Quick! . . . Mediate That Business Divorce!

One of the officers of a corporate client calls. You note the distress in his voice immediately. He tells you that a dispute has arisen between the major shareholder factions of the company, and he wants you to advise on what he and those in his faction can do to win this. And you can tell he expects you to talk “reason” to the other faction.

But you quickly realize that although for the moment knowledge of the dispute is restricted to people in the company, it will only be a short time before it gets out to the customers, suppliers, banks and others with whom the company does business, threatening the existence of the company.

You should consider recommending the factions mediate the dispute, if possible before litigation is filed.

Advantages of Mediation

Some advantages of mediation are:

No Publicity. No lawsuit is filed. The situation can be kept as confidential as the parties want.

Speed. Trial, or even a hearing for significant injunctive relief, will take months, if not years. And as soon as customers hear there is an internal dispute — and they will — they will take their business elsewhere, to a “stable” competitor. And this risk increases significantly if a lawsuit is filed. A mediation can begin immediately.

Continue reading »

Crowdfunding – Good and Not So Good

On November 3, 2011, with a bi-partisan 407-17 vote the U.S. House of Representatives passed the Entrepreneur Access to Capital Act (H.R. 2930 and the “Access to Capital for Job Creators Act” H.R. 2940) (the “Acts”). The bills will now go to the U.S. Senate for reconciliation.

This Acts amend the Securities Act of 1933 to essentially allow “general solicitation,” heretofore illegal, in small offerings of investments if they meet numerous other restrictions. The Acts allows an issuing company to offer and sell securities, without regard to the general solicitation–type methods of promotion used, to an unlimited number of purchasers, so long as no purchaser is allowed to spend more than the lesser of $10,000.00 or 10% of his or her net worth, and the total amount of securities purchased within any 12 month period is no greater than one million dollars. And purchasers need not be “accredited” (usually meaning having a net worth of no less than one million dollars or annual income of $200,000.00 or $300,000.00 if purchasing jointly with a spouse). (And, if the issuer provides potential investors with audited financial statements, the offering may be as much as two million dollars. This may be particularly important in light of the ease of auditing a newly formed issuer with no history of operations and earnings).

Also, the Acts allow entrepreneur issuers to utilize “intermediaries,” who need not be registered as broker-dealers with the SEC, to assist in finding investors. This is a significant change from the present law, albeit with many restrictions on the use of the intermediary.

This is a “sea change” in the law of private placements. Perhaps its greatest significance is the new ability of such issuers to use the internet in private offerings. Also, it allows many potential investors, not sufficiently affluent to be “accredited,” to participate in an admittedly limited method in the growth of entrepreneurial companies. And, of course, it opens to entrepreneurial companies’ access to a body of investors hereto for prohibited to them.

However, some of the “restrictions” on crowdfunding should cause some companies to select other methods of private placement, particularly those who can attract sufficient accredited investors. These negative factors should also cause the Senate, in its considerations, to consider improving this new exemption.

Continue reading »

Employees Can Sue Employers in Civil Court for Occupational Disease Claims: Missouri Appeals Court

Missouri’s Western District Court of Appeals recently decided that an employee can sue his employer in civil court for an “occupational disease” claim. The case, KCP & L Greater Missouri Operations Co. v. Cook, involved Monroe Gunter’s claim for damages stemming from a work-related injury. He claimed that he contracted mesothelioma as a result of having been exposed to asbestos during his employment with KCP&L. The court ruled that Gunter was allowed to file suit in civil court because, under Missouri law, the workers’ compensation forum is not the exclusive forum for a claim premised on an “occupational disease,” such as mesothelioma. (Note the distinction between an “occupational disease,” which develops over a period of time, versus an injury that happens instantaneously or acutely as a result of a single accident.)

This is a major change from prior law. Historically, the exclusive remedy for an employee with any employment-related injury – whether acute or gradual in onset – was to pursue a claim in the workers’ compensation forum. This is a system that clearly benefits employers (as well as third-party workers’ compensation insurers).

