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Legislative Review Director Reports
I. PUBLIC ACTS II. NEW BILLS AND STATUS OF PENDING BILLS Respectfully submitted, Eric I. Lark
A. Coverage Period The following summary is intended to highlight significant legislation in the business context taking place in 2003 session through April 25, 2004. B. How To Stay Current The State Bar of Michigan publishes its "E-Journal", which is a helpful way to stay apprised of new and pending legislation. Subscription to the "E-Journal" is available at the State Bar of Michigan's website located at www.michbar.org. Similarly, the Institute of Continuing Legal Education (ICLE) publishes its weekly News Alert. Information about ICLE's News Alert is available at ICLE's website at www.icle.org. II. New Laws A. The New Michigan Notary Public Act The new Michigan Notary Public Act (Public Act 238 of 2003) took effect on April 1, 2004. After approving an application, the Secretary of State must mail to the applicant a certificate of appointment as a notary public. Each certificate identifies the person as a notary public of the State and specifies the term of his or her commission. Under the former law, the commission was received at the county clerk's office. A notary public can reside in, move to, and perform notarial acts anywhere in the State from the date of appointment until the notary's birthday that occurs between six and seven years after the date of appointment, unless it is canceled, suspended, or revoked by the Secretary or by law. (Formerly, a notary's appointment remained in effect until the notary's birthday that occurs between four and five years after the date of the appointment.) The Act prohibits the Secretary from appointing as a notary a person who was serving a term of imprisonment in a State correctional facility or jail in Michigan or another state, or in a Federal correctional facility. Under the new law, background checks are allowed. The Secretary must automatically cancel the commission of any person who made, drew, uttered, or delivered any check, draft, or order for the payment of a service charge under the bill that was not honored by the bank, financial institution, or other depository expected to pay the check, draft, or order for payment upon its first presentation. The amendments require the Secretary, monthly, to notify a county clerk's office of notary appointments. Reappointment/Corrected Appointment The Secretary will not automatically reappoint a notary, but a person who desires another appointment can apply to the Secretary for an original appointment as a notary. The person cannot apply more than 60 days before his or her current notary public commission expires. Also, a notary public must apply for a corrected commission if there is a change in the person's name or address, or if there was an error in the notary's personal information. If a notary public's certificate of appointment becomes lost, mutilated, or illegible, the notary public must apply promptly to the Secretary for the issuance of a duplicate certificate. The application must be accompanied by a $10 fee. One dollar of each fee will be deposited into the Notary Education and Training Fund. Surety Bond/Oath/Fee Within 90 days before applying for a notary public appointment, a person must file a proper surety bond with the county clerk of the county where he or she lives or expects to live, and take the prescribed oath. The bond must be in the sum of $10,000, and issued by a surety licensed to do business in the State. The county clerk may not accept the personal assets of an applicant as security for a surety bond. The bond must be conditioned upon indemnifying or reimbursing a person, financial agency, or governmental agency for monetary loss caused through the official misconduct of the notary public in the performance of a notarial act. The surety must be required to indemnify or reimburse only after a court has entered against the notary a judgment based on official misconduct. The aggregate liability of the may not exceed the sum of the bond. The surety on the bond could cancel it 60 days after notifying the notary, the Secretary, and the county clerk of the cancellation. The surety would not be liable for a breach of a condition occurring after the effective date of the cancellation. Each person who files an oath and bond with a county clerk must pay a $10 filing fee to the clerk. Upon receiving the fee, the clerk must give a bond and oath certificate of filing to the person. A charter county with a population over 2 million can by ordinance charge a fee for the county clerk's services different that the $10 fee. Two dollars of each fee collected by a county clerk must be deposited into the Notary Education and Training Fund on a schedule determined by the Secretary. Funds The amendments create the Notary Education and Training Fund in the State Treasury, and requires that money from certain fees be deposited in the Fund. (As noted above, this would include $1 of the $10 application fee, $2 of the $10 oath and bond filing fee, and $1 of the $10 fee for a duplicate certificate of appointment.) The State Treasurer can receive money or other assets from any source for deposit into the Fund, and must direct the investment of the Fund and credit to it interest and earnings from Fund investments. Up to $85,000 can remain in the Fund at the close of each fiscal year and not lapse to the General Fund. Any amount in excess of $85,000 will lapse to the General Fund. The Secretary must spend money from the Fund in the form of grants, upon appropriation, for the purposes of providing education and training programs for county clerks and their staffs, including notary responsibilities, election worker training, and election processes. The Secretary must consult with the president of the Michigan Association of County Clerks, or his or her designee, when approving grant applications. The Secretary annually must file a report regarding the balance of the Fund at the time of the report and a detailed account of the expenditures in the preceding fiscal year. This report must be sent to the Speaker of the House of Representatives, the Majority Leader of the Senate, and the Minority Leaders of the House and Senate. The bill also creates the Notary Fees Fund in the State Treasury. Except for money deposited in the Notary Education and Training Fund from the application fee and the fee for a duplicate certificate of appointment, an application fee, duplicate certificate of appointment fee, certification service charge, copying service charge, reimbursement costs, or administrative fine collected under the bill by the Secretary, must be deposited by the State Treasurer in the Notary Fees Fund. Money in this Fund must be appropriated to defray the costs incurred by the Secretary in administering the proposed Act. Any money remaining at the end of the fiscal year, in excess of $85,000, lapses to the General Fund. Notarial Acts The fee charged by a notary for performing a notarial act may not be more than $10 for any individual transaction or notarial act. (Under the former law, for notarizing an acknowledgment or jurat a notary could not charge more than $2. A notary also is entitled to various fees, which do not exceed 50 cents, for copying and serving.) The bill requires a notary either to display a sign conspicuously or expressly to advise a person concerning the fee amount to be charged for a notarial act before the notary performs the act. Before the notary travels in order to perform a notarial act, he or she and the client can agree concerning a separate travel fee to be charged by the notary. A county clerk can collect a service charge fee of $10 for certifying a notarial act of a notary. A notary can refuse to perform a notarial act. Prohibited Acts A notary who is not a licensed attorney and who advertised notarial services in a language other than English would have to include in the document, advertisement, stationery, letterhead, business card, or other comparable written material, prominently displayed in the same language, the fees for notarial acts and the statement: "I am not an attorney and have no authority to give advice on immigration or other legal matters." A notary cannot use the term "notario publico" or any equivalent non-English term in any business card, advertisement, notice, or sign. A notary cannot perform a notarial act for a spouse, domestic partner, descendant, or sibling including an in-law, step, or half-relative. Records/Misconduct/Investigations For any official misconduct of a notary, the notary and the sureties on the notary's surety bond will be liable in a civil action for the damages sustained by the persons injured. ("Official misconduct" means the exercise of power or the performance of a duty that was unauthorized, unlawful, abusive, negligent, reckless, or injurious; and/or the charging of a fee that exceeds the maximum amount authorized by law.) Under the new law, an employer of a notary also is liable if the notary were acting within the actual or apparent scope of his or her employment, and the employer knew of and consented to or permitted the official misconduct. A notary and the notary's sureties are not liable for the truth, form, or correctness of the contents of a record upon which the notary performed a notarial act. Repealed The new Act repeals the following:
- Public Act 18 of 1903, which requires notaries to affix to each instrument signed notarially their commissioned name, the county of authorization, and the date of expiration of their commission. - Public Act 18 of 1909, which places certain restrictions on notaries who are stockholders, directors, officers, or employees of banks or other corporations. - Section 2564 of the Revised Judicature Act, which allows notaries to charge certain fees for various services. - Executive Reorganization Order No. 1980-2, which transferred to the Department of State all powers, duties, and functions of the Governor with respect to notaries. B. Unpaid Taxes of Dissolving Businesses Public Act No. 23 of 2003 took effect June 24, 2003. This Act states that if a person liable for a tax administered under the Act sells out his or her business, or its stock of goods, or quits the business, the person must make a final return within 15 days after the date of selling or quitting the business. The purchaser or succeeding purchasers, if any, who purchase an ongoing or closed business or its stock of goods, must escrow sufficient money to cover the amount of taxes, interest, and penalties as may be due and unpaid until the former owner produces a receipt from the state treasurer or the state treasurer's designated representative showing that the taxes due are paid, or a certificate stating that taxes are not due. Upon the owner's written waiver of confidentiality, the Department of Treasury may release, to a purchaser, a business's known tax liability for the purposes of establishing an escrow account for the payment of taxes. If the purchaser or succeeding purchasers of a business or its stock of goods fail to comply with the escrow requirements of this subsection, the purchaser is personally liable for the payment of the taxes, interest, and penalties accrued and unpaid by the business of the former owner. The purchaser's or succeeding purchaser's personal liability is limited to the fair market value of the business less the amount of any proceeds that are applied to balances due on secured interests that are superior to the lien provided for in Section 29(1). Furthermore, a deficiency, interest, or penalty may not be assessed after the expiration of 4 years after the date set for the filing of the required return or after the date the return was filed, whichever is later. The taxpayer may not claim a refund of any amount paid to the Department after the expiration of 4 years after the date set for the filing of the original return. A person who has failed to file a return is liable for all taxes due for the entire period for which the person would be subject to the taxes. If a person subject to tax fraudulently conceals any liability for the tax or a part of the tax, or fails to notify the Department of any alteration in or modification of federal tax liability, the Department, within 2 years after discovery of the fraud or the failure to notify, must assess the tax with penalties and interest as provided by the Act, computed from the date on which the tax liability originally accrued. The tax, penalties, and interest are due and payable after notice and hearing as provided by the Act. The statute of limitations is suspended for the following: - The period pending a final determination of tax, including audit, conference, hearing and litigation of liability for federal income or a tax administered by the Department and for 1 year after that period. - The period for which the taxpayer and the state treasurer have consented to in writing that the period be extended. The running of the statute of limitations is suspended only as to those items that were the subject of the audit, conference, hearing, or litigation for federal income tax or a tax administered by the Department. The Act also states that if a corporation, limited liability company, limited liability partnership, partnership, or limited partnership liable for taxes administered under the Act fails for any reason to file the required returns or to pay the tax due, any of its officers, members, managers, or partners who the Department determines, based on either an audit or an investigation, have control or supervision of, or responsibility for, making the returns or payments is personally liable for the failure. The signature of any corporate officers, members, managers, or partners on returns or negotiable instruments submitted in payment of taxes is prima facie evidence of their responsibility for making the returns and payments. The dissolution of a corporation, limited liability company, limited liability partnership, partnership, or limited partnership does not discharge an officer's, member's, manager's, or partner's liability for a prior failure of the corporation, limited liability company, limited liability partnership, partnership, or limited partnership to make a return or remit the tax due. The sum due for a liability may be assessed and collected under the related sections of the Act. C. Amendments to the Use Tax Act Effective June 24, 2003, Public Act 24 of 2003 amended the Use Tax Act to provide that every person storing, using, or consuming tangible personal property or services, the storage, use, or consumption of which is subject to the tax imposed by the Act when the tax was not paid to a seller, and every seller collecting the tax from the purchaser, unless otherwise prescribed by the Department under the provisions of Subsection (2), (3), or (4) of the Act, on or before the fifteenth day of each calendar month must file with the revenue division of the Department of treasury a return for the preceding calendar month, in a form prescribed by the Department, showing the price of each purchase of tangible personal property or services during the preceding month, and other information the Department considers necessary for the proper administration of the Act. At the same time, each person must pay to the revenue division of the Department of treasury the amount of tax imposed by the Act with respect to the purchases covered by the return. A return must be signed by the person liable for the tax or his or her duly authorized agent. If the return is prepared by a person other than the taxpayer, the return must also be signed by that person and show his or her address. Before January 1, 1999, each seller that had a total tax liability after subtracting the tax payments made to the Secretary of State under the Act or the Sales Tax Act, 1933 PA 167, MCL 205.51 to 205.78, or after subtracting the tax credits available under Section 6a of the General Sales Tax Act, 1933 PA 167, MCL 205.56a, in the immediately preceding calendar year of $720,000 or more on or before the eighteenth of each month must remit to the Department, by an electronic funds transfer method approved by the Commissioner of Revenue, an amount equal to 95% of the taxpayer's liability under the Act for the same month in the immediately preceding calendar year, or 95% of the actual liability for the current month being reported, plus a reconciliation payment equal to the difference between the tax liability determined for the immediately preceding month minus the amount of tax previously paid for that month. Beginning January 1, 1999, each seller that had a total tax liability after subtracting the tax payments made to the Secretary of State under the Act or the Sales Tax Act, 1933 PA 167, MCL 205.51 to 205.78, or after subtracting the tax credits available under Section 6a of the general Sales Tax Act, 1933 PA 167, MCL 205.56a, in the immediately preceding calendar year of $720,000 or more must remit to the Department, by an electronic funds transfer method approved by the Commissioner of Revenue on or before the fifteenth day of the month, an amount equal to 50% of the taxpayer's liability under this Act for the same month in the immediately preceding calendar year, or 50% of the actual liability for the month being reported, whichever is less, plus a reconciliation payment equal to the difference between the tax liability determined for the immediately preceding month minus the amount of tax previously paid for that month. Additionally, the seller must remit to the Department, by an electronic funds transfer method approved by the Commissioner of Revenue on or before the last day of the month, an amount equal to 50% of the taxpayer's liability under this Act for the same month in the immediately preceding calendar year, or 50% of the actual liability for the month being reported, whichever is less. If considered necessary to insure payment of the tax or to provide a more efficient administration, the Revenue Commissioner may require and prescribe the filing of returns and payment of the tax for other than monthly periods. The tax imposed under the Act must accrue to the state on the last day of each calendar month. D. Amendment to the General Sales Tax Act Effective June 24, 2003, Public Act No. 25 of 2003 states that a domestic corporation, a foreign corporation, or other business entity authorized to transact business in this state that submits a certificate of dissolution or requests a certificate of withdrawal from this state must request a certificate from the Department stating that taxes are not due under Section 27a of 1941 PA 122, MCL 205.27a, not more than 60 days after submitting the certificate of dissolution or requesting the certificate of withdrawal. A corporation or other business entity that does not request a certificate stating that taxes are not due is subject to the same penalties under Section 24 of 1941 PA 122, MCL 205.24, that a taxpayer would be subject to for failure to file a return. E. Dissolving Business Entities - Certificates Stating that Taxes Are Not Due Effective October 1, 2003, Public Act No. 46 of 2003 amends the Income Tax Act to provide that a domestic corporation, a foreign corporation, or other business entity authorized to transact business in this state that submits a certificate of dissolution or requests a certificate of withdrawal from this state must request a certificate from the revenue division of the Department if treasury stating that taxes are not due under Section 27a of 1941 PA 122, MCL 205.27a, not more than 60 days after submitting the certificate of dissolution or requesting the certificate of withdrawal. A corporation or other business entity that does not request a certificate stating that taxes are not due is subject to the same penalties under Section 24 of 1941 PA 122, MCL 205.24, that a taxpayer would be subject to for failure to file a return. F. Withholding Taxes on Winnings Effective October 1, 2003, Public Act No. 47 of 2003 amended the Income Tax Act to provide that every employer, flow-through entity, casino licensee, and race meeting licensee and track licensee required by the Act to deduct and withhold taxes for a tax year on compensation, share of income available for distribution, winnings, or payoff on a winning ticket must furnish to each employee, nonresident member, or person with winnings or a payoff on a winning ticket subject to withholding under this Act on or before January 31 of the succeeding year a statement in duplicate of the total compensation, share of income available for distribution, winnings, or payoff on a winning ticket paid during the tax year and the amount deducted or withheld. However, if employment is terminated before the close of a calendar year by an employer who goes out of business or permanently ceases to be an employer in this state, or a flow-through entity, casino licensee, race meeting licensee, or track licensee goes out of business or permanently ceases to be a flow-through entity, casino licensee, race meeting licensee, or track licensee before the close of a calendar year, then the statement required by this subsection must be issued within 30 days after the last compensation, share of income available for distribution, winnings, or payoff of a winning ticket is paid. A duplicate of a statement made pursuant to this section and an annual reconciliation return, MI-W3, must be filed with the Department by February 28 of the succeeding year except that an employer, flow-through entity, casino licensee, and race meeting licensee and track licensee who goes out of business or permanently ceases to be an employer, flow-through entity, casino licensee, and race meeting licensee and track licensee must file the statement and the annual reconciliation return within 30 days after going out of business or permanently ceasing to be an employer, flow-through entity, casino licensee, and race meeting licensee and track licensee. Further, every employer, flow-through entity, casino licensee, and race meeting licensee and track licensee required by the Act to deduct or withhold taxes from compensation, share of income available for distribution, winnings, or payoff on a winning ticket must make a return or report in form and content and at times as prescribed by the Department. Lastly, every employee, nonresident member, or person with winnings or a payoff on a winning ticket subject to withholding under the Act must furnish to his or her employer, flow-through entity, casino licensee, and race meeting licensee and track licensee information required for the employer, flow-through entity, casino licensee, and race meeting licensee and track licensee to make an accurate withholding. An employee, nonresident member, or person with winnings or a payoff on a winning ticket subject to withholding under the Act must file with his or her employer, flow-through entity, casino licensee, and race meeting licensee and track licensee revised information within 10 days after a decrease in the number of exemptions or a change in status from a nonresident to a resident. An employee must file revised information with his or her employer within 10 days after the employee completes the residency requirements under Section 31(11)(d), and when a change of status occurs from resident of a Renaissance Zone to nonresident of a Renaissance Zone. Within 10 days after an employer receives revised information from an employee who completes the residency requirements under Section 31(11)(d), the employer must forward a copy of that revised information to the revenue division of the Department of Treasury. The employee, nonresident member, or person with winnings or a payoff on a winning ticket subject to withholding under this Act may file revised information when the number of exemptions increases or when a change in status occurs from that of a resident of this state to a nonresident of this state. Revised information will not be given retroactive effect for withholding purposes. An employer, flow-through entity, casino licensee, and race meeting licensee and track licensee must rely on this information for withholding purposes unless directed by the Department to withhold on some other basis. If an employee, nonresident member, or person with winnings or a payoff on a winning ticket subject to withholding under this Act fails or refuses to furnish information, the employer, flow-through entity, casino licensee, and race meeting licensee and track licensee must withhold the full rate of tax from the employee's total compensation, the nonresident member's share of income available for distribution, or the winnings of a person with winnings or a payoff on a winning ticket subject to withholding under this Act. As used in the subsection, "Renaissance Zone" means a Renaissance Zone designated pursuant to the Michigan Renaissance Zone Act, 1996 PA 376, MCL §125.2681 to §125.2696. Also effective October 1, 2003, Public Act No. 48 of 2003 provides that all provisions relating to the administration, collection, and enforcement of the Act apply to the employer, flow-through entity, casino licensee, or race meeting licensee or track licensee required to withhold taxes and to the taxes required to be withheld. If the revenue division of the Department of Treasury has reasonable grounds to believe that an employer, flow-through entity, casino licensee, or race meeting licensee or track licensee will not pay taxes withheld to the state as prescribed by this Act, or to provide a more efficient administration, the Department may require the employer, flow-through entity, casino licensee, or race meeting licensee or track licensee to make the return and pay to the Department the tax deducted and withheld at other than monthly periods, or from time to time, or require the employer, flow-through entity, casino licensee, or race meeting licensee or track licensee to deposit the tax in a bank approved by the Department in a separate account, in trust for the Department and payable to the Department, and to keep the amount of the taxes in the account until payment over to the Department. Moreover, every publicly traded partnership as that term is defined under Section 7704 of the internal revenue code that has equity securities registered with the securities and exchange commission under Section 12 of title I of the securities and exchange act of 1934, chapter 404, 48 Stat. 881, 15 U.S.C. 78l, must file on or before each August 31st all unit holder information from the publicly traded partnership's schedule K-1 for the immediately preceding calendar year by paper or electronic format on a form prescribed by the Department. G. Control Share Acquisitions Effective October, 7, 2003, Public Act No. 181 of 2003 amended the Business Corporation Act to define "control share acquisition" as "the acquisition, directly or indirectly, by any person of ownership of, or the power to direct the exercise voting power with respect to, issued and outstanding control shares." Shares or the power to direct the exercise of voting power acquired within a 90-day period, or shares or the power to direct the exercise of voting power acquired pursuant to a plan to make a control share acquisition are considered to have been acquired in the same acquisition. Moreover, a person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing the chapter has voting power only of shares in respect of which that person would be able to exercise or direct the exercise of votes without further instruction from others. Acquisition of any shares of an issuing public corporation does not constitute a control share acquisition if the acquisition is consummated in any of the following circumstances:
(b) Pursuant to a contract existing before January 1, 1998. (c) By gift, testamentary disposition, marital settlement, descent and distribution, or otherwise without consideration. (d) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this chapter. (e) Pursuant to a merger or share exchange effected in compliance with Sections 701 to 735 if the issuing public corporation is a party to the agreement of merger or share exchange. (f) By a governmental official acting in an official or fiduciary capacity. The acquisition of shares of an issuing public corporation in good faith and not for the purpose of circumventing the chapter by any person whose voting rights previously had been authorized by shareholders in compliance with this chapter, or whose previous acquisition of shares of an issuing public corporation would have constituted a control share acquisition but for subsection (4)(see (a) through (f) above), does not constitute a control share acquisition, unless the acquisition entitles a person, directly or indirectly, alone or as part of a group, to exercise or direct the exercise of voting power of the corporation in the election of directors in excess of the range of the voting power which the acquiring person was entitled to exercise or direct prior to such acquisition. The formation of a group does not constitute a control share acquisition of shares of an issuing public corporation held by members of the group. Shares without voting rights because the formation of a group after April 1, 1998 was deemed to be a control share acquisition must have the same voting rights as were accorded the shares before the formation of the group. H. Credit Union Act Effective June 1, 2004, Public Act No. 215 repealed Public Act No. 285 of 1925, which regulates credit unions, and creates the "Credit Union Act". The Act does the following: - Allow a credit union's field of membership to consist of one or more groups with certain common bonds. - Require the Commissioner to examine a credit union at least once every 18 months. - Authorize a credit union to perform certain financial services for a person who was not a member, and to perform other financial services for any person who was in an underserved area or who did not have an established relationship with a credit union. (Services to such a person would include check-cashing services, subject to a cap on the fee a domestic credit union could charge for those services.)
