Friday, March 17, 2017

What makes contracts so long?

Dear Alex:
It seems like most agreements could be as short as a few sentences or a paragraph, but contracts are never that short.
Why can’t contracts be simple one page documents?
Business lawyers know this question very well.
While the desire for a short contract makes a lot of sense, it is difficult to adequately protect the interests of the client within such a short framework. One of the primary reasons for the length of contracts is the boilerplate language that is often found at the end of contracts.
Some might call boilerplate “the fine print” at the end of a contract, although it is typically written in the same size and style of text as the rest of the document.
Boilerplate language is frequently very similar in appearance among different contracts, and can be boring to read because the language appears to have little or no relation to the actual terms of the deal for which the contract was drafted.
It is often in the boilerplate, however, that some of the most influential language in the agreement is located.
Imagine that you purchased a house, the seller was from Arizona and you the buyer are in Napa. After you buy the house and move in, you discover that the house has dry rot in the roof.
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You believe the seller knew of the dry rot and didn’t disclose it to you, so you want to sue the seller for costs of repair, which are $20,000.
The boilerplate language will dictate many important issues of this dispute. Boilerplate language is not mandatory, but there are typical provisions that you will frequently find.
A “mediation” provision might require mediation before lawsuit, so your options for recovery could be limited.
A “choice of laws” provision will dictate which state’s laws will apply to the interpretation of the contract. If this choice of laws provision was in favor of the seller of your property, you might have to apply Arizona law to your dispute, which could be a challenge.
There might also be a “venue” provision that determines where the suit must be conducted. The venue might require your lawsuit to be filed in San Francisco or Phoenix or anywhere else, which could obstruct your ability to readily conduct a lawsuit from here in Napa.
You will hope that there is an “attorneys’ fees” provision which awards the costs of attorneys’ fees to the winner in your lawsuit, because the cost of attorney’s fees in a dispute like this could quickly exceed the costs of the repair that were the basis of the problem in the first place.
These are only a few of the most common boilerplate provisions, and each of them can have a substantial impact on your options if a dispute surrounding the contract arises.
The next time you see a one-page contract, consider whether it really should have more substance to give you the protection you expect.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.


This column originally ran in the Napa Valley Register on February 28th, 2017. You can read it on the Register's website here: "What makes contracts so long?"

Friday, February 17, 2017

What is a business partnership and how is it formed?

Dear Alex:
My best friend and I have started social media marketing business together and would like to form a partnership.
We already have two clients and a business plan.
What do we need to do to create a partnership?
What you probably did not know is that any time two or more people act together and hold themselves out as co-owners of a business, they are automatically and by default doing business as a partnership.
In your case, since you already have clients and, therefore, have held yourselves out as doing business together, you are already a partnership.
An exception to this partnership-by-default rule is when the parties have formed a business association other than a partnership (such as a limited liability company or corporation), in which case the business owners operate under the rules of the business association, which they have chosen.
Now that you are partners in business, it is important that you understand the rules that come with partnership activities.
Business partners have what is called “mutual agency” to act on behalf of the partnership. This means that one partner, independent of the other partners, may create legal obligations of the partnership within the scope of the ordinary course of business – even if the other partners did not specifically know or approve of those activities.
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This is useful because it enables business partners to conduct business activities without all partners being present. This is also somewhat risky, because it means that your business partners can create binding obligations on your behalf, which you will be held accountable for.
In addition to the mutual agency authority to enter contracts and make agreements on behalf of one another, business partners are jointly and severally liable for partnership debts and the actions of their business partners.
This means that each partner can be held to be proportionately liable for the debts of the business, or individually wholly liable for the debts of the business.
For example, in the case of two business partners offering a service, if one business partner signs a lease for the partnership to rent an office for five years, the other business partner could be obligated to make those rent payments for the next five years.
Partnerships offer what is called “pass through taxation,” which means that the tax burden of the business is directly passed through to the business owners, which is generally preferable to taxation at the business level and the personal level.
Partnerships do not, however, offer limited liability. Some other entities types can create a layer of protection from business liabilities by restricting the debts and obligations of the business to the business itself. Partnerships do not offer this protection.
There are many factors accompanying partnership and the choice of business entity, and only a few are described in this column.
Business entity choice is an important decision that should be given thorough consideration.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.


This column originally ran in the Napa Valley Register on February 14th, 2017. You can read it on the Register's website here: "What is a business partnership and how is it formed?"