There are two types of employers in the workers’ compensation context: those who carry insurance policies issued by third-party insurance companies, and those who self-insure – that is, who create and pay into their own private workers’ compensation insurance policies. In every work-injury case, there are three benefits to which an injured employee is presumptively entitled: medical costs, lost wages, and permanent disability.

Two Scenarios

Consider the difference between the likely cost of a workers’ compensation claim versus the possible cost of a civil lawsuit with regard to: (1) a Missouri business with a workers’ compensation insurance policy issued by a third-party insurance carrier; and (2) a Missouri business that self-insures.

Continue reading »

Control Agreements from the Secured Party’s Perspective – Perfecting Security Interests in a Securities Account

Any secured party, e.g. a bank, making a loan inevitably wants as much control over its collateral as the borrower is willing to give, and the law allows. In a declining real estate market, an obvious source of collateral for lenders may include a borrower’s securities account. But, taking a securities account as collateral adds an additional element to the loan process by bringing a new party to the table – the financial intermediary.

As people in the industry know all too well, different forms of collateral require different procedures to properly perfect their security interests. Real property, for example, is relatively straight forward; a secured party in Missouri records a properly executed deed of trust with the recorder of deeds office in the county in which the property is located. Investment property (stocks, bonds, mutual funds, brokerage accounts, etc.) are a different animal altogether. Under the Uniform Commercial Code (the “UCC”), a securities account is classified as investment property (UCC § 9-102(a)(49)). Most investors do not maintain physical possession of their certified securities (stock certificates or bonds); rather, these are held by their financial intermediaries. Understanding that your borrower will not have the ability to hand you its certified security for this reason, a creditor wishing to obtain its highest priority should perfect its security interest in investment property by control (UCC § 9-314(a)).

The secured party gains control over the securities account when the owner of the account instructs the securities intermediary, after the secured party has rights in the account, that the intermediary shall comply with the secured party’s orders without consent of the owner.

Put more simply, for a lender to perfect its security interest in a securities account two steps are required: (1) execute a written security agreement whereby the borrower acknowledges its pledge of the account (rights to the account); and (2) enter into a written three-party agreement among the lender, borrower, and financial intermediary (borrower’s instructions to the intermediary).

Continue reading »

Employee Social Media Griping: Can An Employer Terminate Employees Because of Their Social Media Posts Without Violating Section 8(a)(1) of the National Labor Relations Act

Social Media is the new water cooler conversation. It enables and facilitates conversations that years ago would have taken places at the old-fashioned water cooler. In today’s world of Facebook and Twitter, employee complaining is instantly, electronically and permanently transmitted to the world. Social Media users think less about their posts and disclose more so that a simple gripe monologue is turned into dialogue – on steroids – with the world. Such platforms encourage employees to blur their personal and professional lines of behavior and blurt out what is bothering them without engaging their higher level thinking tools.

With seven hundred and fifty million people actively using Facebook, there is a significant chance that a post about working conditions, compensation or other issues related to their employment will spark a conversation with an employee’s colleagues, and such conversations may constitute concerted activity under the National Labor Relations Act.

The question remains, if your employees say something negative on Facebook about your company, their fellow employees or their supervisors, can you terminate without running afoul of the National Labor Relations Act?

The answer depends on the facts surrounding the post(s). The test is whether the employee is engaging in activity solely for himself or on behalf of other employees.

Continue reading »

Government of Laws, Not of Men … or Corporations

As lawyers, it’s not difficult for us to generally subscribe to the political philosophy that society works better when it is governed by “the rule of law.” As American attorneys, we most often trace the roots of this philosophy to Plato or Aristotle, but in truth, ancient philosophers in many cultures enunciate similar concepts, including Chinese and Islamic thinkers.