- Allow a credit union to lend up to $1,000, payable within 30 days, to its members, with certain restrictions, including a 10% ceiling on the cost of interest, fees and other costs, and a limit of one such loan outstanding per member. - Provide for the confidentiality of credit union information and documents. - Allow a credit union to conduct its business by mail or electronically, with the prior approval of the Commissioner of the Office of Financial and Insurance Services. - Allow notices to be given electronically. The Act requires a credit union to identify its field of membership, consists of one or more of the following:
- One or more groups consisting of people whose common bond was residence, employment, or place of religious worship within a geographic area composed of one or more school districts, counties, cities, villages, or townships. - One or more groups whose common bond was common interests, activities, or objectives. A credit union that establishes or revises its field of membership must submit it to the Commissioner for approval or disapproval. If the Commissioner determines that the proposed field of membership meets the common bond requirements, he or she can disapprove of an application only on the basis of safety and soundness of the credit union. The amendments authorize the Commissioner to do the following:
- Initiate and order an involuntary merger of a "distressed credit union" with another credit union, or a financial institution other than a credit union, under certain circumstances. (A "distressed credit union" would be one that was, or was in danger of becoming, insolvent or in an unsafe or unsound condition.) - Require a credit union to close in an emergency. - Revoke the authority of a foreign credit union to conduct business in Michigan. - Assess civil fines against a credit union or a credit union official. III. Proposed Legislation A. The Check Cashing Licensing Act Senate Bill 61 of 2003, introduced by Senators Clark-Coleman and Switalski, would create the Check Cashing Licensing Act. The Act would require persons who wish to engage in the business of cashing checks for a fee to first obtain a license under the Act. The Act's licensing requirement, however, would not apply to the following:
- A department or agency of a state or of the United States; - A foreign bank agency, as defined in Section 1202 of the Banking Code of 1999 (MCL §487.11202); - A corporation or limited liability company with offices or franchises in at least 20 states engaged in the business of cashing checks. Applicants for licensure must submit a $300 nonrefundable licensing fee for the first business location, and $150 for each additional business location. Annual renewal fees in the same amount must also be paid. Applicants must also submit financial statements to the Office of Financial and Insurance Services showing that the applicants have working capital in excess of $5,000 for each of the applicant's business locations, and cash in excess of $25,000. Applicants must also provide a $5,000 surety bond for each business location and file an appointment of the Commissioner of the Office of Financial and Insurance Services as the agent for service of process in this State. After applicants submit the requisite materials, the Department must investigate the financial responsibility, financial business experience and character and general fitness of the applicant. If the Department finds these factors and qualities meet the requirements of the Act and reasonably warrant the belief that the applicant's business will be conducted honestly, fairly, equitably, carefully, efficiently, and in a manner commanding the confidence and trust of the community, the Commissioner must issue a license. The Act expressly precludes licensees from collecting a fee that exceeds the following:
- 7% for a check from an insurance company, including but not limited to a private health or disability insurance plan payment; - 10% for a personal check, money order or other check. The Commissioner may not deny, suspend or revoke a license without proper notice. If necessary, the licensee may demand a hearing and the Commissioner must hear and determine the matter in accordance with the Administrative Procedures Act. Violations of the Act constitute a misdemeanor, punishable by a fine of not more than $500, or imprisonment of not more than 90 days, or both. Each transaction in violation of the Act constitutes a separate offense. The bill was referred to the Committee on Banking and Financial Institutions on January 23, 2003. IV. Corporation Division Statistics 1 A. Total Active and Out Business Entities - February, 2004:
1 Taken from the Michigan Department of Labor and Economic Growth's website at: http://www.michigan.gov/cis/0,1607,7-154-10557_12901_12923---,00.html. B. New Business Entities Yearly Totals from fiscal year 1995-2002. Fiscal year is October 1 - September 30. Prior to 10/1/99 the numbers below included foreign entities in the totals. Starting fiscal year 1999, these numbers are shown separately.
C. New Corporation and Limited Liability Company Monthly Totals If you would like to order a copy of the complete list of new domestic profit and nonprofit corporations and profit and nonprofit foreign qualifications filed for this month or any subsequent months, please write the Bureau at the address below. Currently the price is about $80 per month. Specific pricing and availability information will be given at the time of receipt of your letter.
Bureau of Commercial Services The chart that follows is monthly totals of new corporations and foreign qualifications.
A. Public Acts 23-25 of 2003: Public Act 23 amends Section27a of the Revenue Act (MCLA 205.27(a)) to provide that controlling, supervising, or responsible officers, members, managers, or partners of a corporation, limited liability company, limited liability partnership, partnership, or limited partnership liable for taxes may be held personally liable for failure to file required returns, notwithstanding dissolution of the business entity. Public Acts 24 and 25 delete language in the General Sales Tax Act (MCL 205.27(a)) and Use Tax Act (MCL 205.96) which is substantially similar to the provision added to the Revenue Act. These Acts became effective June 24, 2003. B. Public Act 42 of 2003: Provides for the regulation of the transmission of electronic mail advertisements. This Act became effective September 1, 2003. C. Public Act 44 of 2003: This Act provides for the enforcement of a security interest or lien on a mobile home by real property foreclosure where the owner of a mobile home has an ownership interest in the real property. Ownership interest is generally defined as having title to the property or being a lessee of a ground lease of twenty years or more. This Act became effective July 14, 2003. D. Public Act 45 of 2003: Amends the Income Tax Act to define "flow-through entity", "member" of a flow-through entity and "nonresident member" of a flow-through entity. E. Public Act 46 of 2003: Effective October 1, 2003, requires all business entities authorized to transact business in the state submitting a certificate of dissolution or requesting a certificate of withdrawal, to request a certificate from the Michigan Treasury Department stating that taxes are not due. F. Public Act 52 of 2003: Expands the definition of "business income" under Section4 of the Income Tax Act of 1967. Effective July 14, 2003 G. Public Act 53 of 2003: Amends the Administrative Procedures Act to require the Office of Regulatory Reform to publish the Michigan Administrative Code, the annual supplement to the Michigan Administrative Code, and the Michigan Register, in Electronic Format. Effective July 14, 2003. H. Public Act 81 of 2003: Amends Section1101 of the Michigan Limited Liability Act to reflect changes pertaining to filing fees. Effective July23, 2003. I. Public Act 106 of 2003: Amends the Michigan Business Corporation Act to reflect changes pertaining to filing fees. Effective July24, 2003. J. Public Act 107 of 2003: Amends the Michigan Nonprofit Corporation Act to reflect changes pertaining to filing fees. Effective July24, 2003. K. Public Act 131 of 2003. Revises the reference in the Tax Tribunal Act from "homestead exemption" to "principal residence exemption". Effective January1, 2004. See also Public Act 140 of 2003 which revises the General Property Tax Act to replace the term "homestead" with the term "principal residence." Various other statutes have been/may be amended to revise the definition of "homestead exemption" to "principal residence exemption." L. Public Act 150 of 2003: Effective August 8, 2003, this Act contains revisions to the filing fees under the Uniform Securities Act. M. Public Act 174 of 2003: Amends the Michigan Employment Security Act to allow the payment of additional temporary extended unemployment compensation based upon the State's average rate of total unemployment. Effective August 14, 2003. N. Public Act 181 of 2003: Amends Section791 of the Michigan Business Corporation Act to expressly state that formation of a group does not constitute a control share acquisition of shares of an issuing public corporation held by members of the group. Also adds Section 798a which states that shares without voting rights because of the formation of a group shall have the same voting rights as were accorded the shares before formation of the group. Effective October 7, 2003. O. Public Act 215 of 2003: Repeals Public Act 285 of 1925 and creates the "Credit Union Act" to provide for the regulation of credit unions. P. Public Act 220 of 2003: Amends Public Act 322 of 1978, which authorizes financial institutions to make electronic funds transfer terminals available to consumers. Effective December 2, 2003. Q. Public Act 239 of 2003: Amends the Michigan Income Tax Act to delay the scheduled income tax rate reduction from January 1, 2004 to July 1, 2004. Under the Act, the rate in 2003 was 4% and was to be 3.9% on January 1, 2004 and thereafter. Effective December 30, 2003. R. Public Act 265 of 2003: Amends the Michigan Broadband Development Authority Act to require that priority be given to the application of any broadband developer who applied to develop broadband capability within a "recovery zone" designated in the Michigan Renaissance Zone Act. S. Public Acts 266 and 273 of 2003: Effective December 31, 2003, amends various statutes to permit the designation of up to 20 tool and die renaissance recovery zones, allows certain tool and die, machine tool and molding companies to claim a single business tax credit of up to $4,000 for the costs of training an apprentice, allows a taxpayer who purchased personal property from a qualified tool and die business to claim an SBT credit equal to the amount paid for the property, provides grants for broadband infrastructure, expands personal property tax exemption for special tools, provides that the depreciation of personal property used to develop tool and die products could not be less than allowed under the Internal Revenue Code, exempts from the use tax a construction contractor's labor cost to manufacture, fabricate, or assemble personal property before affixing it to real property, and gives skilled trade associations access to school facilities to provide information about apprenticeship programs. T. Public Act 277 of 2003: Amends the Brownfield Redevelopment Financing Act to revise the Act's definition of "initial taxable value". The bill would refer to the taxable value of eligible property identified in a brownfield plan as shown either by the most recent assessment roll (as currently provided) or, if provided by the brownfield plan, by the next assessment roll for which equalization would be completed following the date the resolution adding the property in the plan was adopted. Effective December 31, 2003. U. Public Act 295 of 2003: Amends the Income Tax Act to allow an income tax credit, for tax years beginning after 2009 and before 2020, for a "claimant" or for a taxpayer to whom a certificate and remaining single business tax (SBT) credit amount had been transferred under the SBT Act. Effective December 31, 2003. V. Public Act 296 of 2003: Creates the "Michigan Early Stage Venture Capital Investment Act" to require that, within one year after the bill's effective date, the "Michigan Early Stage Venture Capital Investment Corporation" be established, a fund manager be hired, an investment plan be established, and funds be solicited and available for investment consistent with that plan. The Corporation would have to create the "Michigan Early Stage Venture Capital Investment Fund". Money in the Fund could be invested in venture capital companies to promote investment in qualified businesses. Also amends the Single Business Tax Act to specify that, for tax years beginning after 2008 and before 2020, a taxpayer that was an investor could claim an SBT credit equal to the amount determined and certified under Senate Bill 834. For tax years beginning after 2009, if a credit against the SBT or a successor tax were not allowed, the taxpayer could transfer the credit to a person who could claim an income tax credit. The total amount of all certified SBT credits for all taxpayers for all years could not exceed $150 million. The total amount of all credits authorized for any one year could not exceed $30 million. In addition, the Income Tax Act is amended to provide that, for tax years beginning after 2009 and before 2020, a taxpayer to whom a certificate and remaining SBT credit amount had been transferred could claim that credit against the income tax. Effective December 31, 2003. II. NEW BILLS AND STATUS OF PENDING BILLS A. Senate Bill 21 of 2003 - would create a new Act for the regulation of deferred deposit loan transactions. Referred to the Committee on Banking and Financial Institutions on January21, 2003. B. Senate Bill 61 of 2003 - would create the Check Cashing Licensing Act, which requires check-cashing businesses to first obtain a license. Referred to Committee on Banking and Financial Institutions on January 23, 2003. C. Senate Bill113-114 of 2003. This Bill proposes certain amendments to the Non-Profit Corporation Act and the Limited Liability Company Act, respectively, to eliminate the annual fee if the non-profit corporation or limited liability company is recording no changes in officers and directors and is not changing its resident agent or registered office address. Referred to the Committee on Economic Development, Small Business and Reg. Reform on January29, 2003. D. Senate Bill 167 of 2003. Similar to Senate Bills 113 and 114 of 2003, except applies to profit corporations under the MBCA. Referred to the Committee on Economic Development, Small Business and Reg. Reform on February 11, 2003. E. Senate Bill 172 of 2003 - would create a new Act to require the seller of real property to make disclosures regarding toxic mold. The Bill was referred to the Committee on Economic Development, Small Business and Reg. Reform on February11, 2003. F. Senate Bill 208 of 2003. For tax years beginning after December31, 2002, would allow a deduction for the cost of the purchase of a hybrid fuel vehicle for income tax purposes. This Bill was referred to the Committee on Finance on February25, 2003. G. Senate Bill 220 of 2003 - would amend the Michigan Consumer Protection Act to prohibit issuing or delivering to a consumer a receipt that displayed any part of a credit or debit card's expiration date or more than the last four digits of the consumer's account number, if a credit card or debit card were used for payment in a consumer transaction. Referred to the Committee on Criminal Justice on December 10, 2003. H. Senate Bill 415 of 2003 - would require out-of-state affiliates to be subject to taxation. The Bill was referred to the Committee on Finance on April29, 2003. See also House Bill 4571 of 2003. I. Senate Bill 474 of 2003 - would create the Deferred Presentment Services Act, which would preclude conducting such a business without first obtaining a license from the Commissioner of the Office of Financial and Insurance Services (OFIS). Vetoed by the governor on January 9, 2004. J. Senate Bill 490 - 495 of 2003 - would amend various laws to replace references to Public Act 285 of 1925 with references to the "Credit Union Act". The bills also would refer to a "domestic credit union" rather than a "credit union" or "state-chartered credit union", and would update references to the Banking Code and the Savings and Loan Act. Referred to Committee on Commerce on October16, 2003. K. Senate Bill 657 of 2003 - would amend the Michigan Consumer Protection Act, making it unlawful to require a consumer to disclose his or her Social Security number as a condition of sale, unless the transaction involved an extension of credit or disclosure was required or authorized by law. The bill would take effect on March 31, 2004. Referred to the Committee on Criminal Justice on December10, 2003. L. Senate Bill 675 of 2003: Called the Employee Communications Monitoring Act, this bill would prohibit certain employers from monitoring employee communications unless a monitoring policy is established and disclosed to the employees. Referred to Committee on Commerce and Labor on September 16, 2003. M. Senate Bill 745 - 746 of 2003 - would amend the Michigan Limited Liability Act and Business Corporation Act to permit converting entities to transfer certificates of assumed names. The Bill would also specify the requirements for a plan of conversion for converting entities. Referred to Committee on Commerce and Labor on September 30, 2003. N. Senate Bill 747 of 2003 - would amend the Professional Service Corporation Act to expressly require that limited liability companies converting to a corporation may not convert into a professional corporation unless members who will become shareholders are licensed persons who may be shareholders under the Act. Referred to Committee on Commerce and Labor on September 30, 2003. O. Senate Bill 775 - 776 of 2003 - would amend the Single Business Tax Act and Income Tax Act to permit taxpayers to claim a $1,000 credit for each alternative energy vehicle purchased or leased as a fleet car. Referred to Committee on Finance on October 14, 2003. P. Senate Bill 862 - 875 of 2003 - would amend various statutes to provide qualified start-up businesses with specific tax and development advantages. Reassigned to the Committee on Tax Policy on February 12, 2004. Q. Senate Bill 866 of 2003 - would amend the City Income Tax Act to allow a qualified start-up business to claim a credit against the city income tax. If the city income tax credit and any unused carry forward exceeded the taxpayer's tax liability for the tax year, the excess could not be refunded but could be carried forward as an offset to the tax liability in subsequent tax years, for 10 tax years or until the excess credit was used up, whichever occurred first. Reassigned to Committee on Tax Policy on February 12, 2004. R. Senate Bill 1001 - 1003 of 2004 - would allow a taxpayer to claim a credit in an amount equal to 50% of the fair market value of an automobile donated to a qualified organization that intends to provide the automobile to a qualified recipient. Referred to Committee on Finance on February 18, 2004. See also House Bills 5463, and 5501 of 2004. S. Senate Bill 1012 of 2004 - would amend section 39e of 1975 PA 228 (MCL 208.39e) so that, for tax years beginning after December 31, 2004, a person engaged in the person's first or second year of business and the person's allocated gross receipts are less than $500,000 for the tax year, the person need not file a return to pay the tax provided under the Act. Referred to the Committee on Finance on February 25, 2004. T. House Bill 4220 of 2003 - would exempt non-profit charitable institutions from special assessments, revising MCLA211.7(o). Referred to the Committee on Tax Policy on February13, 2003. U. House Bill 4346 of 2003 - would amend the Michigan Liquor Control Code of 1998 to allow for the importation of alcoholic liquor containing less than 21% alcohol by volume, for personal use and only up to 24 bottles per month, from a state determined to allow reciprocal sales. Allows reciprocal shipping for wine producers. This Bill was referred to the Committee on Regulatory Reform on March13, 2003. See also Heald v. Engler (Electronic citation: 2003 FED App. 0308P 6th CIR August 28, 2003). V. House Bill 4571 of 2003 - would require out-of-state affiliates to be subject to taxation. The Bill was referred to the Committee on Tax Policy on April10, 2003. See also Senate Bill 415 of 2003. W. House Bill 4863 of 2003 - would amend the General Sales Tax Act so that a nonprofit organization with aggregate retail sales in a calendar year of less than $5,000 is not required to charge sales tax when making sales for fundraising purposes. The bill would increase the threshold to $75,000. Referred to second reading on December 16, 2003. X. House Bill 4882 of 2003 - would eliminate the Use Tax on manufactured home sales, except for new manufactured homes purchased out of state and brought into the state for initial use. On June24, 2003, the Bill was referred to the Committee on Commerce. It was reported with recommendation for referral to the Committee on Local Government and Urban Policy on September30, 2003. Y. House Bill 5010 of 2003 - would provide for revisions to the General Property Tax Act, including providing for a one time summer property tax collection. Referred to the Committee on Tax