The Wrong Operating Agreement

There are a lot of places online who will sell you on the promise that an Operating Agreement for your new limited liability company (LLC) is something that you can do yourself just by filling in a few blanks and sending them a nominal fee. Legal Zoom calls this a "custom" Operating Agreement. Of course, by "custom" they mean that they'll install the name of your company and your members in it. They won't ask you any questions about your business, the nature of the ownership structure or anything else for that matter. You can even buy a prefab Operating Agreement at Office Depot - just fill in the blanks, and what could go wrong, right?

The problem with these agreements is that they assume a membership situation which was a lot more common when LLCs first became popular. At that time, it was common for LLCs to be much like other partnerships, where all of the members were contributing capital and would base their membership percentages based thereupon. In the Operating Agreements for those types of companies, the equities between members were fairly simple, and there was no need for preferential financial treatment for anyone. The problem is, that as LLCs have become more and more popular (based on their tax advantages, flexibility, and minimal corporate maintenance) another, more popular, structure emerged.

In most start-up cases when an LLC is used, there are both "money" members and "sweat equity" members. The "money" members mostly (if not wholly) contribute cash for their ownership position, and the "sweat equity" members contribute their services (both past and future) for their ownership positions. This is a great way for investors to get money to entrepreneurs they believe in, and for those with talent and vision (without a whole lot of cash) to get businesses started and successful. But, these members are in vastly different positions when it comes to the finances of the company, and how they would need to be compensated in the case where the LLC is dissolved.

Unfortunately, these prefab or marginally "custom" agreements don't cover that. Just because you have a common business arrangement doesn't mean you can use a "standard" document. For only a little bit more money than you'll pay for something useless from a huge company that is forbidden from actually offering legal advice, you can have a lawyer make a few small modifications to a "standard" agreement which will actually make it "custom" and will actually give you an Operating Agreement you can use.

The Release and the Catch

So you've finally gotten in touch with someone at the network and they like your two minute pitch... Congratulations! You've made it farther than most. But now the network guy tells you that he'd like you to send him your promo video/treatment/etc., and he sends over something for you to sign - just as a formality - so that you can send him your materials. He may even have told you that it's as much for your protection as it is for his. But that doesn't mean you shouldn't read it, and just because a document (like a release) is short, doesn't mean it can't hide some very nasty things in some very innocent language. And before you know it, you may have just signed your idea completely away.

I recently had a client who was submitting his show idea to a major network, and got a release agreement with the following language:

... all results of Submitter's services, all materials contained in the Submission, and all uses thereof in connection with the [name omitted] production or project... belong to [name omitted] and shall, to the greatest extent possible, be considered "works-made-for-hire" within the meaning of the United States Copyright Act.

Now, you may have simply read over that and not even noticed that you just gave away all the rights to your work by signing a document with this in it and then submitting your idea. Yes, seriously. And this was not some fly-by-night start-up operation. This was a national network. Ultimately, when pressed on it, they deleted this language. But it leaves one to wonder, just how many suckers signed this thing, and gave it all away.

REMEMBER, ALWAYS READ BEFORE SIGNING, and if you have any questions, ASK A LAWYER.

The Art of Submission

No, no... not the MMA kind - although it would be cool to learn that. I'm afraid I can't me of much assistance there. But there are some submission issues that have come up recently. First, using lawyers to submit unsolicited scripts/screenplays/etc. and second, releases (which I'll discuss in a later posting).

Many large studios/production companies require you to have an attorney submit your unsolicited work to them. And in turn, countless aspiring writers have combed through their social networks to locate a lawyer who has practiced, at least in some minor part, "entertainment law". But the submission of scripts requires no more legal expertise than cooking a decent omelette, or more to the point, getting into a popular nightclub. These studios/companies are not trying to find creative ways to employ showbiz lawyers, and this is not a creative way to generate legal fees - these entities have simply shifted some of the burden of determining the legitimacy of submitted work to a group that can't really say "no" to the added workload.

Showbiz lawyers need showbiz, and if Hollywood says that this cadre of legal professionals will be the new gatekeeper for manuscripts and screenplays, then that's how it will be. And so it is. And now, with no additional cost to itself, the tv/movie industry has significantly reduced the number of ill-considered submissions that it has to review. The real purpose of requiring you to find a lawyer to submit your work, is to force you through this additional layer of scrutiny.

Most lawyers who don't work regularly in entertainment can't really even submit a script on your behalf, as most studios won't accept material from a lawyer or firm they don't already "know" - and for the lawyers that can get your stuff through, most of them aren't going to simply take the submission work if they don't already know you. From a colleague of mine who is a partner at an entertainment law firm:

I have had some luck in submitting projects to production companies that I have relationships with, but even then it's pretty spotty. I never feel right charging clients for script submission work, because I feel like I'm just getting the client's hopes up and they're going to be disappointed in the end. On the other hand, taking them on with a 5% deal is like doing charity work without the satisfaction of saving lives or trees.