In comparing the success of our country and culture, we frequently cite the “rule of law” as basis for our economic success over the last two centuries. We often hear from other cultures that the inviolability of property and contract rights in our legal system is what instills the confidence in our system that encourages individuals to take the economic risk that causes our economy to thrive.

However, if “rule of law” is the structural “foundation” of our society, it might be time we grabbed a flashlight and headed into the basement. Every property owner in or around St. Louis knows that this foundation, like those in our homes, requires constant vigilance for cracks and leaks. Unfortunately, the bad news that property owners often learn is that even with constant vigilance, the early discovery of a tiny trickle of water in a well designed and maintained basement can result in significant and expensive repair costs. 

As lawyers, we are explicitly the guardians of our society’s rule of law foundation, so even with the queasy horror of substantial sacrifice on the horizon; I think we must continuously inspect the rule of law to ensure it is watertight.  This seems a particularly appropriate analogy given the alarming mortgage crisis that has predicated our current national recession. 

Continue reading »

The Arms Race of Marketing Legal

In 1972 the United States Supreme Court told us all that total prohibitions on attorney advertising were a violation of the Freedom of Speech clause of the First Amendment to the United States Constitution. My personal memories of how that decision changed the profession are somewhat nebulous because I was two years old. In the nearly 40 years since, advertising has changed completely, not just for lawyers but for everyone. This case law from 1972 still prevails through to today, but probably nothing else about advertising in 1972 is relevant to marketing your practice today.

The jargon we use for starting a new law practice is “hanging out a shingle.” That phrase evokes the image of a 19th century lawyer opening his (and it would have been a “he”) retail law practice on the courthouse square. In the closing years of the twentieth century, when I left the St. Louis County Probate Court to start my own practice, I rented office space just blocks from the courthouse, like the classic courthouse square model.

Unfortunately, my first office was on the fifth floor of a high rise and the landlord had rules that prohibited me from nailing up a handcrafted shingle in the hall outside my office. Moreover, no one would have seen it. So instead, one of the first things I did in planning my departure was the modern analog of “hanging out a shingle” – I created and published a web page. This was such a high priority that I began work on the page in the evenings before I left my prior employment at the St. Louis County Probate Court.

The lessons to be learned from legal marketing in 1999 were, believe it or not, only slightly more relevant than those from legal marketing in 1972. In the last 11 years, things have changed radically. In 1999, however, we did already have Google and other search engines. I’m kind of a geek, and I had worked with computers, so I had a basic understanding of how the search engines worked. I designed my web page to have large amounts of substantive information to gain the attention of the search engine index algorithms. In the years that followed, this practice would come to be called “Search Engine Optimization.” Search engine optimization has continued to be the crucial concept of legal marketing on the Internet for the last decade, but I believe that will change shortly.

Continue reading »

When Doctors and Lawyers Work Together Communities Benefit

You may recall a previous column [in the St. Louis Bar Journal] in which I wrote about the medical profession. That article focused on the failure of medical professionals to maintain control of their profession by assuring access to medical care. This was a companion piece to my column in the St. Louis Lawyer, published in the same month, and provided a different perspective on the need for support of pro bono legal services. Unfortunately, it would seem I may have made my point at the expense of further deterioration of medical-legal relations. Therefore, in the spirit of solidarity (and fence-mending), let us now discuss an issue which has strengthened that relationship, the Medical-Legal Partnership (MLP).

An MLP brings together health care and legal professionals who share a common goal: to promote the well-being of their patients and clients. These partnerships leverage the resources and expertise of two knowledgeable service professions in order to alleviate the social and environmental stressors that affect the health of our nation’s neediest individuals and families.

By working together to improve their patients and clients’ health, doctors and lawyers benefit communities in many ways. For example, keeping children healthy reduces school absences and reduces the amount of time employed parents spend taking their child to a doctor.

