Category Archives: Business

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6 Actions that Help Avoid Lawsuits

One of the most important goals in drafting a contract is to lessen the risk of your business being sued or having to sue another party. Another important goal is to safeguard your position if litigation should become necessary. Below are a few things to consider:

Investigate the other party

It is always a good idea to conduct due diligence on the party you are entering into a contract with. This may be as simple as an Internet search or obtaining referrals from other parties that have had agreements with the party.

Get your agreements in writing

Putting things in writing is one of the most effective ways to protect you. Whether it is a contract with a vendor, supplier, employer, or business partner, a contract that clearly outlines the agreement can prevent the need for litigation. In contrast, if the contract is poorly drafted and leaves questions as to what the actual agreement is between the parties, then litigation is likely. It should also be noted that if you don’t have a contract in place, verbal agreements should at a minimum be documented with a follow-up note or email.

Read and understand the contract

It is essential to not only carefully read every agreement, but also to ensure you understand the terms and how they will apply to your daily operations. Knowing and understanding what your agreement provides can help you recognize when things are going downhill. Addressing problems as soon as they start to occur can keep them from evolving into nasty disputes.

Communication and action

If you keep your clients informed about what is going on, it can help prevent litigation. In other words, if they are aware of price increases or scheduling conflicts as they occur, they are more likely to understand when you miss a deadline. That being said, as soon as you encounter an issue, take action to correct it and giving your attorney a heads-up is a good idea too.

To ensure that your contract provides you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

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Is our Letter of Intent Binding?

Buyers and sellers often use a letter of intent (LOI) to memorialize their agreement on the key terms of a transaction. Some of the material terms that are included in the LOI are the price, closing date, due diligence terms and other important deal points. Many parties find a sense of comfort once the LOI has been finalized and executed because it is a strong indication that most of the issues have been hammered out and a deal will occur. In fact, the LOI allows a supplier to start buying material in order to provide its customer with the product on time with the comfort of knowing that they will at least get reimbursed for this expenditure. The LOI serves as the approval to go ahead and spend the money.

Of course, the smaller issues and boilerplate language are not included in the LOI, so negotiations must still occur during the drafting of the contract. Although the LOI is not intended to be binding, certain contractual provisions such as confidentiality clauses and exclusivity terms are binding on the parties. As a result of this mix between binding and non-binding terms, it may leave you wondering when a non-binding LOI is binding?

It is common for the LOI to include a broad disclaimer that the parties are not bound by it unless or until a separate and binding contract has been executed by the parties. Yet, numerous courts have found that the LOI is evidence that the parties had a “meeting of the minds” sufficient to create an enforceable contract that is adequate for awarding damages if a breach occurs. In fact, the court applies an objective test to determine if a binding agreement exists. Thus, whether a party subjectively intended to be bound by the LOI does not matter. Rather, the court examines what a reasonable person in the same position as the parties to the LOI would’ve thought it meant.

Although there are no guarantees on what a court will decide regarding whether a LOI is binding or not, if you want to avoid it being binding on you, there are a few steps you can take, including:

  • Use clear an unequivocal language stating that the LOI is not binding on the parties
  • Include a provision stating that the LOI is an initial statement for consideration only and that additional information will be negotiated as part of a subsequent formal contract
  • Allow each party the right to terminate negotiations at any time and for any purpose
  • Comply with any exclusivity or confidentiality provisions contained within the LOI
  • Exclude the covenant to negotiate in good-faith or consider expressly disclaiming this obligation
  • Never refer to the LOI as a binding or final agreement in any correspondence or other communications with the other party

If you are interested in learning more about a LOI or you need assistance drafting one, contact Leslie S. Marell for an appointment.

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Selecting the “Right” Legal Counsel for Your Business

For many business owners and managers, selecting the right legal counsel can be intimidating. Many businesses, especially smaller ones, worry that the cost of working with an attorney will not be worth the benefit gained.

It is important for business owners to understand that having an experienced lawyer on your side can help ensure the success of your company. An attorney can protect your finances, intellectual property, and exposure to risks. Spending a little money now can save you thousands of dollars in the future.

When looking for the “right” lawyer for your business, consider the following tips:

Don’t believe the rumors about attorneys.

How many attorney jokes have you heard? There are a lot out there, as well as all the misperceptions regarding lawyers such as they are too expensive, self-interested and not to be trusted. However, most attorneys are dedicated to helping others and they will go out of their way to achieve your goals. When you work with the right attorney and utilize him or her correctly, it will be one of the most supportive relationships you have in your business.

Work with a lawyer who supports your vision.

There are a lot of law firms out there, so you want to pick one that believes in your business and that will proactively support your goals. It is important to pick an attorney that has significant legal experience in your industry and the areas of law that you need expertise in. You can discover a significant amount of information from reading the law firm’s website to help you understand the areas of law they practice in and whether they have the expertise you require.

