The Tao of the Angry Letter

If you've ever gotten a letter in the mail from an attorney, you'll know what I'm talking about. That sinking feeling as you see the return address, the letterhead and signature. It's not unlike that feeling you used to get when called to the principal's office - you're about to be in trouble. Before you even read it, you're searching for something you may have done wrong that you've yet to be punished for - that or you know exactly what this letter is going to be regarding, and your mind has now gone wild with how painful this is going to be. Well, the good news is, you're not alone - most everyone feels this way when they get a letter from a lawyer they didn't hire, and the even better news is, you can use this nearly universal fear and loathing to your advantage.

I've often times considered adding to my list of legal specialties: "Angry Letters" because that's often times precisely what I'm called upon to do on behalf of my clients. In many circumstances such a letter has the following effects, which often go a long way towards seeking a client's objections.

1. It immediately puts the antagonizing party on notice that you're not simply going to be bullied by a larger organization, or daunted by the effort required to pursue your claim;

2. That you're willing to invest the money required to obtain competent legal representation (i.e. not your cousin who happens to be an attorney), regardless of how much it actually costs you;

3. That you have a sufficient appetite, unlike most people, for the administrative burden, and;

4. You're likely not to be fooled by bad offers, bad behavior or bad arguments.

In a very real sense you're calling this party's bluff, and rather than show down their bad hand, this other party will either fold altogether or enter into settlement talks with a renewed vigor. Although the effects of these letter can vary wildly, they, without exception, succeed in the one thing that clients often value the most; and that is, they move things along.

The cost of having a lawyer write such a letter on your behalf is often minimal (2-3 hours work, price varying depending on billing rates) and is usually well worth the investment.

The Tao of California Non-Competes

I'll bet you've heard the oft-repeated refrain that "non-competes" aren't enforceable in California, and for the most part it's very true. California Business and Professions Code Section 16600 states:

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
It then goes on to give the two exceptions to this simple rule, but in that short and sweet sentence, the State of California forbid nearly all non-compete agreements. Of course the rule is defined by its exceptions, so I won't keep you waiting to find out what they are. The statutory version lists them (in relevant part) as:

16601. Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.

and

16602. (a) Any partner may, upon or in anticipation of any of the circumstances described in subdivision (b), agree that he or she will not carry on a similar business within a specified geographic area where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein.

And if you're anything like I used be before law school - you stopped reading those as soon as your eyes began to glaze over and you started to feel inexplicably sleepy. So what can you really take away from this rule and these exceptions? A few very simple points:

1. Neither of the exceptions has anything to do with employees, which is to say, if you're an employee (who doesn't own any substantial part or piece of a business) then a non-compete agreement can not be enforced against you.

2. You can't be given a nominal amount of stock or ownership of a company to get you into one of the exceptions.

3. It is still illegal to steal trade secrets, and most California companies will use very robust versions of this prohibition to construct a de facto non-compete. Be very cautious about employment agreements that include lengthy and sweeping definitions of what constitutes trade secrets for a new employer.

4. If you do own all or part of a company and it's sold - you will likely be signing a non-compete; but it still must be reasonable in geographic scope and term. E.g. if you sell a business that was selling widgets in California, a non-compete that forbids you from selling widgets in West Virginia isn't enforceable, nor is one that forbids you from doing it for twenty years. If you're not certain what "reasonable" is - ask your lawyer; if you're selling a company without a lawyer, then you've likely got a whole lot more problems than the scope of your non-compete.

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The California protection against non-compete agreements is the most robust in the nation, and likely the world. As a matter of public policy, California has decided that of paramount importance is a citizen's right to earn a living free of restriction. This gives the state's employees a great deal of power in deciding where to work and for how much. Despite the creative and valiant attempts to circumvent and thwart this prohibition, the state's jurists have affirmed it over and over again. This isn't a substitute for your own vigilance when entering into a new employment agreement, but can offer some peace of mind as you do so.

As always, when in doubt, consult an attorney when signing any new employment agreement, especially if it includes non-compete provisions which just don't sound right.

Transformers - More To Your Organizational Form Than Meets The Eye

If you're forming up a new organization, you've probably wondered what form to use. Corporation? Limited liability company? Limited Partnership? S-Corporation? General Partnership? It can be a confusing landscape to try and navigate. Each has their pros and cons and though I often tell entrepreneurs to uses the LLC form, there are some up front costs with an LLC that may make it prohibitive. This is especially true for entertainment groups, especially musical bands. The good news is, however, that you don't have to choose up front. In fact, most entertainment working groups can get most of the protection and structure that they'll need up front by simply forming a general partnership, and then later transforming that organization into a more formal business form once there's adequate financing and reason to do so.

