Articles Posted in Business Litigation of us running businesses have a supporting cast, whether they’re contractors, suppliers, funders, banks, attorneys or employees. If a trusted cast member disappears at a critical time what do you do? Susan Jeske found herself in that situation in September. Like most of us she made due with what she had and went forward.

Jeske owns the Ms. America® Pageant. She purchased it in 1999 after winning the competition in 1997. Ms. America contestants are often well into their careers, sometimes are married and often range from 26 to 40 years old. The 2017 event was scheduled for September 3 in Brea. At the last minute Jeske got some bad news.

She learned on August 30 that Costa Mesa based BTB Event Productions, the company hired to produce the pageant, was shutting down and their equipment was being sold off. As a result Jeske was left scrambling to find a stage, runway and proper lighting. “I have 43 contestants flying in from across the country that are coming in tomorrow and I don’t have anything,” Jeske told the Orange County Register on August 31.

photo - yogurt spoliationEvidence is the life blood of a lawsuit. If you think you may have a legal claim against a party it’s important you not alter any evidence and maintain its integrity. If you think you may be sued, or have already been sued, you may be tempted to alter or destroy damaging evidence. That’s not a good idea because it may open you up to possible sanctions by a judge.

This issue came up in purported false advertising class action lawsuits filed last year against Whole Foods Supermarkets, according to the Philadelphia Inquirer. They are based on a Consumer Reports story concerning store brand Greek yogurt. Six samples were found to have on average 11.4 grams of sugar while the labels stated that they only had two grams of sugar.

Attorneys for the store stated yogurt samples had been retained for testing. Plaintiffs’ attorneys weren’t so sure. They filed a motion in court claiming all of the yogurt in question had actually been destroyed after the products were pulled from the shelves when the article was published and a prior lawsuit was filed in Philadelphia in 2014.

The motion states that the store admitted in writing that it “believes the voluntarily withdrawn product was destroyed pursuant to Whole Foods protocol.” Whole Foods responded with a statement not quite denying the allegations. “Whole Foods Market took reasonable steps to preserve relevant evidence for this case and we believe there is more than sufficient evidence supporting that fact.”

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photo - pick the right boardIf you’ve chosen a corporation as the structure for your business you need to have a board of directors. If chosen well these people can be a huge asset to your company and help your business become more successful. Choosing the wrong people can be a big setback, sucking time, energy and resources away from managing a business and towards a malfunctioning board.

A board of directors is elected by stockholders and it oversees the corporation’s management. Daily functioning of the business should be left to executive officers recruited and retained by the board. Major decisions affecting a business should be decided at the board level.

If you have a new business you need to find directors. If you have an existing company after a board member leaves you may need to find a replacement. In either case, here are some things to think about.

  • Find someone you trust. A board member will be privy to the company’s innermost secrets. A board member who uses his or her position for personal gain, perhaps by starting a competing company or working for one, would be a huge problem. Though this could be grounds for legal action against this individual, the threat of a lawsuit might not necessarily prevent the person from trying to cash in on his or her access to the company.
  • Those to avoid: VentureBeat lists The Do-Nothing, The White Flag (avoids confrontation), The Cabalist (his or her personal agenda is foremost), The Meddler (focuses too much on details) and The Pontificator (just wants to hear himself talk).
  • Are there too many board members? Do meetings get bogged down because too many people are involved? Is it difficult to reach a decision because of so many opinions? A larger board will also probably be less engaged with the business.
  • What skillsets you should be looking for in board members depends on the maturity of the business. Individuals whose skills are especially helpful for a startup may not be so helpful with a mature, established business. Board members should also have a mix of skills that complement each other and members of management.
  • A board member should be a good fit with the culture of the business. Is the culture dominated by those with strong opinions or run by consensus?
  • How much compensation should a board member receive? If you want skilled, experienced people their time is very valuable. It will take a commitment by a board member to become engaged, do the homework necessary to make informed decisions and attend and participate in board meetings.

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If your company has employees driving either company owned or employee owned vehicles in the course of their duties depending on the circumstances your firm may be held liable for their negligence. Given the potential damages of a catastrophic accident it’s important that your company has sufficient insurance to cover this situation. Without proper insurance your company could be responsible for paying for your legal defense, settlement amount or damages awarded at a trial.

If you have employees driving their own vehicles for company purposes you need to review your coverage. If such a company related errand or delivery is done in a vehicle not owned by your company and an accident occurs your insurance may not cover it. Most business owners have a general liability policy. It’s a common myth this policy will cover anything and everything that could result from business related negligence but most of these policies do not cover car accidents.

There are several potential causes of action that could be filed against you.

  • The legal doctrine of ‘respondeat superior’ means that an employer can be held responsible for the negligent acts of an employee if he or she is acting within the scope of his or her employment. The reasoning is the employer is exercising some control over the employee while the employee is doing his or her job. This can include actions taken by an employee driving his or her own vehicle or one owned by the company.
  • Another legal doctrine impacting such a situation is that an employer has an obligation to defend legal claims against an employee who is acting within the scope of his or her job. If the employer fails to do so the employer can be sued by the employee to get a court order mandating the defense or to pay the employee’s legal bills.

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photo - new franchise lawA new state franchise law goes into effect on January 1 which is much more favorable to franchisees. It makes it more costly for franchisors to pull out of agreements and gives franchisees more time to correct any alleged breach of a franchise agreement.

