November 26, 2008

Quantum Meruit

Have you ever heard of the term “quantum meruit?” It’s Latin for “as much as is deserved.” As a Delaware business attorney, I’ve had many clients who performed a service for someone, didn’t get paid, and I had to file a lawsuit to recover the amount owed. In many instances, there was a written contract or oral contract. However, sometimes there simply wasn’t a contract, or if there was a contract, it wasn’t enforceable for some reason. Fortunately, the courts recognize that the absence of a contract doesn’t necessarily prevent a person who has performed a service from collecting money from the person who benefitted from the service.

In Delaware, in order to win a lawsuit based on quantum meruit, you have to prove 4 things: (1) you provided or performed a valuable service; (2) the service was provided to the defendant (the person you are suing); (3) the service you provided was requested by the defendant and accepted by him; and (4) the services were provided by you under circumstances that put the defendant on notice that you expected him to pay for your services.

Based on principals of fairness, the concept of quantum meruit recognizes that a person would be “unjustly enriched” if he were permitted to receive a benefit such as labor or materials and not pay for it.

In determining the amount of money you should receive based on quantum meruit, the court doesn’t look at the value of the benefit that the defendant received as a result of your services. Instead, the court looks at the reasonable value of the services you provided.

November 22, 2008

JFK Remembered: 05/29/1917 - 11/22/1963

One of my fondest memories of JFK was his regular press conferences. Take a few moments and see what it was like to have a president that a lot of us loved.
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November 21, 2008

Liquidated Damages - Valid or Invalid?

In a previous article, I introduced the topic of liquidated damages. As a Delaware business attorney who prepares contracts, I always ask my client to think about how he would be harmed economically if the other party were to breach the contract. With that in mind, we then talk about how easy or difficult it might be to prove the amount of the loss in the event of a breach. Depending on the nature of the business arrangement, there are times when it would be difficult if not impossible to prove the monetary loss that my client will suffer if the other party breaches the contract.

It’s for this reason that we insert a liquidated damages clause in the contract. Let’s not get hung up on terminology. The term “liquidated damages” means that the amount of the dollar loss is known. For example, if XYZ Company promises to pay $50,000 for a shipment, and fails to do so, the amount owed is known. You don’t have to provide evidence that will enable the court to calculate the loss. It’s $50,000. On the other hand, the term “unliquidated damages” means that the amount of the loss is not known. For example, if you purchase an existing business and the contract has a provision prohibiting the seller from competing with you, the amount of your loss could be extremely difficult to prove if the seller opens up a competing business. Think about how you might prove in court under strict rules of evidence the amount of money you will lose because the seller is competing with you.

This is where the concept of liquidated damages comes in. It involves agreeing upon an amount, at the time you enter into the contract, that the other party must pay you if he breaches the contract. It turns what are unliquidated (unknown) damages into liquidated (known) damages.

You cannot use the concept of liquidated damages as a penalty to be imposed on a party for breaching a contract. Instead, the amount has to be a good faith estimate of the damages that would actually be sustained. If the Court determines that the amount in the contract is intended as a punishment for defaulting, it’s considered a penalty and will not be enforced. If that occurs, you could be faced with the difficult if not impossible task of proving the actual damages you sustained.

The Courts in Delaware have established the following test to determine whether the amount inserted in the contract is a penalty or liquidated damages. To be a valid liquidated damages clause, at the time you enter into the contract the amount of damages you might reasonably expect to suffer must be difficult to ascertain because of their indefiniteness or uncertainty. In addition, the amount both parties stipulate to has to be a reasonable estimate of the damages which would probably be caused by the breach.

The good news is that if you have a liquidated damages clause in your contract, and the other party defaults, it’s the defaulting party who has to prove that the amount agreed upon is void as a penalty.

