TLD's General Counsel Blog

Contract Disputes Are On The Rise

Contract disputes are on the rise.  I always encourage small business owners to include attorney's fee provisions in all contracts to be able to recoup the expenses of collection or enforcement of agreements.  The precise language, however, must be carefully considered.  In the event the term "reasonable attorney's fees" is used, then the court fixes the fees, thereby leaving open the possibility that the prevailing party will not recoup all of the amount spent.  By contrast, if the term "actual attorney's fees" is used, then the prevailing party can recover the actual amount spent on attorneys.

Moreover, Civil Code section 1717 provides for reciprocity.  In other words, if a contract permits one party to recover attorney's fees, then the provision allows the other party to recover reasonable attorney's fees if it is the prevailing party.  Again, the language of the contract becomes key in the event there are other claims brought not related to the contract, or peripherally related to the contract.  If the provision is broadly written, it is possible for a prevailing party to recover attorney's fees even on non-contractual, tort claims such as negligence.  On the other hand, if the provision is narrowly drawn such as limiting recovery of attorney's fees to actions "to enforce the contract," then the prevailing party will only be able to recover the fees incurred on the contractual claims.   

We can help if you have concerns about the language in your contracts, or if you have a claim in which a contract is involved and would like to know your rights to recovery.

Article submitted by: Attorney Min N. Thai

Business Owners Looking To Sell In The M&A Market

Business owners looking to sell in the M&A market within the last year may have faced a few new issues. First, the lack of available debt financing has reduced sales activity. Second, valuations were at a historical high, but are rapidly decreasing with the current state of the economy.

One way buyers and sellers have bridged this gap is through the use of an earn-out as part of the purchase price. An earn-out is a provision that defers and conditions a portion of the purchase price to the satisfaction of specified milestones.

The earn-out may be very useful to achieve the sale on terms favorable to Buyer and Seller. But, the Seller should beware of a few issues and nuances related to the earn out that may have grave future consequences.

First, what are the terms of the earn-out? An earn-out based on the gross revenue may be the most beneficial to the Seller because it has the fewest calculations to be manipulated. An earn-out tied to net revenue may benefit Buyer as a "truer" test of the success of the company; but changes in cost of goods sold, variances in accounting methods and non- recurring expenses associated with a change in ownership may further lower net revenue calculations.

Second, what is the management structure after the purchase and during the "earn-out"? The owner will want to retain the management team that produced this prosperous company in order to achieve goals and get maximum return on the earn-out. New buyer will want control over the purchased company. These two differing perspectives can be negotiated after term sheet and prior to sale- but they should be considered! Seller may use an employment agreement tied to the terms of the earn-out to ensure continued participation. Voting agreements will also maintain Seller review of the actions of the Board of Directors. The terms of any earn-out tied to employment by the company must also be reviewed for tax consequences, to ensure capital gains treatment to the earn-out as opposed to ordinary income from employment.

Tredway, Lumsdaine and Doyle attorneys have experience in negotiating the ever-changing and evolving world of mergers and acquisitions of closely held companies. If you have questions about selling your business, please call us for further guidance

Article Submitted By: Attorney Brooke Pollard

Your Money In A Declining Economy

In this declining economy, I am always concerned where my clients are putting their money. Cutting costs and minimizing litigation are at the forefront in preserving small businesses. For my clients that are in the business of distribution of name-brand goods, a primary concern is counterfeit goods, or knock-offs. When dealing with new suppliers, I advise distributors to negotiate a situation where the goods are paid upon delivery in order to give the distributor a chance to inspect the shipment for authenticity before paying for the goods. The last thing a small business needs is to have paid for goods only to discover that they are counterfeit after it is too late. Loss prevention is a priority for a small business, and a strategy that we can help implement.

Article Submitted By: Attorney Min N. Thai

Commercial Lease Agreements

Most businesses either own or lease space in which to conduct their business. One especially significant term in a commercial lease agreement is the rental amount. Depending on the length of the lease, either the landlord or the tenant may want to have adjustments to the rental amount over time. One common term included in commercial lease agreements is an adjustment based on "CPI" or the Consumer Price Index.

