The filing of a federal bankruptcy proceeding prior to the foreclosure sale is generally considered to be the only way to stop a nonjudicial foreclosure in Georgia. However, if there are legal issues regarding whether a default has actually occurred under the terms of the underlying security deed being foreclosed, it may be possible to stop a threatened foreclosure sale by obtaining injunctive relief from a Georgia Superior Court prior to the foreclosure sale. We recently represented a client which owns a 192 room franchised hotel where the creditor attempted to foreclose on the property by alleging a default of a financial covenant in the underlying loan agreement.   We believed that there were significant legal issues surrounding the correct interpretation of the financial covenant and, alleging such issues, we sought a temporary restraining order enjoining the advertised foreclosure sale. We were successful in obtaining both a temporary restraining order and then an interlocutory injunction (through trial) to stop the creditor from foreclosing on the hotel property while the issue of whether a default actually occurred was being litigated.  During the litigation, our client continued to make all required debt service payments to the creditor.

While our litigation team was holding off the creditor in court, our business attorneys worked with the client and third-party lending sources to arrange for a refinancing of the underlying debt. Upon the successful refinancing of the debt, the creditor was paid in full and the litigation was dismissed. The threat to our client’s property posed by a predatory lender was stopped in its tracks by our successful litigation and business execution and without having to put the property into a bankruptcy proceeding.

In cases where a monetary default has occurred, filing bankruptcy will probably be the only way to stop a foreclosure sale. However, where nonmonetary defaults are alleged, we may be able to help you enjoin a foreclosure sale without filing a bankruptcy proceeding by pursuing the litigation and business strategy discussed in this blog.

Craig Wagner

Gordon Berger

As always your trusted legal resource.

Justin Daniels

In summary, the rule requires covered employers to notify employees of their rights to engage in organized activities (concerted activity) and apprises such employees of their rights to raise complaints concerning terms and conditions of employment. For instance, the notice states that employees have a right to:

• Organize a union to negotiate concerning wages, hours, and other terms and conditions of employment.

• Form, join or assist a union.

• Bargain collectively through representatives of employees’ own choosing over wages, benefits, hours, and other working conditions.

• Discuss terms and conditions of employment or union organizing with co-workers or a union.

• Take action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, and seeking help from a union.

• Strike and picket, depending on the purpose or means of the strike or the picketing.

• Choose not to do any of these activities, including joining or remaining a member of a union.

The notice requires employers subject to the NLRA to post a notice in 11×17 format much in the same way that other rights have to be posted, such as wage and hour and EEO notices. However, it also requires every covered employer to post the notice on an internet or intranet site if personnel rules and policies are customarily posted there. Employers are not required to distribute the posting by email, Twitter or other electronic means, however.

The NLRB rule also states that failure to post the notice may be treated as an unfair labor practice (ULP) under the NLRA. If an employer knowingly and willfully fails to post the notice, the failure may be considered evidence of unlawful motive in an ULP case involving other alleged violations of the NLRA. Note that the NLRA, and this rule, apply to private employers that have an impact on interstate commerce. The NLRA specifically excludes public employers, railway and airline employers, and people who are employed as agricultural laborers. The law covers a retail or service establishment with annual gross receipts of at least $500,000. It also covers manufacturing companies that ship at least $50,000 worth of goods across state lines, or that purchase at least $50,000 worth of goods from out of state.

A copy of the poster can be found here.

The effective date got postponed again when the National Association of Manufacturers brought a challenge to the rule in a U.S. District Court in Washington, DC. On March 2, 2012, U.S. District Court Judge Amy Berman Jackson ruled that the NLRB has the authority to implement the rule, although the court struck down the provision that would have made noncompliant employers guilty of an automatic ULP.

A copy of the court ruling can be found here.

Gordon Berger

The Georgia General Assembly has shown some interest in mitigating some of the negative effects of this new borrower-lender relationship.  Senate Bill 448 entitled “Small Business Borrower Protection Act” has been read and referred to committee in the Georgia Senate.  The Bill prohibits any successor creditor (meaning anyone but the original creditor) from collecting from guarantors more than the amount that the successor paid for the loan plus interest from the date of purchase.  The Bill has a long way to go before becoming law, but passage would provide immediate relief for many guarantors struggling to deal with zealous successor creditors.

Most importantly, borrowers and guarantors need to be aware of the new borrower-lender paradigm since it dramatically alters the options available when loans are in default.

John Thornburgh

Overreaching by a franchisor can have a price.  Haircutting franchisor Fantastic Sams learned this lesson the hard way last month.  Judge Clay Land of the United States District Court for the Middle District of Georgia entered summary judgment in favor of WJR clients Maxie Enterprises, Inc. and Paul Rubin and against Fantastic Sams with regard to Sams’ form of restrictive covenants in Georgia, finding the covenants unenforceable as a matter of law.   Fantastic Sams v. Maxie, et al., Case No. 3:11-CV-22, U.S.D.C., Middle District of Georgia, Docket No 34.  Sams had been warned at a prior hearing by Judge Land that he was inclined to grant summary judgment on counterclaims by Maxie and Rubin, striking down Sams’ covenants not to compete.   Sam’s now faces a situation where every single Georgia franchisee with similar contract language may now be able to leave the franchise system without fear of being ordered not to compete.

WJR’s clients “defranchised” a Sams unit in Watkinsville, Georgia and rebranded it as a local haircutting salon.   Sams filed suit to stop the operation of the independent salon, citing the Franchise Agreement’s covenant not to compete, and sought an interlocutory (interim) injunction while the lawsuit was pending.  Sams withdrew its request for a preliminary injunction after some strong words from Judge Land questioning Sams’ wisdom in pursuing it at the time.   Judge Land also suggested that Sams consider withdrawing the part of its case seeking a permanent injunction.   Sams doggedly pursued its injunctive claims nonetheless.

Judge Land held Sams covenants unenforceable because they were overbroad in that they kept Mr. Rubin from serving as owner, employee, etc. and “in any other capacity” in any business engaged in the sale or rental of products or services the same as or similar to those of the Fantastic Sams system, and because the covenant would have been effective for roughly nine years after the termination of the franchise in 2010.   The covenants were deemed far too broad and therefore unenforceable under Georgia law.

The lesson for franchisors and employers is don’t try to restrict too much.  Even with recent changes to Georgia law effective for contracts signed after May 11, 2011, it is safer to use a tailored approach when drafting restrictive covenants.   Choose a time period that is reasonable and fair and only restrict the franchisee or employee from doing things which require management or sales skills which he or she was using before leaving the system or your employ.   Consider using covenants not to solicit customers, which are narrower than broad covenants not to compete.   If you rely on a poorly drafted covenant, you risk having no protection at all.

Mike Rosenthal

Peco Foods attempted to change its accounting methods to take advantage of the accelerated depreciation.  Unfortunately for Peco Foods, neither the IRS nor the Tax Court agreed, determining that the written asset purchase agreement superseded an attempt to later implement the residual method of Code Section 338(b)(5).  Peco Foods Inc. et. al., TC Memo 2012-18.

Don’t overlook something as simple as purchase price allocation on the front end.  Make sure that you and your advisors fully understand the impact of the purchase price allocation before closing on the acquisition.

A.J. Rollins

Justin Daniels

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