Delaware Business Lawyer Blog

A young man recently formed a Delaware corporation on his own. Instead of consulting with a Delaware business attorney before he filed the necessary papers with the State, all he did to make sure he could use the name he wanted was to check the Delaware Division of Corporations website. He happily discovered that the name he wanted to use was available.

In my next article on this topic, I’ll address what my client could have done to make sure the name he wanted for his corporation was in fact available.

As a Delaware business attorney, I talk a lot with my clients about anticipating emergencies and establishing procedures just in case. In a recent article entitled "Have You Thought About Security Lately," I described a Business Security Program conducted by the New Castle County police.

The Emergency Hotline

Reading a contract can feel like you’re running in a marathon. The longer you read, the more tired you get. And after 3 or 4 pages of legalese, you start skimming. By the 10th page, you’re skipping entire paragraphs. When you finally reach what are known as the “boilerplate provisions of the contract,” you stop reading all together and put the contract down. Chances are, the parts you managed to read appeared okay. At least nothing jumped off the page at you screaming “warning, run to the nearest Delaware business attorney.”

In future articles, I’ll give you examples of how one or two words can make a tremendous difference in the way a contract is interpreted, and I'll describe why boilerplate paragraphs shouldn't be agreed to without really understanding what they mean. For now, let me state what may seem obvious: A contract should be a written document that reminds 2 businessmen what they agreed to, and sets out what happens if one of the parties fails to do what he promised. Unfortunately, contracts are not always written with this concept in mind.

Many of us have come across web sites and blogs we’d like to visit on a regular basis, but there never seems to be enough time to keep going back to see if there’s been any updates. As an alternative, there’s a way for you to be automatically notified whenever something new is posted on one of your favorite sites. You do this by subscribing to an RSS feed, which alerts you whenever content that interests you appears on your favorite sites.

To subscribe to my blog, click on the orange feed icon that appears over to the left next to the word "Subscribe." That's all it takes. You'll be subscribed to this blog, and it will start showing up on your feed reader.

If you're like I was before I looked into this, you're asking yourself "what is a feed reader." A feed reader monitors the sites you designate so it can give you virtually real-time updates. Some browsers, like Internet Explorer, have feed readers built in and ready for your use. If your browser doesn't have a feed reader, you can get one by clicking on any of the options which appear in the Subscribe area.

I've found a number of pretty good web sites that explain feeds in greater detail than I've done in this article. Here's a list of these sites:

What Is RSS and How Do You Use It?

How To Subscribe To RSS Feeds

Everything You Need To Know Abour RSS

What You Need To Know About Feeds

Last night, I went to Citizens Bank Park to see the Phillies play the Atlanta Braves. Before the game, there was a bomb threat which led to the discovery of a suspicious looking package sealed with duct tape. The bomb squad was called in, & they detonated the package - only to find that they had just blown up a bunch of hot dogs. After I stopped laughing, I remembered seeing a Business Security Program put on by the New Castle County police here in Delaware on the subject of security in the work place.

The police officer who gave the talk did a great job, and there were a lot of things brought up that most business owners don't usually think about. It was worthwhile to step back from the day to day business activities to learn about keeping your business and your employees safe.

The County police also conduct Business Security Surveys designed to point out security risks or hazards. A physical survey of your site is conducted, and recommendations are offered on ways to eliminate problem areas.

I would recommend the Business Security Program and the Business Security Survey to every business owner. To schedule a program, call the Community Services Unit at (302) 395-8050.

Thanks to the Delaware General Assembly, a new position’s been created in the Attorney General’s office to prosecute what’s been called “organized retail crime” where gangs of shoplifters methodically steal large quantities of goods from groceries and shops. This comes on the heels of a new law that changed shoplifting from a misdemeanor to a felony. In 2007, there were almost 2,500 cases of shoplifting investigated by the police in Delaware.

The cost of the enhanced prosecution of shoplifters will be funded by retailers, who will be assessed an additional $15 on their annual license fee.

As was reported in today’s Wilmington News Journal, the FBI says organized retail theft costs businesses $30 billion a year nationwide. And, according to a recent Organized Retail Crime Survey, 85 percent of retailers claim to have been victims of shoplifting over the past year. The Survey also states that retailers believe that half of their losses resulting from shoplifting stem from organized gangs.

As a Delaware business attorney, I’m always interested in protecting my clients from lawsuits, and so it’s important that I learn as much as possible about my clients and how they do things. In this regard, I find it interesting whenever a huge company gets caught trying to cheat its employees by trying to save a few bucks.

And in 1997, a federal court ruled that Microsoft improperly classified thousands of its workers as independent contractors in order to deprive them of stock option benefits that were available to Microsoft's employees. The company even went so far as to have these workers sign contracts in which they agreed that they were independent contractors, and acknowledged that they weren’t entitled to any company benefits. Microsoft is believed to have paid close to $100 million to settle that case.

In previous articles, I discussed the difference between an employee and an independent contractor, and the IRS's position on this distinction. This article talks about the factors to be considered when deciding whether an individual is an employee or an independant contractor.

