restaurant was successful. The managers entered into a client-service agreement on behalf of Burrito Joe’s with Total Pay and HR Solutions, Inc. (“Total Pay”). However, the restaurant never operated at a profit and was closed due to mounting financial difficulties. Total Pay brought suit in the trial court against Burrito Joe’s and Milk for damages. Fortunately for Milk, the Court of Appeals noted that LLCs have a legal existence separate from their owners just like any other corporation. As Milk’s signature did not appear on the agreement with Total Pay and no evidence was introduced on the record that Milk ever executed a note personally guaranteeing the payment of payroll services, the Court of Appeals maintained the corporate veil of the LLC in favor of its owner.

In this case, Milk never prepared a written operating agreement, and Total Pay argued that the Milk should be personally liable because he did not have a written operating agreement. The Court, however, reinforced its longstanding corporate law principle and applied it to LLCs, stating that Georgia officers and shareholders are not personally liable for corporate acts until such time that the corporate veil has been successfully pierced. The Court also found that the filing of the Articles of Organization with the Secretary of State were conclusive proof that all conditions of the formation of the LLC had been satisfied. There was no requirement for an operating agreement to be typed up and therefore, the lack of an operating agreement was not a proper basis to pierce the corporate veil.

From time to time, we receive calls from Atlanta-based sales representatives with a variation of the following problem: Potential Client is employed by Company A, which manufactures a certain product. Potential Client’s job is to contact retailers to secure orders of Company A’s product, and Potential Client gets paid on commission based on the amount of Company A’s product that he sells. Potential Client secured such orders, and then was fired by Company A. Company A is refusing to pay the agreed upon commission for Potential Client’s sales work. What is Potential Client to do?

In this situation, the sales representative statutes in the Official Code of Georgia may be helpful. These statutes, located at O.C.G.A. 10-1-700, et seq., define the circumstances in which a former sales representative can file a lawsuit against a former employer for the amounts they are owed, plus double the amount that has been wrongfully withheld. In order to qualify to use the statute, a potential client must fall within the definition of a sales representative while his former employer must fall within the definition of a principal.

According to O.C.G.A. 10-1-700, a principal is a person or entity who (1) makes or distributes a product, (2) employs a sales representative to make sales of the product, and (3) pays the sales representative for his work at least partially on a commission basis. Though the title of this section refers to “out-of-state principals,” no such requirement is included in the definition of principal, and there does not appear to be any case law on this matter. A sales representative is a person who tries to obtain wholesale orders of the principal’s product based on his agreement with the principal to be paid at least partially on a commission basis. All of the elements of these definitions must be met. (Please visit http://www.lexis-nexis.com/hottopics/gacode/default.asp to read the full text of the definitions).

Continue reading "Georgia Sales Representative Statute: Legal Remedies When an Employer Refuses to Pay Commission" »

During these troubled financial times in Georgia, we have noticed a huge increase in Garnishment actions being filed in Atlanta, Georgia courts. In some instances, the Garnishments are incorrect or have been placed on the wrong accounts. The biggest mistakes that we have seen occur, however, are when small businesses ignore the garnishment rather than hiring an Atlanta business lawyer as soon as possible.

A good Atlanta business lawyer will review the garnishment action to determine the proper course of action so that the innocent small business owner is not suddenly paying the debts of one of its employees. Just recently a Georgia small business owner called me because his company’s bank accounts had been seized for the debt of one of the business’ employees. The problem arose when the small business ignored the initial garnishment action. The employee claimed that he did not owe the money, so the business wrote the Judgment holder a letter claiming that the debt was wrong. When the Georgia small business did not file an official response to the garnishment action, the Judgment holder was able to bring an action against the Georgia small business itself for the money of its employee.

The recent case of TBF Fin. LLC v. Houston, A09A0380, 09 FCDR 2286 (07/17/09), is a good example of how a business lawyer can help someone who has suddenly been garnished. Because the rules relating to garnishment actions are very strict, the lawyer was able to argue that the Judgment holder did not take the proper notification steps required under the law, and, as a result, the garnishment action was dismissed.