Friday, February 3, 2017

Mediation and arbitration

Dear Alex:
In one of my business’s contracts, there is a “Mediation and Arbitration” provision, which says that in the event of a dispute, the parties will attend mediation or arbitration instead of going to court.
Are those options faster or less expensive than a lawsuit?
Mediation and arbitration fall into the category of “alternative dispute resolution,” or ADR.
ADR encompasses a variety of methods that can be used by parties to resolve disputes without the need to have a trial.
Mediation and arbitration are two of the most popular methods of ADR, and they are not the same. Parties may prefer ADR for a variety of reasons, not the least of which is cost savings.
Although a significant amount of preparation is required in anticipation of a mediation or arbitration, the overall cost and time commitment of ADR is usually much less than the cost of taking a lawsuit all the way through a trial.
ADR is voluntary, and at virtually any point in a dispute – from the time that the dispute arises through preparation for court trial – the parties can agree to attend an ADR proceeding. In the case of your contract, the parties preemptively agree to submit themselves to ADR if a future dispute arises between them.
Mediation is typically a collaborative mutual effort to achieve a resolution, with a mediator facilitating the conversation, and helping the parties continue to progress toward a resolution that the parties themselves collaborate to reach.
The mediator does not usually render a decision, and instead assists the parties to come together in agreement upon a mutually agreeable solution. Mediation can be binding or non-binding.
Sometimes the parties just need a push in the right direction, other times if the parties agree to be bound to the resolution reached in mediation, they may reduce that resolution to a written and binding agreement.
Arbitration is more similar than mediation to the traditional trial format.
In arbitration, there is an individual who serves in a similar function to the judge or jury in a court of law. That person is the arbitrator. During the arbitration, the parties present evidence, make their arguments, and ultimately the arbitrator renders a decision, just as if a judge had heard the case.
Arbitration is not required to follow the rules of evidence that a court is bound to follow, and it may be less formal and less intimidating of an environment. In some instances, due to the amount of evidence and preparation for complex cases, arbitration may not result in a significant savings over a court trial.
In cases of both mediation and arbitration, the mediator or arbitrator is a neutral third-party, which is selected by the mutual agreement of the parties in the dispute.
Retired judges will often go into business as private mediators or arbitrators. Practicing and retired attorneys may also provide ADR services.
For parties who wish to reduce costs, save time, or are intimidated by the trial process, ADR can be a suitable alternative for resolving disputes.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.


This column originally ran in the Napa Valley Register on January 31st, 2017. You can read it on the Register's website here: "Mediation and arbitration"

Friday, January 20, 2017

Is neighbor being reasonable?

Dear Alex: In the recent storm, my neighbor dug a small trench that diverts rain water from his yard and into mine, and is flooding my back yard!
Can he do that?
The recent rain storms have dumped more water than we have seen in many years. Of course, this water is welcomed and desperately needed, but the high volume of rain in such a short period of time has also resulted in a flood of questions being sent to my email inbox. One of the common themes among these questions surrounds obligations between neighbors for water runoff.
During the recent dry years, changes to the physical landscape of yards and real estate have changed the way water flows over property. In many cases, the recent storms have been the first revelation of the true impact of these surface water diversions. Similarly, some property owners have taken steps during the storm to prevent damage to their property, flooding, or other undesirable effects of so much water raining down.
In its natural flow, the flow that would result from the effect the natural landscape and the tendency of water to travel downhill, it is not the obligation of the uphill neighbor to prevent surface water runoff from flowing onto the property of his or her downhill neighbors. However, when the neighbor has created an unnatural diversion or flow of surface water onto his neighbor’s property, the rules change.
The law provides that harmful surface water may be diverted where such a diversion is reasonable, in light of the surrounding circumstances, including the amount of harm caused, the foreseeability of that harm, and balancing of the utility of the diversion and the harm it causes.
Whether an owner’s conduct is legal is based on the “reasonableness” of his actions, determined by the facts and circumstances of each situation. Determining “reasonableness” makes it difficult to predict the outcome of these disputes and can lead to litigation.
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Courts have laid out concrete rules when one or both parties act reasonably.
An uphill neighbor taking reasonable steps to divert surface water from his land is not liable for damages caused to the downhill neighbor.
If the downstream neighbor diverts surface water to reasonably protect against foreseeable water damage, then the upstream owner cannot alter the natural drainage of surface water in a way that harms the downstream property, even if the alteration is reasonable.
If both owners are acting reasonably, the upstream landowner is liable to the downstream landowner if he changed the natural system of drainage and harmed the downstream landowner.
Some methods to protect your property can include sandbagging areas vulnerable to water accumulation, or building a wall to restrict the flow of water onto the property. Before taking these steps, neighbors are encouraged to consult professionals such as civil engineers, or general contractors to help reduce the burden a chosen diversion method may pose on a neighbor.
Neighbors are encouraged to communicate with one another to find agreeable ways to protect one another’s land.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.


This column originally ran in the Napa Valley Register on January 17th, 2017. You can read it on the Register's website here: "Is neighbor being reasonable?"