Policy on August13, 2003. Z. House Bill 5075 of 2003 - would amend Section4110 of the Uniform Commercial Code (MCL 440.4110) so that an agreement for electronic presentment shall provide a procedure that prohibits presentment by transmission of an image of an item or presentment notice if the drawer of the item requests that electronic presentment not be used for the drawer's items and requires written notice to each drawer of his or her right to make that request. Referred to Committee on Commerce on September 25, 2003. AA. House Bill 5148 of 2003 - would amend Section9501 of the Uniform Commercial Code (MCL 440.9501), requiring that the secretary of state provide written notice of the filing of financing statements. It also makes the filing of a fraudulent financing statement a misdemeanor punishable by imprisonment, fines, or both. Referred to the Committee on Economic Development, Small Business and Regulatory Reform on February 4, 2004. BB. House Bill 5249 of 2003 - would amend the Single Business Tax Act (MCL 208.37e) to permit a taxpayer purchasing tangible personal property from a qualified tool and die business to claim a credit against the SBT equal to the amount actually paid for tangible personal property. The bill applies to tax years beginning January 1, 2004. Referred to Committee on Commerce on November 4, 2003. CC. House Bill 5295 of 2003: Called the Public Auction Licensing Act, this bill would bar the sale at public auction within the state without first obtaining a license under the Act. Referred to Committee on Regulatory Reform on November 13, 2003. DD. House Bill 5296 of 2003: Called the Liquidation Sale Licensing Act, this bill would bar the sale or advertisement of sale as an insurance, bankruptcy, mortgage, insolvency, assignee's, executor's, administrator's, receiver's, trustee's, removal, or going out of business sale, or a sale of damaged goods, without first obtaining a license. Referred to Committee on Regulatory Reform on November 13, 2003. EE. House Bill 5323 of 2003 - would amend section 36 of the Single Business Tax Act to preclude professional employer organizations that are not captive providers from claiming the credit allowed under the section. FF. House Bill 5330 of 2003 - would amend section 12 of the Technology Park Development Act to provide that a facility owned or operated by a qualified start-up business is exempt from the technology park facilities tax levied under the Act. Referred to Committee on Tax Policy on December 2, 2003. GG. House Bill 5331 of 2003 - would add section 31a to the Single Business Tax Act which states that a taxpayer that is a qualified start-up business that does not have a profit under a tax year may claim a credit against the tax imposed under the Act for that tax year and any of the four immediately following tax years. Referred to Committee on Tax Policy on December 2, 2003. HH. House Bill 5335 of 2003 - would amend section 9 of the Neighborhood Enterprise Zone Act to state that a new or rehabilitated facility owned or operated by a qualified start-up business is exempt from neighborhood enterprise zone tax. Referred to Committee on Tax Policy on December 3, 2003. II. House Bill 5341 of 2003 - would add section 7gg to the General Property Tax Act which exempts real and personal property of qualified start-up business from tax for a period of five years. Referred to Committee on Tax Policy on December 3, 2003. JJ. House Bill 5342 of 2003 - would amend section 21c of the Enterprise Zone Act to exempt facilities owned or operated by qualified start-up businesses for a period of five years. Referred to Committee on Tax Policy on December 3, 2003 KK. House Bill 5343 of 2003 - would amend section 10 of the Obsolete Property Rehabilitation Act so that rehabilitated facilities owned or operated by qualified start-up businesses are exempt from the obsolete properties tax levied by the Act. Referred to Committee on Tax Policy on December 3, 2003. LL. House Bill 5345 of 2003 - would add section 635a to the City Income Tax Act which states that a qualified start-up business may claim a credit against the tax imposed by the Act each tax year equal to the taxpayer's tax liability for the tax year for five consecutive tax years. Referred to Committee on Tax Policy on December 3, 2003. MM. House Bill 5346 of 2003 - would add section 51f to the Income Tax Act of 1967 so that qualified start-up businesses may claim a credit against the tax imposed by the Act equal to the taxpayer's liability for five consecutive tax years. Referred to Committee on Tax Policy on December 3, 2003. NN. House Bill 5348 of 2003 - would amend section 11 of 1974 PA 198 to state that a speculative building, new facility, or replacement facility owned or operated by a qualified start-up business is exempt from the industrial facility tax levied under the Act for five consecutive years. Referred to the Committee on Tax Policy on December 3, 2003. OO. House Bill 5350 of 2003 - would amend the City Utility Users Act to provide that qualified start-up businesses are exempt from tax for the five consecutive tax years. Referred to the Committee on Tax Policy on December 4, 2003. PP. House Bills 5463 and 5501 of 2004 - would amend the Single Business Tax Act and Income Tax Act, respectively, to provide a nonrefundable credit equal to one-half the fair market value of an automobile donated by the taxpayer to a charitable organization that intends to provide the automobile to a qualified recipient. Referred to Committee on Tax Policy on February 10, 2004. See also Senate Bills 1001-1003 of 2004. QQ. House bill 5599 of 2004 - would amend 1978 PA 390 to permit employers to pay employees using direct deposit or electronic transfer. Referred to Committee on Employment Relations, Training and Safety on February 26, 2004. Respectfully submitted,
Eric I. Lark
A. Public Acts 23-25 of 2003: Public Act 23 amends Section27a of the Revenue Act (MCLA 205.27(a)) to provide that controlling, supervising, or responsible officers, members, managers, or partners of a corporation, limited liability company, limited liability partnership, partnership, or limited partnership liable for taxes may be held personally liable for failure to file required returns, notwithstanding dissolution of the business entity. Public Acts 24 and 25 delete language in the General Sales Tax Act (MCL 205.27(a)) and Use Tax Act (MCL 205.96) which is substantially similar to the provision added to the Revenue Act. These Acts became effective June 24, 2003. B. Public Act 42 of 2003: Provides for the regulation of the transmission of electronic mail advertisements. This Act became effective September 1, 2003. C. Public Act 44 of 2003: This Act provides for the enforcement of a security interest or lien on a mobile home by real property foreclosure where the owner of a mobile home has an ownership interest in the real property. Ownership interest is generally defined as having title to the property or being a lessee of a ground lease of twenty years or more. This Act became effective July 14, 2003. D. Public Act 45 of 2003: Amends the Income Tax Act to define "flow-through entity", "member" of a flow-through entity and "nonresident member" of a flow-through entity. E. Public Act 46 of 2003: Effective October 1, 2003, requires all business entities authorized to transact business in the state submitting a certificate of dissolution or requesting a certificate of withdrawal, to request a certificate from the Michigan Treasury Department stating that taxes are not due. F. Public Act 52 of 2003: Expands the definition of "business income" under Section4 of the Income Tax Act of 1967. Effective July 14, 2003 G. Public Act 53 of 2003: Amends the Administrative Procedures Act to require the Office of Regulatory Reform to publish the Michigan Administrative Code, the annual supplement to the Michigan Administrative Code, and the Michigan Register, in Electronic Format. Effective July 14, 2003. H. Public Act 81 of 2003: Amends Section1101 of the Michigan Limited Liability Act to reflect changes pertaining to filing fees. Effective July23, 2003. I. Public Act 106 of 2003: Amends the Michigan Business Corporation Act to reflect changes pertaining to filing fees. Effective July24, 2003. J. Public Act 107 of 2003: Amends the Michigan Nonprofit Corporation Act to reflect changes pertaining to filing fees. Effective July24, 2003. K. Public Act 131 of 2003. Revises the reference in the Tax Tribunal Act from "homestead exemption" to "principal residence exemption". Effective January1, 2004. See also Public Act 140 of 2003 which revises the General Property Tax Act to replace the term "homestead" with the term "principal residence." Various other statutes have been/may be amended to revise the definition of "homestead exemption" to "principal residence exemption." L. Public Act 150 of 2003: Effective August 8, 2003, this Act contains revisions to the filing fees under the Uniform Securities Act. M. Public Act 174 of 2003: Amends the Michigan Employment Security Act to allow the payment of additional temporary extended unemployment compensation based upon the State's average rate of total unemployment. Effective August 14, 2003. N. Public Act 181 of 2003: Amends Section791 of the Michigan Business Corporation Act to expressly state that formation of a group does not constitute a control share acquisition of shares of an issuing public corporation held by members of the group. Also adds Section 798a which states that shares without voting rights because of the formation of a group shall have the same voting rights as were accorded the shares before formation of the group. Effective October 7, 2003. O. Public Act 215 of 2003: Repeals Public Act 285 of 1925 and creates the "Credit Union Act" to provide for the regulation of credit unions. P. Public Act 220 of 2003: Amends Public Act 322 of 1978, which authorizes financial institutions to make electronic funds transfer terminals available to consumers. Effective December 2, 2003. II. NEW BILLS AND STATUS OF PENDING BILLS A. Senate Bill 21 of 2003 - would create a new Act for the regulation of deferred deposit loan transactions. Referred to the Committee on Banking and Financial Institutions on January21, 2003. B. Senate Bill 61 of 2003 - would create the Check Cashing Licensing Act, which requires check-cashing businesses to first obtain a license. Referred to Committee on Banking and Financial Institutions on January 23, 2003. C. Senate Bill113-114 of 2003. This Bill proposes certain amendments to the Non-Profit Corporation Act and the Limited Liability Company Act, respectively, to eliminate the annual fee if the non-profit corporation or limited liability company is recording no changes in officers and directors and is not changing its resident agent or registered office address. Referred to the Committee on Economic Development, Small Business and Reg. Reform on January29, 2003. D. Senate Bill 167 of 2003. Similar to Senate Bills 113 and 114 of 2003, except applies to profit corporations under the MBCA. Referred to the Committee on Economic Development, Small Business and Reg. Reform on February 11, 2003. E. Senate Bill 172 of 2003 - would create a new Act to require the seller of real property to make disclosures regarding toxic mold. The Bill was referred to the Committee on Economic Development, Small Business and Reg. Reform on February11, 2003. F. Senate Bill 208 of 2003. For tax years beginning after December31, 2002, would allow a deduction for the cost of the purchase of a hybrid fuel vehicle for income tax purposes. This Bill was referred to the Committee on Finance on February25, 2003. G. Senate Bill 218 of 2003 - would amend the Michigan Business Corporation Act (Sections506, 511, 611 and 698) to do the following: 1. Prohibit a corporation, if its board were divided into classes with staggered terms, from amending its Articles to reduce the term of a director, amend or repeal the provision dividing the board into classes, or change the number of directors, without the prior approval of a majority of the directors then serving, unless the Articles provided otherwise. 2. Specify that, for a corporation whose board is divided into classes, shareholders could remove directors only for cause, unless the Articles allowed removal without cause. 3. For corporations with publicly traded stock, require that a proposed amendment to the corporation's Articles be adopted by the board of directors. 4. Allow the directors of a corporation (as well as the shareholders) to grant control shares acquired in a controlled share acquisition the same voting rights as the shares had before the control share acquisition. The Bill was referred to the Committee on Commerce & Labor on March13, 2003. H. Senate Bill 220 of 2003 - would amend the Michigan Consumer Protection Act to prohibit issuing or delivering to a consumer a receipt that displayed any part of a credit or debit card's expiration date or more than the last four digits of the consumer's account number, if a credit card or debit card were used for payment in a consumer transaction. Referred to Committee on Economic Development, Small Business and Regulatory Reform on February 26, 2003. Reported favorably on December 2, 2003. I. Senate Bill 415 of 2003 - would require out-of-state affiliates to be subject to taxation. The Bill was referred to the Committee on Finance on April29, 2003. See also House Bill 4571 of 2003 J. Senate Bill 474 of 2003 - would create the Deferred Presentment Services Act, which would preclude conducting such a business without first obtaining a license from the Commissioner of the Office of Financial and Insurance Services (OFIS). Passed the Senate on November 12, 2003. K. Senate Bill 490 - 495 of 2003 - would amend various laws to replace references to Public Act 285 of 1925 with references to the "Credit Union Act". The bills also would refer to a "domestic credit union" rather than a "credit union" or "state-chartered credit union", and would update references to the Banking Code and the Savings and Loan Act. Referred to Committee on Commerce on October16, 2003. L. Senate Bill 657 of 2003 - would amend the Michigan Consumer Protection Act, making it unlawful to require a consumer to disclose his or her Social Security number as a condition of sale, unless the transaction involved an extension of credit or disclosure was required or authorized by law. The bill would take effect on March 31, 2004. Referred to Committee on Judiciary on August 13, 2003. Reported favorably with amendment on December 2, 2003. M. Senate Bill 675 of 2003: Called the Employee Communications Monitoring Act, this bill would prohibit certain employers from monitoring employee communications unless a monitoring policy is established and disclosed to the employees. Referred to Committee on Commerce and Labor on September 16, 2003. N. Senate Bill 745 - 746 of 2003 - would amend the Michigan Limited Liability Act and Business Corporation Act to permit converting entities to transfer certificates of assumed names. The Bill would also specify the requirements for a plan of conversion for converting entities. Referred to Committee on Commerce and Labor on September 30, 2003. O. Senate Bill 747 of 2003 - would amend the Professional Service Corporation Act to expressly require that limited liability companies converting to a corporation may not convert into a professional corporation unless members who will become shareholders are licensed persons who may be shareholders under the Act. Referred to Committee on Commerce and Labor on September 30, 2003. P. Senate Bill 775 - 776 of 2003 - would amend the Single Business Tax Act and Income Tax Act to permit taxpayers to claim a $1,000 credit for each alternative energy vehicle purchased or leased as a fleet car. Referred to Committee on Finance on October 14, 2003. Q. Senate Bill 862 - 873 of 2003 - would amend various statutes to provide qualified start-up businesses with specific tax and development advantages. Referred to Committee on Finance, Economic Development, Small Business and Regulatory Reform on December 2, 2003. R. House Bill 4220 of 2003 - would exempt non-profit charitable institutions from special assessments, revising MCLA211.7(o). Referred to the Committee on Tax Policy on February13, 2003. S. House Bill 4346 of 2003 - would amend the Michigan Liquor Control Code of 1998 to allow for the importation of alcoholic liquor containing less than 21% alcohol by volume, for personal use and only up to 24 bottles per month, from a state determined to allow reciprocal sales. Allows reciprocal shipping for wine producers. This Bill was referred to the Committee on Regulatory Reform on March13, 2003. See also Heald v. Engler (Electronic citation: 2003 FED App. 0308P 6th CIR August 28, 2003). T. House Bill 4571 of 2003 - would require out-of-state affiliates to be subject to taxation. The Bill was referred to the Committee on Tax Policy on April10, 2003. See also Senate Bill 415 of 2003. U. House Bill 4882 of 2003 - would eliminate the Use Tax on manufactured home sales, except for new manufactured homes purchased out of state and brought into the state for initial use. On June24, 2003, the Bill was referred to the Committee on Commerce. It was reported with recommendation for referral to the Committee on Local Government and Urban Policy on September30, 2003. V. House Bill 5010 of 2003 - would provide for revisions to the General Property Tax Act, including providing for a one time summer property tax collection. Referred to the Committee on Tax Policy on August13, 2003. W. House Bill 5075 of 2003 - would amend Section4110 of the Uniform Commercial Code (MCL 440.4110) so that an agreement for electronic presentment shall provide a procedure that prohibits presentment by transmission of an image of an item or presentment notice if the drawer of the item requests that electronic presentment not be used for the drawer's items and requires written notice to each drawer of his or her right to make that request. Referred to Committee on Commerce on September 25, 2003. X. House Bill 5148 of 2003 - would amend Section9501 of the Uniform Commercial Code (MCL 440.9501), requiring that the secretary of state provide written notice of the filing of financing statements. It also makes the filing of a fraudulent financing statement a misdemeanor punishable by imprisonment, fines, or both. Referred to Committee on Government Operations on October 9, 2003. Y. House Bill 5249 of 2003 - would amend the Single Business Tax Act (MCL 208.37e) to permit a taxpayer purchasing tangible personal property from a qualified tool and die business to claim a credit against the SBT equal to the amount actually paid for tangible personal property. The bill applies to tax years beginning January 1, 2004. Referred to Committee on Commerce on November 4, 2003. Z. House Bill 5295 of 2003: Called the Public Auction Licensing Act, this bill would bar the sale at public auction within the state without first obtaining a license under the Act. Referred to Committee on Regulatory Reform on November 13, 2003. AA. House Bill 5296 of 2003: Called the Liquidation Sale Licensing Act, this bill would bar the sale or advertisement of sale as an insurance, bankruptcy, mortgage, insolvency, assignee's, executor's, administrator's, receiver's, trustee's, removal, or going out of business sale, or a sale of damaged goods, without first obtaining a license. Referred to Committee on Regulatory Reform on November 13, 2003. Respectfully submitted,
Eric I. Lark
