| Grand Opening, Grand Closing |
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Many times the excitement of starting a new business is blinding – you have planned, hoped and dreamed for the opportunity to start your version of the next Microsoft and simply cannot wait to get started. However, in the enthusiasm of moving forward, you may overlook an important aspect of starting up: getting the correct licenses and permits. In North Carolina, a business must be properly organized, licensed and permitted before beginning operations. Failure to do so could result in the closing of your business. While not a comprehensive discussion of business licensing, this article provides helpful hints for setting up your new business.
There is no general business license that covers every type of business in North Carolina. In addition, there may be separate city, county, and/or state requirements that must be met and more than one license or permit from each. The type of business you wish to operate will determine the number and kind of licenses needed. The number can vary greatly: North Carolina’s Business ServiCenter reports that at the state level some business types require no licenses while other businesses must meet over 700 requirements.
It is your responsibility as the business owner to contact the appropriate authorities and obtain the proper licenses and permits. Unfortunately, there is no “one-stop shop.” However, the State of North Carolina has created a central office to identify the list of licenses and permits needed at the state level; the central office may also provide some assistance with determining local requirements. The Business License Information Office (“BLIO”), a division of the North Carolina Department of Commerce, provides one-on-one consultations to help determine the specific state licenses and permits needed for your business. The BLIO is located in Raleigh, and can be reached by calling (919) 715-2864, or Toll-Free at (800)-228-8443, and by fax at (919) 715-2855.
We strongly recommend that you contact the BLIO and speak with a License Consultant in order to gain an understanding of state licensing requirements. BLIO consultations are free, and if the information provided is incorrect, your reliance on it may protect you from incurring penalties for failure to obtain the proper state license(s). In addition, the BLIO publishes its “Red Book,” a handbook guide for meeting state business licensing requirements. Red Book information can be viewed online at
http://www.nccommerce.com/servicenter/blio/redbook/.
The BLIO also maintains a list of phone numbers for authorities that can assist in obtaining local licenses.
Remember that obtaining a state license does NOT eliminate the need for obtaining local licenses at the county and/or city level. The Red Book provides some guidance for meeting local requirements as well.
In addition to business licenses, individual licenses may also be required for specialized lines of work. You should contact the appropriate state licensing board in order to determine its requirements for the practice of such an occupation or profession. While it is commonly known that traditional professions (accounting, law, medicine) require formal training and a license issued by a state licensing board, there are numerous other “non-traditional” occupations and professions which also have training and licensing requirements. A list of the North Carolina licensing boards, together with links to relevant information, can be found by clicking the “Boards and Commissions” link located at
http://www.ncgov.com/NCAgency.aspx.
At the local level, for both cities and counties, there will likely be a privilege license required for the “privilege” of conducting business. For example, with few exceptions, both the City of Charlotte and Mecklenburg County require a business to obtain a privilege license. While the City of Raleigh also requires a privilege license, Wake County does not. Again, there may be other local requirements depending upon the type of business you are operating. In addition to direction provided by the BLIO, the local tax or revenue offices should be able to assist you, either in person or online, with locating and completing the various local applications for required licenses and permits.
The consequences for failing to obtain the appropriate state and local licenses (except where relying on information provided by the BLIO in relation to a state license) range from small fines to fines in the millions of dollars, possible criminal prosecution, and potential termination of the non-licensed business.
Although navigating the mazes and red tape to obtain the appropriate licenses may not be the most enjoyable experience, do it before your Grand Opening quickly becomes a Grand Closing.
David H. Simpkins is an associate in Smith Debnam’s Charlotte office and concentrates his practice in the areas of Corporate and Business Law, Community and Homeowner Associations, and Commercial and Residential Real Estate. He can be reached at (704) 643-3220 or
dsimpkins@smithdebnamlaw.com.
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FIRST LIEN RECORDED MAY NOT ALWAYS WIN
There is a tradition in the law that things are not always as they seem. We think of liens as simply “which came first” when determining which lien controls; but lien priorities are not always as straightforward as they appear. A creditor may find that what he assumed was a senior lien may in fact be junior to another creditor’s lien. Such was the conclusion reached in a case decided by the North Carolina Court of Appeals in September of 2006.