If the individual in question is your employee instead of an independent contractor, it means:
(1) He can a claim for unemployment insurance
(2) He can file a claim for workers comp disability benefits
(3) He can file a claim under Delaware's Wage Payment and Collection Act
(4) Taxes have to be withheld
(5) As his employer, you will be vicariously liable for any injuries he causes to others while he's in the course and scope of his employment.

In my last article entitled "Employees and Independent Contractors - What's the Difference?" I pointed out that one important reason for a business owner to know whether a worker is an employee or an independent contractor is that an employer is legally responsible for the negligence of his employees, but he's not responsible for the negligence of an independent contractor. Here's what the IRS has to say about the difference between employees and independant contractors from a taxation point of view.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

Small business owners sometimes consult with a Delaware business attorney to discuss the pros and cons of hiring someone as an independent contractor rather than making that person your employee. As with anything, there are factors to consider that way in favor of and against each choice. Let’s suppose you make the decision to engage the services of an independent contractor. You may be surprised to learn that in the eyes of the IRS and the courts, the person you consider to be an independent contractor is actually your employee. And that kind of determination has consequences you may not have wanted.

“It would be a hopeless task for any Court to lay down a rule whereby the standing of men laboring and contracting together could be definitely construed in all cases as employees or independent contractors. Each particular case must, out of necessity, depend on its own facts, and ordinarily no one characteristic of the relation is decisive. All of the characteristics must be considered. Consequently, in a majority of the cases the question becomes one of fact.”

Call me old fashioned, but this Delaware business attorney still enjoys holding a newspaper or a magazine in my hands while I read it. At the same time, I recognize the value of being able to click my way through online business newspapers and magazines. With this is mind, I'd like to share some of the resources I read regularly. I'll add to this list from time to time.

Delaware Business Ledger

For Delaware businesses that are starting out, there are a lot of resources available at your fingertips. Here are several links that you should find helpful.

Delaware Division of Revenue - Services For Business Taxpayers

Delaware Division of Corporations

As a Delaware attorney who helps clients form corporations, one of my first questions when someone says they want to incorporate is “why?” And the answer that’s most frequently given is “I want to protect myself from personal liability.” That’s a legitimate reason, but we’ll come back to this in just a moment.

Creating a Delaware corporation is easy, but without proper advice and a push in the right direction, you’re taking a big risk if you try doing this without a Delaware attorney’s help.

As a Delaware business attorney, I’ve been involved in a lot of lawsuits over a breach of contract. During the trial, the plaintiff has to prove both liability and damages. Liability means that the defendant breached a valid and enforceable contract. Damages is the money the plaintiff claims he has lost or will lose as a result of the breach.

In order for a liquidated damages clause to be considered valid by a Delaware court, it has to meet two main requirements. First, the court has to find that the actual damages that would be caused by the defendant’s breach are either uncertain or not able to be accurately calculated.
Second, the amount the parties agreed upon as liquidated damages must be reasonable. With respect to reasonableness, the Court considers whether the amount is rationally related to any measure of damages the plaintiff could conceivably sustain as a result of a breach. And, the harder it is to calculate the loss, the easier it is for the Court to find that the amount agreed upon as liquidated damages is reasonable.

How can a Delaware debt collection lawyer collect on a judgment? The first step is to figure out what assets the debtor owns, and where those assets are located. I accomplish this by means of a collection method called a "deposition in aid of execution." Using the Court's Rules, I issue a subpoena (an Order form the Court) requiring the debtor to show up in my office at a date and time specified in the subpoena. If he fails to appear for the deposition, he can be cited for contempt of Court, which carries stiff penalties.

During the deposition, the debtor is required to answer my questions under oath in front of an official court reporter who takes down everything that's said. Once the debtor's assets have been identified, I then file papers with the Court which will eventually cause the sheriff's office to sell those assets at a public auction. The proceeds from the sale are used to pay the debt owed to my client.

If you’re a Delaware employer and you’re considering hiring a new employee who has a non-compete agreement with his previous employer, it’s advisable to consult with a Delaware business attorney before you offer him the job. Why? Because in Delaware, you run the risk of being sued by the previous employer for tortious interference with the employee’s contractual relationship with his former employer.

The Delaware courts will view your conduct as a substantial factor in causing a breach of an employee’s non-compete agreement, and they will rule against you if:

(1) you know about a non-compete agreement that your prospective employee signed with his former employer,

(2) you know that he can’t perform work for you without violating the terms of his non-compete agreement, and

(3) you offer him employment so that you can engage in competition with his previous employer.

In my next article, I’ll discuss the remedy that the courts in Delaware can grant to the previous employer.

As a Delaware attorney, I frequently advise my clients about the benefits of alternate dispute resolution (ADR). Arbitration and mediation are the two most popular forms of ADR, but there’s a major difference between the two. With arbitration, a third party hears the facts as if he were a judge, and he decides who wins, who loses, and how much money, if any, is owed. With mediation, the third party makes no decisions about who wins and who loses. Instead, the mediator’s role is help the parties settle their dispute. It's been my experience that Delaware attorneys and their clients are generally very satisfied with ADR.

