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Commercial And Business Law Matters, Real Estate, Taxation, Estate Planning And Personal Injury In Littleton, Colorado

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Our Success Stories

Many times, real-world examples of the work we do are the most telling. Here are some cases handled by one of our founding attorneys, John F. Reha. We hope you find them informative.

$4.2 Million Unfair Competition Award Upheld On Appeal

John, with David J. Caras of the firm, was lead counsel in Optimus Corp. v. Synergetics Inc., Colorado Court of Appeals No. 12CA1910. On March 6, 2014, the Court of Appeals issued its opinion unanimously affirming a decision in which $2,238,042 actual damages and $1,956,607 punitive damages were awarded for a competitor’s recruitment and hiring of the client’s key employee when a covenant not to compete existed between the client and the employee. The case may represent the largest compensatory damages award in Colorado history for competitor interference with a noncompete. The punitive damages award is likely the largest unfair compensation punitive damages award in Colorado history.

Crushed Ankle Leads To Limits Settlement

John was asked to represent the owner of a truck repair company whose ankle was crushed by a tractor-trailer rig parked at a truck stop. The client was working on the “bogie” (wheel/axle set) of a large trailer when the rig parked next to it suddenly pulled out of the parking lot without a pre trip 360-degree check mandated by commercial driver’s license (CDL) requirements. Its trailer ran over the client’s ankle. The driver pulled away never to be found, but John worked tirelessly, representing the client with the client’s own insurance company to maximize his recovery under underinsured motorist (UIM) provisions of that policy. The claim was settled for the full extent of the policy’s high limits.

Auto-Bicycle Collision Generates Two Limits Settlements

John represented a bicyclist who was struck by a pickup truck. The cyclist incurred significant long-term cognitive injuries. John obtained a settlement against the driver at fault for the large limits of that driver’s auto policy and then obtained a second settlement for limits under the underinsured motorist coverage in the cyclist’s own auto policy.

Another Auto-Bicycle Collision Generates Limits Settlement

John represented another bicyclist who was struck by a car. The cyclist incurred severe neuromuscular, nerve and spine injuries. John obtained a limits settlement against the insurance policy of the driver at fault.

The Colorado Supreme Court Unanimously Determines That Separate Consideration Is Not Necessary For Enforcement Of A Noncompete Agreement Entered Into By An Existing Employer And Employee

John was lead counsel for the appellant in the appeal to the Colorado Supreme Court in Lucht’s Concrete Pumping Inc. v. Horner, No. 09SC627. In a unanimous en banc opinion issued on May 31, 2011, the Supreme Court agreed with John’s arguments in their totality, reversing both the trial court and the Colorado Court of Appeals on the issue of whether independent consideration is necessary to support a covenant not to compete entered into during an ongoing employment relationship.

An issue had existed for many years under Colorado law as to the enforceability of a noncompete entered into between an existing employer and employee, without some form of independent, identifiable consideration such as a bonus, raise, promotion or inclusion in a stock plan. Most covenants not to compete are entered into at the point of hire. There has never been an issue as to whether consideration exists in that situation, since the act of hiring is consideration itself. For noncompete agreements entered into after an employee is hired, however, the law was not settled. Some states require independent consideration and others don’t. The law in Colorado was unclear.
On an appeal of a case in which John acted as lead counsel, the trial court dismissed the client’s breach of contract claim premised on the noncompete for the reason that the employer (John’s client) did not afford the employee any independent consideration such as a raise or promotion when the noncompete agreement was presented to him. The Court of Appeals affirmed, finding that the statutory prohibition against noncompetes in Colorado, C.R.S. 8-2-113(2), militated toward a determination that independent consideration was necessary. The statute itself is silent on whether such consideration is needed.

The Supreme Court reversed in full, finding unanimously en banc that, among other things, an employer’s forbearance of its right to terminate an at-will employee is sufficient consideration to support a noncompete entered into between an existing employer and employee. This case was of very high importance in the Colorado legal community and the opinion generated many comments immediately upon its release.

The bottom line of the opinion is that an employer need not give an employee a bonus, a raise, a promotion or another independent item of consideration to support a noncompete, even if the noncompete is entered into after the point of hire. The court further made clear that consideration to support a midstream noncompete need not be recited in the agreement itself, but can be found in the parties’ conduct. While the opinion relates only to noncompetes, it would seem clear that the rule that no independent consideration is required applies to nonsolicitation agreements, nondisclosure, trade secrecy and other agreements between employers and employees as well.
If you have any questions about the Lucht opinion or would like to discuss issues related to covenants not to compete, John is available for consultation.