General partnership do not actually require any legal action with the state to exist. In fact, any group doing business together is presumed under the law to be a general partnership if no other structure or form exists. So, even if you've done nothing, congratulations, you have a general partnership. This comes with a whole set of default provisions which will govern partnership activities, but they're extremely broad and general, and will to do little to reflect your actual business relationship. So one of the the most important things you can do is to draft a Partnership Agreement which actually is customized for your business group. This can address everything and anything you can imagine, from profit distribution to dissolution and from ownership of partnership assets to voting procedures. There are forms available online - but if you've been reading this blog long enough, you know that those are typically not a good idea. You can often get one drafted by an attorney for a fraction of the cost of setting up an LLC or corporation - and you won't have to worry about one-size-fits-all forms that you overpay for online or the mostly useless default provisions provided by law.

So what's the big deal about incorporating or forming an LLC, if you can set up all the business provisions with the partnership? Well, limited liability is the biggest difference perhaps the most important. One of the biggest reasons for forming a company is to insulate the owners of that company from liability for actions of the company or its employees - and with a general partnership you simply don't get that protection. Of course, when you're starting a band, you really don't need liability protection; you don't have employees, you don't do much besides make your music and there's really not many ways the group even generate liability - outside of how they'd be doing it as individuals.

The other good news: transformation is easy; like single form and fee easy. The Secretary of State has actually compiled all the information about applicable forms and fees into an easy to read chart:

California Secretary of State Conversion Information

To go from a general partnership to a California LLC will cost you $70 (in addition to any filing service fees) and will require you to fill out the LLC-1A form. Of course, there are the other matters that normally accompany forming an LLC (including drafting the Articles, Operating Agreement and other ancillary documents as well as the payment of minimum tax [$400]), but the conversion part is no more painful than if you were simply forming the LLC from scratch. As always, it's best to get an attorney to help with these formations - especially with the drafting of those documents that will govern the operation and management of the company. But if you're ready to finally make the move from a GP to a more formal entity, legal fees are probably the least of your worries.

So remember, transformation/conversion is always an available option and can save you a ton of money up front.

Putting the Work into Social NetWORKs

An old friend and trusted colleague forwarded me an article by Greg Rickey, an east coast attorney with both military and federal experience, that warned of the potential threats to your security clearance if you use Facebook and/or Twitter. Having a security clearance myself, I have many professionals in my network who depend on their active clearance for continuing employment, so allegations that the increasingly pervasive presence of social networking sites and services in both professional and personal life may cause them to lose that clearance are obviously cause for alarm. Unfortunately, this needless fear-mongering adopts the sort of attitude towards technology that has tolled the death knell for many aging businesses and senior executives and employees. Rest assured that your security clearance (no matter how high it is) and your social networking can peacefully coexist provided that you can follow a few simple principles, and what's more, you will likely find that these powerful new communication tools may actually make you (and your clearance) more effective.

As a threshold matter, you ought to look at anyone who spurns technology that is in the throes of nearly global penetration and relevance with a measure of skepticism. Obviously, it's the role of your lawyer to help you to be careful, but he/she should also be a trusted business advisor who doesn't simply identify risk but also helps you manage it (and not simply avoid it). If anyone serious about a career that doesn't involve a name-tag or a hairnet asked me if they should avoid social networks, the short answer I'd give them is "NO!" Social networks have gone from being pastimes and distractions to fully functional business tools with many of the world's largest corporations advocating their use by employees (e.g. Accenture) and mid and small market companies following suit. The legal business is no exception; large firms and solo practitioners alike are leveraging the latest technologies to reach out to and communicate with clients and colleagues. The legal community has as many confidentiality obligations as any, and the only lawyers who are avoiding the social networking phenomenon are those either not interested in new clients or so afraid of their computers that they still insist on dictating letters.

As an additional note - for those who will insist that LinkedIn is for professional and the rest are for kids, note that LinkedIn and Twitter are currently implementing an unprecedented integration of their separate technologies.

With that in mind, if you can follow a few simple rules, go boldly forth with your Twitter, Facebook and LinkedIn accounts:

1. Don't post private information in public spaces. Each of these services has both "public" and "private" sections for each user. There are dozens of both humorous and horrifying examples of users that have failed to understand this distinction - but for the moderately savvy professional, this should be no problem. Some examples: Don't post your personal phone number or address in any public area - and avoid listing them at all if you can. Don't post the exact location of your family's vacation until after you get back from it. If you hold a sensitive position, like a federal judge, don't post photos of your workspace, commentary on your work, or detailed itineraries of your whereabouts. (These things may seem obvious, but they're only listed as examples because someone has already done them)

2. Know your "friends". For the majority of these networks, you are in complete control of who you allow to see your information through a "friend request" process. This usually means that someone has to know you, and then send you an electronic "request" that you must affirmatively "approve" before they have access to you on the network. One of the best ways you can keep your network secure is to avoid allowing anyone into your network that you have not met or do not know personally. Accepting these requests automatically is just plain stupid - and if you're that desperate for attention then you don't need security clearance, you need counseling. Additionally, if any of your "friends" begins to act erratically online, their account many have been compromised and you should eliminate your connection to them (they'll understand). And if you happen to have or make friends overseas - be exceptionally cautious when allowing them into your network, and if you can avoid including them, do.