A. Public Act 686 of 2002, effective December 30, 2002, amends the Michigan Limited Liability Company Act. The amendments were drafted by the Limited Liability Company Act Revision Subcommittee of the Business Law Section. A summary of the amendments to the Limited Liability Company Act should be posted on the Business Law Section website. B. Public Act 5 of 2003, amends Section 2 of Public Act 198 of 1974 concerning tax abatements for industrial facilities, to provide for tax abatements for plants that manufacture bio-diesel fuel. C. Public Act 21 of 2003, amends the Income Tax Act to include in the taxable income of non-residents casino winnings at casinos subject to the Michigan Gaming Control and Revenue Act (such as those casinos in Detroit). Effective June 24, 2003. See also Public Acts 45 - 51 of 2003. D. Public Act 22 of 2003, amends the Income Tax Act to extend withholding requirements to distributions made by flow-through entities to non-resident members, winnings reportable under Federal tax law by casinos licensed under the pertinent Michigan Act, and winnings reportable under Federal tax law by track licensees operating under the Horse Racing Law of 1995. Effective October 1, 2003. E. Public Acts 23-25 of 2003. Public Act 23 extends the provisions of the Revenue Act (MCLA 205.27(a)) regarding personal liability for failure to pay taxes concerning limited liability companies, limited liability partnerships, partnerships, and limited partnerships to their individual members, managers and partners. Public Acts 24 and 25 delete language in the General Sales Tax Act (MCLA 205.65) and Use Tax Act (MCLA 205.96) which is substantially similar to the provisions of the Revenue Act being amended by Public Act 23. These Public Acts are effective June 24, 2003. F. Public Act 42 of 2003. Provides for the regulation of the transmission of electronic mail advertisements. This Act became effective September 1, 2003. G. Public Act 44 of 2003. This Act provides for the enforcement of a security interest or lien on a mobile home by real property foreclosure where the owner of a mobile home has an ownership interest in the real property. Ownership interest is generally defined as having title to the property or being a lessee of a ground lease of twenty years or more. This Act became effective July 14, 2003. H. Public Act 45 of 2003. Amends the Income Tax Act to define "flow-through entity", "member" of a flow-through entity and "non resident member" of a flow-through entity. I. Public Act 46 of 2003. Effective October 1, 2003, requires all business entities authorized to transact business in the state submitting a certificate of dissolution or requesting a certificate of withdrawal, to request a certificate from the Michigan Treasury Department stating that taxes are not due. J. Public Act 52 of 2003. Expands the definition of "business income" under Section 4 of the Income Tax Act of 1967. Effective July 14, 2003. K. Public Act 53 of 2003. Amends the Administrative Procedures Act to require the Office of Regulatory Reform to publish the Michigan Administrative Code, the annual supplement to the Michigan Administrative Code, and the Michigan Register in Electronic Format. Effective July 14, 2003. L. Public Act 81 of 2003. Revises the filing fees for limited liability companies. Effective July 23, 2003. M. Public Act 92 of 2003. Amends the Revenue Act (MCLA 205.3) to require the Michigan Department of Treasury to publish and make available to the public, in printed and electronic format, Bulletins and Letter Rulings issued by the Department. Effective July 24, 2003. N. Public Act 106 of 2003. Effective July 24, 2003, the Act revises certain filing fees for business corporations. O. Public Act 107 of 2003. Effective July 24, 2003, the Act revises certain filing fees for non-profit corporations. P. Public Act 131 of 2003. Revises the reference in the Tax Tribunal Act from "homestead exemption" to "principal residence exemption". Effective January 1, 2004. See also Public Act 140 of 2003 which revises the General Property Tax Act to replace the term "homestead" with the term "principal residence." Various other statutes have been/may be amended to revise the definition of "homestead exemption" to "principal residence exemption." Q. Public Act 150 of 2003. Effective August 8, 2003, this Act contains revisions to the filing fees under the Uniform Securities Act. R. Public Act 174 of 2003. Amends the Michigan Employment Security Act to allow the payment of additional temporary extended unemployment compensation based upon the State's average rate of total unemployment. The Act became effective August 14, 2003. XIX. NEW BILLS AND STATUS OF PENDING BILLS A. Senate Bill 21 of 2003 - would create a new Act for the regulation of deferred deposit loan transactions. Referred to the Committee on Banking and Financial Institutions on January 21, 2003. B. Senate Bill 113-114 of 2003. This Bill proposes certain amendments to the Non-Profit Corporation Act and the Limited Liability Company Act, respectively, to eliminate the annual fee if the non-profit corporation or limited liability company is recording no changes in officers and directors and is not changing its resident agent or registered office address. Referred to the Committee on Economic Development, Small Business and Reg. Reform on January 29, 2003. C. Senate Bill 167 of 2003. Similar to Senate Bills 113 and 114 of 2003, except applies to profit corporations under the MBCA. Referred to the Committee on Economic Development, Small Business and Reg. Reform on February 11, 2003. D. Senate Bill 172 of 2003. Would create a new Act to require the seller of real property to make disclosures regarding toxic mold. The Bill was referred to the Committee on Economic Development, Small Business and Reg. Reform on February 11, 2003. E. Senate Bill 208 of 2003. For tax years beginning after December 31, 2002, would allow a deduction for the cost of the purchase of a hybrid fuel vehicle for income tax purposes. This Bill was referred to the Committee on Finance on February 25, 2003. F. Senate Bill 218 of 2003 - would amend the Michigan Business Corporation Act (Sections 506, 511, 611 and 698) to do the following: 1. Prohibit a corporation, if its board were divided into classes with staggered terms, from amending its Articles to reduce the term of a director, amend or repeal the provision dividing the board into classes, or change the number of directors, without the prior approval of a majority of the directors then serving, unless the Articles provided otherwise. 2. Specify that, for a corporation whose board is divided into classes, shareholders could remove directors only for cause, unless the Articles allowed removal without cause. 3. For corporations with publicly traded stock, require that a proposed amendment to the corporation's Articles be adopted by the board of directors. 4. Allow the directors of a corporation (as well as the shareholders) to grant control shares acquired in a controlled share acquisition the same voting rights as the shares had before the control share acquisition.The Bill was referred to the Committee on Commerce & Labor on March 13, 2003. E. Senate Bill 415 of 2003 - would require out-of-state affiliates to be subject to taxation. The Bill was referred to the Committee on Finance on April 29, 2003. See also House Bill 4571 of 2003 F. Senate Bill 496 of 2003. - would create a new Credit Union Act, repealing MCLA 490.1 - 490.31. This Bill was reported favorably by the Senate on June 25, 2003. See also House Bill 4694 of 2003. G. House Bill 4346 of 2003 - would amend the Michigan Liquor Control Code of 1998 to allow for the importation of alcoholic liquor containing less than 21% alcohol by volume, for personal use and only up to 24 bottles per month, from a state determined to allow reciprocal sales. Allows reciprocal shipping for wine producers. This Bill was referred to the Committee on Regulatory Reform on March 13, 2003. See also Heald v. Engler (Electronic citation: 2003 FED App. 0308P 6th CIR August 28, 2003). H. House Bill 4220 of 2003. - would exempt non-profit charitable institutions from special assessments, revising MCLA 211.7(o). Referred to the Committee on Tax Policy on February 13, 2003. I. House Bill 4571 of 2003 - would require out-of-state affiliates to be subject to taxation. The Bill was referred to the Committee on Finance on April 29, 2003. See also Senate Bill 415 of 2003. J. House Bill 4694 of 2003. - would create a new Credit Union Act, repealing MCLA 490.1 - 490.31. This Bill was reported favorably by the Senate on June 25, 2003. See also Senate Bill 496 of 2003. K. House Bill 4764 of 2003. This Bill arises from the Simon/Taubman litigation and would amend Section 791 of, and add Section 798(a) to, the Michigan Business Corporation Act. The Bill would revise the control share acquisition provisions of the Business Corporation Act to provide that the formation of a group does not constitute a control share acquisition of shares of an issuing public corporation held by members of the group. Accordingly, such shares could be voted in the same manner as before the formation of the group. The Bill would also have retroactive effect. The Bill was passed by the House on or about June 5, 2003 and on June 10, 2003 was referred by the Senate to the Committee on Commerce and Labor. L. House Bill 4882 of 2003 - would eliminate the Use Tax on manufactured home sales, except for new manufactured homes purchased out of state and brought into the state for initial use. On June 24, 2003, the Bill was referred to the Committee on Commerce. M. House Bill 5010 of 2003 - would provide for revisions to the General Property Tax Act, including providing for a one time summer property tax collection. Referred to the Committee on Tax Policy on August 13, 2003. Eric I. Lark
A. Public Act 579 of 2002, effective November12, 2002, amends the Sales Tax Act, Use Tax Act and Income Tax Act, respectively, to eliminate the tax clearance requirement. B. Public Act 663 of 2002, amends the Cyber Court provisions to add a definition of "business enterprise" and also amends certain provisions related to removal to Circuit Court. C. Public Act 686 of 2002, effective December 30, 2002, amends the Michigan Limited Liability Company Act. The amendments were drafted by the Limited Liability Company Act Provision Subcommittee of the Business Law Section. A summary of the amendments to the Limited Liability Company Act should be posted on the Business Law Section website. D. Public Act 5 of 2003, amends Section2 of Public Act198 of 1974 concerning tax abatements for industrial facilities, to provide for tax abatements for plants that manufacture bio-diesel fuel. II.NEW BILLS AND STATUS OF PENDING BILLS A. Senate Bill 21 of 2003 - would create a new Act for the regulation of deferred deposit loan transactions. Referred to the Committee on Banking and Financial Institutions on January21, 2003. B. Senate Bill113-114 of 2003. This Bill proposes certain amendments to the Non-Profit Corporation Act and the Limited Liability Company Act, respectively, to eliminate the annual fee if the non-profit corporation or limited liability company is recording no changes in officers and directors and is not changing its resident agent or registered office address. Referred to the Committee on Economic Development, Small Business and Reg. Reform, on January29, 2003. C. Senate Bill 167 of 2003. Similar to Senate Bills 113 and 114 of 2003, except applies to profit corporations under the MBCA. Referred to the Committee on Economic Development, Small Business and Reg. Reform, on February 11, 2003. D. Senate Bill 208 of 2003. For tax years beginning after December31, 2002, would allow a deduction for the cost of the purchase of a hybrid fuel vehicle for income tax purposes. This Bill was referred to the Committee on Finance on February25, 2003. E. Senate Bill 218 of 2003 - would amend the Michigan Business Corporation Act (Sections506, 511, 611 and 698) to do the following: 1. Prohibit a corporation, if its board were divided into classes with staggered terms, from amending its Articles to reduce the term of a director, amend or repeal the provision dividing the board into classes, or change the number of directors, without the prior approval of a majority of the directors then serving, unless the Articles provided otherwise. 2. Specify that, for a corporation whose board is divided into classes, shareholders could remove directors only for cause, unless the Articles allowed removal without cause. 3. For corporations with publicly traded stock, require that a proposed amendment to the corporation's Articles be adopted by the board of directors. 4. Allow the directors of a corporation (as well as the shareholders) to grant control shares acquired in a controlled share acquisition the same voting rights as the shares had before the control share acquisition. The Bill was referred to the Committee on Commerce & Labor on March13, 2003. F. Senate Bill 359 of 2003 - provides that beginning October1, 2003, certain filing fees pursuant to the Michigan Limited Liability Company Act would be established by a fee schedule contained in an appropriation act for that fiscal year. This Bill was referred to the Committee on Appropriations on April2, 2003. G. Senate Bill 391 of 2003 - similar to Senate Bill 359, but applies to fees under the Uniform Securities Act. This Bill was referred to the Committee on Appropriations on April21, 2003. H. Senate Bill 401 of 2003 - would require all business entities authorized to transact business in the state that submit a certificate of dissolution or request a certificate of withdrawal from the state, to request a certificate from the treasury department stating that income taxes are not due. This Bill was referred to the Committee on Finance on April 24, 2003. I. Senate Bill 409 of 2003 - Section12 of the Income Tax Act of 1967, as amended, would be further amended to provide a definition for "flow-through entity" to include an S corporation, partnership, limited partnership, limited liability partnership, or limited liability company. Certain other related definitions would be adopted. This Bill was referred to the Committee on Finance on April24, 2003. J. Senate Bill 424 of 2003 - would expand the definition of business income under Section4 of the Income Tax Act of 1967 K. House Bill 4220 of 2003 - would exempt non-profit charitable institutions from special assessments, revising MCLA211.7(o). Referred to the Committee on Tax Policy on February13, 2003. L. House Bill 4346 of 2003 - would amend the Michigan Liquor Control Code of 1998 to allow for the importation of alcoholic liquor containing less than 21% alcohol by volume, for personal use and only up to 24 bottles per month, from a state determined to allow reciprocal sales. Allows reciprocal shipping for wine producers. This Bill was referred to the Committee on Regulatory Reform on March13, 2003. M. House Bill 4557 of 2003, revises the definition of business income under the Income Tax Act of 1967. This Bill was passed by the House on May1, 2003. See also, Senate Bill424 of 2003. N. House Bill 4564 of 2003, requires all business entities authorized to transact business in the state submitting a certificate of dissolution or requesting a certificate of withdrawal, to request a certificate stating that taxes are not due. This Bill was referred to the Committee on Tax Policy on April10, 2003. See also, Senate Bill 401 of 2003. O. House Bill 4565 of 2003 - would amend the Income Tax Act of 1967 to provide for the definition of a flow-through entity and certain related definitions. This Bill was referred to the Committee on Tax Policy on April10, 2003. See also, Senate Bill409 of 2003. P. HB 4567 of 2003: Revises provisions concerning tax liability contained in MCL 205.27a for sellers and purchasers of businesses. This Bill also establishes personal liability for members, managers and partners in certain situations where the taxes of their entities remain unpaid. The Bill was passed by the House on May 8, 2003. Eric I. Lark
A. Public Act 15 of 2002, revises the Uniform Commercial Code, MCL 440.2201, to increase to $1,000 the price of goods for which a writing is required for an enforceable contract. B. Public Act 579 of 2002, effective November 12, 2002, amends the Sales Tax Act, Use Tax Act and Income Tax Act, respectively, to eliminate the tax clearance requirement. C. Public Act 663 of 2002, amends the Cyber Court provisions to add a definition of "business enterprise" and also amends certain provisions related to removal to Circuit Court. D. Public Act 686 of 2002, effective December 30, 2002, amends the Michigan Limited Liability Company Act. The amendments were drafted by the Limited Liability Company Act Revision Subcommittee of the Business Law Section. A summary of the amendments to the Limited Liability Company Act will be posted on the Business Law Section website. II. NEW BILLS AND STATUS OF PENDING BILLS A. Senate Bill 21 of 2003 - would create a new Act for the regulation of deferred deposit loan transactions. Referred to the Committee on Banking and Financial Institutions on January 21, 2003. B. Senate Bill 61 of 2003 - would create a new Act to require the licensure of check cashing businesses. Referred to the Committee on Banking and Financial Institutions on January 23, 2003. C. Senate Bill 113-114 of 2003. This Bill proposes certain amendments to the Non-Profit Corporation Act and the Limited Liability Company Act, respectively, to eliminate the annual fee if the non-profit corporation or limited liability company is recording no changes in officers and directors and is not changing its resident agent or registered office address. Referred to the Committee on Economic Development, Small Business and Reg. Reform, on January 29, 2003. D. Senate Bill 167 of 2003. Similar to Senate Bills 113 and 114 of 2003, except applies to profit corporations under the MBCA. Referred to the Committee on Economic Development, Small Business and Reg. Reform, on February 11, 2003. E. House Bill 4220 of 2003 - would exempt non-profit charitable institutions from special assessments. Would revise MCLA 211.7(o). Referred to the Committee on Tax Policy on February 13, 2003. Eric I. Lark
A. Public Act 15 of 2002 revises the Uniform Commercial Code, MCL440.2201, to increase the price of goods for which a writing is required for an enforceable contract to $1,000. B. Public Act 511 of 2002, effective July23, 2002, amends the Use Tax Act to add limited liability companies to the definition of "person" and also provides some exemptions for certain international sporting events. C. Public Act 579 of 2002, effective November12, 2002, amends the Sales Tax Act, Use Tax Act and Income Tax Act, respectively, to eliminate the tax clearance requirement. II. NEW BILLS AND STATUS OF PENDING BILLS A. Senate Bill 1415 of 2002 - Establishes that certain corporate misconduct is a crime. Would amend MCL750.1 - 750.568 by adding Section411t. The Bill was referred to the Committee on Judiciary on September17, 2002. B. Senate Bill 1418 of 2002 - amends the Limited Liability Company Act. Drafted by Subcommittee of the Business Law Section and was introduced on September18, 2002. It passed the Senate on November13, 2002, and was referred to the Committee on Insurance and Financial Services the same day. C. Senate Bills 1493, 1494, 1495 and 1496 of 2002 - amend pertinent acts to allow for conversion of corporations and limited partnerships into limited liability companies, conversion of limited liability companies into corporations and conversion of limited liability companies into professional service corporations. Senate Bill 1496 concerns and clarifies the availability of names of limited partnerships which are similar in name to limited liability companies. The Bills were referred to the Committee on Financial Services on November12, 2002. D. Senate Bills 820-822 of 2001, concerning annual reports for non profit corporations, limited liability companies and profit corporations, would require annual reports only when changes in the business entity are being reported. These Senate Bills are currently mired in the Committee on Financial Services, where they have been since late 2001. E. House Bill 5638 of 2002. This Bill, referred to the Committee on Tax Policy on February14, 2002, would amend MCL211.27(a) to exclude from certain property tax consequences the transfer of property from an individual to a family controlled corporation or other entity. F. House Bill 5954, introduced on April23, 2002, would amend Sections511 and 611 of the MBCA. The amendment to Section511 would provide for the removal of directors on a classified board only for cause unless the Articles of Incorporation allowed for removal without cause. The amendment to Section611 would provide that amendments to the Articles of Incorporation of a publicly traded company must be approved by both the directors and shareholders. G. House Bill 6338 of 2002, which would adopt the Uniform Securities Act, was up for hearing on November13, 2002. H. House Bill 6361 of 2002 amends MCL206.260, providing for an income tax credit for contributions to charitable organizations. I. House Bill 6387 of 2002 would amend MCL211.1 - 211.157 by adding Section9j to allow certain small businesses to exempt personal property with a taxable value of less than $10,000. J. House Bill 6447 of 2002 would amend the Cyber Court provisions to add a definition of "business enterprise" and also would amend certain provisions relating to removal to Circuit Court. This Bill was referred to a second reading on November13, 2002. Eric I. Lark
1. PUBLIC ACTS SB 517 is Public Act 402 of 2002, effective June 3, 2002 allows referral of patients, under certain circumstances, to facilities in which the physician has a financial interest. SB 422 is PA 433 of 2002, effective June 10, 2002, and repealed sections 5320 and 3615 of the Revised Judicature Act. SB 738 is PA 438 of 2002, effective June 11, 2002, amends section 2021 of the Revised Judicature Act. These changes eliminate provisions regarding dissolution and wind up and revise provisions regarding foreign corporations transacting business in Michigan to eliminate conflicts with the Business Corporation Act. . SB 1370 is PA 511 of 2002, effective July 23, 2002. It amends the Use Tax Act to add limited liability company to the definition of "person" and provides some exemptions for certain international sporting events. 2. NEW BILLS SB 1418 amending the Limited Liability Company Act was introduced on introduced on September 18, 2002, and referred to the Committee on Financial Services. It was on the Committee's agenda for Tuesday, September 24. This bill was drafted by subcommittee of the Business Law Section. 3. STATUS OF PENDING BILLS SB 593, 594 and SB 595 amending the Sales Tax Act, Use Tax Act and the Income Tax Act, respectively, to eliminate the tax clearance requirement were enrolled on September 19, 2002. HB 5954 introduced on April 23, 2002, would amend sections 511 and 611 of the Business Corporation Act. The amendment to section 511 would provide for removal of directors on classified board only for cause unless articles of incorporation allow removal without cause. The amendment to section 611 would provide that amendments to the articles of incorporation of a publicly traded company must have approval of both directors and shareholders. HB 4647 to provide for registration and title protection for respiratory therapists passed the House in July 2001 and a Senate substitute passed the Senate on December 31, 2001, No activity since December. HB 5377 to require registration of certain contact lens providers passed the House on February 13, 2002, and was referred to the Senate on February 14, 2002. Tie barred to HB 5378 and 5379. HB 5552 to expand authority of optometrists to allow for initial diagnosis of glaucoma and to begin a course of treatment without consulting a physician. Passed the House on May 9, 2002. HB 5548-5552 tie barred. HB 5981 introduced on April 30, 2002, would provide for licensing and regulation of clinical laboratory technicians. HB 1036, placed on third reading in the House on February 13, 2002, amends PA 269 of 1929, regarding nonprofit organization emblems and insignias to restrict who may to display the organization's logo on their motor vehicle and permits contributors to display the emblem or insignia. SB 820-822 to only require an annual reports when changes are being reported have had no activity since last fall. G. Ann Baker