The Georgia Court of Appeals recently released the decision of Kitchen v. Insuramerica Corp., case number A08A1986, in which it found that a former employee had an enforceable contract with the Georgia corporation that had employed him for the transfer of a 25% interest in stock in the corporation’s subsidiaries. This case illustrates the importance of both parties agreeing on all of the material terms of a contract, which is known as a “meeting of the minds.” In the Kitchen case, the Georgia Court of Appeals states that the enforceability of a contract is tested by “whether it is expressed in language sufficiently plain and explicit to convey what the parties agreed upon.” It is also important to keep in mind that courts decide contract cases based on the specific facts of each case.

In the Kitchen case, the parties had agreed that the employee would receive a 25% interest in the corporation’s subsidiaries as part of the compensation for his employment with the company. The material terms of the agreement were laid out in a letter that was signed by both parties, which further showed their agreement. The Georgia Court of Appeals in Kitchens found that the letter clearly described the material terms of the stock transfer by providing: (1) the employee would work for the corporation and its subsidiaries in a certain position; (2) that by a certain date, the employee would receive 25% of the corporation’s subsidiaries’ outstanding stock; and (3) a formula for calculating the employee’s “ownership equity.” Additionally, the Georgia Court of Appeals found that the rest of the letter provides enough additional detail on the agreement for it to be enforceable even though there may be some uncertainty as to other aspects of the agreement.

In the Kitchens case, it appears that the letter signed by both parties governed the relationship between the Georgia corporation and the employee. In the absence of this letter, there likely would have been a different result. This case illustrates that it is good practice for contracting parties to sign a contract which includes the basic terms of the agreement. This contract needs to include all of the important terms. The more detail the parties agree on and include in the contract, the less likely a dispute will arise later on.

Many people establish corporations in Georgia and other states to reduce their personal liability. With all of the benefits afforded to corporations, there are also some burdens, especially in the legal realm. One such burden is the requirement that an attorney represent a corporation in court. This constraint is discussed and explained in the 1997 Georgia Supreme Court case Eckles d/b/a Atlanta Technology Group v. Atlanta Technology Group, Inc., 267 Ga. 801 (1997). (The Court does specify that this principle does not apply to all non-corporate business owners.) In the Eckles case, a corporation was represented in the lawsuit by one if its corporate officers who was not licensed to practice law.

A corporation, though considered to be a person under Georgia law, can only act through its agents, while a natural person can represent himself in court. A person representing a corporation in a Georgia court is clearly acting in a representative legal capacity, which worried the Georgia Supreme Court: “The qualifications of the individual "representing a corporation ... in court is one of vital judicial concern. Such person is clearly engaged in the practice of law in a representative capacity. Thus, it is clear that permitting a corporation to be represented by a layman in a court of record would constitute a major exception to the requirement that a legal representative be a licensed attorney who is subject to the authority of the courts of which he or she is an officer. Indeed, there appears to be no reason why the prohibition against legal representation by a layman in a court of record should not apply when the party represented is a corporation rather than a natural person.”

The Court also remained aware of its role as the governing body for the practice of law in Georgia, and rejected creating an exception to its rule that only a lawyer could represent another person in a court proceeding. This is because the practice law is a privilege and not an absolute right, which results in the responsibilities lawyers owe not only their clients, but also the courts. “To allow a corporation to maintain litigation and appear in court represented by corporate officers or agents only would lay open the gates to the practice of law for entry to those corporate officers or agents who have not been qualified to practice law and who are not amenable to the general discipline of the court.”

Disputes inevitably arise in the course of business relationships, which sometimes result in lawsuits being filed. We routinely receive calls from Georgia businesses looking for guidance on what actions to take once they have been served with a lawsuit that was filed by an opposing party, who is typically called a Plaintiff. Below are some general tips and guidelines that all such businesses should consider:

1) Deadlines are extremely important: The party that has been sued, commonly referred to as the Defendant, will be served with a Complaint which contains the facts and allegations that form the basis of the lawsuit. Once a Georgia business has been served with a lawsuit, it is important to keep timeframes in mind. Generally, the Defendant has 30 days to file an Answer to the Complaint from the date when the Defendant actually received the Complaint. This deadline can be shorter depending on the court involved or the type of lawsuit that was filed. The Complaint will be accompanied by a Summons form, which should directly specify the number of days that the Defendant has to file an Answer. Though the Answer is typically the first deadline that a Defendant should be concerned about, there are also additional deadlines in the legal process.

