Thursday, April 12, 2012

Is a Non-Compete Clause (or other Restrictive Covenant) Enforceable in Nevada?

Short Answer: Yes.

Long Answer: Yes, but only if it is reasonable.

But maybe I should go back to the basic question. What is a non-compete clause (otherwise known as a restrictive covenant)?

A non-compete clause is usually a paragraph inserted into your employment contract or partnership buyout agreement that prevents you from competing with your former employer or partner upon termination of your employment or partnership. Basically, when you quit or are fired, you can't go work in the same type of business in the same city while competing for the same clients (that's oversimplified, but you get the point).

Some people are under the impression that non-compete clauses are unenforceable or void in Nevada. This is incorrect. In California, it's a different situation. But here in Nevada, as long as the non-compete clause is reasonable, the courts will enforce it.

Now for the technical jargon. If a Nevada court is asked to enforce a non-compete clause, it will consider the time limitation, the geographical territory, and the hardship on the respective parties. See Jones v. Deeter, 913 P.2d 1272 (Nev. 1996). The first is the length of the time restriction. Nevada courts have upheld time restrictions of up to two years, but invalidated restrictions of five years.

The second factor that the courts consider is the geographical territory that the non-compete clause encompasses. This usually depends on how big the company is that is seeking to enforce the clause. If it's a local company, it probably can't keep somebody from opening up shop in another city. If it's regional or national, however, a court may decide to enforce a much larger geographic restriction.

Finally, the courts normally weigh the hardship on the person being restricted with the potential damage that the competition would cause to the business. This also depends on what the employee received in exchange for agreeing to the non-compete clause.

The next time you are asked to sign a contract with a non-compete clause, make sure that you are fully aware of the consequences down the road if your employment is terminated. You may be looking for another profession for a few years.

If you have any questions about non-compete clauses or any other contract disputes, contact attorney Brandon McDonald by e-mail. Or for more information about attorney Brandon McDonald, visit my Profile, or my firm's website.

Thursday, July 14, 2011

How will Nevada's new foreclosure laws affect me?

Question: Nevada lawmakers just overhauled Nevada's foreclosure laws. How will this affect me?

Answer: If you can afford the payments on your home and you don't plan on selling anytime soon, then these laws won't really affect you. However, if you are behind on your mortgage, considering a short sale, or in the middle of a foreclosure, these new changes may have a impact on your rights during the process. Here's a summary of some of the changes that go into effect on July 1, 2011:

Nevada Assembly Bill 273 makes major improvements to Nevada law to protect homeowners by limiting the amount of money a bank can collect after a homeowner loses their home. The law also reduces the time a bank has to file a lawsuit against some homeowners. These protections will greatly improve a homeowner’s opportunity to start over after a foreclosure or short sales, without the threat of a huge debt or a lawsuit by a lender.

Section 3 of AB 273 applies to homeowners who took out a second mortgage on a home after June 10th of 2011 (if anybody in Las Vegas still had equity in their home after June 10th of 2011, I'd be surprised). Section 3 provides that a lender may not collect a deficiency remaining on a second mortgage if certain conditions are met. A deficiency is the amount that you still owe the lender after the home is sold and the money from the sale is applied to the debt. However, this law only applies when the following five requirements are met:

(1) the lender is a financial institution;

(2) the property is a single-family home and is owned by the homeowner at the time of the foreclosure or short sale;

(3) the homeowner used the loan to purchase the property;

(4) the homeowner lived in the property; and

(5) the homeowner did not refinance the loan.

Section 3 of AB 273 provides a homeowner with more certainty in negotiating with the primary mortgage lender because the second mortgage holder has less ability to collect.

More good news for homeowners who lose their homes to foreclosure or short sale: the amount of time that a lender has to sue on a second mortgage got cut from six years to just six months after a foreclosure or short sale. (Section 3.3) This applies to all foreclosures or short sales that occurs on or after July 1, 2011.

Also, if the lender receives payment from an insurance company to cover its losses for the debt the homeowner was unable to pay on a second mortgage, the amount the lender can collect from the homeowner is reduced by the amount of the insurance proceeds. In other words, if you owe $50,000 on a second mortgage when you lose your home, the lender may have insurance to pay for a portion or all of that loss. So if the lender takes $40,000 from the insurance company, the amount it can collect from you is reduced by $40,000. This modification is in Section 2 of AB 273, which only applies if you took your second mortgage out after June 10, 2011.