Typically with regard to real property, the priority of liens is determined by the order in which they are recorded. First recorded wins; last recorded loses. If, for example, a Lender sues a Borrower and obtains a judgment against the Borrower, that judgment is a lien on any real property that Borrower owns in each county in which that judgment is recorded. If the Borrower then later takes out a loan with a Bank using the same real estate as collateral, and the Bank records a deed of trust to secure that loan, the Bank’s lien is normally junior to the Lender’s judgment because it was recorded afterward. The North Carolina Court of Appeals’ recent ruling, however, demonstrated that things sometimes turn out differently than expected.
In the case of West Durham Lumber Company v.
Meadows, the Court was presented with a fairly common dispute: the priority of competing liens on real property. Meadows was a homebuilder who purchased a tract of land in Wake County using money he borrowed from National Bank of Commerce (NBC), which did business as Central Carolina Bank. The loan from NBC was a typical construction loan, allowing for regular draws as the construction proceeded, with a maximum loan amount established at $560,000.00.
West Durham Lumber provided supplies and materials for the improvement of the property, first furnishing those materials on March 18, 2003. A few days later, on March 26, 2003, the deed to Meadows and the construction deed of trust to NBC were recorded with the Register of Deeds. Meadows borrowed an initial $112,000.00 and used that money to purchase the property. The remaining available funds were used during the construction of the house on the property.
Meadows defaulted on the loan and NBC initiated foreclosure under its deed of trust. At the time of the foreclosure, NBC had advanced $524,000.00 to Meadows under the loan. The property was sold at foreclosure, with NBC becoming the high bidder at $425,000.00. The law provides that a foreclosure “wipes out” any junior liens on the property such that the high bidder at the foreclosure takes title to the property free and clear of any junior liens. Only superior liens on the property will remain after foreclosure.
Several months later, West Durham filed a Claim of Lien which attached to the real property and which reflected that West Durham had not been paid for the materials it had supplied to improve the property. Under North Carolina law, if a Claim of Lien is properly filed and perfected, that lien “relates back” to the date of the
first furnishing of labor or materials to the property. In other words, if the lien is determined to be a valid lien upon the property, it is treated as having been filed on the date that the materials were first furnished on the property -- in this case, March 18, 2003. The deed of trust to NBC was not recorded until March 26, 2003. Since West Durham’s lien was recorded first, a logical result would dictate that West Durham’s lien take priority over NBC’s deed of trust. Somewhat surprisingly, this is not how the Court ruled.
Many legal doctrines and theories seem to not apply in the “real” world. But, many actually do play a part in determining issues such as lien priorities. One such theory is the “doctrine of instantaneous seisin.” Simply speaking, this doctrine provides an exception to the otherwise generally accepted principle that the first lien filed has priority. Under this doctrine, if a lender loans money to a borrower in order for the borrower to
purchase property, and the Lender takes a deed of trust in order to secure that loan (known as a “purchase money deed of trust”), then so long as the deed to the property and the deed of trust to the lender are recorded in one transaction, the lender’s lien has priority over any lien already existing on the property.
Thus, the Court held that because the deed to Meadows and the deed of trust from Meadows to NBC were recorded in one transaction, NBC’s deed of trust took priority over the lien of West Durham, even though that lien was deemed to have been filed prior to the recording of the NBC deed of trust.
Despite this ruling, however, West Durham was still able to claim a partial victory. Under an exception to the doctrine of instantaneous seisin, the Court found that the doctrine only provides lien priority if the proceeds of the loan are used to “purchase” the property. In this case, Meadows borrowed only the first $112,000.00 to purchase the property. At the time of NBC’s foreclosure, over $500,000.00 had been drawn down on the deed of trust. NBC took the position that the entire debt secured by the deed of trust was superior to the lien of West Durham. The Court disagreed. It found that only that portion of the debt actually used to “purchase” the property was given priority, not the entire debt.
The West Durham case also proved to be an interesting interrelation of issues dealing with the application of surplus proceeds in foreclosure. While a discussion of all aspects of this case is beyond the scope of this article, it is worthy of review by lenders, contractors and suppliers. If you would like to receive a copy of the case, or would like to discuss the effect the case may have on your business, please contact Jeff Rogers at 919-250-2112 or e-mail Jeff at
jrogers@smithdebnamlaw.com.
