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Ms. Natbony has authored, presented, or been published in the following:

Press / Blog Posts

Should You Sue?

 

*Most of the contents of this article also appears as a video on YouTube.

**By Suzanne Natbony, Esq.

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Clients, friends, family members, even random people at the gym who know I’m a lawyer, frequently ask me if they should sue someone or a company because of a claimed wrongful act. The wrongdoing could include taking money and failing to perform the terms of a contract, getting injured on a property, a botched medical procedure, food poisoning, or being misled. You name it, I have been asked about someone’s legal rights pertaining to everything from a dog bite to revenge porn!

 

While people may want a simple, “yes” or “no,” the analysis that goes into this legal consideration is based on years and years of practice and law school.  Some lawyers refer to the legal analysis as the “4 Cs of case evaluation.” You must have the following 4 components of a case before even thinking of pursuing a claim, successfully:

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1) Claims

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Do you have valid legal causes of action, such that you can actually sue and likely win if filed?

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Frequent claims include, breach of contract, negligence (personal injury or professional malpractice), defamation, nuisance, and employment discrimination and wrongful termination.

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Each claim must have the elements fulfilled.  For example, if it’s personal injury which involves a claim for negligence, you have to have to have 4 elements – duty, breach, causation and damages. Even if you have all of those factors, your claims must be better than the other person’s and if your claims will not counter the other party’s possible claims or defenses, the litigation might not be worth it for you to initiate.

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You have to ask – will there be counterclaims or defenses to make a lawsuit not worth it?

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2) Compensability
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Can you even get compensation, which is provable money damages, or other meaningful remedies, given the harm caused?

 

Suppose a company made a mistake, but that mistake didn’t cost you any money, such as when an airline loses your bag for several hours, causing you no financial loss (just frustration).  The airline might have been at fault and you might win on a negligence claim if they broke a $10 souvenir in your bag, but is it worth the time, money and energy to sue?

 

You need to ask yourself:

  1. How much money have you lost?

  2. Are the damages compensable?

 

Suing in civil court can cost thousands of dollars.  Small claims court might cost only $100 to file and serve, but it can take hours and hours of time to fill out the paperwork, find a process server, figure out how to serve the person, file more paperwork, get ready for court, perhaps redo paperwork and sit there for hours.

 

The damages could be difficult to quantify and you may want what’s called, equitable relief, such as an injunction – an order to do or stop doing something.

 

For example, if someone threatens you, you may just want a temporary restraining order to keep him or her away. If someone has misappropriated your name or are using an image of yours without your permission, maybe you want an order for them to cease and desist instead.

 
3) Corroboration
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Do you have evidence, witnesses or experts to testify – to corroborate your story and help you prove your case?

 

You usually must have a written contract if you’re trying to show breach of contract. An oral agreement is much harder to prove.

 

If it’s products liability, you need to prove that it was this product that caused the damage and possibly have to conduct testing on that product.

 

If it’s medical malpractice, you’ll need an expert to testify that it falls beneath the standard of care – and you should expect the other side to bring its own expert.

 

4) Collectability

 

Will you be able to collect if you win? Does the person you’re suing have sufficient, accessible assets and, even if so, how difficult will it be to collect from that person? If you have to take the matter to “collections” or if the person might file bankruptcy, you have an issue.

 

In conclusion, you need to think through all of the 4 Cs.  If you don’t have positive answers for the four components, you should strongly consider not moving forward, and wasting your time, money and energy.  Even if you have all positive answers, be aware that there are many other risks to consider. You could have all of the above and your case could be decided by a judge who is in a bad mood or you could get a jury that doesn’t like you and then you can lose anyway!

 

**My background is in business law with a broad range of experience that runs from contract drafting to resolving disputes – I deal with almost all of the legal issues that businesses encounter.  I have worked at law firms and in house for several startups.  My focus is on helping clients grow their business. If you’d like to learn more, visit my profile on LinkedIn, LawTake.com or suzannenatbony.com.  I am a cofounder of LawTake and I created several other videos on the website. You can also email me at SUzanne@lawyer.com if you have additional questions about suing. As someone whose felt terrible over injustices, I can relate to what you’re going through and offer unique legal advice and experience with resolving disputes.

 

Before you break down and sue, call SUzanne – to the rescue!

Defamation or Legal Free Speech?

How to Deal with Defamatory (libelous) or Negative Reviews on Yelp and some other Social Media and Review Sites:

 

Did you just get a very negative review about your business or practice?  Do you believe that the review was blatantly false or defamatory?  Perhaps you tried to contact the poster to no avail. If you are considering hiring a lawyer to assist with the take-down, you may want to look for one who does not just jump into sending a cease and desist letter, as that can backfire.  A lawyer can help you figure out if the content is actually defamatory, as there are several different types of defamation. Remember that truth and opinions are protected speech, so if someone has given an opinion, no matter how negative, you likely would not have a claim for defamation. However, whether something is an opinion or fact is a litigated area and you will need the guidance of an attorney. The following best practices are from a specific situation with a client (confidential information has been removed) and your situation may be different. This does not substitute for the legal advice of an attorney as your facts and circumstances may differ.