Get “big firm” help at solo practitioner’s prices.

If your legal issue does not require an entire legal team, consider working with a solo practitioner with prior big firm experience. This way you can work with an attorney experienced in working with complex matters without paying the big firm prices.

Take full advantage of an initial consultation

During your initial consultation, don’t be afraid to ask a lot of questions. You will also want to explain the nature of your business and your goals for it. You will learn a lot about the lawyer in this type of discussion and the advice he or she gives you. Remember, your conversation is protected by the attorney-client privilege, so you can talk openly and honestly. A good attorney will focus on listening to you and be able to answer your questions, so you have a clear understanding of your options and the choices you need to make.

Finally, follow your “gut” when it comes to choosing your business’s legal counsel. You want somebody that you trust, your comfortable working with, and that provides you the guidance you need. In no time at all, you will soon realize just how valuable the relationship with your attorney is to your business.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

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Simple Steps for Preventing Contract Disputes

As a seasoned business attorney, I can tell you that a significant number of contract disputes can be prevented with strategic pre-planning during negotiations and drafting of the document. Regardless of the size of your business or your level of expertise, it is common for the same underlying issues to lead to litigation over contracts.

Make sure the contract reflects the Deal

When parties are entering into a contract, they typically want to get the transaction completed ASAP so they can get started on the new venture. Frequently, one party gives the other its “form contract” without ensuring that the deal points agreed upon have been included in the document. The perception is that contract bears little relationship to reality and is only useful if the parties go to court. However, this thinking is exactly what gets people into trouble.  Form contracts are useful tools and outline your company’s position. But, they must always be modified to include the deal points and agreements. If those deal points are not included, they will be considered outside of the scope of the agreement and not binding obligations.

Be clear about performance

The contract should be specific about deadlines that must be met and the performance requirements. Not only does setting forth the time-for-performance protect you by helping ensure you obtain the product or services in a timely manner, it may also provide you the ability to get out of the contract if the deadlines are not being met. Thus, use exact dates and avoid any general or vague time periods.

Establish expected level of quality

Your written agreement should set forth the level of quality that is expected, the criteria for meeting that quality level, and who will determine if it has been met or not. The contract should outline what will happen if the expected level of quality is not met and who bears the burden of rectifying the problem (within a certain period of time).

Escape clauses

It’s always important to include an escape clause in the contract. If one of the parties can no longer continue to perform under the contract or the product, equipment, services or subject matter is no longer needed, an escape clause can provide a way to mitigate the damages and avoid disputes and litigation. For example, if a party needs to get out of the contract, it can pay a certain amount of money for work in process, materials on order, and the like as a type of agreed upon consequence.

In sum, don’t rush into a contract even though your internal customer will often push you to do so.  Prepare a document that reflects the deal points. Draft a strong agreement that is clear on the specifics and deals with potential issues that may arise. This can save you a significant amount of time and money, as well as preserve the relationship with the other party.

If you need assistance negotiating and drafting a contract or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

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Basics on Dissolving Your Business

If you have decided to close your business, it is important to understand that it involves more than hanging out a “closed” sign and selling off your inventory. Business owners have a legal duty to pay the entity’s creditors before any of the business assets can be distributed to the owners. Failure to follow the proper procedures in dissolving a business can result in the owners being held personally liable for the business debts.

Each state has established its own business code that sets forth how individuals can form and operate different types of businesses within its borders. Each type of business has certain procedures that must be followed when shutting down and winding up its affairs. Owners must follow these procedures in order to protect against personal liability and to ensure all business obligations end on the day the entity is officially closed for business.

State laws typically require a majority vote of the owners to close down a business. The vote to dissolve should be properly recorded in the entity’s records and should appoint an individual to pay creditors, sell assets, and close accounts.

If possible, a dissolving business must pay all of its creditors before any of the remainder can be distributed to the owners. Additionally, the law requires the entity to set aside an adequate amount of money to pay any unresolved debts. Most dissolutions laws provide that the business can publish notice in a local newspaper and establish a deadline for claims to be submitted. Proper notification in some states can prevent creditors from filing lawsuits against the business after a certain number of years, while other states provide that the notice serves to limit claims to any remaining assets that were distributed to the owners.

Your business must also file the appropriate paperwork in the same state registration office where the formation document was filed. This is commonly referred to as filing an article of dissolution or a certificate of dissolution, which establishes the date that the business closed down as part of the public record.

A dissolving business must cancel any licenses or permits that it has been using. Annual reports and tax returns should be filed, as well as any other final reports that may be required by state or federal agencies.

Dissolving your business can be complicated and it is important that it is done correctly. The above is a simplified outline of some of the factors that must be considered, but every case is unique. For more detailed information on how to properly dissolve your business, contact Leslie S. Marell today.