Mountain Auto Collision Results In Million-Dollar Settlement

John represented a family that was involved in a head-on collision as they were leaving a Colorado ski resort during a major multiday snowstorm. The other driver lost control of a large vehicle coming down a steep mountain highway grade, crossed the center line and hit the family’s minivan head on. The father, who was driving, was seriously injured, as the force of the collision was driver on driver. John exhaustively investigated the matter, conducting site inspections, interviewing witnesses and paramedics at the scene, and reviewing voluminous medical records. He prepared a 400-page settlement presentation based on this work. The matter was negotiated and settled for a seven-figure cash award.

Who Owns The Land Where DIA Gets Built?

The building of Denver International Airport was easily one of the most important development projects in Colorado and indeed in U.S. history. The “take” area for the airport (i.e., the land that the city and county of Denver wanted to condemn for the airport), as well as a substantial amount of the surrounding area that would become the location of the primary commercial development surrounding the airport for hotels, restaurants and other businesses, was owned by a corporation formed in the early 1930s that had been owned for years in exact 50 percent shares by two old-line Denver families. The scion of one family approached his friend, the founder of the other family (who eventually became John’s client), during the Dust Bowl, with an opportunity to buy 29,000 acres of what was then barren, dried-up plains at a tax sale held by what was then Arapahoe County (Arapahoe County taking up a good share of northeast Colorado until the 1940s). The second family owned one of Denver’s lead banks. Before modern-day banking regulation, owners of banks could loan money to themselves. An agreement was reached, the families joined forces in a corporation, and the land was purchased.

When World War II came, the U.S. government decided to condemn property northeast of Denver for the Rocky Mountain Arsenal. Some of the eastern side of the arsenal area comprised the corporation’s land. The other family, which took an active role in management of the company (primarily dry land wheat farming), worked with the Army in negotiations leading to Uncle Sam buying that land. In fairness, the second family agreed to allow a company owned by the first family (which acted as the manager of the farm) a fee equal to 10 percent of condemnation proceeds as compensation for its services rendered in relation to any condemnation. To formalize this agreement and the entire farm management relationship the first family’s company had assumed over the prior few years, the corporation entered into a farm management agreement in 1942 with that company. The agreement had a 10-year term and included the 10 percent condemnation fee provision. To maintain appropriate documentation of the management relationship, the agreement was renewed every 10 years, in 1952, 1962 and 1972.

Beginning in the early 1980s, things began to change. During the run-up to the 1983 mayoral race, a major issue was the building of a new mega-airport for Denver. Federico Pena ran on this issue, winning the election. Beginning in 1981, newspapers and other media outlets began to announce that a new airport was a definite possibility. All reports put the general location somewhere northeast of the arsenal. Each proposed “take area” included a large amount of the farm owned by the families’ corporation. When the 1982 directors meeting agenda was set, adoption of a new management agreement was up for vote. The other family held two of the three board seats. They voted yes on the agreement. The second family’s sole director voted no, citing the condemnation fee provision as being exorbitant in the event that what may have been the largest condemnation of raw land in U.S. history should take place.

Events transpired, Federico Pena was elected, and DIA was formally announced. A take area was eventually formalized, an election was held to annex the take area into the city and county of Denver, and formal condemnation notices were served, including a notice on the corporation that owned the farm.

This is when things got interesting. John was part of a two-lawyer team that was hired by the second family to protect their interests, as it was clear that the first family’s farm management company was insisting on full payment of 10 percent of the gross condemnation award as a fee. It was estimated that the eventual condemnation value of the land would be approximately $4,000 per acre, for approximately 13,000 acres of land, for a condemnation value of approximately $52 million, which would generate a condemnation fee of $5.2 million. Further, issues began to develop as to how the prime commercial property, which would be located on the farm’s land, would be split and developed and who would have effective control over it, the first family being both the farm’s managers and the holders of two of the three director seats. Finally, likely to cause the second family to capitulate, the first family threatened to vote for dissolution of the corporation, which would trigger the draconian tax provisions of the Internal Revenue Code (IRC) applicable to property under threat of condemnation. Under the IRC, condemnation is deemed to occur upon delivery of the condemnation notice, not on payment of the final award. The final award can take a long time to be determined, as the initial offer from the condemning authority is typically deemed by the landowner to be insufficient, necessitating litigation to determine value, which may take years to conclude. This results in “phantom gain,” i.e., a capital gain that must be recognized (and capital gains taxes that must be paid) for the current tax year, before the taxpayer has received the proceeds out of which taxes can be paid. The price paid at the Arapahoe County tax auction back in the 1930s was approximately $1.25 per acre. What may have been the largest real estate-based condemnation phantom gain problem in U.S. history was looming.