 

General best practices in terms of dealing with negative or defamatory reviews and disputes are the following:

  1. Get to the bottom of the facts as far as who is technically liable and what the possible claims are. This may require some investigation in conducting interviews with employees, online research to figure out who the review poster is, and other fact checking.

  2. Determine if the post is just a negative review or defamatory (libel). There are several types of defamation. You need to decide if you are a public figure or private individual. In general, in California, for the post to be defamatory, the defendant must have made an unprivileged false statement of fact (opinions are protected) to at least one other person (not you, the person being defamed), without using reasonable care to verify the truth of the statement, and that person must have understood the statement to be about you, with damages to the plaintiff, such as shame or loss of business. You may also need to request that the defamatory statement is retracted before initiating a lawsuit.

  3. If the post is just negative and only potentially defamatory, you can try to call the person who posted and try to reason with him or her and persuade him or her to remove the post in a sensitive and caring way. Hopefully this causes the poster to remove the post. Note: if you are hot headed, then you should not be the one to make this call. This is when you should consider employing an advocate to finesse the situation and persuade, such that the negative or potentially defamatory post is removed.

  4. If the review is false and defamatory, you can try to contact the Web Host of the Review site to explain the situation – be clear that the review is false. They should have a process for reporting defamatory or illegal content and you need to take steps to report it.

 

However, if the above does not work, then:

  1. Email a positive follow-up to the poster, including empathy (try to understand their perspective and put yourself in their shoes) and possible solutions, such as compensation for the frustration or complimentary products or services.

  2. A lawyer could continue to try to call and email the defamer, or even send a text.  It does continue to add up legal fees, so the client could also start privately messaging through the review site, emailing, calling and texting.

    1. Consistency of follow-ups, every 2-3 days, or at least weekly (to keep putting pressure on the defamer) with something such as the following:

      1. “Thank you for speaking with our attorney last week and understanding that the [Google/Yelp/Facebook/etc.] review was [accidentally/full of misinformation/etc.] posted on our page, and agreeing to delete it. We were just wondering when you were going to please correct the mistake and remove it? Our attorney is $XXX an hour, so I hope you understand why I am following up! I am available for a call if you need assistance.

  3. If you have a friend or insider who works at Yelp, Google, RealSelf, etc., please contact them to make an internal complaint.

  4. A public response by the business to honestly acknowledge any shortcomings, clarify misunderstandings and express empathy without revealing any confidential information, such as HIPAA protected personal information. However, this can bring attention to the post and raise it to "recommended" (on Yelp) or "relevant" (on Google).

  5. Send a firm Cease and Desist demand letter that mentions claims for defamation and the risk of litigation.

  6. Send an even stronger demand letter, with a draft complaint attached with claims for defamation, telling the defamer that we are filing this compliant in 5 business days if the defamatory post is not removed.

  7. Advise client about potential defenses – here, it is the risk of an Anti-SLAPP motion in which client has to pay attorney fees if the post is not really defamatory – and also conduct hours of legal research to find similar cases and predict what might occur in court.

  8. File a lawsuit for defamation and other plausible claims. I have created a video, Should You Sue, which I recommend that my clients watch before deciding on litigation. The text and link to the video can be found under Press/Blog here: https://solveandwin.com/press#should-you-sue.  If you obtain a court order to remove the review, the Web Host should comply with the removal.

 

Some clients prefer to jump from step #1 to #5 or #8 because they know that the steps in between are costly. If the review is by a competitor, someone without deep pockets or is a blatantly false allegation that can easily be proven, then a lawyer might suggest skipping steps. If it seems like it was possibly a misunderstanding, then it makes sense to employ the “honey then vinegar approach.”   Also, some clients may prefer to conduct the costly legal research (#7) at the outset if they are ready for litigation.  Some lawyers may refuse to send a demand letter without first conducting the legal research. It can depend on whether the words or writing are a in a grey area or novel to the lawyer.

 

The risk of sending a cease and desist demand letter is it can cause the “Streisand Effect,” which is when something blows up out of proportion and brings more attention to the situation.  The defamer could retaliate in various ways such as posting the demand letter on the review site or elsewhere, have friends post negative reviews, make complaints to professional boards, etc. Further, even a public response or getting a review removed can cause the reviewer to post a negative review on another site or through various fake accounts.

 

In the interim of attempting to get the review removed (since the above process can take a long time), you can try the following options:

  1. Bury the negative review with positive reviews from customers/patients, which I suggest as a best business practice to do anyway – *suggest* reviews to happy customers (as some companies prohibit, asking for reviews, and especially paying for them).

  2. You should ask your customers and friends to at least report the negative reviews for violating hosting company policies, but again, this could bring attention to the review, especially if a technologically challenged user accidentally clicks the wrong button to Like or give it a Thanks, etc.

  3. Again, responding to or restating the public response to the review to be 100% clear that the post is false, but also offer empathy and support, it must be carefully written to show potential customers how wonderful you are. “You are not defined by your failures – you are defined by how you overcame them.”

  4. There are a number of companies that offer to remove reviews for a fee. I am not certain how much that costs or whether they are successful, but may be worth considering.