1. PUBLIC ACTS HB 5108 is PA 100 of 2002, immediate effect. It creates the Public Pension Protection Act. Included in the package are HB 5108-5114. Retirement benefit is not subject to execution, garnishment, attachment, the operation of bankruptcy or insolvency laws, or other process of law and could not be assigned. HB 5434, PA 80 of 2002 signed by Governor on April 9, 2002. Comprehensive revisions to the Grain Dealers Act, changes in authority for MDA, and changes to definitions. Add administrative remedies. 2. NEW BILLS SB 1288 introduced on May 7, 2002, would amend the General Corporation Act to be consistent with Executive Order 1999-12. HB 5912 introduced on April 16, 2002 was referred to second reading in the House on April 23. It would amend the General Corporation Act to be consistent with Executive Order 1999-12. Part of package consisting of HB 5901-5923. HB 5954 introduced on April 23, 2002, would amend sections 511 and 611 of the Business Corporation Act. The amendment to section 511 would provide for removal of directors on classified board only for cause unless articles of incorporation allow removal without cause. The amendment to section 611 would provide that amendments to the articles of incorporation of a publicly traded company must have approval of both directors and shareholders. 3. STATUS OF PENDING BILLS SB 422 and SB 738, on second reading in the House on May 7, 2002, amend the Revised Judicature Act to eliminate provisions regarding dissolution and wind up and foreign corporations transacting business in Michigan that conflict with the Business Corporation Act. SB 593, 594 and SB 595 amending the Sales Tax Act, Use Tax Act and the Income Tax Act, respectively, to eliminate the tax clearance requirement passed the Senate on May 1, 2002 and have been referred to the House. SB 517 passed the Senate and an amended version passed the House on May 9, 2002, and was returned to the Senate. The bill would allow referral of patients, under certain circumstances, to facilities in which the physician has a financial interest. HB 4647 to provide for registration and title protection for respiratory therapists passed the House in July 2001 and a Senate substitute passed the Senate on December 31, 2001, No activity since December. HB 5377 to require registration of certain contact lens providers passed the House on February 13, 2002, and was referred to the Senate on February 14, 2002. Tie barred to HB 5378 and 5379. HB 5552 to expand authority of optometrists to allow for initial diagnosis of glaucoma and to begin a course of treatment without consulting a physician. Passed the House on May 9, 2002. HB 5548-5552 tie barred. HB 5981 introduced on April 30, 2002, would provide for licensing and regulation of clinical laboratory technicians. HB 1036, placed on third reading in the House on February 13, 2002, amends PA 269 of 1929, regarding nonprofit organization emblems and insignias to restrict who may to display the organization's logo on their motor vehicle and permits contributors to display the emblem or insignia. SB 820-822 to only require an annual reports when changes are being reported have had no activity since last fall. We are looking for someone to serve as Director of Legislative Review for 2002/2003. G. Ann Baker
The Department of Consumer and Industry Services added to its web site on January 22, 2002, a Name Availability program to check for availability for a corporation, limited partnership, or limited liability company. Bills to permit corporations and limited liability companies operating nursing homes to use in their name "health care", "health care center", "rehabilitation center", or terms conveying similar meaning were signed January 11, 2002, and have immediate effect. SB 525, Public Act 273 of 2001, amends the Public Health Code. SB 746, Public Act 276 of 2001, amends the Business Corporation Act. SB 747, Public Act 277 of 2001, amends the Limited Liability Company Act. SB 422, passed the House on November 8, amends the Revised Judicature Act to eliminate provisions regarding dissolution and wind up which conflict with the Business Corporation Act. HB 4647 passed the Senate on December 13. It amends the Public Health Code to require respiratory therapists to be registered and to restrict various titles used by respiratory therapists. SB 594 and SB 595 amending the Use Tax Act and the Income Tax Act, respectively, to eliminate the tax clearance requirement have had no activity since July, 2001. HB 1036, on third reading in the House, amends PA 269 of 1929, regarding nonprofit organization emblems and insignias to restrict who may to display the organization's logo on their motor vehicle and permits contributors to display the emblem or insignia. HB 1042, passed House on February 14, repeals criminal provision related to railroad securities. SB 5022-5025, passed both houses and presented to Governor on February 18, 2001, eliminate witness requirements for certain documents concerning conveyance of land that must be recorded with Register of Deeds. G. Ann Baker
Changes to Article 9 of UCC: HB 4774, Public Act 145, effective January 2, 2002 Amends Article 9 of UCC regarding security interest in property such as motor vehicles. Changes to RJA regarding corporations: SB 422, passed Senate, November 8, 2001 Repeals sections3520 and 3615 of the Revised Judicature Act regarding dissolved corporations. SB 738 , passed Senate, November 8, 2001 Amends section 2021 of the Revised Judicature Act to exclude application of the provision to a foreign corporation that has failed to obtain a certificate of authority to transact business in the state. http://198.109.172.10/pdf/senate.engrossed/2001-2002/SEB0738S.PDF Nursing home names: SB 525, passed Senate, October 31, 2001 Amends Public Health Code to permit nursing homes to use "health center" or "health care center", or "rehabilitation center" in their name. SB 746, passed Senate, October 31, 2001 Amends section 213 of the Business Corporation Act to add subsection (2) permitting corporation that is licensed as a nursing home to use "health center", "health care center" a term conveying a meaning substantially similar to those terms, or the term "rehabilitation center" in their name. http://198.109.172.10/pdf/senate.engrossed/2001-2002/SEB0746S.PDF SB 747, passed Senate, October 31, 2001 Amends limited liability company act to add section 204A to permit a limited liability company that is licensed as a nursing home to use "health center", "health care center" or a term conveying a meaning substantially similar to those terms, or the term "rehabilitation center" in their name. http://198.109.172.10/pdf/senate.engrossed/2001-2002/SEB0747S.PDF Change annual fees for corporations and limited liability companies: SB 820, introduced November 7, 2001 Amends the nonprofit corporation act to eliminate the annual fee for an annual report if no changes are reported. http://198.109.172.10/pdf/senate.bills.intro/2001-2002/SIB00820.PDF SB 821, introduced November 7, 2001 Amends the limited liability company act to eliminate the annual fee for an annual report or annual statement if no changes are reported. http://198.109.172.10/pdf/senate.bills.intro/2001-2002/SIB00821.PDF SB 822, introduced November 7, 2001 Amends the business corporation act to eliminate the annual fee for an annual report if no changes are reported. http://198.109.172.10/pdf/senate.bills.intro/2001-2002/SIB00822.PDF G. Ann Baker
Public Act 334 of 2000 (SB 1239) amends the Occupational Code to require a simple majority of equity owners of a CPA firm be licensed CPAs. Immediate effect. Public Act 333 of 2000 (SB 1238) and Public Act 335 of 2000 (SB 1240) amends the Limited Liability Company Act and the Professional Service Corporation Act, respectively to eliminate language which would conflict with the changes made to the Occupational Code by Public Act 334 of 2000. Immediate effect. Public Act 336 of 2000 (SB 1241) amends the definition of services in a learned profession in the Michigan Limited Liability Company Act, deleting "certified or other public accountant". Immediate effect. Public Act 358 of 2000( SB 5412) amends reference to Uniform Commercial Code in section 471 of the Business Corporation Act. Public Act 359 of 2000 (SB 5413) amends reference to the Uniform Commercial Code in section 471 of the Nonprofit Corporation Act. Public Act 463 of 2000 (SB 863) amends the Estates and Protected Individuals Act. Section 5106(7) provides an exception to the banking code for a "for-profit or nonprofit, nonbanking corporation organized under the laws of this state to serve in a fiduciary capacity" if appointed by the court. Eff. date June 1, 2001 Public Act 494 of 2000 (HB 5763) amends the Michigan Uniform Securities Act to make changes that will conform to National Securities Markets Improvements Act of 1996 (NSMIA) which effectively preempted portions of the state's securities law. Immediate effect. The following bills of interest have been introduced this session: Senate Bill 206 (Bullard and Steil) referred to Committee on Financial Services amends the Business Corporation Act. Draft was prepared by subcommittee of Business Law Section. Senate Bill 216 (Bullard) referred to Committee on Financial Services amends section 13 of Professional Service Corporation Act to provide current version of BCA applies to professional service corporations. To follow the progress of legislation, visit the legislature's web site at http://www.michiganlegislature.org/ Cy Moscow has been working with Senator Bullard's office to get bills introduced to amend Section 5 of the Use Tax Act, MCL 205.95, and Section 451 of the Income Tax Act, MCL 206.451, to eliminate the requirement for a corporation to obtain a tax clearance before filing a certificate of dissolution or certificate of withdrawal. In addition, Cy is working on getting a bill introduced which would repeal provision in the Revised Judicature Act that are inconsistent with the Business Corporation Act. Karen Williams, at the State Bar of Michigan, has advised Dan Minkus that the Public Policy Committee of the Board of Commissioners will consider SB 1425 at its March 9, 2001, meeting and has asked for a recommended position on the bill. SB 1425 is amendments to the Business Corporation Act drafted by the Business Law Section subcommittee and introduced last session by Senator Bullard. Senate Bill 206 is substantially identical. The proposed amendments will permit greater use of electronic transactions for the internal operation of a corporation. In addition changes to section 342a specifically addresses shareholder rights plans and changes to section 489 specifically provide for a shareholder cause of action. The latter is in reaction to Baks v Moroun, 227 Mich. App. 472 (1998). The Council has not taken a position on the bill. I spoke with Cy Moscow on February 15, 2001, and he urges the Council to support for the bill. Justin Klimko can provide the Council with more information regarding the amendments. G. Ann Baker
New Public Acts: Public Act 247, effective June 29, 2000 (HB 5767) amends Plant Rehabilitation and Industrial Development Districts Act to include "engaging in a high-technology activity". Public Act 248, effective June 29, 2000 (HB 5766) amends the Local Development Financing Act to allow a municipality with a local development finance authority to apply to the Michigan Economic Development Corporation for designation of all or part of the authority as a certified technology park. Public Act 239, effective June 28, 2000 (SB 1197) amends Public Act 118 of 1981, which regulates motor vehicle manufacturers, distributors, wholesalers, and dealers to replace provisions under which a manufacturer, distributor, or wholesaler may not establish a dealership that would unfairly compete with a new motor vehicle dealer or distributor. Public Act 195, effective June 22, 2000 SB 796) Amends the Income Tax Act to place additional qualification requirements on community foundations. Public Act 309, effective October 17, 2000 (SB 801) Provides for property tax exemption for property owned by nonprofit and occupied as residence or leased to governmental entity. Public Act 305, effective October 16, 2000 (HB 5537) creates the Uniform Electronic Transactions Act. Passed both houses: HB 5066 (Passed Senate, November 14, 2000) Structured Settlement Protection Act SB 1238 (Passed House, November 29, 2000) amends the LLC Act to delete specific language regarding 2/3 ownership of PLLC by licensed CPAs SB 1240 (Passed House, November 29, 2000) amends the Professional Service Corporation Act to delete specific language regarding 2/3 ownership of PC by licensed CPAs. SB 1241 (Passed House, November 29, 2000) amends the LLC Act to delete CPAs from definition of services in a learned profession. Passed one house: SB 863 (Passed Senate, November 14, 2000) Amends the EPIC. Deletes language in section 5106 which authorized nonprofit corporations to act as court appointed fiduciaries. Creates "professional fiduciary". SB 1014 (Passed Senate May 30, 2000) would amend the LLC act to require signed consent of resident agent HB 5413 (Passed House, September 27, 2000) Amends section 471 of Nonprofit Corporation Act to add article 8 of UCC. HB 5412 (Passed House, September 27, 2000) Amends section 471 of Business Corporation Act to add article 8 of UCC. Reported by committee: SB 1424 (reported w/o amendment, November 29, 2000) amends SBT Act to require community foundation to meet additional criteria. SB 1382 (reported by the Committee of the Whole, November 27, 2000) amends Income Tax Act for certain distributions made from a retirement or pension plan to a charitable organization. SB 1293 (reported by the Committee of the Whole, November 28, 2000) amends home rule city act to provide state would have an interest in any court proceeding in which plaintiff challenged a local ordinance regulating or prohibiting public nudity. Introduced: HB 6140 (Introduced November 14, 2000) amends the General Corporation Act regarding educational institutions operated by churches. SB 1425 (introduced November 9, 2000) amends the Business Corporation Act. Section committee's draft. G. Ann Baker
by Timothy R. Damschroder Bodman, Longley & Dahling LLP I. INTRODUCTION This summary highlights some of the significant statutory and case law developments from May 1, 1998 through August 31, 1999 which may be of interest to business lawyers. II. STATUTORY DEVELOPMENTS A. MICHIGAN UNIFORM COMMERCIAL CODE (UCC) 1. AMENDMENT OF UCC ARTICLE 5-LETTERS OF CREDIT Article 5 of the Michigan Uniform Commercial Code (440.5101 et seq.) was substantially rewritten by 1998 PA 488 (HB5327). The following summarizes the primary changes made. a. Industry Standards. In order to accommodate future changes in the banking industry for documentation, presentation and payment of letters of credit, Section 5-108(5) provides that "an issuer shall observe standard practice of financial institutions that regularly issue letters of credit. Determination of the issuer's observance of the standard practice is a matter of interpretation for the court. The court shall offer the parties a reasonable opportunity to present evidence of the standard of practice" (MCLA 440.5108(5)). Also, Section 5-116(3) provides that the liability of an issuer, nominated person, or adviser is governed by any rules of custom or practice (MCLA 440.5116(3)). These provisions allow for use of the oft referenced Uniform Customs and Practice for Documentary Credits (Publication No. 500 of the International Bank of Commerce) when interpreting Article 5 and any dispute between parties to a letter of credit. b. Documentation. Section 5-102 has been amended to broaden the definition of a document covered by Article 5 to include: "a draft or other demand, document or title, investment security, certificate, invoice, or other record, statement, or representation of fact, law, right, or opinion that is not oral which is both of the following: (i) presented in a written or other medium permitted by the letter of credit or, unless prohibited by the letter of credit, by the standard of practice referred to in Section 5108(5) (see above). (ii) capable of being examined for compliance with the terms and conditions of the letter of credit." (MCLA 440.5102(F), italics added). Accordingly, Article 5 now allows for letter of credit transactions to take place through electronic communications. c. Presentation and Honor. Article 5-108 provides that the issuer must within a reasonable time after presentation, but not beyond the end of the seventh business day of the issuer after the day of its receipt of the presented documents, either honor the draft or notify the presenter of the discrepancies on which dishonor is based. An issuer is precluded from asserting as a basis for dishonor any discrepancy if timely notice is not given, or any discrepancy not stated in the notice if timely notice is given (MCLA 440.5108). Additionally, an issuer must honor a presentation that, as determined by the standard of practice referred to above, "appears on its face strictly to comply with the terms and conditions of the letter of credit" (MCLA 440.5108(1)). d. Post-Honor Reimbursement. Article 5 now provides that an applicant must reimburse an issuer that has honored a presentation as required or permitted by the statute. Accordingly, an applicant must reimburse an issuer that has honored a presentation which, on its face, strictly complied with the document's terms and conditions (MCLA 440.5108(9)). e. Fraudulent Documentation. Article 5-109 provides that: "If a presentation is made that appears on its face strictly to comply with the terms and conditions of the letter of credit, but a required document is forged or materially fraudulent, or honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant: (A) The issuer shall honor the presentation, if honor is demanded by 1 or more of the following: (i) A nominated person who has given value in good faith and without notice of forgery or material fraud. (ii) A confirmer who has honored its confirmation in good faith. (iii) A holder in due course of a draft drawn under the letter of credit which was taken after acceptance by the issuer or nominated person. (iv) An assignee of the issuer's or nominated person's deferred obligation that was taken for value and without notice of forgery or material fraud after the obligation was incurred by the issuer or nominated person. (B) The issuer, acting in good faith, may honor or dishonor the presentation in any other cause." (MCLA 440.5109(1)). Article 5-109(2) sets forth the circumstances under which a court may grant a preliminary or permanent injunction against an issuer from honoring a forged or materially fraudulent letter of credit (MCLA 440.5109(2)). f. Warranty by Beneficiary. Article 5-110 grants the following warranties if presentation is honored: "(A) To the issuer, any other person to whom presentation is made, and the applicant that there is no fraud or forgery of the kind described in Section 5109(1). (B) To the applicant that the drawing does not violate any agreement between the applicant and beneficiary or any other agreement intended by them to be augmented by the letter of credit" (MCLA 440.5110(1)). The above warranties are in addition to those provided under UCC Articles 3, 4, 7, and 8. g. Subrogation. The prior version of Article 5 gave rise to a conflict in the courts as to subrogation rights in cases where a beneficiary was a secured creditor. This issue has been clarified under Article 5-117 such that an issuer that honors a beneficiary's presentation is subrogated to the rights of the beneficiary, and an applicant that reimburses an issuer is subrogated to the rights of the issuer against the beneficiary, presenter, or nominated person (MCLA 440.5117(1) and (2)). h. Statute of Limitations. Article 5-115 requires an action to enforce a right or obligation arising under Article 5 to be commenced within one year after the expiration date of the relevant letter of credit, or one year after the cause of action accrues, whichever occurs later. Under the Act, a cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach (MCLA 440.5115). i. Choice of Law and Forum. Article 5-116 contains intricate choice of law and choice of forum provisions. Generally, governing law will be the jurisdiction chosen by the documents, or in many case if none chosen, then by the law of the jurisdiction in which the defendant is located. j. Damages. An issuer that wrongfully dishonors the draft or demand presented under a letter of credit is liable to the applicant for damages resulting from the breach, including incidental, but not consequential damages, less than the amount saved as a result of the breach. The issuer is also liable for interest on the amount owed from the date of wrongful dishonor. Reasonable attorneys' fees and other expenses of litigation are awarded to the prevailing party in an action in which a remedy is sought under Article 5 (MCLA 440.5111). 