Negotiations reached an impasse and the legal team filed suit, citing the inherent conflict of interest in the first family voting their director votes in favor of ratification of the 1982 agreement with the 10 percent fee, when such fee was excessive. The legal team also presented expert tax testimony on the catastrophic tax result of the threatened forced dissolution. John advised the expert witness on the adverse tax impact to testify in a way that the court would understand — which resulted in the line: “It might be an F-16 for the Navy, maybe two.” The court agreed with both positions John advocated, accepting the inherently unfair nature of the threatened dissolution as well as John’s argument that the legal vote on adoption of the 1982 agreement was one director against ratification, none in favor, and two abstaining, since under Colorado corporate law, a director’s vote on an “interested party” transaction is invalid unless the transaction can itself be established to be fair to the company. Thus, the court invalidated the agreement and prohibited forced dissolution.

This ruling caused the parties to come to terms that were agreed to as fair for all, the airport was built, and much of the corporation’s land was sold to developers. Hotels are on it today. The long-term value of the client’s win is well into the hundreds of millions of dollars.

Auto-Motorcycle Collision Generates $225,000 Settlement

John represented a motorcycle rider who was hit while riding in the right lane of a four-lane highway by a car making an illegal right turn from the left lane (known as a “right hook” to motorcyclists). The rider was significantly injured, incurring a serious fracture of his right femur. The at-fault driver unfortunately had only $25,000 minimum required liability limits on his policy. John obtained a limits settlement of that amount quickly, but advised the client to let his injuries “mature,” which is critical in many fracture situations, before attempting settlement with his own insurance carrier’s underinsured motorist coverage. John convinced the motorcyclist’s carrier that not one, but two policies covered his injuries. As John anticipated, the initial emergency surgery on the fracture did not take, necessitating an additional round of surgery. Upon learning of the need for additional surgery, the UIM carrier paid $100,000 limits under each of the two applicable policies.

The Tragic Death Of A Giant

John was retained by the widow of a geologist employed by the U.S. Geological Survey who was killed in a midair collision over Ketchikan, Alaska, between a seaplane and a helicopter the USGS chartered to study offshore oil and gas reserves owned by coastal Alaska Native American tribes. The widow’s husband was the sole passenger in the helicopter. He and his pilot were heading north over the Inland Passage, the long waterway that runs on the inside of the coastal islands for most of Alaska’s panhandle, just as the seaplane was taking off from the Ketchikan airport. Investigation established that the helicopter pilot, who was heading to the helicopter charter service’s own heliport on the mainland side a few miles north of the airport, had announced by radio his entry into the airport’s airspace and then immediately switched channels to inform the heliport he was approaching, so as he traveled through airport airspace, he was “flying blind” (or, more appropriately, flying deaf). Seconds after the helicopter pilot changed channels, as he was on his takeoff roll (not allowing time for other air traffic in the area to acknowledge his coming into airport airspace) the seaplane pilot announced he was taking off from the Ketchikan airport (which is an island on the ocean side of the Inland Passage). The seaplane was in the air in a few seconds, immediately engaging in a steep climb. Thus, neither pilot heard the other. At the time, the Ketchikan airport was the busiest nonair traffic control general aviation airport in the United States. Air travel is extremely common in the Alaska panhandle as there are few roads. Indeed, the key eyewitness to the collision was a school “bus” pilot who was also in the airspace at the time. The pitch of the seaplane on takeoff was such that the pilot could not see anything below his craft’s nose, including other air traffic at his same altitude, as the seaplane’s nose was significantly above the cockpit. It was established that the helicopter pilot was likely distracted and did not keep a proper lookout in front of him, as no evasive maneuvers were observed by people who witnessed the collision. It is assumed that the pilot was looking down and to the right at the city of Ketchikan as the helicopter flew up the Inland Passage in front of the Ketchikan waterfront. The seaplane came at the helicopter from the lower left. The left pontoon of the seaplane hit the helicopter’s rotor, sending the rotor through the helicopter’s cabin, instantly killing both the pilot and the widow’s husband. The helicopter fell into the water. The seaplane pilot called out on his radio that he had hit something and was informed by another pilot who witnessed the incident that he had collided with a helicopter. Fortunately, the pontoon was not severed and the seaplane was able to return to the airport and land.