  5. Responding to the Web Host of the Review site again with the information that the post was defamatory and evidence and trying to persuade them to hide the review and mention their liability for failing to remove the defamatory post.

  6. Sending a formal and firmer demand letter to the Web Host of the Review site, similar to the type that Marty Singer sends.

 

I understand that this is a difficult decision for the client. I personally and professionally prefer the “honey then vinegar approach,” but I have written numerous demand letters and have seen things go positively, some go nowhere and some lead to costly litigation. The choice is the client’s.  I wish I had a crystal ball to predict the future.  Thus, lawyers use research, analysis, investigation, negotiation and if necessary, litigation, to meet the client’s goals.

General Counsel Opinion: Top Five Legal Issues That Can Derail a Small Business’ Efforts

*Suzanne Natbony, Esq.

Most clients that I represent have the following typical top 5 business goals:

1) make a profit, if not maximize profits,

2) provide a useful/safe/top-notch product/service in that it provides customer/patient satisfaction,

3) minimize legal risks,

4) reduce costs, and

5) minimize tax exposure.

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As a general counsel attorney, I work very hard to achieve those goals for my clients, but the following are the top 5 legal issues that can derail our efforts:

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1. Doing Business with Bad People

  • I can’t emphasize this enough – business partners, employees, customers, vendors, etc. - if you end up dealing with a complainer, or someone who is vindictive, difficult, litigious, entitled, pesky, or even worse, criminal, such as a fraudster, your business will likely suffer. Lawyers can help you vet your contacts by conducting due diligence on potential deals. Also, the recommendation to have a “no jerk policy” cannot be emphasized enough.

 

2. When You Are the Bad Actor

  • Do not alienate, belittle, overpromise/underdeliver, fail to recognize colleagues, employees, customers, etc. Disputes can arise when my client, let’s say, has had a bad day and been rude to an employee, or failed to recognize an employee, causing a chip on a shoulder, or when the business overpromises about a product or service, or perhaps just falls short of providing the best service, then customers may complain, or people sue.

 

3. Not Being in Legal Compliance and Getting Caught

  • This could be seemingly innocent, such as your website was not in compliance with the ADA, and you get sued. You want to make sure to have a lawyer review your business plan, products, website, advertisements, etc. to make sure that you have legally required language protecting you or highly advisable language such as disclaimers.

 

4. Resisting Change/Failing to Adapt to Changing Technology/Customers/Growth etc.

  • Business success requires a certain degree of determination, which can include rigidity, but there needs to be room for growth, improvement, and change. A seasoned and experienced general counsel, with business experience, can assist by facilitating deals, rather than killing them.

 

5. Passing Up Opportunities.

  • Related to the above issues with resistance, clients have passed up on great opportunities. I have employed calculations to help my clients determine whether to partake or pass on these opportunities. Unfortunately, overlooking opportunities can be related to having an ongoing litigation as a distraction from growth.

 

As a general counsel, I cannot help prevent all of the above problems, but I do my best to help my client put mechanisms in place to prevent or put out fires, as swiftly and efficiently, as possible.

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* Suzanne Natbony is a licensed California lawyer, with an emphasis in healthcare law, and partner at Aliant LLP, with her own law firm, Solve & Win, PC, practicing transactional and regulatory-compliance law, while also being an entrepreneur with her own healthcare product company, with four patents in her name on a Class II FDA medical advice. She is also general counsel to a multistate medical spa franchise and other medical spas and physicians around the U.S. You may contact Suzanne by email at suzanne@lawyer.com.

Solve & Win Announces that A Non-litigator Attorney Prevails in Breach-of-contract Case Against Litigator Over Referral Fees

 

California business attorney prevails in Natbony v. Reccius et at., a referral fee case, under Rule 2-200 and Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler. Suzanne Natbony, Esq. referred Mr. Benjamin Reccius a client because Mr. Reccius promised to pay Ms. Natbony a referral fee, but then refused to pay. Ms. Natbony filed suit for breach of a referral fee agreement against Mr. Reccius, and the case was decided by Judge Emma Castro. Ms. Natbony prevailed and was awarded her referral fee plus costs.

 

LOS ANGELES (PRWEB) August 04, 2021

 

Business transactional attorney-entrepreneur Suzanne Natbony, president of Solve & Win PC, has won a judgment against Benjamin Reccius, an associate attorney at Kimball, Tirey, St. John LLP over a breach of contract regarding referral fees.

 

Heard by Judge Emma Castro of the Los Angeles Superior Court, Suzanne Natbony v. Benjamin Reccius et al. (2021) Cal. Sup. 21STSC00537 hinged on whether a referral fee Reccius promised Natbony was enforceable under the California Lawyer Professional Rule of Conduct 2-200 and case law. Natbony was awarded the $9,000 fee entitled to her plus costs.

 

“How can an officer of the court who is charged with creating and enforcing contracts for the people not be held to the contracts that he himself makes?” said Natbony. “I am not a litigator and the amount at stake wasn’t that much, but it’s the principle.”