This is a complicated term and one in which most landlords and tenants are unfamiliar. The Department of Labor releases a number of different "indexes." Several of the most frequently used are:

Consumer Price Index for All Urban Consumers for the United States, Consumer Price Index for Urban Wage Earners and Clerical Workers for the United States, Consumer Price Index (All Urban Consumers) for a designated region, and Consumer Price Index (Urban Wage Earners and Clerical Workers) for a designated region.

The later two regional indexes are generated by the Department of Labor for three different metropolitan areas in California: the San Diego Metropolitan Statistical Area, the San Francisco-Oakland-San Jose Consolidated Metropolitan Statistical Area, and the Los Angeles-Anaheim-Riverside Consolidated Metropolitan Area.

Normally, the Index used in the Lease will specifically reference which of these it is referring to.

AVERAGE INCREASE OF EACH INDEX

The average increase in each of these indexes is as follows:

1. Consumer Price Index (All Urban Consumers)

2000 2%
2001 3%
2002 3%
2003 1.6%
2004 2.2%
2005 2.7%
2006 3.1%
2007 3.6%
2008 3.8%

2. Consumer Price Index –Urban Wage Earners and Clerical Workers

2001 2.9%
2002 1.1%
2003 2.2%
2004 2.0%
2005 3.65%
2006 3.68%
2007 2.5%
2008 4.2%

3. Consumer Price Index – All Urban Consumers – Los Angeles

2001 3.5%
2002 3.1%
2003 2.9%
2004 2.2%
2005 4.7%
2006 4.6%
2007 3.5%
2008 3.1%

The normal term in a CPI adjusted lease would say something to the following:

(b) Commencing with the thirteenth (13th) full calendar month after Tenant is obligated to pay rent under this Lease, and at the end of each twelfth (12th) month afterwards during the Term, including any extensions or renewals, the Minimum Monthly Rent for the ensuing twelve (12) month period ("Adjustment Period") shall be an amount equal to the greater of:

(i) the Minimum Monthly Rent in effect immediately prior to the commencement of this Adjustment Period (without regard to any temporary abatement of Rental then or previously in effect pursuant to the provisions of this Lease), or

(ii) the product obtained by multiplying the Minimum Monthly Rent in effect immediately prior to the commencement of the Adjustment Period (without regard to any temporary abatement of Rental then or previously in effect pursuant to the provisions of this Lease) by a fraction, the numerator of which is the Index published nearest but prior to the commencement date of the Adjustment Period and the denominator of which is the Index published nearest but prior to the commencement of the twelve (12) month period immediately preceding the Adjustment Period.

The INDEX is defined as one of the above-referenced indexes.

A TLD attorney can make sense out of the rental adjustment term in your lease agreement, as well as any other terms that may be confusing or uncertain.

Please call us if you would like a lease review or an attorney to help you negotiate a lease agreement.

Article Submitted By: Attorney Brooke Pollard

Restraining Orders

Restraining orders are powerful tools that we have used to protect our clients in a variety of situations. Restraining orders can limit both physical interactions and communications by telephone, email, or mail. In addition, certain restraining orders can grant monetary damages and even affect long term child custody. While common in domestic violence cases, restraining orders also are not limited to family or romantic relationships. They may also be appropriate in business or real estate disputes where there have been threats of violence or physical altercations. Restraining orders may also be appropriate where there has not been any physical threats or abuse. For example, elder abuse restraining orders may be granted to protect an elder or dependent adult from family, neighbors, caretakers, or any other person who may have engaged in financial abuse or otherwise acted to jeopardize the elder or dependent adult’s physical or financial well-being.

Article Submitted By: Attorney Jennifer Lumsdaine

Cal/OSHA - Tips for Helping Employees Work Safely, Minimize Heat Stress

What can I do to protect my employees from the effects of working in high temperatures?