Your best bet (although I know it's news that no writer wants to hear) is to continue to try and find an agent - who will already have a connection with an entertainment lawyer who submits work on their behalf. Besides, you don't really want a lawyer deciding on the viability of your creative efforts, do you?

State Bar Annual Meeting and Blog 2.0

Fresh off the finish of the State Bar of California's Annual meeting, I'm headed back to Burbank from points south with pages of full of insight information and ideas and re-energized on my practice. Most importantly, it's the use of Read Before Signing in a more substantive and more readable way. The entries will be shorter and more frequent. There will be an associated video blog (hosted on our own YouTube channel), and we'll even be on Twitter (which I've truly been trying to avoid). It's an exciting time to be a part of the new business models for the practice of law and MyContractsGuy intends to take advantage of this time by being on the forefront of these changes - bringing you the real help you need, how you need it.

One of the most important things I learned at the Annual Meeting was actually the most disappointing things about the event. I was hoping to run into many other lawyers who were like me: young, yet experienced and talented, and taking the opportunity generated by the widespread failure of the large law firm business model to create new value propositions for small to medium sized businesses and sole proprietors. I was looking forward to sharing ideas and lessons learned with these attorneys, and adding them to my network of service providers who I could refer when I got inquiries from clients that I was not going to handle. Unfortunately, I met less than five. Actually, I met three.

It was at first, disheartening (and made the few social events at the meeting unbearably awkward for your favorite contracts attorney), but then I realized that it's actually great news. So MyContractsGuy.com is still a trailblazer, and still able to create unprecedented value for its clients. The majority of lawyers still insist on outdated pricing and service models that can cost your dearly in a time when overpaying is the last thing you can afford to do. It will be fun to pass on the lessons learned at the meeting and including you in the new ways the blog will grow in the days and weeks to come!

STAY TUNED and welcome to Read Before Signing 2.0!

How to find a good lawyer online

Step 1: STOP LOOKING ONLINE.

No, seriously, stop. Let me guess, were you at Lawyers.com? Or even worse, the California Bar website? And I'm hoping against hope that you didn't use Google Maps. But it's a Google world, what are you supposed to do? If you can find good dentists at 1-800-Dentist.com and a good doctor at WebMD.com - shouldn't there be good lawyers at Lawyers.com? Well, you're half right - because there should be, but most of them are not. What's worse, no one has really stepped up to regulate the legal advertising that's being done online. So what you're really choosing when you choose a lawyer online is the lawyer who hired the best marketing people. Good luck with that.

There are a number of problems with the existing online services:

1. They don't help you find the right kind of lawyer. The California Bar website refuses to even list its lawyers by specialty, and Lawyers.com pulls its listings from the Martindale database - which allows lawyers to list everything they've ever done. After reviewing the profiles of those lawyers which came up when I went looking for "Contracts" lawyers in Burbank, CA, I found that the fewest number of specialties listed was 19, and some with well over 50. And did they have to do anything to get something listed as an area of expertise? Nope. Just had to write it down. Aren't you glad that doctors can't do that?

2. They offer no indication of value or quality. You would think that this brave new world of information would offer some peer evaluation or customer evaluations, like a Yelp for legal professionals. But you'll get none of that. The order in which search results are presented to you are driven either by alphabetical order, or worse still, the moneys paid to the site for "premium placement" in said results. So, ostensibly, you've got to go through all of them one at a time, visit their website and then decide who you're actually going to take the time to call? I ran a search for "Small Claims" lawyers in Los Angeles, and got 408 results. So, at five minutes apiece to do just a cursory review, you ought to be done (provided you don't take any breaks for eating or sleeping) in about a day and a half. Hey, at least they offer 1-click directions to the offices!

3. They don't have the real information you need. The traditional imprimaturs of legal skill and law school and experience - neither of which are available online. So even if a lawyer got their degree from Bob's College of Law and have been practicing law since earlier this month, they'll be listed alongside the folks who graduated top of their class from Harvard Law School and have twenty years experience arguing in front of the Supreme Court. That's equity for you. But it this one of those times you don't want things to be so fair? I'm certainly not advocating that you use those two metrics to make final decisions on who you'll hire to handle your most sensitive and important affairs - but it sure does make for a nice place to start from. And where can you find this information online? You can't.

Well then, what's a potential client to do? Well, I imagine you wouldn't be too pleased to have read this far just for me to tell you that you're screwed. Because, in fact, I do have an answer for you. Your best tool in finding the perfect lawyer for you is a lawyer.