The new California Franchise Relations Act will cover any franchise agreement signed or renewed after January 1 as well as any franchise agreements that have an indefinite duration which may be terminated by the franchisee or franchisor without cause.

The part of the new law that should have the biggest effect on franchisor/franchisee relations are the new repurchase requirements.

photo - ex-employeesThis can happen in many ways but a recent Inc. magazine article brings up the fact that statements and opinions of former employees can damage your company’s reputation and make it more difficult to attract good job candidates. Just as online reviews of products and services (even lawyers) have multiplied across the internet, so have reviews of employers.

In the article J.T. O’Donnell describes a business owner having a hard time finding candidates for job openings, with three people backing out of interviews. With openings unfilled he was having a hard time meeting his clients’ needs. O’Donnell learned his company had restructured two years earlier resulting lay offs. Some of those let go used social media to blast the company and its management.

Just as you may do online research on people you’re considering hiring, those looking for work also may do online research of possible employers. These job seekers, especially ones whose skills are in high demand, may be very picky if they read things they don’t like. The job candidate may discount one or two truly negative reviews as being written by malcontents, but if multiple, consistent negative statements about your company or management are found they may be given some weight.

Photo - cookie IP casesCookies not only taste good but they can be the subject of intellectual property (IP) lawsuits. While many IP lawsuits in the news concern high tech patents like those between Samsung and Apple over smart phones, IP disputes can arise over virtually over any product that has a patent, trademark or copyright.

A cookie sold by Trader Joe’s is the basis of a trademark infringement case filed in December in federal court in Connecticut by Pepperidge Farm, Inc., a bakery unit of the Campbell Soup Company, according to Reuters. Trader Joes’ estimated total revenues in fiscal year 2013 was $10.5 billion. It’s a privately held grocery store chain based in Monrovia, California, which opened its 400th store in 2013.

Pepperidge Farm claims that Trader Joe’s has infringed its trademark rights by copying the look of its Milano cookies and its packaging. It claims the grocery store chain is damaging its goodwill and confusing shoppers through the sale of its Crispy Cookies.

photo - arb. confirmationArbitration is an increasingly popular alternate means of dispute resolution. Instead of resolving a legal claim through the court system and having a judge or jury decide, the parties have the dispute decided privately. An arbitrator, or a panel of arbitrators, acts as judge and jury and decides the outcome of the case. This method is normally faster and less expensive than having a trial, but it also can add some extra hoops to jump through.

Unlike a judgment obtained during court proceedings, an arbitration award is not directly enforceable. It needs to be confirmed (or vacated if the losing party successfully challenges it) by court proceedings before it can be enforced.

  • If a petition is properly served and filed after an arbitration award has been rendered, the court will confirm the award as made, or, pursuant to applicable laws, it will correct the award and confirm it, vacate the award or dismiss the proceeding.
  • Changing or dismissing an arbitration ruling is rare. Under the law every presumption in favor of the validity of arbitration award is given. If a party claims the award is not valid, it carries the burden of proof.
  • A court won’t look into whether there was sufficient evidence to support the award or if the arbitrator’s reasoning was valid. Alleged errors of law by the arbitrator also won’t be reviewed. The losing party could claim that fraud, corruption or misconduct by the arbitrator(s), but that would be extremely difficult to prove.
  • Despite the vast space arbitrators are allowed to work in, they cannot completely make things up. They cannot exceed their powers by making decisions and awarding damages that are not authorized by law.

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Creative accounting is photo -Toshibaone thing, creativity to the point of fraud is something else. Fraud is never a good idea, no matter how dire your company’s financial situation may be. Whatever short term benefit a company may obtain because of it, it’s just a matter of time before the truth is known. Depending on the circumstances civil lawsuits and criminal charges may result.

Japanese corporate giant Toshiba Corp. is suing five former corporate executives involved in a massive accounting scandal rocking the multi-national high tech company, Bloomberg reports. Toshiba is working to recover from overly creative accounting that resulted in profit write downs of more than $1.2 billion over nearly seven years.

Defendants are three former presidents and two former chief financial officers. The company is seeking the equivalent of $2.4 million in damages. Three defendants resigned in July to take responsibility for the scandal.

Fortune reports the company had overstated profits by about $2 billion. It states the cause was Toshiba management set profit targets so aggressively the only way subordinates could meet them was through inflating actual results. An independent investigation concluded that the five men failed stop the accounting irregularities Continue reading

photo - trade secrets verdictsYour business probably relies on a variety of information that you wouldn’t want disclosed to outside parties. That disclosure could make you less competitive and harm your business. If another company gains access to that information by an illegal method, you may have a basis to file legal action. That lawsuit can ask a judge to order that the use of that information cease and that you obtain money damages for lost profits.

If your company takes reasonable measures to protect information and that information has value because it’s secret, the California Uniform Trade Secrets Act (UTSA) recognizes that not just product formulas or designs are trade secrets, but also more common pieces of data can be protected as well. This information can include customer lists, business plans, corporate minutes and bid specifications.

The UTSA doesn’t use the word “theft” it uses the word “misappropriation” which includes,

  • The acquisition by improper means (“(T)heft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.” Civil Code section 3426.1(a)), and
  • The use or disclosure of trade secrets (such as a former employee using trade secret information to generate business for a competitor).

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