When employees work in hot conditions, employers must take special precautions in order to prevent heat illness. Heat illness can progress to heat stroke and be fatal, especially when emergency treatment is delayed. Operations involving high air temperatures, radiant heat sources, high humidity, direct physical contact with hot objects, or  strenuous physical activities have a high potential for inducing heat stress in employees engaged in such operations. During the summer, workers employed in outside jobs such as construction and agriculture are subjected to many of these conditions and, for those who ignore the signs and symptoms, can become victims of a heat stress incident. According to Cal/OSHA, heat illness contributed to 12 work-related deaths in 2005 and eight in 2006. It has been well publicized that Cal/OSHA has adopted regulations for outdoor workers to address the employer’s responsibility to ensure that employees are provided means to counter the effects of working in high temperatures. These requirements, Heat Illness Prevention in Outdoor Places of Employment, are contained in Section 3395 of the General Industry Safety Orders.

Injury/Illness Prevention Plan

Employers are required to put their heat illness prevention procedures, including employee training, in writing. It is recommended this document be incorporated into the employer’s injury and illness prevention plan (IIPP). Training, at a minimum should include: l why it is important to prevent heat illness; l procedures for acclimatization; l the need to drink water frequently; l the need to take breaks out of the heat; l how to recognize the symptoms of heat illness; l how to contact emergency services and how to effectively report the work location to 911; l the importance of choosing water instead of soda or other caffeinated beverages and avoiding alcoholic beverages all together during high heat.

Signs to Recognize

There are several “causal factors” that may affect a person’s sensitivity to heat. Age, weight, degree of physical fitness, degree of acclimatization, metabolism, use of alcohol or drugs, and a variety of medical conditions such as hypertension, all affect a person’s sensitivity to heat. Even the type of clothing worn must be considered. Prior heat injury predisposes an individual to additional injury. Four conditions must be recognized by supervisors of employees potentially exposed to heat stress: Heat rash or prickly heat, heat cramps, heat exhaustion, and heat stroke. The Cal/OSHA website, HRCalifornia and CalChamber booklets contain detailed descriptions and symptoms of heat stress-related illnesses with intervention treatments. Specific measures that can be adopted to lessen the likelihood of a heat stress illness include: l administrative controls, such as work rotation, starting work early in the morning or in the evening; l providing plenty of fluids to drink, especially water; and l providing personal protective equipment in the form of cooling vests and light-colored or reflective clothing and/or shade.

Heat Risks

There is no absolute cut-off below which work in heat is not a risk. With heavy work at high relative humidity or if workers are wearing protective clothing, even work at 70 degrees Fahrenheit can present a risk. In the relative humidity levels (20 percent to 40 percent) often found in hot areas of California, employers need to take some actions to effectively reduce heat illness risk when temperatures approach 80 degrees Fahrenheit. It is especially important to be vigilant during periods of abnormally high heat. Even though Section 3395 is specific to outdoor workers, the requirements can be useful to all employers who have employees subject to working in/at a work site where the temperature/humidity can result in heat illness — for example, poorly ventilated warehouses, work processes exposing employees to high temperatures and/or humidity such as foundries or glass bottle manufactures, construction sites, etc. Heat illness is a foreseeable hazard as defined and enforced by Cal/OSHA.

Using Section 3395, employers can address the conditions within a building or permanent work site and prevent the occurrence of heat illness. As stated previously, the steps taken should be included in the company’s IIPP.

More Information

Cal/OSHA has published informational documents at www.dir.ca.gov. Click on “Heat Illness Prevention” under “What’s new.” CalChamber members can find information on heat illness by searching on “heat illness” at www.hrcalifornia.com. In addition, the CalChamber has developed a mini-book, Heat Illness Prevention in California. It is written in both English and Spanish and has readily understood illustrations of the outward symptoms of heat illness. For information on obtaining this booklet, call (800) 331-8877 or visit www.calbizcentral.com.