Oh no, a chicken and egg conundrum! What are you to do? Not so fast. You don't need to start with a great lawyer, or even a lawyer that practices in remotely the same area where you need help. And I imagine there's not a single one of you that doesn't already personally know a lawyer. There are far too many of us around - and we're far too loud to not be noticed. The only real requirement for the lawyer you start with is that you trust him or her. Now have you got someone in mind?

Because lawyers spend a lot of time with other lawyers (whether they want to or not), and know far more about how to spot a bad one than you do. What's more, we network like it's an intramural sport. For those of us who have practiced or are currently practicing at a mid-size to large firm, we already know hundreds of lawyers, who also know hundreds of lawyers. And that's before we even really think about it. We have friends from law school, friends from conferences, even people we've seen in court or worked with on transactions. The truth is, like it or not, a lawyer's life is full of other lawyers. And that's a resource you can use.

But remember, it's 2009 and we're busy, too. So the best thing you can do is condense the facts of your legal problem into about a paragraph and send it to the lawyer you already know in an e-mail. He/she can forward it to the trusted lawyers in his/her network, who will also do the same, and the responses will come flooding back into your "lawyer friend". He/She will then, most likely, (depending on how good of friends you are) vet the responses and send a final list to you. For my part, I usually check the lawyer list I get back to find out a little bit about their practice, where they went to school, how long they've been in the game, etc. I also check the lawyers who referred them (if they're not direct contacts of mine), to see if it's someone who I think is worth contacting. I'll also check out their firm, and be sure that the potential client is going to be able to afford the lawyer in question. Ultimately, they'll be getting a list of people that I, personally would call if I had the problem in question.

How's that compared to the list you got on the internet? And the best part of it is... it didn't cost you a dime.

Feel free to use me as your friend in the business! ...and good luck!

Can I Sue?

You would be amazed how many times I get asked this question. In fact, I would hazard a guess and say it's the question I get asked most often as an attorney. And the answer to this question is always yes. That's right - always. That was one of those things that our founding fathers insisted on: public access to the courts. So, yes, you can always sue someone and someone can always sue you. The real questions are: can you win a suit against someone, and more importantly, is it worth it?

Is it worth it?

The first thing you should know about lawsuits - or as lawyers like to call it, litigation - is expensive. And by "expensive" I mean, you cannot afford it. You can easily spend $100K-$250K on a business litigation matter before you even get to the courtroom. And that's using a mid-sized law firm. How good does your $10,000 claim look now?

And I know what you're thinking: well, I can get legal fees as part of my award. Except that it's usually not true. Only certain laws allow for the award of legal fees, and even when they do, your opponent's misconduct has to rise to a level high enough to be tantamount to accusing an innocent man of murder. Chances are you won't be getting legal fees in your award - which means it's coming out of your winnings if you win, and out of your pocket (in addition to the judgment you lost) if you don't. Well what about contingency fees? Well, you might be able to find an attorney who is willing to take your matter on "contingency" - meaning that they take a percentage of the court award rather than taking hourly fees. Sounds great, huh? Well it is, provided that you are looking for enough damages to make it worth their while - and for most decent attorneys who even take contingency, this number starts at $1,000,000.

But it's not all gloom and doom - there's still Small Claims Court. And in California the current limit for small claims is $7,500. If someone's taken you for that or less - it may very well be worth your time to file a small claims action. There you won't need an attorney, and are likely to get a default judgment (if the other party doesn't show up). The California Self-Help Legal Center for Small Claims is an excellent website, with forms, FAQs, and links that make the whole thing a lot easier - they even have information on collecting your judgment, which can often be the most difficult and daunting part of the process.

The bottom line answer to this question is: usually not. Litigation should be used (1) only as a last resort, and (2) only when there is a significant loss (e.g. six figures). Otherwise, you're best exploring other options. Most lawyers can still be a great resource for alternative dispute resolution. Chances are, they've seen their share of matters resolved before getting to court or even to litigation, and they have insights and ideas that you've likely never even thought of. What's more, most of them will give you these suggestions without charging you a penny.

Can you win it?

Well, I know you think you've got a "slam dunk", "can't lose" case. But, in reality, you probably don't. Here's the first thing you can throw out when considering your case: "fairness". If the majority of your legal opinion on a matter consists of "it's not fair" - you're wasting your time. There is no unwritten fairness code which dominates the practice of law - just like the lawyers and legal matters you see on TV. There are only rules and interpretations of those rules. That's it.

