Starting a business can be very exciting. You make plans for a bright future. You’re optimistic not only about how well the business will run, but how profitable it will be too. Plans and dreams are great, but it’s preparation and work that may help you avoid conflict with co-owners. If it happens there are things you can do to protect yourself.

Whether you formed a partnership, limited liability corporation, partnership or limited liability partnership, a big step to manage expectations and make sure everyone knows their responsibilities is an effective partnership agreement, LLC operating agreement or shareholders agreement.

If despite those documents owners are at a stalemate or relationships have simply broken down it may be time for disputes to be resolved or for people to go their own ways. How this takes place should be spelled out in the agreement which should be tailored to the needs of the business and the owners. If there is no such agreement state statutes cover these topics in a “one size fits all” approach that may or may not work very well.

If things are going poorly you may want the other owners out, they may want you out, or both. It’s possible that the company’s not doing well and everyone’s miserable. Maybe it’s going very well and some are trying to get more of their fair share of the profits.

If there is an agreement,

  • Who has the ability to make what decisions for the business?
  • Has one or more parties over-stepped their bounds?
  • Have obligations been met?
  • If the agreement has been breached, are remedies spelled out in it?
  • How are disagreement supposed to be resolved?
  • If the parties can’t do it themselves, must a mediator or arbitrator be used?
  • If the disagreement goes to court, must it be filed in a particular place using the laws of a specified state?
  • Does the agreement state attorney’s fees and costs of litigation can be awarded to the prevailing party?
  • Can a judge or arbitrator award attorney’s fees?

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photo - hold the mayoNew companies seeking investment and funding are under a lot of pressure to show success. One such company is facing an investigation by the Securities and Exchange Commission (SEC) to see if it tried to boost its sales numbers by hiring contractors to buy their product then reimburse them for the purchases.

The SEC is looking into San Francisco based Hampton Creek, Inc., according to Bloomberg, which broke the story about the potentially bogus sales numbers in order to impress potential investors. The agency is trying to determine if the startup broke federal law by failing to disclose it was buying its own vegan mayonnaise from stores, making it appear to be more successful than it actually was, according Bloomberg’s sources.

At issue is whether company founder and CEO Joshua Tetrick improperly recognized revenue from purchases made with company money. Bloomberg reported Hampton Creek started an operation to purchase its own mayonnaise starting as early as 2014. The SEC has jurisdiction over the closely held company because it has raised money from outside investors.

Investors have come up with more than $220 million for Hampton Creek and Tetrick told employees in August he expects to raise another round of financing by September that will increase the value of the company to $1.1 billion, according to Bloomberg.

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photo - IP negotiationsTrade secrets are the life blood of a business. They can be marketing plans, customer lists or product designs. Because they have value sometimes they are stolen often by an ex-employee or business associate. This theft can be seen as treachery, the business equivalent of a stab in the back. No matter how high emotions are running if a lawsuit has been filed or is being considered, the reality is the vast majority of cases settle.

Since that’s the case whether you’re a plaintiff or defendant in a trade secret theft case you should think about your interests, your goals and how they may be reached through a settlement. These cases can be very expensive in time, energy and money. If a settlement can be achieved fairly quickly with reasonable terms it may be your best option over a long litigation slog and rolling the dice at a trial.

What would be reasonable terms? They should be based on what could be attained without a settlement. Be realistic. Trying to hammer away at the other party to get terms that would be unlikely through litigation will probably be a waste of time and just antagonize the parties even more. On the other hand, setting your sights too low makes the process not worth it.

What do you need to settle? What would you like to settle? You must decide before starting negotiations.

Out of fear or anger you may seek litigation to try to get injunctive relief or a seizure of your trade secrets. But without enough facts an attempt at injunctive relief will probably fail. Another way to seek what you want is through negotiations.

You will have to contact the suspected bad actor, or their attorney, to see if there is interest in negotiation or mediation. This should be in writing, in a business-like fashion, without hostility which may end discussions before they start. You should include some details as to when and where and what information should be exchanged in advance.

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If you hear the term “insider trading” you may think about corporate big wigs sneaking off and secretly buying or selling stocks to cash in on inside information. That scenario happens but there’s a wide range of people who may seek to profit on information unavailable to the public. One recent case involves an optical physicist.