November 18, 2008

The Law of Defamation in Delaware

A Delaware business owner recently asked me to explain the law of defamation. Defamation is a written or oral statement that harms the reputation of another person. To be considered harmful, the statement must lower the person in the eyes of the public or cause others not to associate or deal with him. We've all heard the words “libel” and “slander.” Libel is written defamation, and slander is oral defamation.

As a Delaware business attorney, I've found that there are defenses you can raise if you’re sued for defamation. The most absolute defense is truth. In other words, if a statement is true, you can tell as many people as you like even though the statement ruins a person’s reputation.

The average businessman is not the only one who becomes involved in a defamation lawsuit. Consider the following headlines you may have seen:

JERRY SEINFELD AND WIFE SUED FOR DEFAMATION

ROGER CLEMENS FILES DEFAMATION LAWSUIT OVER ALLEGATIONS OF USE OF PERFORMANCE ENHANCING DRUGS

WITNESS IN OJ SIMPSON TRIAL SUES DR PHIL FOR DEFAMATION

OPRAH SUED FOR DEFAMATION BY FORMER HEAD OF SCHOOL IN SOUTH AFRICA

DAN RATHER SUES CBS FOR DEFAMATION

In order for there to be defamation, the statement has to be made to someone other than the person the statement is about. In the law, this is known as "publication."

The person claiming that he was defamed has to prove that the statement he’s complaining about was in fact defamatory. However, there are 4 categories of statements that are automatically considered to be defamatory. They are statements that (1) malign someone in a trade, business or profession, (2) impute a crime, (3) imply that a person has a “loathsome” disease, and (4) impute the unchastity of a woman.

I mentioned earlier that truth is an absolute defense. There are also conditional privileges or defenses even if the statement turns out not to be true. For example, if you communicate to the police a suspected crime, that’s allowed. A statement that’s made in the course of the defamed person’s employment and it’s made on behalf of the employer, it’s considered privileged. Statements made by witnesses in a courtroom setting and the legal arguments made by attorneys in court are also privileged.

There are exceptions to everything, including exceptions. Under Delaware law, these conditional privileges must be exercised in good faith. So, even though a communication to the police is usually considered protected, there’s an exception if the statement was known to be false and it was made with malice or an intent to harm the defamed person.

November 15, 2008

Every Delaware Corporation Must Have A Registered Agent

If you want to become incorporated in Delaware, you’re not required to have a place of business that’s physically located here. In fact, you’re not even required to do business in Delaware. Instead, what’s required is that you have and maintain what’s called a “registered office” located in the State of Delaware. In addition, the corporation must have a Delaware registered agent who's located at the registered office.

Choosing a Delaware business attorney to act as your Delaware registered agent gives you immediate access to an attorney in Delaware if you should need one.

A Delaware corporation is required to provide to its registered agent the name, business address, and business telephone number of a natural person who is an officer, director, employee, or designated agent of the corporation, who is then authorized to receive communications from the registered agent. Such person is considered the communications contact for the corporation.

The registered agent’s main responsibilities are: (1) to accept service of process and other communications directed to the corporation and forward it to the corporation; (2) to forward to the corporation the annual report required by Delaware law; (3) to be present at the registered office during normal business hours; and (4) to retain (in paper or electronic form) the information concerning the current communications contact for each corporation for which he serves as a registered agent. .

November 13, 2008

Insurance Company Greed Continues

I recently represented a middle aged woman who was visiting a florist. My client entered one of the greenhouses, and as she walked down the steps, she was looking at the rows of flowers ahead of her. What she didn't see was the hose that had been left lying on the steps. When her foot came in contact with the hose, she fell and broke her ankle. Surgery was required, and she had to have screws implanted in her ankle to secure the bones.

Immediately after she fell, the owners (a husband and wife) ran over to my client, apologized, and said "this is what we have insurance for." They notified their insurance company, and expected that their insurance company would at least pay my client's medical bills. They were wrong.

The insurance company took the position that my client fell because she wasn't looking at the steps as she walked down them. They said it was her fault, and they refused to pay a dime.