2. UCC ARTICLE 8-INVESTMENT SECURITIES. UCC Article 8 was amended by Public Act 278 of 1998. The primary purpose of the amendments was to update UCC Article 8 to provide a modern legal structure for the most prevalent system of holding securities in the United States. The revised Article 8 includes rules for the securities holding intermediary system through which securities are held, specifies the mechanisms by which ownership and other interests in securities are recorded and changed, and sets forth the rights and duties of the parties who participate in the securities holding system. The prior version of Article 8 introduced the concept of an "uncertificated security." This allowed issuance of a security without a certificate with transfers registered on the books of the issuer. The use of uncertificated securities was meant to insure that the transfer of large volumes of paper certificates would not slow down the market. However, by the time most states adopted the revised Article 8 allowing for uncertificated securities, most corporations had begun utilizing third party depository institutions (e.g., Depository Trust Corporation) to hold the certificates representing issued shares. Each brokerage firm has an account with the depository institution, designating the number of shares held in each corporation. A separate securities account is established for each customer of the brokerage firm indicating the number of shares held by the brokerage firm at the depository institution on behalf of the customer. Share certificates are seldom issued to the customer. This two-tiered system which has developed has allowed for high volume, fast and accurate electronic transfer of securities. The revised Article 8 establishes the rights, duties and obligations of all parties in connection with the indirect holding system described above. a. Security Entitlement. The most innovative change to UCC Article 8 is the addition of a "security entitlement" under the newly added Part 5 of UCC Article 8. A security entitlement is a property right that a person obtains in the contents of a security account with a "securities intermediary." A securities intermediary is defined as a clearing corporation, or a person, including a bank or a broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity (MCLA 440.8102(1)(n)). Generally, a security entitlement guarantees an entitlement holder a priority in the financial assets held in that account over the securities intermediary or the securities intermediary's creditors (MCLA 440.8503). UCC 8-501 establishes the rules for when security entitlement accrues as being when a securities intermediary does one or more of the following: (i) indicates by book entry that a financial asset has been credited to the person's securities account; (ii) receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person's securities account; (iii) becomes obligated under other law, regulation, or rule to credit a financial asset to the person's securities account (MCLA 440.8501(2)). The new Part 5 of UCC Article 8 also establishes the holder's specific rights in their securities accounts as against the broker's rights. b. Definition of a Security. The definition of a "security" was expanded to include the following: "An obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer and is all of the following: (i) Represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer. (ii) One of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations. (iii) Either of the following: (A) Is, or is of a type, dealt in or traded on securities exchanges or securities markets. (B) Is a medium for investment and by its terms expressly provides that it is a security governed by UCC Article 8." (MCLA 440.8102(1)(o)). c. Uncertificated Securities. The concept of uncertificated securities was not abandoned by the new Article 8. Instead the revised Article 8 simplifies the use of uncertificated securities by removing the requirement for the issuer to provide an "Initial Transaction Statement" at any time a transaction is registered on the issuer's books. The Initial Transaction Statement was then sent to both the transferor and the transferee. d. Attaching and Perfecting Security Interests in Securities and a Security Entitlement. The revised UCC Article 8 and the accompanying amendments to UCC Article 9 simplify the granting of security interests in securities and a security entitlement. All provisions relating to attachment and perfection of security interests are now in UCC Article 9. Introduced to Article 9 is the concept of an "investment property." An investment property includes securities, securities accounts, security entitlements, commodity contracts and commodity accounts (MCLA 440.9115(f)). By adding commodity contracts and accounts to the definition of investment property, the revised UCC Article 9 is broader than the revised UCC Article 8. Under the revised UCC Article 9, there are two ways to perfect a security interest in "investment property." The first method is by filing a standard financing statement in accordance with the laws of the jurisdiction where the securities certificate is located; in the issuer's jurisdiction in cases involving uncertificated securities; and in the securities intermediary's jurisdiction in cases involving a security entitlement (MCLA 440.9103(6)). Additionally, a security interest may always be perfected by filing a financing statement in accordance with the laws of the jurisdiction in which the debtor is located (MCLA 440.9103(f)). The second method of perfecting a security interest in investment property is to take control of the property (MCLA 440.9115(4)(a)). Control of an investment security is obtained by having possession of a certificate for certificated securities, and by registration on the books of the issuer for uncertificated securities (MCLA 440.8106). 3. Repeal of UCC Article 6-Bulk Sales. By Public Act 489 of 1998 (effective January 4, 1999) Michigan joined at least 35 other states in repealing UCC Article 6, commonly known as the "Bulk Sales Law" (MCLA 440.6101, et seq.). Bulk sales laws, such as UCC Article 6, were originally enacted to prevent a type of fraud on creditors which was thought to be common at the turn of the century. A typical example of the fraud involved a merchant who would buy inventory on credit, then sell the inventory to a third party and abscond with the sale proceeds, leaving the merchant's business creditors unpaid. UCC Article 6 generally required that a purchaser of a business or its inventory give notice to all creditors of the business if substantially all of the inventory of the business were being sold. The purpose of the law was to give unsecured creditors the opportunity to seek immediate payment, and if necessary, to seek a court's assistance in preventing the seller from absconding with the proceeds of the sale of the business. Noncompliance with the notice requirements resulted in a creditor of the seller being able to void the sale. In other words, a purchaser could become liable for all of the seller's business debts to the extent of the value of the assets purchased. Michigan's version of UCC Article 6 did not apply to every sale of a business. It applied only to enterprises whose principal business was the sale of merchandise from stock, including a restaurant, cafe, tavern, hotel, club, school, hospital, other establishment that dispense food, or any enterprise that manufacture what it sold. A sale of equipment was a bulk transfer only if it was made in connection with a bulk transfer of inventory. A buyer of a business covered by UCC Article 6, or of its inventory in bulk, was required to obtain a notarized list of creditors from the seller, to give notice to all of the seller's creditors identified on the list, and to maintain the list for six months after the sale took place. Stated reasons for the repeal include the fact that unsecured creditors of a seller in a bulk transfer are adequately protected under fraudulent conveyance legislation; secured creditors do not need Article 6 for protection; the bulk transfer law was a trap for unwary buyers who failed to comply with an unknown provision of law; the penalties for noncompliance were harsh; and the costs of compliance were high and added unnecessary transaction costs. The repealer provides that the rights and obligations that arose under Article 6 before the repeal remain valid and may be enforced as if Article 6 had not been repealed (1998 P.A. 489). 4. Euro Currency. Public Act 394 of 1998 and Public Act 395 of 1998 added two new sections to UCC Article 1 which enable an orderly transition to Euro conversion and insure continuity of contracts despite the change in currency. a. UCC Section 1-210. The new UCC Section 1-210 defines the "Euro" as the currency of participating member states of the European Union that adopt a single currency in accordance with the treaty on European Unions signed February 7, 1992 (MCLA 440.1210(1)(b)). The section defines "ECU" or "European Currency Unit" as the currency basket that is from time to time used as the unit of account of the European Union as defined in European Council Regulation No. 3320/94 (MCLA 440.1210(1)(a)). Section 1-210 also specifies that a Euro is a commercially reasonable substitution or substantial equivalent if the medium of payment of a contract, security or instrument is a currency that has been substituted or replaced by the Euro, and also if a medium of payment of a contract is the ECU. In both instances, the Euro could be used in determining the value of that currency, or tendered at the conversion rate specified by the Council of the European Union. b. UCC Section 1-211. Under the new UCC Section 1-211, the right to tender payment is not affected because a currency is replaced by the Euro, and the introduction of the Euro or tender of Euros under UCC 1-210 does not discharge or excuse performance under a contract, security or instrument or give a party the right unilaterally to alter or terminate a contract, security or instrument (MCLA 440.1211(1) and (2)). The new UCC Sections 1-210 and 1-211 apply to all contracts, securities, and instruments, including contracts with respect to commercial transactions, and are not displaced by any other laws of the State of Michigan (MCLA 440.1211(5)). This remains true regardless of whether the contract, security, or instrument was entered into or issued before, on, or after the effective date of the new UCC Sections 1-210 and 1-211 (MCLA 440.1211(7)). B. Uniform Trade Secrets Act. On December 29, 1998, Governor Engler signed the Uniform Trade Secrets Act, 1998 PA 448 (HB5312). According to the Michigan Senate Committee report on the Act, the Act displaces conflicting State law providing civil remedies for misappropriation of trade secrets and repeals an act providing a criminal penalty for the theft or embezzlement of a trade secret (1968 PA 329, MCLA 752.771-752.773 was repealed). The Act allows courts to enjoin actual or threatened misappropriation of a trade secret. The injunction is to be terminated when the trade secret has ceased to exist. However, the Act allows for an injunction to be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from misappropriation. Additionally, the Act allows courts to condition future use of a trade secret upon payment of a reasonable royalty if a court determines that it would be unreasonable to prohibit future use of the trade secret. The reasonable royalty would be payable for no longer than the period of time the use could have been prohibited. In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order. Finally, the Act provides that a complainant is entitled to recover damages for misappropriation except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable. Damages can include both the actual loss caused by misappropriation and unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. The Act defines a trade secret as information, including a formula, pattern, compilation, program device, method, technique, or process that is both of the following: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Act defines misappropriation as either of the following: (i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; (ii) disclosure or use of a trade secret of another without express or implied consent by a person who did one or more of the following: (a) used improper means to acquire knowledge of the trade secret; (b) at the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it, acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or derived from or through a person who owed a duty to the person to maintain its secrecy or limit its use; (c) before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of its had been acquired by accident or mistake. An action for misappropriation must be brought under the Act within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. A continuing misappropriation constitutes a single claim under the Act. C. Michigan Business Corporation Act. No amendments during the past year. D. Michigan Non-Profit Corporation Act. Public Act 445 of 1998 added a new section to the Michigan Non-Profit Corporation Act providing that a non-profit corporation organized for purposes described in Section 501(c)(3) of the Internal Revenue Code of 1986 may include a provision in its Articles of Incorporation allowing one or more directors on its board to be 16 or 17 years of age as long as that number does not exceed one-half of the total number of directors required for a quorum for the transaction of business (MCLA 440.2501a). The House Legislative Analysis of this amendment cited Attorney General Opinion 5893, issued May 8, 1981, which holds that people younger than 18 years of age may not incorporate a profit of non-profit corporation, or serve as a director or officer of a profit or non-profit corporation. E. Michigan Limited Liability Company Act. No amendments during the past year. F. Model Business Corporation Act. On June 13, 1998, the Committee on Corporate Laws of the Business Law Section (American Bar Association) amended the Model Business Corporation Act ("Model Act") revising the standard of conduct and liability of directors. The amendments alter Sections 8.30 and 8.33 and include a new Section 8.31. The amendments are printed in "The Business Lawyer," Vol. 53, No. 1, November, 1997, with final changes in "The Business Lawyer," Vol. 53, No. 3, May, 1998. Additionally, the Committee is discussing various amendments to the Model Act, including provisions to (a) allow for equal procedural requirements for different types of mergers and asset sales (fundamental changes in corporate structure), (b) modify appraisal rights, (c) set the standards of conduct for officers, and (d) establish informational rights of shareholders and directors and certain notice requirements. Details of these proposals can be obtained from the Committee by contacting the Committee Chair, Larry P. Scriggins, Piper & Marbury, LLP, 36 South Charles Street, Baltimore, Maryland 21201. G. Fraudulent Transfer Act. On December 29, 1998, Governor Engler signed into law Public Act 434 of 1998, which became effective on December 30, 1998, enacting the Uniform Fraudulent Transfer Act (the "UFTA") and simultaneously repealing the Uniform Fraudulent Conveyance Act, which had been the governing law on fraudulent conveyances in Michigan since 1919. The UFTA specifies circumstances under which a creditor can have a transfer made by a debtor set aside as either intentionally or constructively fraudulent with respect to creditors. The UFTA will accomplish three principal things. First, Michigan fraudulent conveyance law will become more consistent with the fraudulent conveyance provisions of the Bankruptcy Code, 11 USC 101 et seq. Second, purchasers from lenders who have foreclosed on collateral will be better protected under the UFTA. Third, for the first time, a clear statute of limitation on fraudulent conveyance claims has been established. 1. Fraudulent Transfer. In general, under the UFTA a transfer made or obligation incurred by a debtor is fraudulent as to a creditor (whether the creditor's claim arose before or after the transfer was made or the obligation was incurred) if the debtor made the transfer or incurred the obligation: "(a) with actual intent to hinder, delay or defraud any creditor; or (b) without receiving a reasonably equivalent value in exchange, where the debtor: (i) was engaged or was about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction, or (ii) intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due." (MCLA 566.34). A transfer or obligation is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange and the debtor was insolvent at the time or became insolvent as a result of the transfer or obligation (MCLA 566.35). 2. Reasonable Equivalent Value. The concept of "reasonably equivalent value" in the UFTA replaces the "fair consideration" standard of the prior Act The term "fair consideration" was expressly defined to require good faith on the part of the non-debtor party to the transaction. This good faith requirement is notably absent from the UFTA's definition of value. However, the UFTA does allow the transferee or obligee to show good faith as a defense after a creditor establishes that a fraudulent transfer has been made (MCLA 566.38). In addition to providing rules for setting aside transfers, the UFTA provides specific protection against the setting aside of a transfer if an asset is acquired from a debtor pursuant to a "regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust, or security agreement" (MCLA 566.33(2)). 3. Insiders. The UFTA also adds a new provision with respect to transfers made to "insiders." Specifically, a transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer is to an insider of the debtor, for an antecedent debt, the debtor was insolvent at the time, and the insider had reasonable cause to believe that the debtor was insolvent (MCLA 566.35(2). "Insider" is defined in much the same way as in the Bankruptcy Code, 11 USC 101(31), and includes a relative, a director or officer of a debtor, a partner, or a person in control of the debtor (and, in some instances, relatives of the foregoing) (MCLA 566.31(g)). Note that under this provision regarding insiders, a transfer may be set aside even if there is no intent to defraud and the debtor received reasonably equivalent value in exchange. There are, however, certain defenses that may be asserted by the insider. For example, a transfer may not be set aside to the extent that the insider gave new value (not secured by a valid lien) to the debtor after the transfer occurred, or the transfer was made in the ordinary course of business or financial affairs of the debtor and insider, or was made in a good faith effort to rehabilitate the debtor and the transfer secured present value given as well as an antecedent debt (MCLA 566.38(b)). 4. Statute of Limitations. The UFTA establishes an express statute of limitations period of six years after the claim accrues, and one year for actions brought with regard to an insider under Section 5(2) of the UFTA (MCLA 566.39). The six year limitations period in Michigan may be extended up to two years after discovery by a defrauded creditor if the person who is liable on the claim fraudulently conceals the existence of the claim. H. Securities Laws. 1. Securities Litigation Uniform Standards Act. On October 13, 1998, the Securities Litigation Uniform Standards Act of 1998 (Pub. L. No. 105-353 (1998)) was passed by the U.S. House and Senate. The Act was signed by the President on November 3, 1998. The primary purpose of the Act is to prevent plaintiffs' lawyers from bypassing the provisions of the Private Securities Litigation Reform Act of 1995 (Pub. L. No. 104-67 (1995)) by bringing cases in a state court rather than federal court. The purpose of the Private Securities Litigation Reform Act was to curtail what Congress felt was excessive filing of securities fraud class action suits in cases where there is a significant change in an issuer's stock price, where deep pockets are to be tapped, abuse of the discovery process, and manipulation by plaintiffs' lawyers of their consumer clients. The Uniform Standards Act accomplishes its purpose by providing for complete preemption of state law in relation to any "covered class action" alleging fraud or manipulation in connection with a "covered security" (15 U.S.C. § 77p(b)). Additionally, the Uniform Standards Act provides each defendant with the right to remove the entire case to federal court if a "covered class action" is brought in a state court (15 U.S.C. § 77p(c)). A "covered security" is generally any security listed on a national exchange, or issued by a registered investment company (15 U.S.C. § 77r(b)(1)(A)). A "covered class action" is defined as any securities fraud lawsuit seeking damages on behalf of more than 50 persons where questions of law or fact common to those persons predominate (15 U.S.C. § 77p(f)(2)). Exempted from the Uniform Standards Act are the following actions which may be brought in state court: "(i) derivative actions brought on behalf of the corporation; (ii) challenges to an issuer's purchase or sale offer made exclusively to its equity shareholders; (iii) challenges to an issuer's statements regarding certain corporate governance issues, including proxies and shareholder voting decisions, tender or exchange offers, and dissenters' or appraisal rights; and (iv) disputes between parties to indenture trust agreements." (15 U.S.C. §77p(d)). 