How do MLPs help? The concept of a Medical-Legal Partnership (MLP) is the brainchild of Barry Zuckerman, M.D., Chief of Pediatrics at Boston Medical Center. He came up with the concept after repeatedly seeing patients who failed to recover from ear infections because their apartments lacked heat, and patients who were unable to control their asthma because their residences contained mold. In working with these patients, Zuckerman came to understand that legal remedies can be used to lessen or even prevent his patients’ need for health care. Putting his idea into action, Zuckerman founded the Medical-Legal Partnership for Children at Boston Medical Center in 1993, and subsequently created the National Center for Medical-Legal Partnership. Over the past 17 years, MLPs have moved beyond Boston. They now exist in 37 of the 50 states and account for more than 80 programs at just over 180 sites across the country. All of the MLPs bring lawyers into the health care setting to help patients and their families navigate through the maze of regulations involving such health-related concerns as food-stamp eligibility, utility shutoffs, mold removal, and landlord-tenant issues.

An MLP is a health and legal services delivery model which recognizes that the legal system already holds solutions for many problems associated with social determinants of health. By integrating legal assistance into the medical setting, an MLP helps underserved communities.

Continue reading »

Lawyers Impacting Politics through Conflict Resolution

When I visit a new doctor for the first time, and complete a new-patient intake form, in the blank for “occupation” I often write “conflict-resolution specialist.” That’s because I find that health care professionals react differently when they realize they’re treating a lawyer.

The use of the term “conflict-resolution specialist” is not just careful lawyer-talk designed to convey a totally true statement without providing the information sought, it also happens to be an apt description of our profession. Whether we are seeking to solve problems through litigation, prevent them through transactional work, or just guide a client through an uncontested court process like Probate or Bankruptcy, we are all conflict-resolution specialists.

The better lawyers amongst us have learned that the most aggressive approach to a solution is only occasionally the best approach. A transactional lawyer can easily draft a highly biased document that creates a very lopsided power balance in favor of her client at the expense of the other party. But, this hyper-aggressive approach renders no benefit if it causes the other party to walk away from the transaction or, worse still, to regret signing the contract and thereby prevent the business relationship from thriving.

Similarly, any litigator that needs a document from an opposing counsel knows how to draft discovery requests and eventually obtain an order to compel. When the two lawyers have an adversarial relationship, that process typically takes at least ninety days and probably requires at least five hours of attorney time. The client is almost always better served by a lawyer that maintains a professional, collegial relationship with opposing counsel so he can place a six minute telephone call to opposing counsel and obtain the same document in a day or two. Certainly there are circumstances when we have to do things the hard way, but I would suggest that the ability and effort expended to avoid the hard way, through conflict resolution, often provides the client the best possible service.

The reason most successful law practices use this approach is because there are at least two sides to every story in real life. In fiction, on the other hand, we regularly encounter “bad guys” that act in evil ways because they are inherently evil. Those people are rare or perhaps even nonexistent in the real world. Most of us do what we think is “right” – or at least justifiable – even if our decision leaves others at a disadvantage. While all experienced lawyers know this, many non-lawyers do not think this way. The natural human reaction seems to be to vilify our perceived adversaries.

  Continue reading »

Diversity and Elana Kagan

At Danna McKitrick, when discussions turn to topics of firm administration, a member of the firm’s executive committee, Ruth Binger, often points out that a strong overall firm requires diversity amongst its lawyers. “Diversity” has come to be a buzzword about inclusion based on race, religion, gender, national origin, age and other protected or pseudo-protected classes. When Ruth talks about diversity she doesn’t just mean adhering to the law (which coincidentally is one of her practice areas). She means having diversity of many other sorts, such as a diversity of backgrounds, approaches and practice areas. This broader definition of diversity is the lens through which I propose to examine the newest nominee to the United States Supreme Court, Elena Kagan.

Over the course of the last 94 years the Court’s composition has slowly, but methodically gained diversity in the sense of race, religion, gender, and national origin. As a result, Elena Kagan won’t be the first, or even the only, person with any of her immutable characteristics to sit on the highest court. She will, however, add to the Court’s diversity in the broader sense.

Continue reading »