Guolin Ma was a former consultant for two China-based private equity firms. He agreed to pay more than $756,000 to settle insider trading charges filed by the federal Securities and Exchange Commission (SEC), according to an SEC press release. It charged Ma with breaking the Securities Exchange Act of 1934.

The agency claims Ma traded on confidential information he received while working for two firms as they sought to buy Silicon Valley-based OmniVision Technologies, which makes optical semiconductor devices used in mobile phones and webcams.

Ma is an optical physicist who lives primarily in China but who resided in Mountain View during the period in question. He attended various meetings and performed technical due diligence related to the potential acquisition of OmniVision. He also obtained a timeline and strategy documents from the firms about the OmniVision purchase. The SEC’s complaint filed in federal court in San Jose in June states,

  • One of the firms Ma advised joined a group of Chinese investment firms to make a bid for OmniVision.
  • Ma worked regularly for the investment firm. He monitored their current investments and evaluated possible investments in the area of optical technology.
  • Ma was aware his consulting exposed him to non-public information about the firm’s investments and other entities and that such information needed to be kept confidential.
  • Ma signed a confidentiality agreement with the firm in March 2014 prohibiting him from trading on the non-public information he learned through his work with the firm.
  • Ma owed a duty of trust or confidence to the firm he worked with and he and those at the firm shared confidential information regarding potential investments.
  • Ma “knew or recklessly disregarded” the fact he owed a duty of trust or confidence to keep the information confidential and used the inside information to place trades in his personal brokerage accounts.
  • Ma bought 39,373 shares of OmniVision in a number of purchases in April and May 2014. OmniVision’s stock price climbed 15% when the proposed purchase was announced in August 2014.
  • That gain created $367,387 in illegal profits for Ma.

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photo - Panera v. Papa John'sAllegations a growing national pizza chain improperly hired an IT executive away from one of the nation’s leading “fast casual” restaurants is the basis of a recent lawsuit filed in federal court in St. Louis. At issue to the potential loss of intellectual property, specifically technology such as digital ordering kiosks, according to the St. Louis Business Journal.

Panera Bread Co., based in the St. Louis area, states it filed a lawsuit in July against a former IT executive and his new employer, Papa John’s International Inc., in order to protect its technology trade secrets. Panera claims Papa John’s knowingly interfered with an employee contract to gain trade secrets involving its technology. The plaintiff seeks injunctive relief, damages, attorneys’ fees and a jury trial.

Michael Nettles is the former Panera employee at the center of the legal storm. He’s a named defendant in the suit who was Panera’s vice president of architecture for the company’s information technology department from 2012 to July 1, 2016. Panera states he had “privileged access” to its tech based initiatives and was involved in every aspect of their development.

The lawsuit claims Nettles knows of Panera’s high-level discussions about using technology, developing an intimate knowledge of Panera’s strategic technology plan. Panera stated it has invested more than $42 million in its digital and tech strategies including enabling customers to order via their smartphones or in-store kiosks.

Nettles allegedly signed a non-compete agreement with a list of competitors (including Papa John’s) where he couldn’t work for a period of time. Papa John’s is accused of knowing about the agreement but still pursuing Nettles.

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photo - wolves among sheepThose who own successful local businesses often rely upon networking to try to meet potential customers, referral sources, future employees and investors. That networking can occur any time and any where people meet, including while attending religious services. You may feel a connection to someone who shares your faith and attends the same church. You may feel that person is also more trustworthy because of that apparently shared faith, but your feelings may be wrong.

Steven McKinlay and Kristi McKinlay of Coto de Caza were arrested in December (just before Christmas) and are facing grand theft and fraud charges. The Orange County District Attorney’s office claims they bilked investors, including people they knew through their church, out of more than $3 million, according to the Orange County Register.

They are the owners of God’s Sports Company located in Foothill Ranch. The McKinlays have been charged with a dozen felonies, including using untrue statements in the purchase or sale of a security, grand theft and the use of a device in a scheme to defraud. If convicted the two could be imprisoned up to 23 years and eight months.