The next thing my client did was to call me. This is one of thousands of examples of the way insurance companies handle claims. The American Association For Justice has just published a report called "Tricks of The Trade - How Insurance Companies Deny, Delay, Defend and Confuse." This is an eye-opening report that everyone should read.

November 12, 2008

Mandatory Binding Arbitration

As a Delaware business attorney, one of the issues I discuss with clients who want to have a contracted prepared is mandatatory binding arbitration. The rest of this article is taken from a report issued by the American Association For Justice.

Mandatory binding arbitration clauses are hidden in the fine print of various consumer contracts which run the gamut from credit cards and cell phone contracts to nursing home care and employee contracts. Consumers and employees are often forced to sign these clauses in order to receive services or get hired. In the event of a dispute with the corporation, mandatory binding arbitration says that a consumer or an employee cannot take their case to court but instead must take it to a private arbitration forum. Often times the company picks the arbiter who will decide the outcome. The consumer can never take legal action and binding arbitration applies even if a consumer is seriously injured by a product or service. Americans overwhelmingly disapprove of mandatory binding arbitration (81 percent) when presented with all the facts.

Mandatory arbitration clauses are one-sided, pre-emptive and non-consensual; they legally bind people to arbitration at the time of purchase or signing, in order to receive a good or service, but are rarely known to those whose rights are taken away by them. Since these binding mandatory arbitration clauses are presented on a take-it-or-leave-it basis, people have no choice but to waive their rights.

Jamie Leigh Jones was raped, drugged, beaten, and then confined to a shipping container by KBR/Halliburton employees while working in Iraq. Because of a clause placed in her employment contract, KBR is trying to force Jamie to submit to a binding, secret, non-appealable arbitration. Jamie is now fighting to obtain access to the justice system because she unknowingly signed an arbitration clause as part of her 18-page employment contract.

In her testimony before the House Education and Labor’s Health, Employment, Labor and Pensions Subcommittee, Jamie revealed, “At age 20, I had no idea what arbitration was…,” and further explained in her testimony that, “I had no idea what an arbitration was other than a tiny paragraph included in the lengthy document that mandated that I could not get justice from the civil court system.”

Arbitration providers are biased decision makers, organized to serve corporations. Since only businesses are repeat users of an arbitrator, there is a disincentive for an arbitrator to rule in favor of a consumer if he expects further retentions. A September 2007 Public Citizen report on credit card arbitration analyzed more than 19,000 credit card arbitration cases in California, and found that the arbitrators ruled in favor of the corporation almost 95% of the time.

Consumers are also forced to pay steep filing fees just to initiate a case—seldom less than $750 – and pay their share of the arbitrator’s hourly charges, which are routinely $400 or more per hour. In addition, arbitration clauses often allow the corporation to choose the location, regardless of how inconvenient or costly travel will be for the consumer. Although corporations have the cash to pay these costs, many consumer do not and are forced to drop their cases.

In November of 2006, Erika Ricer thought she had purchased a safe car that would last her family for a number of years; however, the night Erika drove the car home, the wind shield wipers quit working while she was driving her six-year old daughter in a rain storm and the next morning on her way back to the dealership, the “Check Engine” light went on. Despite being assured by the dealer that the car had undergone quality assurance inspections and had never been in an accident, Erika was actually sold a rebuilt wreck that had been in a crash where the car was seriously damaged and the air bags deployed. Erika’s contract with the dealership contained a mandatory arbitration clause and a box that if checked, the buyer acknowledges the agreement contains an arbitration clause. Despite never checking the box, Erika is being forced into arbitration by the car dealership’s lawyers, a costly process she can not afford.