John was referred the wrongful death case, which presented several issues. First was liability. It is typical in midair collision cases for the insurance carrier for each aircraft to blame the pilot of the other aircraft. John emphasized to the adjusters that clear negligence existed on the part of each pilot, as both took safety shortcuts that caused them both to fly deaf across airport airspace. Both owed a duty to the widow’s husband to exercise due care.

Another issue was damages. John did extensive research in this regard, discovering that the husband had a legendary reputation in the oil and gas industry. He was nearing retirement age and John put together an earnings schedule assuming that the husband would go into private practice consulting upon retirement, which friends and colleagues supported, both as to his discussions of his future plans and his worth in the marketplace. Further research established that the husband was perhaps the geologist who discovered the North Sea Oil Field between Scotland and Norway, one of the planet’s largest and most productive fields. Condolences were received at his funeral from the King of Norway, so thankful was the Norwegian government for the discovery of this field, which is likely the key factor that has made Norway the wealthiest country in the world on a per capita basis. His worth as a consultant was firmly established.

Next was the issue of whether the family could claim “hedonic” damages, or damages to measure the value of the simple enjoyment of life (what John calls “stopping to smell the flowers damages”). Such damages were not available under many state’s wrongful death statutes, including that of Colorado, where the family lived. John established that the law of the location of the place of death controlled, which made the Alaska wrongful death statute the applicable provision. Alaska’s statute did not include an express limitation of damages in wrongful death cases to “pecuniary” (i.e., economic) loss, unlike Colorado’s statute. Alaska’s courts, however, had never issued a definitive opinion on whether hedonic damages were available under Alaska’s statute. John led negotiations with a strong hedonic argument. Investigation disclosed that the husband was an accomplished violinist, orchestral music arranger, builder (he built his family’s house with his own hands in his off time) and world traveler. In short, he was a true modern renaissance man (John wishes to this day that he could have met him). Focus was devoted to developing this aspect of the husband’s life. Evidence included a photo of him walking down the Avenue des Champs-Elysees in Paris hand in hand with his young daughter, the Eiffel Tower in the background. He raised his daughter as an accomplished world traveler, and while settlement negotiations were ongoing, she was named valedictorian of the senior class of her very large suburban high school, heading to an engineering education at an elite college.

With this proof in hand, negotiations were conducted and were successfully concluded. Some of the proceeds were donated to an effort to place an air traffic controller at the airport.

The Log Home Co.

John represented two brothers who were builders of custom mountain homes. They have crafted some of the most stunning wilderness retreats in Colorado. In starting their business, they decided to buy an existing log home builder. They obtained a covenant not to compete from the seller to ensure that he would not simply go back into the industry once the deal was closed.

A few months later, a friend spotted the seller on the roof of a log home being built on the other side of the county. Investigation turned up a building permit issued to the seller. The brothers’ local attorney referred them to John.

In the ensuing litigation, the old owner took the position that he did not violate the noncompete, which prohibited him from engaging in any aspect of the “hand-crafted, hand-peeled log home business,” since the homes he had been building were a new “half-log” style, where a typical “stick-built” frame is covered on both the interior and exterior by a log that has been ripped in half, resulting in a home that looks exactly like one that uses logs as structural wall members. In other words, since the homes he had begun building (without disclosing his plans during the sale, of course) were not structurally log homes (but cosmetically clearly were), he contended that he was not engaged in the “hand-crafted, hand-peeled log home business.” To the eye, half-log homes are, indeed, log homes and a review of the many log home magazines or a trip to a log home show will indicate that most of the modern log home industry is devoted to half-log construction, due to various structural and insulation benefits presented by a frame structure (primarily, homes made from log walls experience significant shrinkage as the wall logs dry, a problem that is avoided in a half-log home). Further, as John established at trial through the use of the other side’s own exhibit (a piece of “half-log”), the half-logs were finished by a draw knife, the tool that gives a hand-crafted log home its unique rustic feel and appearance (versus a “milled” log or half-log, which has a smooth, consistent finish). John established that use of a draw knife is the key technique that renders a log home to be “hand-crafted,” since it is only through the hands-on use of a draw knife that the hand-crafted look can be achieved.