2. Plain English Rules. The Securities and Exchange Commission ("SEC") has adopted Rule 421(d) (17 C.F.R. §230.421(d) (1988)) which requires issuers to write cover pages, the summary section, and the risk factors section of their prospectuses in plain English. The SEC outlines six basic plain English writing principles: (i) short sentences, (ii) definite, concrete, everyday language, (iii) active voice, (iv) tables or bullet lists for complex material, when possible, (v) no legal or highly technical terms, and (vi) no multiple negatives. Additionally, the SEC amended Rule 421(b) (17 C.F.R. §230.421(b)) to provide issuers with guidance as to how to prepare a clear, concise and understandable prospectus. Under the Rule, issuers must use the following techniques when drafting a prospectus: (i) present information in clear, concise sections, paragraphs, and sentences; (ii) use descriptive headings and subheadings; (iii) avoid reliance on defined terms or glossaries; and (iv) avoid legal and technical terminology. A note accompanying Rule 421(b) lists certain practices that issuers should avoid, such as (i) overly complex or legalistic presentations; (ii) boilerplate explanations; (iii) information copied from legal documents; and (iv) repetitive disclosures (17 C.F.R. § 230.421(b)). 3. Year 2000 Disclosures. Effective August 4, 1998, the SEC issued an interpretive release to provide additional guidance on the disclosure obligations regarding Year 2000 liability issues (Securities Act Release No. 7558, 63 Fed. Reg. 41,398 (1998). In general, an issuer should make a Year 2000 disclosure if its Year 2000 assessment has not been completed or if it is determined that a Year 2000 problem may have a material adverse affect on its business, results of operations, or financial condition without taking into account the company's efforts to avoid the consequences. The Year 2000 disclosure should describe the company's state of readiness, cost to address the problem, risks associated with the problem, and its contingency plans. The interpretive release contains further details which should be reviewed prior to making a Year 2000 disclosure. I. Real and Personal Property. 1. Land Contract Mortgages. On June 3, 1998, Public Act 106 of 1998 (MCLA 565.356-361) was passed allowing for the creation, recording and enforcement of a mortgage granted against a land contract. According to the House Legislative Analysis, the Act was in response to legal uncertainties previously faced when attempting to obtain a mortgage on a land contract such as how to document the transaction, how to record the mortgage lien, and how to enforce a default. The Act allows either a buyer or seller of property under land contract to grant a land contract mortgage to secure any debtor obligation that could have been secured under a standard real estate mortgage (MCLA 565.357). Unless otherwise provided by the parties, a land contract mortgage encumbers all of the vendor's or vendee's interest that a mortgage, whether real, personal, or mixed, in the same manner and to the same extent as a real estate mortgage (MCLA 565.357(3)). Any document that would suffice to constitute a real estate mortgage upon an interest in real property is sufficient to create a land contract mortgage upon the vendor's or vendee's interest (MCLA 565.358(1)). A land contract mortgage filed in the same manner as a standard real estate mortgage becomes a perfected security interest with priority determined on a first to file basis (MCLA 565.358(4)). A land contract mortgage may be enforced in accordance with any existing procedure for enforcement of a real estate mortgage, including foreclosure by advertisement and judicial foreclosure (MCLA 565.359(1)). 2. Marina and Boatyard Storage Lien Act. Public Act 236 of 1998 (MCLA 570.301, et seq.) provides for liens on water craft for repair, service, or storage in marinas, boatyards, and repair facilities. The marina and boatyard storage lien is a possessory lien granted in favor of the owner of a facility for storage, rent, labor, materials, supplies and other charges, and for expenses reasonably incurred in the sale of the property pursuant to the Act. Once the property subject to the lien has been removed from the owner's facility, the owner's right to a marina and boatyard storage lien expires (MCLA 570.303). The Act sets forth a formula for calculating the amount of the lien for purposes of extinguishing the lien (MCLA 573.303). The Act establishes fairly standard lien enforcement provisions once the amount due is over 180 days past due (MCLA 570.305). J. Taxation. 1. IRS Restructuring and Reform Act of 1998. On July 22, 1998 Pub. L. No. 105-206 was passed providing for reorganization of structure and management of the IRS, electronic filing provisions, taxpayer protection and rights, a change in the capital gains holding period, certain changes to corporate reductions, changes concerning revenue offsets, and certain technical corrections. The following summarizes the provisions of the Act which are of interest to business lawyers. a. New Capital Gains Holding Period. Under the Taxpayer Relief Act of 1997, the capital gains rate was lowered to 20% for capital assets held more than 18 months, and 28% for capital assets held for more than 1 year but less than 18 months. Under the 1998 Act, the 28% rate was removed such that a 20% tax is charged for gains on the sale or exchange or any capital asset held more than one year. The provision applies to amounts properly taken into account on or after January 1, 1998 (Internal Revenue Code Section 1(h)(5) and (13)). b. Deductibility of Meals Provided for the Convenience of the Employer. All meals furnished to employees at a place of business for the convenience of the employer are treated as provided for the convenience of the employer under Section 119, but under IRC Section 119, if more than one-half of employees to whom such meals are furnished on the premises are furnished such meals for the convenience of the employer under IRC Section 19. If these conditions are satisfied, the value of all such meals are excludible from the employee's income and fully deductible to the employer (IRC Section 119(b)(4)). K. Delaware Law. 1. Delaware General Corporation Law ("DGCL"). The DGCL was amended by 1998 Delaware Laws Chapter 339 (Senate Bill 331) to make several technical corrections, eliminate gender specific references, and to make a few substantive amendments. The substantive amendments include, in part, the following: a. Share Redemptions. Section 151 was amended to allow for any share redemption transaction if immediately following the redemption the corporation has outstanding one or more shares of stock that together have full voting powers. The requirement that after the redemption there must have been voting stock which was not subject to redemption was eliminated. b. Security Interest in Shares. Section 324 was amended to expand the ability of certificated securities in a Delaware corporation to be pledged by establishing that the provisions Delaware UCC Section 8-112 (the new UCC Article 8) govern all security interests in certificated securities. 2. Delaware Limited Liability Company Act ("DLLCA"). 1998 Delaware Laws Chapter 341 provided for several amendments to the DLLCA including, in part: a. Admission of New Members. Section 18-101(7)(a)(2) was amended to make it easier to admit new members by deleting unnecessary requirements. b. Mergers. Section 18-209 was amended to confirm that mergers involving more than one entity can be done, and to make technical changes to certain procedural requirements for a merger. c. Domestication. Section 18-213 was amended to provide that, if permitted under the company agreement, a limited liability company may be transferred or domesticated or continued to a jurisdiction, other than any state, without the approval of all of the members. 3. Delaware Revised Uniform Limited Partnership Act. 1998 Delaware Laws Chapter 340 (Senate Bill No. 312) provided for several amendments to the Delaware Revised Uniform Limited Partnership Act, including, in part: a. Domestication. Section 17-216 was amended to provide that, if permitted under a partnership agreement, a limited partnership may be transferred or domesticated or continued to a jurisdiction, other than any state, without the approval of all of the partners of the limited partnership. b. Voting Rights. Section 17-302 was amended to add a new subsection which confirms that the only voting rights of a limited partner are voting rights relating to the amendment of a partnership agreement, voting rights set forth in the Act, voting rights specifically provided by agreement, and voting rights as determined by a general partner. III. CASE LAW DEVELOPMENTS A. General Corporate. 1. A Plaintiff who is a Minority Shareholder and Director of a Corporation may not Bring a Derivative Suit Against a Corporation as to Actions Which the Plaintiff Approved While he was a Director. The plaintiff in Michael L. Wallad v Access Bidco, Inc., et al., ____ Mich App ____, ____ NW2d ____, Docket No. 207585, 1999 WL 452118 (1999) was a minority shareholder and director of Access Bidco during all but one of the transactions which the plaintiff challenged in a derivative suit against the corporation. The plaintiff voted in favor of decisions that allowed the disputed transactions to occur (including the amount of salaries paid and a bonus pool in question). The plaintiff claimed that he objected to the practices at issue when he spoke privately with other directors and that he acquiesced to the actions in question under threat of losing his job. Stating that the plaintiff never raised his concerns at board meetings or requested that the directors act differently with regard to the alleged improper transactions, the court disallowed plaintiff's claims. Additionally, citing the general rule that directors of a corporation owe fiduciary duties to the stockholders and are bound to act in good faith for the benefit of the corporation, the court opined that "[i]f plaintiff failed to act for the benefit of [defendant-corporation] because of his personal interest in his job, he himself has breached his fiduciary duty to [defendant-corporation's] shareholders. We will not reward plaintiff for failing to uphold his fiduciary duties in order to protect his personal interest, i.e. his job. His inaction at the board meetings is not excusable." Id. at __. (Note that the appellate court in Wallad reversed the trial court's granting of summary disposition regarding plaintiff's breach of employment contract claim.) 2. Creditor Notice of Dissolution Must Be Given After Certificate of Dissolution Has Been Filed. Freeman v Hi Temp Prods, Inc, 229 Mich App 92, 580 NW2d 918 (1998) involved 38 consolidated cases seeking to recover damages for asbestos-related injuries. The court cases were filed after October 25, 1994. Defendant had submitted a certificate of dissolution with the Bureau of Corporations and Securities on October 14, 1993, but it was not filed with the agency until October 25, 1993. During the 11 day interim period, defendant sent notices to its creditors including all the plaintiffs named in this suit. Defendant further gave notice by publishing its dissolution in the local newspaper. Michigan law protects dissolved corporations from liability from future claims. Specifically, MCL § 450.1841a provides: "The dissolved corporation may notify its existing claimants in writing of the dissolution at any time after the effective date of the dissolution. * * * A claim against the dissolved corporation is barred if either of the following applies: (a) If a claimant who was given written notice under subsection (1) does not deliver the claim to the dissolved corporation by the deadline." The Court of Appeals affirmed the lower court findings that: (1) the effective date of the dissolution was October 25, 1993 not October 14 when the filing was accepted; (2) the statutory bars from corporate liability were not available for defendant because it had given notice before the effective date of its dissolution; and (3) the court declined to accept defendant's substantial compliance argument. 3. Absent Cause to Pierce the Corporate Veil, a Parent Corporation Is Not Liable under CERCLA for Actions of a Subsidiary. United States v Bestfoods, et al, 118 S Ct 1876 (1998). The United States brought an action under § 107(a)(2) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) against, among others, respondent, CPC International, Inc., which was the parent corporation of the defunct Ott Chemical Company, for the costs in cleaning up industrial waste generated by Ott's chemical plant. Section 107(a)(2) of CERCLA allows suits to be brought against "any person who at the time of the disposal of any hazardous substance owned or operated any facility." The issue for the trial court was whether the parent corporation, CPC, had owned or operated Ott's plant within the meaning of § 107(a)(2). While the district court held the parent corporation liable under the theory that the parent had exerted power or influence over its subsidiary, the Sixth Circuit reversed, holding that: "The parent corporation's liability for operating a facility ostensibly operated by its subsidiary depends on whether the degree to which the parent controls the subsidiary and the extent and manner of its involvement with the facility amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary." Id. at 1879. Under this test, the court decided that the parent corporation, CPC, was not liable for controlling Ott's actions because the two corporations maintained "separate personalities." The Supreme Court affirmed the Court of Appeals' findings stating that only when the corporate veil of a parent corporation is pierced may that parent be charged with derivative CERCLA liability for its subsidiary's actions. The Supreme Court did note that, while not holding the parent liable under a corporate veil theory, CERCLA liability could be imposed directly on the parent corporation with proof that the parent was operating the facility owned by its subsidiary. While the Supreme Court agreed with the Court of Appeals' rejection of the district court's analysis, the Supreme Court felt that the Court of Appeals erred in limiting direct liability under CERCLA. The Supreme Court posed the issue as not whether the parent operates the subsidiary, but rather whether it operates the facility, and that operation is evidenced by participation in the activities of the facility, not the subsidiary. It further stated that control of the subsidiary, if proven extensive enough, gives rise to indirect liability under the state's piercing doctrine, not direct liability under CERCLA. The Supreme Court further stated that the Court of Appeals stopped short in its analysis when it confined its examples of direct parental operation to joint ventures and declined to find at least the possibility that CPC was directly liable. As a result, the Supreme Court vacated the Court of Appeals' judgment and remanded the case. 4. A Parent Corporation Cannot Be Held Liable for Tortiously Interfering with the Business or Contractual Relations of its Wholly-owned Subsidiary. Speroni, S.P.A. v Perceptron, Inc, Case No. 98-72259 (ED Mich 1998). Plaintiff Speroni filed a complaint against Perceptron on two counts. The first count alleged that Perceptron had tortiously interfered with Speroni's business relationship or expectancy thereof between Speroni and its customers. Count II alleged tortious interference with the contractual relationship which existed between Speroni and Perceptron, B.V., which is a wholly-owned subsidiary of Perceptron and is not a party to this suit. Speroni is an Italian corporation, and Perceptron is a Michigan corporation with its principal place of business in Plymouth, Michigan. The court granted summary judgment on the first count finding that no reasonable jury could find that Perceptron had submitted the alleged bid which was the basis of the claim. Count II was based on whether, under Michigan law, a parent corporation can ever be held liable for tortiously interfering with the business or contractual relations of its wholly-owned subsidiary. The law in Michigan requires that the intervening party be a third party to the contract. Therefore, the court had to decide whether a parent corporation qualifies as a third party capable of interfering. In Copperweld Corp v Independence Tube Corp, 467 US 752 (1984), the Supreme Court decided that a parent and its wholly-owned subsidiary could not conspire together under the Sherman Act because a parent and its wholly-owned subsidiary have a complete unity of interest, meaning that their objectives are common. "Their general corporate actions are guided or determined not by two separate corporate consciousnesses but one. They are not unlike a multiple team of horses drawing a vehicle under the control of a single driver * * * In reality, a parent and a wholly-owned subsidiary always have a unity of purpose or common design." Id. at 771. Using that rationale, the Speroni court held that Perceptron had a unity of interest with B.V. which precludes it from being considered a third party to the contract between Speroni and B.V. Therefore, Perceptron cannot be a third party intervenor liable for contractual tortious interference. 5. Choice of Law Principles. McLewee v Wharton, 19 F Supp 2d 766 (WD Mich 1998). This case involved a defendant Michigan corporation that was in the business of selling bibles and religious books. Plaintiff alleges that defendants, Gary and Hazel Wharton, are individuals who reside in Michigan and who do business through a de facto partnership called Omni Communications. In June 1980, plaintiff signed a Trade Sales Representation Agreement with defendants. In June 1997, plaintiff was terminated by defendants when he refused to sign a new agreement because, under the agreement, plaintiff believed defendants were avoiding paying employment taxes. Count II of plaintiff's complaint alleges that the Trade Sales Representation Agreement was illegal under Michigan state law because it contained an illegal anticompetition covenant which prevented sales representation of publishers represented by Omni within a year of termination with the exception of World Bible Publishers. Plaintiff also accused defendants of anticompetitive conduct under an illegal agreement with World Bible Publishers in which World Bible Publishers agreed to not hire plaintiff within one year of the termination of his relationship with Omni. Defendants filed a motion for choice of law ruling as to the anticompetition covenant. Defendants asserted that the law of Tennessee governs the agreement, whereas plaintiff asserted that the law of the State of Michigan governed. This determination was important because, under Tennessee law, the covenant would be legal. Under Michigan law in 1980, the covenant would be void as against public policy. In 1986, Michigan passed the Michigan Antitrust Reform Act (MARA), MCL § 445.787. Under this Act, past Michigan law prohibiting reasonable anticompetitive provisions in contracts was repealed. The Act contains a savings clause which makes the Act only applicable to contracts and agreements entered into after March 29, 1985. The court held that Michigan follows the Restatement approach to the choice of law in contract disputes. Under the Restatement: In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the applicable law include (i) the place of contracting, (ii) the place of negotiation of the contract, (iii) the place of performance, (iv) the location of the subject matter of the contract, and (v) the domicile, residence, nationality, place of incorporation and place of business of the parties. Restatement of Law (2nd of Conflicts of Law, § 188). In applying these principles, the court determined that Michigan state law governed the contract. The factors considered were: the contract was negotiated by telephone in both Michigan and Tennessee, the contract was signed in both Michigan and Tennessee and was last signed in Tennessee, plaintiff resides in Tennessee and defendants reside in Michigan, plaintiff performed his share of the contract by selling books throughout the southeastern United States, and defendants performed their share of the contract by mainly sending checks to plaintiff for services performed from Michigan to Tennessee. The fact that Michigan has a special interest in enforcing its law since the nonenforcement of the covenant would violate the public policy announced in the former MCL § 445.761 was a continuing factor as well. In its final analysis, the court ruled that Michigan law governed because it "bears a closer relation to the subject matter of the representation contract and that Michigan law should control enforcement of the Trade Sales Representation Agreement." The covenant was held to be illegal and void under applicable Michigan law. B. Delaware Cases. 