 

In Natbony, plaintiff Natbony referred a landlord/tenant matter to defendant Reccius, who agreed to take the case on a contingency basis, pay Natbony a referral fee of 25 percent of the fees earned on the matter, and include written disclosure of the fee division in his retainer agreement. The amount of the referral fee was confirmed in an email, and Reccius advised Natbony that he had included the required Rule 2-200 language in the client’s retainer agreement and that he had signed it.

 

Under these facts, Natbony had no reason to doubt Reccius’ representations as to compliance with Rule 2-200, which permits referrals fees paid between lawyers if two factors are met: The client must agree to the fee in writing and the legal fees may not be increased due to the referral.

 

California permits lawyers to pay and receive referral fees under the current Rule 1.5.1 and the “old rules,” which were in effect when the Natbony referral was made. Accordingly, in Natbony, Rule 2-200 was the operative rule.

 

While most California lawyers understand that lawyers can make or pay referral fees if both factors are met, these lawyers are actually unaware of the case law providing for an exception. In Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal.App.4th 172, the court of appeal held that when a referring attorney is prevented from complying with Rule 2-200 by the attorney to whom she referred the client, the defendant attorney is equitably estopped from asserting Rule 2-200 “as a ‘sword’ to escape a written referral fee agreement.”

 

The Barnes Court held that the record demonstrated that the defendant had actively prevented plaintiff from complying with Rule 2-200 in obtaining written authorization from the client for the fee division. Id. at 175.

 

Like the defendant in Barnes, supra, the Natbony ruling equitably estopped Reccius from asserting non-compliance with Rule 2-200 as a defense to his fee-sharing agreement with Natbony.

 

Pleased with the judgment, Natbony explains that her focus is “preventive legal,” i.e., advising clients about regulations, protecting intellectual property, and drafting and negotiating contracts, but she also has to put out fires.

 

“This was a fire that couldn’t be contained,” Natbony said. “No amount of reasoning, demands letters, offers to settle or mediate, or mutual-connection influences were able to induce even a $1 settlement.

 

“So in that case, you have to do what litigators do and file a lawsuit when you have the facts and law on your side.”

 

Suzanne Natbony is a third-generation lawyer, with a focus on business transactional, regulatory/compliance and dispute resolution. She is licensed to practice in California, with her own law practice, Solve & Win, in West Los Angeles, in addition to being a Partner at the international law firm, Aliant LLP (AliantLaw.com) and Of Counsel to Merino Yebri LLP (MYlawLLP.com), in Century City, and she also serves as General Counsel for Beverly Hills Rejuvenation Center, a multi-state medical spa franchise (BHRCenter.com). Solve & Win is a solutions-oriented law firm comprised of practical, business-minded corporate lawyers, who are effective at closing deals, and creatively overcome legal obstacles through resolving disputes. Ms. Natbony is also founder and CEO of LawTake, the first online marketplace for lawyers to successfully commoditize legal information via videos and forms directly to consumers.

 

This press release was featured here:

 

Solve & Win announces that a non-litigator attorney prevails in breach-of-contract case against litigator over referral fees

Legal Terminology for Civil Claims

If you are new to the civil legal system, you may feel like everyone around you is speaking a foreign language. There are probably some words that are totally new to you and many more that you have heard before, but that you do not have a good understanding of what they mean. Having a basic understanding of common terms used in civil law can help you feel more comfortable navigating your claim and talking with your attorney. Here are a few terms and phrases to get you started:

  1. Liability: Liability, very basically, means “responsibility.” For example, if a defendant is liable for a plaintiff’s injuries, the defendant is legally responsible for the plaintiff’s injury. If a plaintiff can prove that a defendant is liable for the plaintiff’s injury, the plaintiff may be entitled to money damages in civil court. Defendants have the opportunity to assert defenses to refute plaintiff’s claims that the defendant is liable.

  2. Party: A party to a civil case is anyone listed in the name of the case. Every civil case will have a plaintiff and a defendant. Some civil cases will also have third-party plaintiffs, third-party defendants, and cross-claimants.

  3. Pleading: A pleading is a document that is submitted to the court on behalf of any party for the purpose of letting the court know what issues are involved in the lawsuit, and stating a party’s opinion regarding such issues.. Pleadings are often filed at the beginning of a case and include the “complaint,” in which the plaintiff states his or her claim against the defendant, and the “answer,” in which the defendant responds to the plaintiffs complaint, typically denying that the defendant is liable to the plaintiff.

  4. Preponderance of the Evidence: In most situations, a plaintiff must prove his or her civil case by a “preponderance of the evidence” before he or she will be able “win” the lawsuit. By a “preponderance of the evidence” means that a judge or jury is more likely than not that the defendant is liable to the plaintiff. In other words, it is more than 50% likely that the defendant is liable to the plaintiff.

  5. Tort: Tort is another word for “civil wrong.” It is any action taken by or caused by a person that injures another person, and that has remedies available under the civil law. For example, rear-ending someone in a a vehicle accident likely constitutes the tort of “negligence.” Note, many actions that constitute a “tort” may also constitute a crime. A defendant may be charged with a crime and also be sued by a plaintiff in civil court for the same incident.