Friday, December 30, 2016

Getting back your security deposit

The most common legal dispute between residential landlords and tenants is over the withholding of deposit funds.
The purpose of the deposit is to secure the landlord in paying for repairs to the rented premises resulting from damage to the premises caused by the tenant, which is not the result of normal wear and tear.
Two of the most common concerns regarding tenants’ deposits are:
(1) Damage the tenant believes existed prior to their tenancy; and
(2) Damage the tenant believes is the result of ordinary wear and tear.
If the security deposit is retained to pay for pre-existing damages or ordinary wear and tear, that application of the deposit would be improper.
However, without a clear evidentiary record of pre-existing damage, personal memory is a notoriously unreliable source of evidence that is difficult to accurately rely upon.
With respect to ordinary wear and tear, there are common misconceptions about what constitutes ordinary wear and tear.
The best first step in protecting your deposit is to inspect the rented premises, then itemize and disclose all defects to the condition of the premises within three days of moving into the rental unit. Your landlord will usually provide you with a checklist that you can fill out and return.
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It is important to complete this checklist in a timely fashion. At the end of your tenancy, if you are charged for a piece of damage that is shown as already damaged on the checklist, you will have good evidence to protect you.
You might not remember when something in your rented premises was damaged during the tenancy, but after reviewing your move-in checklist you may be reminded that there was no damage when you took possession. This document protects both you and your landlord from mistakes.
Ordinary wear and tear is the unavoidable incremental damage that rental properties suffer from regular use.
However, just because damage was accidental does not mean it was a result of ordinary wear and tear.
A common example is with carpets. Just because you accidentally spilled red wine on the carpet does not mean that a large red wine stain is a result of ordinary wear and tear; you may be charged for cleaning or replacement of the carpet.
There may also have been wear and tear present prior to your use of the premises, but this does not mean that you won’t be held liable for further damage. If carpet was not new when you moved in, remember that carpet has an estimated useful life.
If you moved in to a rental with two-year-old used carpet and caused a need for the carpet to be replaced, you may be charged for the pro-rata value of the remaining useful life of the carpet.
Deposits are factually dependent and every incidence is different. Take photos when you move in and photos when you move out, and schedule a pre-move-out inspection with your landlord during the last week of your tenancy.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.


This column originally ran in the Napa Valley Register on December 20th, 2016. You can read it on the Register's website here: "Getting back your security deposit"

Holiday bonus - pros and cons

Dear Alex:
Our business has a long history of giving holiday bonuses to our employees.
We take pride in the care we have for our employees, and the tradition of bonuses is one of our favorite ways to show appreciation to them.
We used to do our own payroll, but this year we started using a company to do our payroll due to the complications that have grown over the years.
Now, our new payroll company has told us that we might be creating a problem with the bonuses, because of overtime rules.
How can this be?
Holiday bonuses are a great way to show appreciation to employees, engender good relations and loyalty and reward a job well done. I hope you will continue to keep this tradition alive.
Unfortunately, there is a possibility that holiday bonuses can result in several problematic situations for employers, including wage-and-hour liabilities for employers who aren’t careful.
The problem can arise when categorizing what you call a “bonus.”
If the bonus is not truly discretionary, then the bonus gets lumped into the employee’s regular rate of pay.
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For example, a bonus is not discretionary if it is promised as part of the employee’s compensation. This increase in calculating the regular rate of pay carries into the calculation of overtime wages.
Overtime wages are calculated based upon a multiplier of the employee’s regular rate of pay. So if you have undervalued the regular rate of pay by failing to include the bonus during the year, you may have liability for underpaid overtime wages.
Thankfully, if your bonuses are truly discretionary bonuses, they may not be considered a part of the employee’s regular rate of pay, and thus may not result in any change to calculating overtime.
To be truly discretionary, the employee cannot have a contractual right to a bonus, and the employer must have full discretion over whether a bonus will be paid at all, If a bonus is to be paid, the employer must have discretion over the amount to be paid.
This means that bonuses tied to objective metrics such as performance, attendance, or tenure, can be problematic.
Another area of potential unintended consequences for discretionary bonuses is in the equal and fair treatment of all employees.
Discretionary, subjective bonuses are ripe for a claim of discrimination for disparate treatment among employees.
If you award two employees of similar standing with different bonuses, rather than creating goodwill and loyalty among your employees this could become divisive, resulting in resentment, fracturing functional teams, and possibly claims of discrimination.
At a minimum, keep holiday bonuses consistent among job types, if not uniform among all employees.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.


This column originally ran in the Napa Valley Register on December 6th, 2016. You can read it on the Register's website here: "Holiday bonus - pros and cons"