Before the Subcommittee on Commercial and Administrative Law, Erika testified “I can’t even afford the cost of going through with the arbitration process the dealer is demanding. In order to just start the process of arbitration, I would have to pay half or more of all the costs of arbitration. I have learned that arbitrators’ fees usually range from at least $700 - $1800 per day, with an average of $1300. In addition to the arbitration fees, I would also have to pay half of the administrative fees. I know that the cards are totally stacked against me in the arbitration process that the dealers want me to go through.”

Binding mandatory arbitration clauses often severely restrict the individual’s ability to argue their side of the case and obtain necessary evidence – which they would be allowed to obtain in court. Courts can also provide a range of remedies not available in arbitration and while proceedings and records of the courts are open to the public, most arbitration clauses require that proceedings be kept confidential, even if the case raises vital health and safety issues.

November 9, 2008

Unemployment Compensation & "Just Cause"

In a previous article entitled At-Will Employment In Delaware, I wrote about how Delaware employers have the right to fire their at-will employees without warning and without giving the employee an opportunity to improve. As a Delaware business lawyer, I have to remind my clients that employees who are terminated have the right to collect unemployment compensation unless there was "just cause" for their termination.

According to the courts in Delaware, "just cause" means a wilful or wanton act or pattern of conduct in violation of the employer’s interest, the employee’s duties, or the employee’s expected standard of conduct.

In this context, the word "wilful" means actual, specific, or evil intent, while the word "wanton" means needless, malicious, or reckless conduct.

There are some rules to remember when it comes to whether there was just cause.

1. An employee's wilful or wanton conduct will not be just cause for termination if the employer has consistently tolerated this conduct by his employees.

2. In order for there to be just cause, there must be notice to the employee that poor performance or behavior could result in termination of employment.

3. Violation of a company rule can be considered just cause, but only if the employee is aware of the rule and that violation of the rule can lead to termination.

4. Poor attendance can amount to just cause for termination.

The Delaware Department of labor puts out an Unemployment Insurance Handbook For Employers which is available here for downloading.

November 4, 2008

Sign Those Agreements!

I’m a business lawyer in Delaware. I’ve seen all kinds of disputes between partners and business associates. In this Delaware Business Lawyer Blog, I’ve written about the Statute of Frauds. Unfortunately, even the most sophisticated business owners sometimes find themselves in Court fighting over millions of dollars because a contract that wasn’t signed is unenforceable because of the Statute of Frauds.

Just last month, the Delaware Court of Chancery issued an opinion that was based on the Statute of Frauds. As a result, the plaintiff lost out on the chance to receive hundreds of millions of dollars in retirement payments. That’s right - hundreds of millions of dollars!

The lawsuit was brought by Brian Olson, one of the founders of a hedge fund who was removed from his position by his co-founders. Olson claimed that he was entitled to substantial payments under the terms of their LLC operating agreement. The problem was that the operating agreement had never been signed. Olson claimed that the unsigned operating agreement reflected what had been orally agreed upon, and that oral agreements are enforceable. His co-founders claimed that they had never reached a final agreement on the terms.

The Court was faced with deciding whether an oral LLC operating agreement was enforceable. First, the Court recognized that oral operating agreements are permitted under Delaware’s LLC statute. Next, the Court reviewed the statute of frauds which states that an agreement that can’t be performed within one year has to be in writing and signed in order for it to be enforced. On the other hand, if the oral contract may by any possibility be performed within a year, then the contract is enforceable.

The Court then pointed out that few LLC operating agreements contain any provision that can’t be performed with one year, and so the statute of frauds wouldn’t limit the enforcement of that agreement. So far, so good for Olson. On the other hand, if the LLC operating agreement contains a provision that cannot possibly be performed within one year, then that provision is unenforceable.

Unfortunately for Mr. Olson, the Court ruled that the obligation in the operating agreement to make retirement payments to Olson could not possibly be performed in one year. As a result, Olson lost the case.