 

If you have questions about any of the terms above, consult with a qualified and competent attorney from a reputable law firm. Many firms have a sophisticated civil law practice with focus on a variety of fields. Consider calling a personal injury lawyer Washington, D.C., residents rely on today to discuss your case, and get the experience and care of professional attorneys.

 

Thanks to our friends and contributors from Cohen & Cohen, P.C., for their insight into legal terminology.

Foreign Qualification Can Be Easy, Or It Can Be Difficult

Foreign qualification is how a given state permits an entity, such as a corporation or limited liability company, from elsewhere to do business in that state. In this context, “foreign” can mean from another state or from a different country.

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This post explains how easy, or how difficult, various states makes the foreign qualification process.

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Easy Foreign Qualification

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States have an incentive to make qualification easy:

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  • The easier the process,

  • The greater the number of entities that will go through the process, thus

  • The more business those entities will conduct in the state, and

  • The more revenue the state will receive from fees, taxes, and the like.

 

Indeed, most states do make foreign qualification easy. One need simply:

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  • Provide six or eight pieces of information (entity name, date of formation, etc.) on a printed form or online;

  • Choose a registered agent; and

  • Pay the registration fee.

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Somewhere between one day and several weeks later, the entity has qualified to do business in that state.

 

Not-So-Easy

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However, some states make foreign qualification difficult. Three of those states are below.

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Arizona

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Arizona’s Application for Authority requires up to 18 fields of information for each entity. This is much more than most other states demand. Furthermore, that form requires full contact information for each director and each officer!

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In addition, Arizona requires:

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  • A Certificate of Disclosure, concerning key individuals (officers, directors, major equity holders, etc.). One must note whether any have been involved in a variety of types of legal proceedings. These include felony convictions, court orders concerning fraud, involvement in another corporation’s bankruptcy, etc.).

  • The registered agent needs to sign a Statutory Agent Acceptance form.

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None of this is terribly difficult, but it is time-consuming.

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Louisiana

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Louisiana requires that all business registrations be done online using geauxBIZ.

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Hassles include the following:

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  • The state’s printed Application for Authority, which is available solely for reference, is misleading because geauxBIZ requires more-detailed information.

  • One must provide full contact information for all directors and officers.

  • One must enter the president’s social security number. Not only is this is an uncommon invasion of privacy, but it is a problem for clients who are not  U.S. citizens and —thus lack a SSN.

  • An officer must submit the application, and the officer’s signature must be notarized! This would be a deal-killer if said officer is not in the U.S.

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Ohio

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Ohio’s Application for License is not overly demanding as concerns providing information.

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However, like Louisiana, Ohio requires notarizing the officer’s certification.

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In summary, most states make foreign qualification reasonably straightforward, but a few outliers make the process significantly more difficult.

What Are Liquidated Damages?

Sometimes a contract specifies an amount that a party must pay for breaching that contract. The legal terms for that amount is liquidated damages.

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Liquidated Damages Example

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As an example, let’s assume that Caroline and I enter into a contract that states the following:

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  • Caroline will serve as a bartender at my party next weekend.

  • At the end of that party, I will pay Caroline $200 for her services.

  • If Caroline does not show up at the party, she will pay me $100 for the inconvenience I incurred by having to tend bar myself.

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That last provision, specifying the amount Caroline must pay if she breaches the agreement, is a liquidated damages provision.

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Not Always Enforceable

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Courts will not necessarily enforce all liquidated damages provisions. For example, if the provision discussed above stated that Caroline would pay me $1 million, that damages amount is absurdly high, thus a court would not enforce it.

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In California, the applicable statute is Civil Code Section 1671. Although that statute specifies various exceptions, the relevant portion states:

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[A] provision in a contract liquidating damages for the breach of the contract is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.

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In simpler terms, a California court will enforce a liquidated damages provision only if:

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  • It would be difficult to determine actual damages resulting from a breach; and

  • The specified amount is an estimate of what actual damages would be, rather than an arbitrary amount.

What Does "Represent" and "Warrant" Mean?

Distinguishing Representations from Warranties

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To understand what the contractual terms “represent” and “warrant” mean, we need to know what representations and warranties are.

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  • A representation pertains to the state of affairs at the time the parties enter into a contract. Here is an example of a representation in a stock purchase agreement: “Purchaser represents that Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of holding the Shares.” The purchaser makes this representation concerning the purchaser’s status to help the issuing corporation satisfy its securities-law compliance obligations.

  • In contrast, a warranty pertains to a requirement during the contract’s term. Here is an example of a warranty in a stock purchase agreement: “The Company warrants that the Shares will be duly and validly issued.” The Company makes this warranty so the purchaser will be assured that they will receive what they paid for.

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“Represent and Warrant”

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It is cringe worthy when lawyers fail to distinguish between representations and warranties. For example, they might write, “Party X hereby does represent and warrant….”

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Then they follow that introduction with a mixed list of representations and warranties. The problem is that such an approach ostensibly makes each representation and each warranty both a representation and a warranty – which is not correct!

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So, if you see an agreement that presents representations and warranties separately, you can take comfort in knowing that a lawyer exercised great care and precision in preparing that agreement.