1. Preferred Stockholders Right to a Class Vote on a Merger. In Elliott Associates, LP v Avatex Corp, 715 A2d 843 (Del 1998) the Delaware Supreme Court reversed the Court of Chancery and held that preferred stockholders have the right to a class vote on a merger where (a) the certificate of incorporation expressly provides such a right in the event of any "amendment, alteration or repeal, whether by merger, consolidation or otherwise" of any of the provisions of the certificate of incorporation, (b) the certificate of incorporation that provides protections for the preferred stock is nullified and thereby repealed by the merger, and (c) the result of the transaction would materially and adversely affect the rights, preferences, privileges or voting power of those preferred stockholders. The merger proposed involved Xetava Corp. (Xetava), Avatex's wholly-owned subsidiary which was created one day prior to Avatex announcing that it intended to merge with Xetava. The surviving corporation would be Xetava, and the merger would have the effect of eliminating Avatex's certificate of incorporation and all the rights and privileges it outlined for its preferred stockholders. Most importantly, Avatex preferred stock would be converted into the right to receive common stock in Xetava. Under the Avatex certificate of incorporation "[t]he amendment, alteration or repeal, whether by merger, consolidation or otherwise," of any of the provisions of the preferred stock required a class vote of the preferred stockholders. The preferred stockholders alleged that this provision provided them with a class vote on the merger. The Court of Chancery disagreed and granted defendants judgment on the pleadings. The Supreme Court reversed. The Supreme Court stated the question raised by the appeal was whether, as a matter of law, the Avatex merger constituted an "amendment, alteration or repeal" of the Avatex certificate of incorporation "by merger, consolidation or otherwise." Relying on the holding of the Delaware Court of Chancery in Warner Communications, Inc v Chris-Craft Industries, Inc, 583 A2d 962 (Del. Ch.), aff''d, 567 A2d 419 (Del. 1989), the Court of Chancery had held that it was only the conversion of the stock as a result of the proposed merger, not an "amendment, alteration or repeal" of the certificate, that adversely affected the preferred stockholders. The Supreme Court disagreed. The Supreme Court noted that the Warner decision construed language in a certificate of incorporation that lacked the phrase "whether by merger, consolidation or otherwise." Here, the certificate of incorporation included that phrase, which must be given meaning under traditional canons of contractual interpretation. Since the Avatex certificate of incorporation would not survive the merger, the Avatex merger results in the "repeal by * * * merger" of the protections granted to the preferred stockholders in the certificate. "The word repeal is especially fitting in this context because it contemplates a nullification, which is what defendants concede happens to the Avatex certificate [in the merger]." As a result, the Supreme Court concluded the preferred stockholders were entitled to a class vote on the merger. The Supreme Court then provided the following advice for future transactions: "The path for future drafters to follow in articulating class vote provisions is clear. When a certificate * * * grants only the right to vote on an amendment, alteration, or repeal, the preferred have no class vote in a merger. When a certificate * * * adds the terms "whether by merger, consolidation, or otherwise" and a merger results in an amendment, alteration, or repeal that causes an adverse effect on the preferred, there would be a class vote. When a certificate grants the preferred a class vote in any merger or in any merger where the preferred stockholders receive a junior security, such provisions are broader then those involved [here]." Id. at 855. 2. Deadhand Poison Pill Upheld. Carmody v Toll Brothers, Inc, 723 A2d 1180 (Del Ch 1998). The Delaware Court of Chancery declined to dismiss allegations that a shareholder rights plan adopted by the Toll Brothers, Inc. board of directors containing a so-called "deadhand" provision was both statutorily invalid and adopted in violation of the board's fiduciary duties under Delaware law. The focus of the litigation was on the "deadhand" poison pill provision of the Toll Brothers rights plan. A deadhand provision operates to prevent any directors of the subject company, except those who are in office on the date the rights plan is adopted or their designated successors, from redeeming the rights. It does this by permitting the rights to be redeemed only by the "Continuing Directors," defined as the members of the board of directors on the day the rights plan is adopted and their approved successors. Thus, if an insurgent replaces the directors with persons not approved by the directors in office on the day the rights plan is adopted or their designated successors, there are no directors who can redeem the rights. The board adopted the rights plan because, in the homebuilding industry of which the company was a part, the highly competitive nature made expansion through acquisition a reality. This environment brought with it the risk of a hostile takeover. In order to prevent such a takeover, the board resorted to the rights plan. Plaintiff, a stockholder of Toll Brothers, challenged the deadhand provision of the rights plan on both statutory and fiduciary grounds. Plaintiff raised two statutory arguments. First, plaintiff alleged that the deadhand provision created directors with different voting powers, i.e., those who can vote to redeem the rights plan and those who cannot, without an appropriate authorizing provision in the certificate of incorporation, violating § 141 (d) of the General Corporation Law. Second, plaintiff alleged that the deadhand provision divested a future board consisting of directors not approved by the present directors of the ability to redeem the rights, and thus interfered with those directors' statutory power to manage the business and affairs of the corporation without proper authorization in the certificate of incorporation, violating § 141 (a) of the General Corporation Law. Plaintiff also alleged that the adoption of the deadhand rights plan was a violation of the board's fiduciary duties because it either precluded or materially abridged the shareholder's right to wage a proxy contest to replace the board with directors committed to redeem the rights, and thus both impermissibly interfered with the shareholder franchise without a compelling justification. The court declined to dismiss any of these claims, finding each, if true, to state a claim upon which relief could be granted. The court stated that under § 141 (d), the voting rights of all directors are equivalent unless otherwise provided in the corporation's certificate of incorporation. Accordingly, the court found the allegation that the deadhand provision created distinctions between the voting powers of directors which were not authorized by the Toll Brothers certificate of incorporation to state a claim that such provisions were invalid under § 141(d) of the General Corporation Law. Likewise, the court noted that, under § 141 (a), the power to manage the business and affairs of the corporation is vested in the board of directors unless otherwise provided in the certificate of incorporation. As a result, the court found the allegation that the deadhand provision vested the power to redeem the rights in persons other than the Toll Brothers board of directors without authorization in the Toll Brothers certificate of incorporation to state a claim that such provisions were invalid under § 141 (a) of the General Corporation Law. The court also declined to dismiss plaintiff's claims that the adoption of the deadhand rights plan by the Toll Brothers board of directors was a breach of fiduciary duty. Since a rights plan is a defensive device, the directors have the initial burden of demonstrating that the plan is not coercive or preclusive. The court found plaintiffs allegations that the deadhand provision would either preclude a proxy contest altogether or would force shareholders supporting a hostile bid to vote for the incumbent directors opposing the bid to be sufficient to state a claim that the plan was both preclusive and coercive. The court found that the same allegations also supported a claim that the deadhand rights plan interfered with shareholder voting rights without a compelling justification in violation of the board's fiduciary duties. In a final footnote, the court emphasized that the deadhand provisions at issue were of unlimited duration and that some rights plans have deadhand provisions of limited duration and would receive different treatment by the court. The court cautioned that its opinion applies solely to deadhand provisions of unlimited duration. 3. Business Judgment Rule Governs Propriety of Rejection of Merger. Kahn v MSB Bancorp, Inc, 1998 Del Ch LEXIS 112, involved a class action suit brought by individual shareholders claiming that the board of directors of MSB Bancorp, Inc. (MSB) had breached its fiduciary duties by failing to adequately consider offers to purchase the company. The Court of Chancery held that a board's decision to reject an unsolicited merger proposal is to be reviewed under the business judgment rule, and rejected an argument that a board should be required to persuade the court that it has acted in good faith and with due care when it rejects a merger offer. MSB is a small local bank in upstate New York. Since 1989, MSB had a business plan to remain an independent community oriented bank. Their strategic plan also contemplated growth through acquisitions and branch expansions. In 1994, MSB engaged Bear Stearns to advise it on possible future acquisitions and to analyze its potential merger value. Bear Stearns prepared a valuation of MSB in the range of $35-$40 per share. In July and September of 1995, while MSB was negotiating with another bank to purchase certain of its branches, MSB received two unsolicited offers to merge with HUBCO, a bank holding company in New Jersey. Only the second offer contained a price, $35 per share, but contained no other terms. After considering Bear Stearns' analysis of the HUBCO proposals, the MSB board voted not to pursue the HUBCO proposals and to continue to pursue the branch acquisition. Certain MSB stockholders brought suit alleging that the MSB directors breached their fiduciary duties of care and loyalty in rejecting the HUBCO offers. Plaintiffs first argued that the MSB board's actions did not warrant the protection of the business judgment rule and urged the court to adopt a new rule, which would require a board to demonstrate that it acted in good faith and with due care in rejecting a merger proposal. The court declined to adopt this proposal, finding the application of the business judgment rule to the board's conduct "particularly appropriate." The court reasoned that since § 251 of the General Corporation Law authorizes the board of directors to enter into a merger with another company, it therefore implicitly permits the board to reject a merger opportunity. The court also found the evidence in the record insufficient to overcome the presumptions of the business judgment rule. The case is presently on appeal to the Delaware Supreme Court. C. Contracts. 1. Examination of the Specially Manufactured Goods Exception to the Statute of Frauds. In Webcor Packaging Corp v Autozone, Inc, 158 F3d 354 (6th Cir 1998), the defendant, Autozone, was involved in the business of selling after-market automotive parts and supplies throughout the United States. Autozone purchases "retail-ready" after-market automotive parts from a number of vendors and suppliers. Once sold by the Autozone vendor to Autozone, "retail ready" parts are prepackaged and ready to be placed on the shelf for consumers to purchase at Autozone's outlet stores. Plaintiff Webcor is involved in the commercial packaging business. Webcor had a business history with Autozone vendors to manufacture packaging for parts sold by Autozone under the trade name "Duralast." It was common for Autozone to refer its different vendors to Webcor as a possible manufacturer of the Duralast cartons, yet despite many referrals, there was no existing obligation to purchase from Webcor. The art work and other specifications that were affixed on Duralast cartons were provided to Webcor by Autozone. Prior to 1991, Webcor was in the practice of keeping a 30-day supply of Duralast cartons in order to meet vendor demands. On occasion, Autozone would purchase the Duralast cartons directly from Webcor, although it did not have a contractual relationship with Webcor. Due to tremendous growth and customer demand for the Duralast products, Webcor experienced an insufficient supply of the cartons and decided that it needed to increase its inventory from 30 days to 60 days. Before doing so, a Webcor representative contacted Autozone's manager and explained the inventory problem. Webcor wanted to increase its supply to 60 days, but needed some assurances from Autozone that it would "cover" payment for the 60-day inventory in the event it became obsolete. There was no signed writing evidencing the exchange between the two parties. In actuality, the Autozone Manager did not recall any telephone conversation with the Webcor representative regarding the 60-day guarantee on the Duralast cartons, and further stated that he had no authority to enter into an agreement with Webcor. In July 1993, Autozone instructed Webcor to stop manufacturing the Duralast packaging because Autozone had decided to change to a new brand name and to a new symbol. With this change, the Duralast cartons became obsolete. Webcor claims that interest on financing its manufacturer, as well as the cost of warehousing it, yields damages in the amount of $101,736.12. Although the district court held that the conversation between the two representatives evidencing the 60-day inventory guarantee had taken place, no signed written agreement between the two parties was found. The court, therefore, entered into what it called a straight-forward analysis of the specially manufactured goods exception to the statute of frauds. In its final analysis, the court concluded that Duralast cartons were not specially made for Autozone, and the statute of frauds precluded enforcing the alleged oral agreement. Webcor appealed. The Michigan statute of frauds states that a contract for the sale of goods priced over $500.00 must be evidenced by a writing. While that is the general rule, where a manufacturer produces special goods for a buyer, courts may permit evidence of the oral agreement at trial. MCL § 440.2201(1). The specially-manufactured goods provision applies: "if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicates that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement." MCL § 440.2201(3)(a). In determining whether goods are specially manufactured, courts traditionally look to the goods themselves under the Colorado Carpet test. The term "specially manufactured" refers to the "nature of the particular goods in questions and not to whether the goods were made in an unusual as opposed to the regular, business operation or manufacturing process of the seller." In essence, when there is only an alleged oral agreement, the proponent must convince the court that the goods themselves have some feature that makes them marketable only to the buyer. There must be evidence that the product has an uniqueness that is only marketable to the buyer. This court affirmed the district court's finding that the specially manufactured goods exception was inapplicable because the exception contemplates only a single buyer for the exception to apply and, under the facts, Webcor sold Duralast packaging to multiple buyers. While this court affirmed the district court's holding that the specially manufactured goods exception did not apply, this court also found another basis upon which to affirm. In reviewing its determination, the court reasoned that the traditional Colorado test had led to circular meaning in the case law and elected to apply a new analysis. The new analysis looks into several factors: (i) the course of dealings between the parties; (ii) the flow of the allegedly specially manufactured goods; (iii) the essence of the goods to be received by the alleged buyer; and (iv) the duty to compensate the manufacturer undertaken by or the existence of any right of repudiation of the alleged buyer. Applying these new factors, the Court of Appeals held that the Duralast cartons were not specially manufactured for Autozone. The course of dealing between the parties indicated that Webcor had a long relationship with the Autozone vendors and only rarely did Autozone directly purchase Duralast cartons from Webcor. Thus, the course of dealing indicates that Webcor formed agreements with many intermediate vendors but indirectly with Autozone. With respect to the flow of the goods, the cartons would flow from Webcor to the Autozone vendors and then to Autozone. This pattern, which was most common, indicates that Autozone was not the direct buyer of the cartons. In analyzing the third prong dealing with the essence of the goods, the court found that the essential goods to be received by Autozone under the arrangements were finished brake parts ready to be sold, not empty Duralast cartons. The cartons were part of the finished product, but they were not the complete purchase that Autozone bargained for. Finally, the court found that there was no duty to compensate the manufacturer, Webcor, because the alleged communication did not rise to such a level. 2. When a Contract Has an Integration Clause, Parol Evidence Is Not Admissible to Determine Whether a Contract Is Integrated. UAW-GM Human Resource Center v KSL Recreation Corp, 288 Mich App 486, 599 NW2d 411 (1998), involved a December 1993 contract which plaintiff entered into with Carol Management Corp (CMC) for the use of the Doral Resort & Country Club for a convention scheduled to take place in October 1994. The "letter of agreement" included a merger clause and stated that the agreement constituted "a merger of all proposals, negotiations and representations with reference to the subject matter and provisions." The letter of agreement did not include a provision requiring CMC to provide an all-employee unionized hotel. Plaintiff asserts that, during the negotiations of the agreement, plaintiff made it explicitly clear to the two representatives of CMC negotiating the contract that an all-unionized hotel was a prerequisite to signing the contract. The two CMC agents, Mr. Nix and Ms. Roush, agreed to the all-unionized requirement. Plaintiff provided the affidavits of both Nix and Roush which confirmed that, although the contract language did not reflect an all-unionized hotel provision, both agents were well aware that this was plaintiff's requirement and had agreed to comply. In December 1993, the hotel was sold to defendants who subsequently replaced all the employees with a non-unionized work force. When plaintiff learned that the hotel was no longer unionized, it canceled its contract and demanded a refund of its down payment. Defendants refused to refund the down payment, maintaining it as a portion of the liquidated damages allegedly owed to them pursuant to the contract. Plaintiff filed suit and asserted breach of contract, conversion and fraud. Defendants filed a counterclaim, and moved for summary disposition and enforcement of the liquidated damages clause. The trial court granted plaintiff's motion for summary disposition with respect to the breach of contract claim holding that there was a separate agreement requiring that the hotel employees be union represented. It also granted plaintiff's motion for summary disposition on the conversion and fraud claims. Defendants claim that the trial court erred in granting plaintiff's motion because, under the parol evidence rule, the evidence of a separate agreement providing that the hotel would have union employees at the time of the convention is inadmissible because the letter of agreement included an express merger clause. Specifically, the parol evidence rule states that: "Parol evidence of contract negotiations, or of prior or contemporaneous agreements that contradict or vary the written contract, is not admissible to vary the terms of the contract which is clear and unambiguous." The court further stated that, while the parol evidence rule restricts the admissibility of evidence that would contradict the terms of a contract, the rule does not prohibit the admissibility of evidence on the issue of whether a written contract is an integrated instrument and a complete expression of the parties' agreement. The court cited to both Corbin and Williston as standing for the proposition that, when a contract has an integration clause, parol evidence is not admissible to determine whether a contract is integrated because the written contract itself is complete. The court further supported its holding for defendant by stating that plaintiff had been in a position to include the all-unionized work force provision in the contract with CMC during negotiations but failed to do so. Defendant, on the other hand, was a successor to the contract and only had the contract on its face to guide its actions, and it was proper for defendant to retain plaintiff's deposit and seek liquidated damages. |
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