November 2, 2008

What To Do With Unclaimed Property and How To Search For Your's

As a Delaware business attorney, part of my responsibility to my clients is to help them avoid legal problems. A legal check-up or legal audit can save a business owner a lot of time, money and aggravation in the long run if we can identify potential problems and deal with them before they get out of hand. In this series of articles, I’ll address various areas that appear on my legal audit checklist.

In this article, let’s discuss the topic of “escheat.” It turns out that many business owners are unfamilar with the concept of escheat, and they don't realize that they have a legal obligation to report and turn over to the Delaware Division Revenue abandoned or unclaimed property in their possession.

Like other states, Delaware has an unclaimed property law. There are lots of examples of unclaimed property. For instance, you issue a paycheck to an employee who has resigned, but the employee never cashes the check. Or you have a bank account that’s been dormant for several years. Or you send a supplier a check and the check is never cashed. The list also includes uncashed dividend checks, uncashed refund checks, unclaimed insurance proceeds, and stocks and bonds. In addition, if a person dies without a will and there are no known heirs, the deceased’s property is considered abandoned and unclaimed.

Once these funds or assets have been unclaimed for a period of 5 years, they're generally considered abandoned. Businesses with abandoned property have to send written notice to the last known address of the owner. If the abandoned proeprty remains unclaimed, a business has a legal obligation to report it to the State and turn it over to the Division of Revenue. Failure to comply carries stiff penalties.

The legal process whereby the government takes control of the money or assets is known as “escheat.”

Here’s the interesting part. You can search whether any state or even the federal government is holding funds or property that belong to you. In this regard, on October 31st, 2008, the Delaware Division of Revenue published in the News Journal and the Delaware State News the names of approximately 75,000 owners of unclaimed property in Delaware.

Delaware has a searchable database that lists owners who have a last known address in Delaware. There is even a national database that gives you the ability to search for assets that belong to you in other states.

October 30, 2008

The Phillies Are World Champions

If you're a regular reader of my Delaware Business Lawyer blog, you know that I've missed writing any articles for the last week. The reason is simple. The Phillies have been in the playoffs and the world series, and I was fortunate to be at every one of these home games. What an experience.

And despite the exhaustion from late nights, the rain, the cold, and the excitement at the ball park, tomorrow I'll be back at Citizens Bank Park which is where the Phillies' parade will end and where there will be a tremendous ceremony.

Please bear with me. Things will return to normal next week.

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October 20, 2008

Collecting Attorney's Fees in Delaware

As a Delaware business attorney, I've filed a lot of debt collection lawsuits over the years to recover money owed to my clients. More often than not, my client is the one who has to pay my attorney's fee even though he wins the case. There's a reasonable explanation for this. Simply stated, my client didn't bother to get the other party to agree up front to reimburse attorney's fees if my client has to sue to recover what's owed.

The reason why it's necessary to have the contract address attorney's fees is because of the general rule in Delaware that the losing party will not be ordered to pay the winning party's attorney's fees unless the payment of these fees is authorized by a Delaware statute or by a contract between the parties.

You're a Delaware business owner. A customer wants to obtain your services or buy your merchandise. You negotiate terms, including price. You tell the customer that one of the terms you want is an agreement that if he doesn't pay your bill and you have to sue him to obtain payment, he will reimburse you for the attorney's fees you incur.

If the customer refuses to agree to pay your attorney's fee, what message is he sending you? Is he already thinking that he may not pay your bill? On the other hand, if he knows he's going to pay you on time, why would he be afraid to agree to pay your attorney's fees? And if does refuse, why would you want to do business with someone who's letting you know there may be a problem with payment?

If you want to make sure your customer has to reimburse you for the attorney's fees you incur if you have to sue the customer for payment, it's best to hire an experienced Delaware attorney to write this language into your agreement. If you don't use written agreements, there are still ways to provide for attorney's fees. For example, if your customer accepts your services after he receives your written proposal or fee schedule that contains attorney's fees language, it can be argued that by accepting your services, your customer agreed to the terms on your documents even though there was no formal agreement and even though nothing was signed.