Law enforcement claims,

  • The two victimized at least ten people, including a former Major League Baseball player, a friend who gave them money he received due to an injury and a person being treated for cancer who wanted to build an inheritance he could pass on to his family.
  • Investors, many of whom knew the McKinlays through the church they attended, paid them from $22,500 to more than $700,000 to invest in God’s Sports Company.
  • The McKinlays failed to tell investors about Steven McKinlay’s prior bankruptcy filings and property liens that had been filed against the pair.
  • Some of the “invested” money was used as part of a Ponzi scheme where money provided by newer investors repaid some of the older ones.
  • The church got the benefit of a $50,000 donation from the McKinlays paid from investor funds.
  • The McKinlays got the benefit of the rest. Instead of being used to build the business money believed to have been invested instead went to the couple’s personal use including $17,000 a month rent for two homes, payment for their daughter’s wedding, a car and an Angel Stadium luxury suite.

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photo - tip sharingCalifornia restaurants and other businesses who employees receive tips may need to change how they are compensated. The decision by the U.S. Court of Appeals for the Ninth Circuit mostly applies to states where employees are paid the minimum wage to begin with located in California, Alaska, Minnesota, Montana, Nevada, Oregon and Washington, according to the Los Angeles Times.

The appeals court decision upheld a 2011 U.S. Department of Labor rule stating it was consistent with Congress’ intent that tips stay with the employees who get them. They don’t belong to the business owners to divide up. Business owners who provide services are facing multiple issues concerning compensation including tip issues, raising minimum wages and the added costs of the Affordable Care Act in addition to a mix of federal, state and municipal laws.

Restaurant owners are trying different options to address the issues they’re facing. Due to tipping staff working in the “front of the house” could make much more than staff in the “back of the house.” Some are eliminating tipping but raising prices to pay for increased wages for the entire staff. The downside to ending tipping is better wait staff may leave to join restaurants where they can still earns tips and overall higher pay.

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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 - Michigan scamCon men are very good at sales. They know the importance of trust and how to gain it. They may be charming, tell a great story and be very convincing about the investment opportunities that are available for just the right people. And you are just the right person! That may have been the pitch to 84 year old Elsa Prince-Broekhuizen before she made her investment.

The president of a western Michigan investment company has agreed to plead guilty to stealing about $16 million from Prince-Broekhuizen, a prominent western Michigan philanthropist according to the Lansing State Journal . She’s also the widow of billionaire industrialist Edgar D. Prince.

The fraud occurred over a period of 16 years according to the felony information filed in U.S. District Court in Grand Rapids. A plea agreement states 68-year-old Robert Haveman admits to wire fraud, money laundering and causing $16.2 million in losses to Prince-Broekhuizen and the Elsa S. Prince Living Trust.

Haveman is president of EDP Management in Holland, Michigan, which managed investments for Prince-Broekhuizen and the trust. It’s alleged that at least $1 million of the ill-gotten gains were used as partial payment for a real estate purchase. Court documents state that starting in 1999 Haveman moved money into a personal account and also spent it on personal expenses and investments. Haverman falsified accounting records to hide the fraud.

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photo - post it noteIt’s hard to imagine life before the Post-It Note. Thanks to the just sticky enough pieces of paper reminders and lists can be put in all the right places to remind us of what needs to be done. One man who claims he’s the original inventor is suing 3M, Post-It Notes’ maker, for allegedly failing to live up to a settlement agreement of a prior lawsuit he filed claiming the company wrongfully claimed it’s the rightful inventor.

Alan Amron holds 40 U.S. patents, according to the Associated Press (AP), but what gets most of his attentio is the invention for which he’s not getting credit, the Post-it Note. Amron states he invented an earlier version, the Press-on Memo, in 1973 a year before 3M developed their product. Amron settled a prior lawsuit against 3M but he’s back in federal court in Fort Lauderdale, Florida, claiming 3M breached its previous, confidential agreement not to take credit for the invention.

He’s seeking $400 million in damages and an admission that Amron invented the product. “Every single day that they keep claiming they invented it damages my reputation and defames me,” he claims.

3M claims Post-it Notes were invented by their employees Arthur Fry and Spencer Silver. Silver supposedly came up with the adhesive and Fry had the idea of using it for small, yellow squares of paper. The company states neither Amron nor his Press-On Memos had anything to do with the development of their product. 3M told AP they’re within their rights in the prior settlement to claim credit for creating the Post-it Note.

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