There are many things to consider when you evaluate whether or not you can win your lawsuit, a few of which include:

• The quality of your evidence: do you have it writing? how much of it?
• The quality of your opponent's evidence: what do they have in writing?
• Are there demonstrable damages? You've got to have more than hurt feelings.
• Does the misconduct rise to the appropriate level? If the law requires that someone have intent, you'll have to prove their state of mind
• How will it play out with a jury? Are you a sympathetic plaintiff? Are you suing a sympathetic defendant?
• Do you have enough resources to stick it out if the trial bogs down? As above, this stuff is expensive and cases rarely go exactly as planned.

As before, once you've convinced yourself that you can win, it's time to talk to a lawyer - but the one thing they will not give you is a guarantee of success (and if they do, they're lying and/or committing a massive ethics violations). They'll ask many of the questions above and give you an answer that likely includes as many pros as cons. Why? Because that's how we cover ourselves until we actually have some stake in the outcome - and even then, you won't get the reassurance you're looking for.

Read this carefully: Litigation is always risky. No matter how good your case is, no matter how much you spend, no matter how much the judge/jury likes you, you can still lose. So if you're looking for guarantees, buy a vacuum cleaner from Sears and stay out of the courtroom.

* * *

Often times the best advice I give to clients involves how to avoid litigation rather than how to win it. Talking to a lawyer can often help you answer some of the questions and inform you regarding some of the realities of lawsuits. At the very least, your decision will be an informed one. After all, when it comes to suing, it's not whether you win or lose, but how much you pay in the game.

Don't Hire Me

Here's a great way to distinguish between a good lawyer and a bad lawyer. A good lawyer will try to find a way to help you solve your problem without hiring him/her. And a bad lawyer will make it seem like you are completely screwed unless you do. Now, I'm also saying this as an introduction to writing about why you don't need to hire me - so, as a matter of course, I'm placing myself in the good lawyer category. But, in my training and experience I have found that the vast majority of situations are made more complex, difficult and painful by the inclusion of lawyers (although sometimes it cannot be helped), and that the best way to solve most problems is to not involve lawyers. So, if there are lawyers who either have not learned this, or refuse to acknowledge it, they are either very new or very ignorant.

I am often asked by clients if I will contact an opposing party on their behalf. And the answer I give them is always the same: I can do that, but you probably don't want me to. As an attorney, I'm licensed to represent them in a court of law, and in a legal dispute - but the one thing that they don't count on is what effect that bringing me in will have on the situation and the other party. Often times, they ask out of sense of frustration, and usually when discussions with the other party are at some sort of an impasse. And if that's the situation, bringing in an attorney is often the last thing that they should do. Here's why: once you bring an attorney (or even mention bringing in one) the other party will immediately turn defensive, because having a lawyer will signal to them that you're no longer willing to try and work something out, and that now you're going after them. What's more, now they'll feel pressure to get an attorney of their own - which is going to cost them, so now they're really not going to give an inch. So the time you save in having me call on your behalf may end up costing you a whole lot more than just my fees.

But you're still at an impasse... what do you do? You may still want to talk to attorney on how best to proceed. I have counseled dozens of people on alternative approaches to their legal disputes that has either resolved the situation or made the need for an attorney an obvious one. More often than not, however, these folks do not end up as clients of any lawyer, let alone me. But the goal is not the assessing and collection of legal fees, it's the resolution of the matter. Most lawyers can listen to your situation and give you advice on how to approach subsequent communications with regard to substance, tone, theme, etc., without charging you a penny.

Some general advice:

1. Play dumb. I know this sounds trite - but no one likes a know-it-all, even if you actually are one. Maybe you've contacted at attorney and you do know the law in the matter and know that you have a slam-dunk case. Better to act as though you don't and to simply appeal to the other party's general good nature (if they have one).

2. Stay calm. Try to approach the matter from a conciliatory standpoint; a "what can we do to work this out" attitude. This will either cause the other party to also address the problem from a let-get-it-all-out-there approach or infuriate them to the point where they'll start making mistakes.

3. Work it out ahead of time. With the help of someone else go over what you will say and how they may respond. It helps to work with someone who is familiar with the situation, so they can react realistically.

4. Have an agenda. Write down all the points you want to talk about, and keep it in front of you during your conversation. It's fine to get off track, you don't want to seem like you're demanding control of the entire meeting, but be sure you can check all of it off before.

5. Keep a record. Write down your thoughts. Everything in writing when you can, which also includes e-mail. If you're having an important phone conversation, record it. You're not required to ask for permission as long as you're actually on the call - and if you do end up hiring a lawyer, he'll be happy you did.

I was once told by a very senior attorney that the perfect client is rich, angry and wrong. Which made sense from his point of view, but not so much from mine. In fact, the perfect client is someone who is coming to you as a last resort, and would still much rather use you to avoid the conflict they're in rather than escalate it to full scale war. Sure, it's not as good for billing rates, but it's a client I'm absolutely certain I can help. And I'll take that any day.