Assignment and Delegation in Contract Law

Assignment and delegation are terms that have specific meanings in U.S. contract law. In contract law, “assignment” can have a narrower meaning and a broader meaning. To start, I will discuss the narrower meaning.

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Assignment and Delegation as Opposites

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The terms “assignment” and “delegation” are opposite sides of the same coin.

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“Assignment” refers to transferring some or all of one’s rights under an agreement to someone else. Example: I assigned my right to receive payments under the contract to my mother.

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“Delegation” refers to transferring some or all of one’s obligations under an agreement to someone else. Example: I delegated my performance obligations under the contract to a subcontractor.

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Assignment as a Broader Term

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The broader meaning of “assignment” is to transfer an entire contract, including all rights and obligations, to someone else. Example: Once our company was purchased, all customer contracts were assigned to the acquirer.

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For an idea of how assignment and delegation are defined and treated in contracts among merchants, see Section 2-210 of the Uniform Commercial Code.

California Corporate Officers are Employees

This post discusses why – especially now that Assembly Bill No. 5 (AB-5) has taken effect – in California corporate officers are considered employees rather than independent contractors.

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California Corporate Officers Employees by Statute

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The starting point is California Unemployment Insurance Code Section 621. This Section states, in relevant part:

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“Employee” means all of the following:

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(a) Any officer of a corporation.

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In the past, one reasonably could argue that Section 621 does not apply to the extent that an individual is providing services that are outside the scope of his or her responsibilities as an officer.

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For example, a corporate secretary is responsible for maintaining corporate records. If that individual is also leading the development of the company’s software product, then one reasonably could consider such work to be the services of an independent contractor.

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Effect of Assembly Bill No. 5

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But AB-5 has obliterated that argument. That legislation is reflected in several statutes, including Unemployment Insurance Code Section 621 referenced above. In particular, Subsection (b) states that a worker can be an independent contractor only if:

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(2) The individual performs work that is outside the usual course of the hiring entity’s business.

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Naturally, the individual will be doing work that is within the usual course of the corporation’s business. As a result, California will consider that individual an employee even while performing non-officer duties!

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Incentive to Misclassify and Associated Risks

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Of course, there are strong financial incentives for a small corporation to misclassify employees as independent contractors:

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  • There is no need to pay personnel the applicable minimum wage. (Founders often are willing to accept unpaid “sweat equity” in their startups.)

  • There is no need to make unemployment or social security contributions or incur the overhead of withholding taxes.

  • There is no need to provide mandatory sick leave (at least one hour per 30 hours worked, or three days per year – Labor Code Section 246).

 

So, what are the risks if a company misclassifies a California corporate officer as an independent contractor? If a state or federal governmental entity learns about the misclassification, the company may have to pay all of the amounts described above, plus interest and penalties.

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Furthermore, California Labor Code Section 226.8 provides that willful (i.e., voluntary and knowing) misclassification of employees as independent contractors can result in:

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  • Civil penalties of $5,000-15,000 per violation.

  • If there is a pattern or practice of such misclassification, civil penalties of $10,000-25,000 per violation.

  • An obligation to display to the public and to employees a notice acknowledging the violation and providing information for employee reporting of suspected misclassification.

 

Nevertheless, many startup and early stage companies in California will continue to misclassify their officers, either knowingly or unknowingly. And so long as relations among founders remain harmonious, there will be no incentive to bring such misclassification to the attention of any governmental authority.

Stakeholders Matter, but Shareholders are Still #1

The Business Roundtable describes itself as an association of chief executive officers of America’s leading companies. On August 19, 2019, the Roundtable garnered headlines when it announced that it had redefined the purpose of a corporation to promote an economy that serves all Americans. But perhaps, that characterization is not accurate.

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Roundtable Statement about Stakeholders…

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Here is what the relevant portion of the Roundtable’s Statement on the Purpose of a Corporation says:

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"While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

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  • Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.

  • Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.

  • Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.

  • Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

  • Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

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Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country."

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…is not Radical

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There is nothing radical about this agenda. Any company that wants to be successful and stay in business for the long term needs to treat each of its constituencies fairly.

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What the document does not say, however, is that a corporation’s directors and officers have a fiduciary duty to look out for the best interests of the corporation and its shareholders.

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  • Generally, this fiduciary obligation is compatible with respecting other stakeholders’ interests, because looking out for all stakeholders helps move everyone toward long-term business success.

  • But if there ever is a conflict between various stakeholders’ interests, the interests of the corporation and its shareholders – the last stakeholders listed – will override the interests of the other stakeholders.

 

In summary, the Roundtable’s statement may have earned PR points, but it is of little legal significance.

Which Personnel Records Can an Employee Inspect?

This post describes California employees’ rights to inspect, and receive copies of, their personnel records.

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The relevant statute is California Labor Code Section 1198.5(a), which states:

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“Every current and former employee, or his or her representative, has the right to inspect and receive a copy of the personnel records that the employer maintains relating to the employee’s performance or to any grievance concerning the employee.”

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Who, and Which Rights?