John represented the brothers at trial, where the court awarded them the entirety of the seller’s profits on the homes he had built. Before getting their day in court, however, the seller, who held a note on the business that was secured by all of the business’s assets, went onto the business’s premises (the Log Yard) under cover of darkness (specifically at 3 a.m. on Palm Sunday), and repossessed the business’s assets, since the brothers refused to pay any more installments on the note, due to the seller’s obvious illegal competition. John knew from his experience representing lenders of the severe restrictions on the ability of a lender to exercise repossession under the Colorado Uniform Commercial Code (the UCC) and determined that the seizure might in the end be a good thing, since a lender’s improper use of repossessed assets may give rise to several remedies for the borrower, including complete invalidation of the secured debt itself. John suggested asking friends to take pictures of any of their assets if they were spotted. A friend soon brought them photos of their crane building a log home, of all things.

John got the judge’s permission to keep the case going after trial on the additional issues under the UCC presented by the equipment seizure. In a deposition, confronted with the photos, the seller admitted the use of the crane. Shortly thereafter, John notified the seller’s attorney that such admission likely meant the invalidation of the secured debt. The seller soon offered to settle on very favorable terms.

Did You Hear The One About The Farmer, The Lawyer And The Phony Priest?

John was approached by a farmer from Nebraska whose life savings had been taken by the fraudulent conduct of an investment promoter who falsely held himself out as a Roman Catholic priest (really). He had been ordained by a rogue denomination that called itself “catholic” and had very few members. Indeed, he eventually ordained himself a bishop of the denomination and wore priestly garb. The promoter presented himself to the farmer, who had recently sold much of his farm to eventually begin a cattle feeding operation, as an ordained Roman Catholic priest who commonly traveled to Europe managing investment programs for high net worth individuals, with substantial involvement with the Vatican Bank. The farmer had invested with another investment program and was having difficulty obtaining his funds, which were in Europe. He was contacted by the “priest,” who indicated that he would obtain the farmer’s funds and that he hoped to assist the farmer in further investments once the funds were recovered. The “priest” introduced the farmer to his Denver lawyers, who proceeded to represent the farmer without fully disclosing their level of knowledge as to the “priest’s” past conduct and his proclivity for fraud. The conflict of interest was glaring.

Without notifying the farmer, the “priest” managed to arrange a refund of the farmer’s funds from the first investment adviser via a wire transfer into the lawyer’s trust account. Without notifying the farmer, however, he instructed the attorney to write him a check on the law firm’s trust account for the vast majority of the farmer’s funds and further instructed the lawyer to write his law firm a check for the remaining funds in the trust account to pay the lawyer’s bill. The checks were cut, the lawyer satisfied his bill, and the “priest” immediately wired the proceeds of the check written to himself to an account in Europe. From there, the “priest” disbursed the funds through several offshore accounts that he had established to hide money. The funds were never found again. They were gone with the wind.

The farmer came to John. He had been turned down by several attorneys. Indeed, he was repeatedly told he had no case. John grew up in rural Iowa. Almost everyone he knew from childhood grew up on a family farm and he felt a particular affinity for the farmer. John determined that justice demanded representation and he agreed to represent the farmer on a contingency fee (such that the farmer was not charged for John’s services unless John was successful), asserting claims against the lawyers for allowing funds to be removed from the trust account without notice to the farmer, the funds’ owner. After a lengthy jury trial, the jury awarded the farmer a sizable judgment. Further, the FBI and U.S. Attorney’s Office were able to build a conviction of the “priest” for securities fraud based primarily on admissions John obtained from him in trial testimony (after the trial judge read the priest — wearing his bishop’s cloak and mitre on the witness stand — his Miranda rights against self-incrimination). The priest went to prison and the farmer got paid by the lawyer.

A Tragedy On The Plains Of Wyoming

John was retained by the adult sons of a father who, along with his uncle, was killed in a head-on collision between the uncle’s pickup truck and an RV on Interstate 80 outside of Saratoga, Wyoming. The RV was being driven by a driver employed by the RV’s manufacturer in Elkhart, Indiana. He was delivering the RV to a dealer in Reno, Nevada. Investigation of the scene by the Wyoming State Patrol concluded that the RV driver had fallen asleep at 1 p.m. on a Saturday afternoon, causing the RV to cross the median and into oncoming eastbound traffic. Unfortunately, the father and his uncle, who were returning from a high school wrestling meet in which a relative was competing, were in an eastbound pickup in the RV’s direct path. The vehicles collided and the RV exploded (possibly due to propane tanks being filled). The fire completely consumed both vehicles and everything in them. All three individuals were killed, either in the collision itself or the fire. The scene was truly horrific.