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The Nuances of Overtime Pay

Employers and employees often have confusion regarding overtime pay, which can ultimately lead to costly disputes. One of the most important steps an employer can take is determining whether the employee is exempt or non-exempt.

Employers are required by law to pay all employees at least minimum wage for every hour worked and a non-exempt employee must be paid the proper overtime pay rate for any additional overtime hours worked. This general rule seems simple enough, but there are numerous factors that must be considered when it is applied in practice.

Exempt Employees

If an employee is exempt, it means that he or she is not entitled to receive overtime pay (In other words, they are “exempt” from overtime pay). Generally, exempt employees are personnel who possess decision making responsibilities. They must meet specific tests regarding their job duties and must also be paid a minimum weekly salary, as set by law. Below are a few examples of the various types of exempt employees:

  • Executive exemption: To fall within the executive exemptions, the employee must be a manager who has the authority to direct and supervise the work of at least two other full-time employees. Typically, an executive has the power to make hiring and firing decisions on behalf of the business.
  • Administrative Exemption: If an employee’s primary job duty is office work, the administrative exemption may apply. An administrator performs non-manual work that is linked to managing or operating the business. An administrator usually has some discretion to make key decisions for the business.
  • Professional Exemption: If an employee has an advanced degree or has obtained specialized knowledge by attending extensive school, the professional exemption may apply.
  • Outside Sales Exemption: If the employee’s main job is to make sales calls outside of the employer’s place of business, the outside sales exemption may apply.

Non-Exempt Employees

A non-exempt employee has the right to receive overtime pay. The state law where the employee works determines the amount of overtime pay that is due. Federal law sets the minimum amount of overtime pay, which is one and a half times the employee’s regular rate of pay after 40 hours of work in a workweek.

If a non-exempt employee is paid a salary, federal law requires the employer to divide the employee’s salary by the actual hours worked to determine the employee’s hourly rate. The appropriate overtime pay rate is one and a half times this rate. Of course, the applicable state law may be greater than what is required under federal law. As a result, it is important for employers to consult with a local attorney to verify the appropriate rate of overtime pay is being used.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

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Contract Tips for Avoiding Data Breaches – Part 2

Hopefully you have read our first blog on this topic titled Contract Tips for Avoiding Data Breaches – Part 1.” Below are more contractual provisions you should consider implementing into your vendor agreements to help ensure your confidential data is protected.

Notification Requirements

If there is a breach in security or any impermissible uses of the information, the vendor should be required to provide you with immediate notification. You may want to have the ability to investigate the breach with your own resources either on-site or remotely. Also, you will want to include a provision requiring the vendor to notify you of any governmental or other third-party requests for disclosure of information.

Subcontractors

If subcontractors are used by the vendor, you may want to be notified of or have the right to approve the use of third-parties. You may want to have access to the third-party’s security protocols and certifications.

Data Center Location

The contract should specify the geographical location of the data center. You should consult with your attorney regarding whether this could subject you to the jurisdiction of that location.

Service Level Agreements

If you have negotiated certain guarantees for access or scheduled maintenance during times that will result in minimal disruption, your contract should provide for specified monetary credits for the failure to meet such service level requirements.

Indemnification

Your contract should set forth liability limitations and the vendor’s obligation to indemnify your business for harm caused to third-parties by the vendor’s breach of confidentiality obligations, noncompliance with the law, or other similar types of conduct.

Data Breach Insurance

The contract should require the vendor to obtain adequate cyber-insurance that covers both the loss of data and the costs of responding to a data breach, which should include reasonable attorney’s fees.

There are several other contractual provisions that may be necessary for your industry or unique needs. If you are interested in learning more about protecting your business with your vendor contracts or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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The Scope of the License in Software Licensing Agreements

Licensor’s Perspective

If you are the owner of software and you want to allow other parties the right to use the software while maintaining ownership and control over it, you need a software licensing agreement. As a licensor, you can limit the scope of the license by defining how and for what purpose the licensee is allowed to use the software. A restricted license only allows the licensee to use the object code of the software, not the software’s source code. A licensor may also want to further restrict the license by limiting:

  • Fields of use (for example, for use only at the licensee’s internal business purposes)
  • Geographic use restrictions
  • The number of concurrent users allowed
  • The hardware upon which the licensed software may be used
  • The ability to transfer the software license

A licensor is more likely to seek additional revenue by enforcing the scope restrictions in an economic downturn. Thus, restrictions on the ability to transfer the license can allow the licensor the ability to extract additional fees if the licensee wants to assign the license.