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Right away, we see two important points:

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  1. These rights apply to both employees and former employees.

  2. There is the right both to inspect and receive copies of their records.

 

But then there is a problem – no definition of “personnel records”!

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What are Personnel Records?

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The Division of Labor Standards Enforcement (DLSE) provides some help. In a FAQ, the DLSE states:

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Categories of records that are generally considered to be “personnel records” are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of “personnel records” (this list is not all inclusive):

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1. Application for employment

2. Payroll authorization form

3. Notices of commendation, warning, discipline, and/or termination

4. Notices of layoff, leave of absence, and vacation

5. Notices of wage attachment or garnishment

6. Education and training notices and records

7. Performance appraisals/reviews

8. Attendance records

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Simple Guidance

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Some simple guidance for a business to determine personnel records:

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  • Personnel records are those that bear on the (former) employee’s employment relationship with the company.

  • Non-personnel records are those that pertain to the (former) employee’s day-to-day business operations.

  • If a record appears to be on the border between personnel and non-personnel, or if it addresses both personnel and non-personnel matters, then the company should treat it as a personnel record. (It is safer to provide more documents than are required, rather than to omit documents that should be included.)

What is Dissociation?

This post explains what dissociation is.

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Definition of Dissociation

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Dissociation is the process by which one:

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  • Stops being a member of a limited liability company (LLC); or

  • Stops being a partner in a partnership.

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Alternatively, this process is sometimes called withdrawal.

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How One Dissociates

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This process is governed by applicable state law and, if it exists, the LLC’s Operating Agreement or the partnership’s Partnership Agreement.

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For example, in California, a member can dissociate from an LLC pursuant to Corporations Code Sections 17706.01 – 17706.03, and a partner can dissociate pursuant to Corporations Code Sections 16601 – 16603.

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How one can dissociate differs somewhat between LLCs and partnerships. There are, however, some common bases for dissociation. These include:

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  • The member/partner providing notice of dissociation to the LLC/partnership.

  • Occurrence of an event that, pursuant to the relevant agreement, results in dissociation.

  • Expulsion of the member/partner in accordance with the applicable agreement.

  • Pursuant to a judicial order.

 

Effects of Dissociation

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In California, there are differing consequences depending on whether a member or a partner dissociates. To simplify it a bit:

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  • In each case, the dissociating member/partner loses any voting or management rights.

  • However, a dissociating member retains an economic interest in the LLC, whereas a dissociating partner has the right to have his or her partnership interest purchased pursuant to a statutorily defined procedure.

What is Reincorporation?

There are a few different ways to move a corporation from one state to another. This post describes in more detail one of those ways: reincorporation.

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Three Ways to Move among States

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There are three ways to move a corporation to another state as follows:

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  1. Form the new-state corporation. Transfer assets and liabilities of the existing corporation to the new-state corporation. Dissolve the existing corporation. (This sometimes is called reincorporation.)

  2. Form the new-state corporation. Merge the existing corporation into the new-state corporation.

  3. Convert the existing corporation to a new-state corporation. (This sometimes is called redomestication or redomiciliation.)

 

Reincorporation – Documents and Procedural Steps

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Let’s say the founders of a relatively new California corporation wanted to convert to a Delaware corporation to make it easier to attract institutional investors.

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As the corporation is still in early-stage, the first option, reincorporation, will not have significant adverse tax effects.

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Once the founders have already reserved the same corporate name in Delaware, here are the documents and procedural steps that will be required to complete this particular reincorporation:

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  1. The board of directors approves resolutions pertaining to the reincorporation process, including a Reincorporation Agreement by which the shareholders approve reincorporation as well as dissolution of the existing corporation once reincorporation takes place.

  2. The corporation and the shareholders sign that agreement.

  3. The existing California corporation’s officers form the new Delaware corporation, which has the same directors and officers as the existing corporation.

  4. The existing corporation assigns its assets and liabilities to the new corporation. The existing shareholders then become shareholders of the new corporation, and they no longer are shareholders of the existing corporation.

  5. The officers dissolve the existing corporation.

 

Not every reincorporation necessarily will take place this way, but the foregoing summary provides a good idea of those major tasks that one needs to address.

Protect Your IP When You Hire a Freelancer

This post explains how to make sure that you own work product and intellectual property (IP) when you use a freelancer service.

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When you use a freelancing platform, you need to ensure that you have an agreement with each freelancer. And that agreement must assign to you all work product and all intellectual property rights.

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Let’s take Upwork as an example.

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Create a Freelancer Contract

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Section 3.1 of Upwork’s User Agreement states, in part, that the parties are responsible for putting such an agreement in place (emphasis added):

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If a Client and Freelancer decide to enter into a Service Contract, the contract is a contractual relationship directly between the Client and Freelancer; Upwork is not responsible for and is not a party to any Service Contract and under no circumstances will any such contract create an employment or any service relationship between Upwork and any User.

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With respect to any Service Contract, Clients and Freelancers may enter into any written agreements that they deem appropriate (e.g., confidentiality agreements, invention assignment agreements, assignment of rights, etc.) provided that any such agreements do not conflict with, narrow, or expand Upwork’s rights and obligations under the Terms of Service, including this Agreement and the applicable Escrow Instructions.