John worked in conjunction with a well-known Wyoming firm on the case. Depositions were taken and an investigation was conducted. John researched the commercial vehicle rules of the U.S. Department of Transportation (DOT) and established that the RV, although normally a recreational and therefore noncommercial vehicle, actually was a commercial vehicle while it was being delivered by the manufacturer to a dealer. This caused the DOT’s hours on/hours off rules and consecutive driving hours rules for commercial truck operators to be applicable. From checkout logs from the factory in Indiana, the time of the collision, and speed and distance calculations involving a trip between Elkhart, Indiana, and Saratoga, Wyoming, it was established that the RV driver had likely exceeded both sets of rules, which greatly assisted in establishing negligence per se. There simply weren’t enough hours from the time the RV left the factory to the time of the collision for its driver to have covered the distance from Elkhart to Saratoga while getting sufficient rest and off-road time.

The amount being demanded for settlement exceeded the limits of the RV manufacturer’s motor vehicle policy and demand was made on the manufacturer’s “excess liability” carrier as well (many commercial risk management programs include multiple layers of insurance protection). Negotiations were long and contentious with the excess carrier, but eventually they proved successful. The amount of settlement was sufficiently high that limits of the RV manufacturer’s motor vehicle liability carrier were contributed, and the excess carrier contributed a significant sum as well. Overall settlement was well into seven figures and was the largest wrongful death verdict in Wyoming history at the time.

The ‘Smell Test’ Was Not Met — Protecting The Client In The Sale Of The Client’s Business

John represented a couple that owned an electronics company. The husband was diagnosed with a serious medical condition and his doctor informed him that the stress of running the company was dangerous to his health. The doctor strongly advised the clients to sell. Due to health issues, the clients did not enjoy the usual amount of time required to find and prequalify a buyer. John usually advises sellers to take a cautious, sober approach when finding a buyer for their business, especially when, as is typical for small-business sales, the buyer will be buying on “owner carry” terms (“owner carry” being a euphemism for the seller emerging from closing in essence as a banker who is financing most or all of the purchase price). The buyer that did come forward had adequate funds for the down payment, but John was leery of the buyer’s ability to pay the loan the clients were going to carry to finance a large share of the purchase price, especially since the buyer’s proposal included a loan from the buyer’s bank for other funding of the deal. Further, from observations during preclosing negotiations, John simply didn’t trust the buyer. Put succinctly, the buyer didn’t survive John’s “smell test.” When blended owner-carry/bank financing is used to fund a business purchase, serious questions as to priority may arise in the event the buyer defaults on one or both loans, thus creating further risk for the seller client. Further, when a business is teetering, lenders often can’t respond in a sufficiently rapid manner to stave off failure. If this happens, there typically is nothing left to foreclose upon other than the business’s equipment, which in today’s knowledge- and information-driven economy is often not very valuable, since intangibles such as customer relationships, goodwill and the like are where the real value is (value factors that ironically can’t effectively be foreclosed upon since they’re not tangible).

John was concerned that the clients would lose much of their hard-earned equity in the business (indeed, what amounted to their life savings) if they did not have a means to come into the company in the event of default of their loan to rescue the business and preserve its worth. The bank did not insist on subordination language from the clients as to their loan, so John had filed the “financing statement” for the client’s loan immediately upon closing. The bank did not file its financing statement for another week, taking the usual slow approach banks use. In addition, John advised the clients to adopt as additional security a little-used tool called a stock pledge. Under a stock pledge, the owner of the company (i.e., the buyer after closing of the sale) delivers the certificates to the stock he or she owns in the business to the old owner, with a “stock power” (a form of power of attorney) that provides that in the event of default or imminent default, the old owner as the holder of the power of attorney has the right to vote the stock to remove the buyer from management. Bottom line was that in the event of default, the clients were situated to make a strong claim to first position in the assets with the right to immediately seize the business through the stock pledge.

This planning paid off. About two years after the sale closed, the buyer announced to the staff one morning that the business was experiencing severe financial problems and would be closing that afternoon for good. The staff contacted the client, the client contacted John, and John delivered formal notice to the buyer that a special meeting of the shareholders of the buyer’s company (those stockholders being his clients under the stock pledge) would be held within hours. The meeting was held, the buyer was terminated, and the client, with the help of staff, kept the company running until a second buyer could be found. A subsequent buyer was located (John still insisted on the same protections as the first time around), the second sale closed (the bank cooperated to preserve what was likely a second position — indeed, they moved to first position at the second closing, not wanting to make the same mistake twice), and the clients’ retirement funding was secure. The company still successfully operates today.