Licensee’s Perspective

A licensee typically seeks to negotiate a broader license to help ensure it has adequate rights to use the software as needed. If a licensee does not sufficiently negotiate the ‘terms of use’ and later discovers it must exceed the restrictions, the licensee will have to renegotiate and likely pay additional fees. Thus, it is important for the licensee to carefully consider what its future needs of the software will be. If this is not a known factor, the licensee may consider including a means for increasing the limits imposed by the licensor in the contract, and specifying the amount to be paid for the changes. Finally, and particularly if the licensee is paying for development of all or a portion of the software, a licensee may wish to negotiate to have the exclusive right to use the licensed software in order to prevent other parties or competitors from being able to use the software.

When parties are negotiating a software licensing agreement, it is imperative that both the licensor and the licensee pay close attention to the provision regarding the scope of the license.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

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What You Can Learn from Apple & GT Advanced Technologies

Have you heard the story of how the supplier relationship between Apple and GT Advanced Technologies (GTAT) went south? GTAT was the company selected by Apple to supply sapphire for use in the iPhone 6 screens and there are some significant lessons to be learned from them.

Prior to Apple’s relationship with GTAT, the iPhone screens were made out of glass, which had many benefits with regard to the use of touch-screen technology. However, the primary disadvantage was that the glass tended to scratch and break easily. GTAT was going to provide sapphire as a replacement for the glass, which is one of the strongest materials available, it is transparent, and it can be industrially made.

If you own an iPhone, you know that your screen is still made of glass. So, what happened? According to GTAT’s bankruptcy filings, Apple used its muscle and forced GTAT to enter into a one-sided contract that heavily benefitted Apple while placing all of the business risks on GTAT.

While this may be true, there are additional lessons that can be learned from GTAT’s mistakes and the problems that arise when negotiating development and production agreements at the same time. In the supply chain context, the development contract is an agreement to develop a new product, which may also include updating/ revising an existing product by using new technology. There are a wide variety of problems that can arise in development contracts that cannot be foreseen at the outset. For example, the product may not work, it may cost more than predicted, or a competitor may release a similar product before yours.

As you might have guessed, linking a production-level supply chain contract to the success of a development project (like Apple and GTAT did), can be dangerous. Not only did the supply agreement between Apple and GTAT assume that the new product would be developed within a certain price structure and be a specified deadline, but they also bet more than $500M in production-level orders on it.

While there were several other issues that seemed to seal the ill-fated destiny of the agreement between Apple and GTAT, it is important to note that for a development contract to succeed, the risks and rewards must be carefully scrutinized. Before production terms and conditions are finalized, the parties should understand the technical parameters of the product, including what it costs to make it, the time it takes to make it, and what the market is expected to be.

If a party insists on negotiating the production terms before the development is finished, it is wise to reserve the right to renegotiate certain key terms such as price, deadlines, warranties and indemnification terms.

To learn more about non-disclosure agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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How to Use Your Attorney More Effectively

Contrary to the reputation lawyers have, we really do want to help you in a manner that is effective and efficient. Unfortunately, many people get frustrated with the time it takes to get the answer they need. What they fail to realize is that if their attorney had been informed earlier and kept in the loop as things developed, he or she could have acted much quicker. Consider the following scenario that you may be able to relate to:

As a lawyer or purchasing person, your internal customer (pick one: calls you/   drops into your office/   sends you an email) telling you he/she needs a Purchase Order or Contract issued within the next XX minutes/ hours/ days. After questioning, you find out he/ she has been talking (hopefully, negotiating) with the supplier for months. Unfortunately, this is the first you’ve ever heard about the deal. Of course, they don’t tell you any specifics….just the basics they think you need to know to issue the PO/ Contract. They tell you not to spend a lot of time on it and just do the “standard” PO/ Contract. (IMPORTANT NOTE: All names have been deleted to protect the guilty!)

Without having the specifics of the interaction between your internal customer and the supplier, it inhibits your ability to do your job effectively. If you had been involved sooner in the process, couldn’t you have issued a more meaningful purchase order or contract? This is similar to the interaction many clients have with their attorney.

What can an internal customer do to get better advice and quicker responses from your legal department? Give us the information and the time we need early on in the process. This doesn’t mean you have to have a lengthy meeting with me, but sending a quick email or making a short telephone call to give me notice of the deal being negotiated can prove to be quite helpful.

The internal customer should stay involved in the process. If the supplier is asking for changes to a clause, it is important that you understand the issues behind the requested change before sending it to your attorney. This allows you to discuss the negotiation or the rewrite of the provision with your attorney so that the issue is addressed and it avoids the unnecessary back and forth.

Lastly, you should think about whether or not your lawyer really needs to approve certain changes. If the change is a business issue that is within your domain to decide, handle it yourself. However, if your supplier wants to change the indemnity, insurance, governing law, warranty, confidentiality, non-disclosure or the intellectual property clauses, you should confer with your attorney.

To ensure that your contract provides you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.