Mediation
Mediation is an informal process. The two sides who have a dispute meet with a mediator (a neutral third party), discuss what happened and how they would like to see the situation resolved. The mediator is usually a lawyer or a retired judge, and his job is to help the parties resolve their dispute. Mediation doesn’t mean you lose the right to go to trial. If the dispute isn’t resolved through mediation, your case follows the normal process.

Mediation usually begins with both sides and their lawyers in the same room. They take turns telling their story to the mediator. The mediator sometimes asks questions to make sure he understands what’s been said. At this point, the joint meeting ends, and the mediator separates the two sides by putting them in separate rooms. The mediator then talks to each side privately in an attempt to learn more information and to explore the possibility of reaching a settlement. Armed with this information, the mediator then meets with the other side and goes through the same process. It’s not unusual for a mediator to go back and forth between the two rooms numerous times. If mediation is successful, the case is over. If it’s not successful, the litigation process continues as both sides prepare for trial.

The benefits of mediation include: (1) The two sides reach a mutually agreed upon resolution of their dispute as opposed to having a decision made by someone else (a judge, a jury or an arbitrator) imposed upon them; (2) Mediation is less costly than going to trial; (3) You can get your case in front of a mediator quickly, thereby avoiding a long wait for trial; (4) There are times when the two sides to a dispute are able to continue to do business with one another after they have reached a mutually agreeable resolution

Arbitration
Arbitration is also an informal process which, in some respects, proceeds like a trial. Both sides attend a hearing accompanied by their attorneys. Instead of a judge and a jury, the decision maker is a neutral arbitrator. When both sides can agree, sometimes there’s only one arbitrator. When both sides can’t agree, each side chooses one arbitrator, and the two arbitrators choose a third.

All of the exhibits are submitted in advance to the arbitrator(s). The hearing usually begins with the arbitrator(s) laying down some ground rules. The plaintiff’s side goes first. Witness testimony is given, and as each witness finishes his testimony, the other side gets to cross examine him. After all of the evidence has been presented, each attorney gives a brief closing argument.

The entire hearing is much shorter than a trial. The attorneys don’t have to educate the arbitrators as would be the case if there were jurors. The rules of evidence are relaxed. The written reports of expert witnesses can be used in lieu of having the experts come in and testify. What might take a week of trial can often be presented in less than a day. Therefore, the cost in terms of time and money is greatly reduced.

At the conclusion of the hearing, the arbitrators usually say that they will announce their decision in a few days. Unless the parties agreed to binding arbitration in advance, their decision is not binding , and so either party who is not satisfied with the decision can require that the case go to trial.

As a Delaware debt collection lawyer, once my client authorizes me to file a lawsuit, my first step is to prepare a Complaint and file it with the Court. The Complaint states the facts supporting my client's claim, and asks the Court to award my client the money that’s owed. Accompanying the Complaint is a summons which I also prepare, and the sheriff’s office personally delivers the Complaint and the summons to the defendant. The summons notifies the defendant that he has 20 days within which to file a formal response (“Answer”) to our Complaint. In their Answer, the defendant is required to admit or deny each of the factual allegations in our Complaint.

Once the Complaint and Answer have been filed, we then engage in a process known as “discovery.” The purpose of discovery is to enable each side to find out what the other side knows about the case, including the witnesses and documents they intend to use at trial. Discovery consists of (1) interrogatories, which are written questions that must be answered by the other side under oath, (2) requests for production of documents, which require the other side to disclose and give us relevant documents, (3) depositions, where we can ask the defendant and any witnesses questions under oath in order to learn the facts of the case, and (4) requests for admissions, where we make statements we believe are true, and the defendant is then required to admit or deny that they’re true.

Once discovery is completed, a pretrial conference is held. This is a meeting of the attorneys for both sides with the judge who will be presiding at the trial. These conferences usually occur a few weeks before the trial, and the attorneys and the judge discuss the trial's expected length, jury instructions, exhibits, pretrial motions, and the witnesses who will be testifying.

Before we get to trial, we will have attempted to settle the case for an amount which my client has approved in advance. However, we’re always preparing for trial in case settlement is impossible. The final stage, of course, is the trial itself. When we win the trial, a money judgment is entered in my client's favor and against the defendant. However, that doesn’t mean the defendant will immediately write a check.

In a future article, I’ll talk about how to collect on the judgment.

As a Delaware debt collection attorney, I've collected debts for clients ranging from relatively small amounts up to $3.5 million. The first step is to review all of my client's documents relating to the particular debt that's owed. I also want to learn as much as possible about the debtor, the history of the relationship between my client and the debtor, and my client's efforts to collect the money. Depending on the circumstances, I either send out what's commonly referred to as the “first attorney’s letter” or I file an immediate lawsuit.

The first attorney's letter is a firm but polite letter from me to the debtor informing him that I've been retained to collect the money that’s owed. The letter gives him a short period of time, usually 10 days, to pay the total amount or to call me and work out a mutually acceptable schedule of payments. If there's no response, or if we can't agree on a payment schedule, the next step is to file suit.

In my next article, I'll discuss what happens when a lawsuit is filed to collect a debt.