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GOLFERS HIT THE MARK FOR RED CROSS
AT CLIENT APPRECIATION TOURNAMENT
On September 27, 2006, Smith Debnam held its annual golf tournament for its clients and friends at Wildwood Green Golf Club in Raleigh. Since 2003, the Smith Debnam Golf Tournament has become an event that firm attorneys and guests anticipate every fall.
Forty-five guests hailing from as near as downtown Raleigh and as far away as Pennsylvania took to the links to enjoy a day of sun and camaraderie. Delivering on the camaraderie is not difficult for the attorneys at Smith Debnam. Delivering on the sun, however, is quite another matter. Using a tried and true “scientific” calculation to predict optimal golf weather, Smith Debnam once again chose its tournament date wisely – just after the usual hurricane threat and just prior to the rain that closed out September. Competition amongst the players and teams was high, as coveted awards were at stake for longest drive, closest to the pin, longest putt, and low score. Competition for high score hit a frenzied level! Not surprisingly, the fun exceeded any minor frustrations over golf-swing imperfections.
The tournament teams played not only for bragging rights, but also to support Smith Debnam’s committed donation to the Triangle Area Chapter of the American Red Cross. Last year, partly in response to the Hurricane Katrina disaster recovery effort, Smith Debnam added a charity component to its tournament as a tribute to its guests and a commitment of support to the Triangle area. Unlike many charity oriented golf tournaments, the Smith Debnam tournament requires no commitment of donation from its guests – only a commitment of their attendance and participation. Support of the Red Cross has been a longstanding tradition at Smith Debnam, as its attorneys and staff members organize and participate in blood drives each year. Katrina was the impetus for expanding its support to include the “Birdie Challenge” component of the tournament. Both guests and attorneys were able to up the charitable ante by scoring birdies and eagles, adding $25.00 per birdie and $50.00 per eagle to the base donation commitment of Smith Debnam to the Red Cross. Ninety birdies were tallied in all by the tournament players, with the lone eagle attributed to a first-time tournament golfer, Smith Debnam associate Amanda Bryant. The attorneys of Smith Debnam were pleased to present a total donation of $2,800.00 to representatives of the Red Cross Triangle Area Chapter for use in the local community.
This year Smith Debnam’s attorneys also honored the memory of their partner and colleague Cynthia (“Cynty”) McAlister, who prior to her untimely death in May was a state board certified family law specialist, a member of the firm’s golf tournament committee, and an unparalleled beverage cart driver.
For further information on the 2007 Smith Debnam Golf Tournament, contact Candis S. Roussel, Director of Marketing, at 919-250-2238
(croussel@smithdebnamlaw.com). For further information on the Triangle Area Chapter of the American Red Cross, contact Donna Ashcraft, Director of Development, at 919-277-2807
(ashcraftd@tranglearc.org).
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EMPLOYERS, BE CAREFUL WITH COMPLAINERS
RETALIATION CLAIMS GAIN FAVOR IN SUPREME COURT RULING
Most employers know that an employee cannot be fired for making a legitimate discrimination complaint. However, the law is not so simple. An employer cannot retaliate with an “adverse employment action. For many years, our judicial system has wrestled with the question – what is an adverse employment action? A recent decision by the United States Supreme Court,
Burlington Northern & Santa Fe Railway Company v. White, has clarified what constitutes an adverse employment action in the context of a retaliation claim by an employee.
Sheila White was the only female forklift operator in the Tennessee yard of Burlington Northern. White began working as a track laborer. Her responsibilities included removing and replacing track components, transporting track material, cutting brush, and clearing litter and cargo spillage from the right of way. Soon after she started, a co-worker left, and operating the forklift became her main responsibility. For a track laborer, operating the forklift was a coveted assignment. White testified that shortly after she got the forklift work, her supervisor repeatedly told her that women should not be working in the maintenance-of-way department. He also made insulting and inappropriate remarks to her in front of male colleagues.
Following an investigation, Burlington Northern suspended the supervisor for ten days and ordered him to attend a sexual harassment training session. Although her job title never changed, White was removed from forklift duty and assigned to perform only standard track laborer tasks. In reassigning her, the roadmaster said that in light of co-worker complaints “a more senior man” should have the “less arduous and cleaner job” of forklift operator. White filed a charge alleging gender discrimination and retaliation in response to her complaint about her supervisor. After her claim was filed, her new immediate supervisor had a separate disagreement with her about which truck should transport White from one location to another. The supervisor claimed she was insubordinate and suspended her. She invoked the company’s internal grievance procedures, which process concluded that she had not been insubordinate, and she was awarded back pay for the 37 days she was suspended. White then filed an additional retaliation charge as a result of the suspension. A jury found in White’s favor on the retaliation claim and awarded $43,500 in compensatory damages, including $3,250 for medical expenses. Burlington Northern appealed the circuit court’s decision affirming this award.