3. The Privacy Myth. The reality of any online activity is that none of it is completely secure or private. These networks all go to great lengths to keep your privacy to the maximum extent they can - but there's only so much they can do. If there is something you need to keep private, the best advice anyone can give you is to keep it offline. There a number of technologies in development capable of combing through all the world's social networking data, mining for information, intelligence, etc. If that knowledge scares you about what you put online, it should.

* * *

There has been a great deal written by both early adopters and even conventional media outlets about the importance and utility of social networking sites and services in the workplace, so I won't bother weighing in here. If you haven't figured out by now that making strong connections is essential to professional success you don't need to wonder any longer why you're still washing dishes at the restaurant you'd like to own. Many people have come to expect the nearly effortless connectivity to professional contacts that these services provide, and a failure to do so may quickly label you as a dinosaur and not desirable to work with.

In the end, as with any new technology, it's really only dangerous if don't know or won't learn how to use it.

Top 5 Reasons to Avoid the Hollywood Lease

Ah, the Hollywood Lease. You know the type of arrangement I'm talking about. It's that situation where a large group of young hopefuls with more dreams than income and more good intentions rather than good credit get together to share a large rental property to mitigate some of the high costs of rent in the big city. Sometimes these groups are as small as three or four, and sometimes there are over a dozen. It's certainly not unique to Hollywood, California - but it happens there more often than it happens anywhere, and with much higher stakes and greater consequences.

But while on it's face, it seems like a great way to live in a great property at a much lower cost, it turns out to usually be a very bad idea. Here are the top 5 reasons why:

5. You don't really want five (or more) roommates. You've had bad roommate experiences before, and it always starts out great - everyone's being nice and considerate and fun, and then all those problems you always start to have begin, except now they're multiplied by each new person. Turns out there is actually something to be learned from watching The Real World - putting a bunch of twenty-somethings in a house together always ends badly.

4. You're jointly and severally liable for the lease if your name is on it. In most Hollywood Lease situations, the landlord demands that all the tenants' names are on the lease. This is not just so he/she will know who's there. There is likely a provision which makes each tenant responsible jointly and severally liable for the rent. What does this mean? Well, let's just say that the rent is $2,000/month. Legally, each of the tenants owes that $2,000 monthly... and you work out how it actually gets paid amongst yourselves. This actually makes sense, the landlord shouldn't be responsible for that one guy who is always late with his rent. But it also means that if all your new friends move out without telling you, guess who owes rent on their own next month?

3. There's no legal agreement between the tenants. Sounds silly, right? I mean, you're just roommates! You're not starting a company or opening a restaurant. Why would you need some sort of documentation governing the relationship between all of you for business purposes? How do utilities get divided? What if you don't watch the cable? And if someone wants to move out early? Well, when these things start to drive things south (and they will) because there's no agreement it's jungle law: survival of the fittest, or more likely, victory by those with the least to lose. If you're the person with the best credit, most stable job and richest parents, guess who will end up giving in? Oh, and guess who has little or no legal recourse?

2. You don't want that landlord. Listen, renting to a rag-tag, unrelated group of good-looking hipsters is maybe the worst thing you can do for your property if you're an owner, so there's a reason he/she is renting it to your group. Maybe the price is higher than they can get from a single family, maybe it's in a terrible part of town, or maybe the property isn't quite as nice as it appears. The insulation might be terrible and the utilities insane; the neighbors might be loud and crazy; there might be black mold in the walls. Or maybe the landlord has a history of scamming tenants or using the property to hide drugs/other contraband (all things that have happened in these types of houses).

and

1. Beware being the "last one". Often times these groups are groups of friends that are one or two people short of the property they're looking to get into, and they go looking for the perfect "mark" to bring in to help them complete the transaction. They even tell you they're looking more for a new friend to bring into the fold than another roommate. But when things get bad (and they will) guess who will be the first one thrown under the bus? When there's a plan to move out without telling the landlord, guess who won't get told? Guess who will be out of town for the weekend when it happens? These people are not your friends and they know that better than you do. In renting, just like in fighting, if you're way outnumbered you're way screwed.

* * *

Like most things: if something sounds too good to be true, it probably is. Such is the case with the Hollywood Lease. It's an amazingly bad idea that masquerades as an amazingly good one. It preys on our desire to believe that our peers are inherently good people, especially if they're good-looking, similarly interested as us and initially charming. Unfortunately, these are usually much better indicators that we won't get along with someone.