The new laws will also affect debt collection agencies who buy mortgage debt from primary lenders for a fraction of the cost. Section 5 of AB 273 says that a credit collection agency who buys mortgage debt from a primary lender may only collect the difference between the amount that the agency paid for the debt and either the fair market value of the property, or the amount the property sold for, whichever is greater. This causes some major problems for debt collectors who buy mortgage debt. The following example shows why:

Let's say you stop paying your mortgage when you still owe $250,000 on your home. The real estate market has tanked, so your home is valued at $120,000. The house actually sells at auction for $100,000. You find out that your mortgage was sold by your lender to a debt collector. The debt collector only paid $50,000 for your debt, hoping it would collect more than the $50,000 and make a profit. Unfortunately for the debt collector, it can only collect the difference in the amount that it paid above either the value of the home or sales price of the home, which is greater. In this case, the debt collector paid only $50,000, which is less than the $120,000 value of the home, so the debt collector is out of luck.

Section 5 goes into effect June 10, 2011. Debt collectors that buy second mortgages are governed by Section 2 of AB 273 and are also limited to the amount they buy the debt for, plus interest and costs.

There is also a new law that provides protection to the lender who will be taking back the home after foreclosure:

Nevada Assembly Bill 373 basically allows for criminal prosecution of individuals who purposely damage or destroy the home or property that is the subject of foreclosure if the intent is to cause the lender to suffer a monetary loss. If convicted, the person who caused the damage may be found guilty of a misdemeanor. This new criminal law goes into effect on October 1, 2011. I don't offer legal advice on this blog, but it's safe to say that it's not smart to trash your home to get back at the bank.

As always, this does not constitute legal advice and does not establish an attorney-client relationship.

If you have any questions about foreclosure, short sales, or any other real estate matter, contact attorney Brandon McDonald by e-mail. Or for more information on attorney Brandon McDonald, visit my Profile, or my firm's website.

Tuesday, June 14, 2011

Is it Legal to Threaten the filing of a Criminal Complaint to Gain an Advantage in a Civil Case?

I came across an interesting issue today and I thought it would be perfect for the first post of my blog. There's quite a lack of information out there on Nevada laws, statutes and professional rules for attorneys. So I thought it would be good for me to start posting some of the unique and interesting things that I learn about legal practice as I come across them in my work.

So on to my first question: Is it illegal, or unethical, for an attorney to threaten to file a criminal complaint against an opposing party (assuming there is an actual basis for the criminal complaint), to gain an advantage in a civil action?

The answer is probably not what you would expect:

Under the ABA Model Code of Professional Responsibility, threats of criminal prosecution in order to gain an advantage in a civil case were prohibited. DR 7-105(a). In 1983, the Model Rules of Professional Conduct were adopted (1986 in Nevada), and that provision was dropped. This resulted in the ABA Standing Committee on Ethics and Professional Responsibility issuing formal opinion 92-363 – Use of Threats of Prosecution in Connection with A Civil Matter, which reached the following conclusion:
…[T]he Model Rules do not prohibit a lawyer from using the possibility of presenting criminal charges against the opposing party in a civil matter to gain relief for her client, provided that the criminal matter is related to the civil claim, the lawyer has a well founded belief that both the civil claim and the possible criminal charges are warranted by the law and the facts, and the lawyer does not attempt to exert or suggest improper influence over the criminal process. It follows also that the Model Rules do not prohibit a lawyer from agreeing, or having the lawyer’s client agree, in return for satisfaction of the client’s civil claim for relief, to refrain from pursuing criminal charges against the opposing party as a part of a settlement agreement, so long as such agreement is not itself in violation of law.
What about the threat of filing a disciplinary complaint? See Formal Opinion 94-383, Use of Threatened Disciplinary Complaint Against Opposing Counsel, which concludes:
A lawyer’s use of the threat of filing a disciplinary complaint or report against opposing counsel, to obtain an advantage in a civil case, is constrained by the Model Rules, despite the absence of an express prohibition on the subject. Such a threat may not be used as a bargaining point when the subject misconduct raises a substantial question as to opposing counsel’s honesty, trustworthiness or fitness as a lawyer, because in these circumstances, the lawyer is ethically required to report such misconduct. Such a threat would also be improper if the professional misconduct is unrelated to the civil claim, if the disciplinary charges are not well founded in fact and in law, or if the threat has nonsubstantial purpose or effect other than embarrassing, delaying or burdening the opposing counsel or his client, or prejudicing the administration of justice.
So there you have it. If you have reason to believe that a criminal complaint would be warranted and the criminal complaint is related to the civil claim, there's nothing wrong with using it to your advantage in the civil case, according to the Model Rules.

On the other hand, threatening to file a disciplinary complaint against opposing counsel to gain an advantage might not be a good idea.

Remember, none of this is advice. I am not your lawyer until you pay me. I encourage you to do your own research on this topic and arrive at your own conclusions. And always, let me know your opinions on this topic, or any other legal topic in the comment section.

If you have any questions regarding this topic, or any other litigation related matter, contact attorney Brandon McDonald by e-mail Or for more information about attorney Brandon McDonald, visit my Profile, or my firm's website.