The key question before the Supreme Court was what constitutes an “adverse employment action” under the anti-retaliation provision of Title VII of the Civil Rights Act of 1964. The company argued that there should be a link between the challenged retaliatory action and the terms or conditions of employment for there to be unlawful retaliation. In upholding the jury’s verdict in favor of the employee, the Court adopted a lower standard, determining that the anti-retaliation provision provides broad protection beyond actions directly related to employment if the actions would discourage a reasonable worker from bringing a discrimination charge. In essence, the Court decided that retaliation need not be job-related or affect an “ultimate employment decision” to be unlawful.
Thus, the Court rejected the standard applied by various appellate courts that limited actionable retaliation to so-called “ultimate employment decisions” and resolved what had been conflicting approaches among the circuit courts when defining what constitutes unlawful retaliation under Title VII. In determining what it deemed to be the proper standard for evaluating retaliation claims under Title VII, the Justices wrote: “In our view, a plaintiff must show that a reasonable employee would have found the challenged action materially adverse, which in this context means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Although the anti-retaliation provision does not protect employees from “petty slights, minor annoyances, and simple lack of good manners,” the Court said it does protect employees when the action is found to be “materially adverse”.
In explaining this standard, the Court made three important points: (1) it emphasized the importance of distinguishing between significant and trivial harms; (2) it used the phrase “reasonable employee” to make clear that the standard is an objective, rather than subjective one; and (3) it defined the standard in general terms because the decision as to whether it is an adverse action must be decided in context. “Context matters,” the Court stated. “A schedule change in an employee’s work schedule may make little difference to many workers, but may matter enormously to a young mother with school age children.” In another hypothetical, the Court noted that “a supervisor’s refusal to invite an employee to lunch is normally trivial . . . but to retaliate by excluding an employee from a weekly training lunch that contributes significantly to the employee’s professional advancement might well deter a reasonable employee from complaining about discrimination.”
Applying its new standard, the Court unanimously held that Burlington Northern unlawfully retaliated against White by giving her a 37-day unpaid suspension (even though it was later converted to a paid suspension) and an assignment to a more physically arduous position. The Court rejected Burlington Northern’s argument that a reassignment of duties could not be retaliation if the former and present duties fell within the same job description, stating “almost any job category involves some responsibilities and duties that are less desirable than others.” The Court also rejected Burlington Northern’s argument that the suspension was not retaliatory since the company ultimately reinstated White with back pay, observing that White and her family had to live for 37 days without income, and referring to her testimony that the suspension resulted in the “worst Christmas I had out of my life.”
Why is this decision significant? The Court’s clarification of Title VII’s anti-retaliation provision has significantly expanded the potential scope and number of potential retaliation claims. The Court’s emphasis on context in assessing these claims also suggests that more of these lawsuits will likely be resolved at trial before a jury, rather than at the summary judgment stage of litigation before a judge. The Court’s decision therefore reinforces the necessity of carefully analyzing what might be characterized as adverse actions when dealing with employees who have asserted claims of discrimination under Title VII.
In recent years, most employment-related decisions from the Supreme Court have been moderately favorable for employers. This decision will undoubtedly encourage a greater number of disgruntled employees to consider retaliation claims. In response to this ruling, we recommend that employers adopt and disseminate a strong anti-retaliation policy and provide training for managers and supervisors that focuses on making good, job-related decisions and documenting them.
As a result of this ruling, retaliation claims may well be a bigger concern than the original discrimination claim itself. It is therefore imperative that employees be informed about the process for reporting alleged discrimination, that claims of discrimination be investigated thoroughly, and that management demonstrate to the employee that the claim is being taken seriously. All subsequent actions taken with regard to that employee must be based on sound business reasons. It is important to investigate allegations of retaliation and take prompt corrective action if retaliation occurs. In light of the stakes involved, we recommend that legal counsel be consulted to determine the potential ramifications of any proposed actions.
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