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You and the freelancer need to enter into such a contract. And the contract must ensure that you own the freelancer’s work product and IP!

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Include the Right Contract Terms

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Upwork provides Optional Service Contract Terms that the parties may use, if they wish. Section 6.4 of those Terms addresses this post’s central issue:

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6.4 OWNERSHIP OF WORK PRODUCT AND INTELLECTUAL PROPERTY

Upon Freelancer’s receipt of full payment from Client, the Work Product (except for any Background Technology), including without limitation all Intellectual Property Rights in the Work Product (except for any Background Technology), will be the sole and exclusive property of Client, and Client will be deemed to be the author thereof. If Freelancer has any Intellectual Property Rights to the Work Product that are not owned by Client upon Freelancer’s receipt of payment from Client, Freelancer hereby automatically irrevocably assigns to Client all right, title and interest worldwide in and to such Intellectual Property Rights. Except as set forth above, Freelancer retains no rights to use, and will not challenge the validity of Client’s ownership in, such Intellectual Property Rights. Freelancer hereby waives any moral rights, rights of paternity, integrity, disclosure and withdrawal or inalienable rights under applicable law in and to the Work Product. If payment is made only for partial delivery of Work Product, the assignment described herein applies only to the portion of Work Product delivered and paid for.

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In summary, the freelancer service will not automatically ensure that you own all work product and IP rights. Only you can make sure that you protect yourself!

ABC Test for Employee Misclassification in California

In a landmark decision, the California Supreme Court has embraced the ABC Test to address the misclassification of employees as independent contractors. This pivotal change stems from the case Dynamex Operations West, Inc. v. Superior Court, decided on April 30, 2018. The adoption of this test marks a significant shift in how worker classification is determined, aiming to provide clearer guidelines for distinguishing between employees and independent contractors in California.

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Pre-Dynamex Multi-factor Test

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Prior to Dynamex, California, like the federal government, considered many factors when deciding whether an independent contractor really is an employee. For example, those factors include:

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  • If the company can tell the individual how to do the work, the individual looks more like an employee; an individual who decides how to do the work looks more like an independent contractor.

  • An individual who already has the necessary skills and training looks more like an independent contractor; one who needs training looks more like an employee.

  • An individual who is doing work for only one company looks more like an employee; an individual with multiple customers or clients looks more like an independent contractor.

  • An individual who always works at the company’s location looks more like an employee; an individual who works elsewhere looks more like an independent contractor.

  • An individual who works on the company’s normal day-to-day business looks more like an employee; an individual who works on occasional special projects looks more like an independent contractor.

  • An individual who is paid a fixed fee for a defined scope of work looks more like an independent contractor; an individual who is paid based on time may look more like an employee.

  • An individual who is working under an appropriately drafted agreement looks more like an independent contractor; an individual without an agreement looks more like an employee.

 

California Adopts ABC Test

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In Dynamex, the Court modeled California’s version of the ABC Test after that used in Massachusetts. The Court characterized that test’s three components as follows:

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Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact? 

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Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?

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Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

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If you wish to classify an individual properly as an independent contractor, rather than an employee, then you need to satisfy all three components.

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The significance of this decision is that some businesses may have to reclassify independent contractors as employees. For example, Uber and Lyft drivers are part of, rather than outside, those companies’ usual course of business. Accordingly, it now appears that those drivers are employees rather than independent contractors.

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On September 18, 2019, Governor Newsom signed Assembly Bill No. 5, which, effective as of January 1, 2020, applied the Dynamex ABC Test to most California workers. Something to keep in mind!

Key Provision in Independent Contractor Agreements

Key Provision in Independent Contractor Agreements

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Independent contractor agreements encompass numerous vital terms and conditions. This post lists some essential provisions to consider.

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Business Terms in Independent Contractor Agreements

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When it comes to business terms, the most crucial provisions in an independent contractor agreement focus on the following aspects:

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  • Specification of the products or services to be provided

  • The amount, frequency and nature of the payments to be made (fixed fee, time and materials, time and materials with a not-to-exceed amount, etc.)

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Legal Terms in Independent Contractor Agreements

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Apart from the standard contractual “boilerplate” clauses, independent contractor agreements focus on the following aspects:

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  • Acceptance criteria and warranties

  • Ownership of deliverables and associated intellectual property rights

  • Confidentiality obligations

  • Resolution of payment, and other types of, disputes

  • Remedies for default

  • Limitations of liability and damages

  • Indemnification rights and obligations

 

Of course, do add anything else that might be relevant to your line of business and work!

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© 2017 - 2023 Solve & Win by Solve & Win, PC. This is an advertisement, a message concerning availability for professional employment within the meaning of Chapter 7 California Rules of Professional Conduct. The information on this website is for general purposes only, and nothing on this site should be taken as legal advice for any individual case or situation. The information is not intended to create, and receipt of viewing or interacting with this website does not constitute, an attorney-client relationship. Our attorneys are admitted to practice in California. The information on this website is intended for viewers in California or viewers with a significant connection to California.

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