2) Consult an attorney: Even if you plan to represent your Georgia corporation in a lawsuit, it is advisable to at least have an initial meeting with an attorney to discuss procedural issues and how to best represent your business. Also you need to determine if you can even legally represent your business as some courts in Georgia require a business to be represented by legal counsel. If your business falls into this category and you do not seek representation, the Plaintiff can seek immediate judgment against your business, which the court will likely grant.

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When it comes time for a person to file a lawsuit in Georgia, there are many different courts to choose from. It is often confusing for a non-lawyer to determine which court is the proper one for his dispute. This blog will hopefully shed some light on the appropriate trial court in which to pursue disputes. However, this is by no means a comprehensive list. Make sure to contact an experienced business attorney for further guidance on choice of forum.

Superior Court: This court has exclusive jurisdiction to hear all civil business disputes concerning any amount of money between citizens of Georgia (1) where the party filing suit wants to force another party to act (affirmative equitable relief) and (2) where parties seek a determination as to ownership of land. Aside from these cases, superior courts can hear almost any other civil case, except those with certain specialized subject matter.

State Court: This court can hear almost all civil business cases between citizens of Georgia with the exception of cases where the superior court has exclusive jurisdiction or cases concerning specialized subject matter.

Continue reading "Courts in Georgia: Magistrate Court, State Court, Superior Court, Court of Appeals, Supreme Court, Federal District Court, Federal Appeals Court" »

You go to the used car lot and fall in love with a specific car. You decide you absolutely have to have that car, but you only want it if it has never been in an accident. The salesman clearly tells you that the car is in perfect condition and has never been wrecked, so you happily sign the contract to purchase the car and drive it off the lot that day. Soon after purchasing the car, you take it to the mechanic for body and engine trouble, and you find out that the car had indeed been in an accident and that the salesman lied. What do you do?

This exact fact scenario occurred in the seminal case of City Dodge, Inc. v. Gardner, where the court stated the principle that the injured party gets to choose his remedy. The Georgia Court of Appeals stated in that case: “Where the purchaser of personal property has been injured by the false and fraudulent representations of the seller as to the subject matter thereof, he ordinarily has an election whether to rescind the contract, return the article, and sue in tort for fraud and deceit, or whether to affirm the contract, retain the article, and seek damages resulting from the fraudulent misrepresentation.”

The court in City Dodge, Inc. held that rescission was accomplished in the following scenario: When the buyer discovered the misrepresentation, “he notified defendant dealer that he was rescinding the purchase by reason of fraud simultaneously making an unconditional return of the automobile. When the dealer refused to accept such delivery the buyer made it a continuing tender by informing defendant he would place the car at his residence where it would remain and would not be used and where dealer was authorized to take possession thereof at any time.”

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The Georgia Court of Appeals recently upheld a trial court ruling in the case of Wilks v. Overall Constr. Inc. that the 6 year statute of limitations from O.C.G.A. §9-3-24 applies for lawsuits to be filed in simple construction contract cases. This case makes two extremely important points: (1) people must abide by the time limits contained in the Official Code of Georgia if they want to ensure that their disputes will be heard; and (2) if you suspect something was constructed incorrectly, do NOT wait until you notice problems to have it inspected.

In this case, a homeowner hired a contractor to perform some construction on his home. This work was governed by a written contract signed by the parties. The work was completed on or about July 23, 1999, at which time the homeowner paid the contractor. Within a year, the homeowner began noticing problems, and over the course of the next 5 years, the contractor returned to perform repair work. Even after all of the repairs, the homeowner still noticed construction problems, and finally hired an engineer to inspect the construction in June 2007. The inspection revealed that there were deficiencies in the construction and the materials used, which prompted the homeowner to file suit in July 2007 for breach of contract – almost 8 years after the work was initially completed! Unfortunately for the home owner, he had waited too long to bring suit under the applicable statute of limitations, which resulted in dismissal of his lawsuit.

The important lesson to take from this case is that if you file suit for breach of a simple construction contract, you MUST make sure to do so within 6 years after work was substantially completed. Do NOT simply allow a contractor to make repairs, as the statute of limitations will not be adjusted to run from the most recent repair date. If only the homeowner in the Wilks case had ordered the inspection earlier, he could have filed suit prior to July 2005, thus ensuring that his case was heard.