In the end, I can't think of a good reason to get into a Hollywood Lease. Socially and legally, it's a disaster waiting to happen. If you want to live with a large group of people, move back in with your family. If you want cheaper rent, move into a smaller and older place by yourself. And if you want to live around vibrant, interesting people who you can befriend and enjoy, stay as far from Hollywood as you possibly can.

The E in E-mail

There's a saying that lawyers have about the "E" in e-mail, and it says quite simply that the "E" stands for "evidence". So what does this mean for you? Well, if you haven't figured it out by now there's nothing private or temporary about e-mail. No matter how good your password is or how secretly you keep your account, your e-mail is more public and more permanent than almost anything else about you. So that's the bad news. The good news is, it's easier to get things "in writing" than it's ever been before.

I'm certainly not the first lawyer (or any type of professional) to tell you to "get it in writing". As anyone who works with contracts will tell you, you don't need a writing to have a contract, but it sure makes things a lot easier. The same goes for almost any type of evidence you might need: a conversation you're having with a contractor, a discussion between business partners, or the negotiation of a large transaction. E-mail has become as ubiquitous as phone calls and face-to-face conversations, and for many of us (me included) the preferred method for professional communications. As a result, it can seem just as informal and the other forms listed - but unlike the others, there is an exact record of the conversation.

The moral of the story is, if you're dealing with someone that you may end up in an adversarial action against, think carefully about how you use e-mail. If they're in an advantageous position to you - suggesting e-mail communication will allow you to have the evidence you need in case things go sideways. If you're in the catbird seat, you may want to stick to phone calls and live chats, whose evidenciary value is only as good as the he-said/she-said game used to find out what was really said.

And as always, when in doubt, ask a lawyer. We might even e-mail you the answer.

You Can't Say That! - Straight Talk on Libel and Slander

Sticks and stones... we all know how that old saw goes. But, at some point in our lives, we also learned that saying bad things about other people is also legally actionable. Unfortunately, just as it's not exactly true that "words can never hurt", it's similarly not true that you can successfully sue someone just for saying something mean.

The Definition

According to Black's Law Dictionary, libel is: "a defamatory statement, express in a fixed medium, esp. writing but also a picture, sign or electronic broadcast." and slander is "a defamatory statement expressed in a transitory form, esp. speech." Well that does a great job of distinguishing between the two (libel is in writing and slander is spoken), but doesn't really tell you what they are. So how about "defamatory statement"? According to Black's that is "a statement that tends to injure the reputation of a person referred to in it. The statement is likely to lower that person in the estimation of reasonable people and in particular to cause that person to be regarded with feelings of hatred, contempt, ridicule, fear or dislike." Wow. That's just broad enough to not really be helpful at all. In fact, nearly every word in each of those definitions has been litigated over in a court of law. So what it really means is a much more complex question; the kind that really does need to be determined in court.

Practical Application

There are some lessons from the law, however, that can be used by in the everyday determination of what sort of statements actually rise to an actionable level. The most important of which are defenses to libel and slander: truth and opinion. In most jurisdictions, a statement must be false in order to qualify as defamatory. This is often spoken as the legal axiom: truth is an absolute defense to libel and slander. While this is a bit of an oversimplification, it's still a good rule of thumb. If you're telling the truth, or someone is telling the truth about you, no matter how damaging the information is, there likely isn't a case. In addition to being false, a statement must also be able to be proven as false. This is often stated as another legal axiom: opinion cannot be defamatory. And again, while this is a little oversimplified, it's a handy guide. If someone is clearly making a statement of opinion, it's not likely what they're saying/writing is something actionable.

A Reminder

As always, when wondering about whether you can sue or be sued for something, it's important to think about the money that's involved. First, it's not enough that you can prove a statement to be libel or slander, there must be actual measurable damages. There is no criminal version of these two concepts, they are civil claims only. If there are no damages, there is no case. And for the most part, having hurt feelings or being really, really mad are difficult to quantify. Second, as I've often said, litigation is expensive. It's actually more expensive than you think it is. If you want to know how much, try and think about how much you think it will cost you to take a civil case to trial. Now multiply that number by four... or maybe six. If the damages you think you can prove aren't pretty big money, it's likely that it's not worth it to try and take it to court.

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For the most part, libel and slander cases really don't make much sense except for celebrities and large businesses. The good news is that if someone (who is neither a celebrity or the owner/CEO of a large business) tries to tell you they're going to sue you for either, they're probably all bark and no bite. The bad news is that if you've been using this as a threat against those who speak ill of you, you're probably better off with the old saw we started with: "but words will never hurt me."