Article Provided by: volume 34, number 18 ● June 6, 2008 of the CalChamber Alert Newsletter. And written by Mel Davis - Cal/OSHA Consultant

South Asian Bar Association of Southern California Public Interest Foundation Holds 5th Annual Banquet at Union Station

The South Asian Bar Association (SABA) of Southern California Public Interest Foundation held its Fifth Annual Public Interest Foundation Banquet on April 24, 2008 at historic Union Station.  The banquet, which is the non-profit organization’s primary fundraising event, drew approximately 300 influential members of the Southern California legal community, business community, local state and federal judges, and elected officials.  Tredway, Lumsdaine & Doyle attorney Pamela Tahim is the Vice-President of the SABA Foundation and has been elected to be President for the 2008-2009 term.  The Foundation is a 501(c)(3) organization dedicated to supporting public interest projects which assist the South Asian communities in Southern California.  The Foundation provides grants to grassroots organizations that provide critical legal and social services to South Asian communities and fellowships to law students who wish to devote their careers to public service.

Training Alert – OSHA Compliance and Workers' Compensation

When: Wednesday, May 14, 2008
Time: 12:00-2:00
Light Lunch Provided – Please Arrive Early

Don't miss this one-time opportunity to hear Peter Riley of CALOSHA review tips for employers on how to reduce your liability as an employer and safeguard your workplace.

In addition, we will be reviewing the rules and regulations of First Aid Injuries versus Recordable Injuries and how you can reduce your costs by paying claims direct.

No Cost for Advisor clients. $49/all others.
This class will fill up so please rsvp early if you are planning to attend. Call or email Monica to reserve your seat.

Monica McMahon
HR Coordinator
HR NETwork, Inc.
Phone: 714.799.1115
Fax: 714. 898.2731
monica@hrnetworkinc.com
www.hrnetworkinc.com

Tax Season Comes To A Close: One Way To Lower Tax Liability Of Your LLC.

Many businesses are beginning to understand the flexibility and usefulness of a limited liability company as a way to conduct business within California.  However, with tax season coming to a close, many successful business owners were stunned to discover the Gross Receipts tax levied upon California limited liability companies and foreign LLC's which register to do business in California.

The gross receipts tax is a state tax imposed upon LLC's conducting business in California.  The minimum gross receipts tax for an LLC is $800.  However, the gross receipts tax works on a graduated scale based upon the gross receipts of the company.  Once a company has gross receipts in excess of $250,000, the tax increases from $800 up to $11,970, depending on the level of gross receipts.

Tredway, Lumsdaine and Doyle partner, Mark C. Doyle, with the help of associate Brooke M. Pollard, recently helped an existing LLC convert to a California corporation pursuant to California Corporations Code section 1150 et. seq.  The existing LLC had increased its revenues over the past four years, and was paying in excess of $6,000 per year to the State of California under the gross receipts tax, exclusive of Federal and California income taxes.  By converting the existing LLC to a corporation, the business was able to save significant amounts of money and lower their annual tax liability. 

The conversion of an LLC to a corporation or a corporation to an LLC can have significant tax implications above and beyond the gross receipts tax.  These implications must be reviewed by both the attorney and CPA of the company to determine if this is in the business' best interest.  Please call us if you have any questions or would like additional information about either the gross receipts tax or the conversion of an LLC to a corporation. 

Article Submitted By: Attorney Brooke Pollard

Estate Planning and Small Business Owners

One important aspect for small business owners is to make sure that their estate plans are also put in place along with their appropriate business entities. If you own an interest in a Corporation (C or S corp), LLC or partnership, it is important to address what happens to that business interest should something happen to you or if you pass away.

A buy-sell agreement is one option (which won't be discussed here in this post) and setting up an estate plan is another option often considered. If you set up an estate plan to include a revocable living trust, you can assign or transfer your business interest into your trust and specify what happens to that share of the business interest.

One common approach for married couples is to transfer the business interest to the trust and allow the surviving spouse to manage the interest and upon the death of both spouses, the interest is then transferred to the surviving children either in equal shares or to the child who is most interested in the business interest (for whatever reason). Additonal lanugage can be included depending on the type of business interest involved and what your wishes are in case something happens.

Please consult with an estate planning attorney to determine if your business interest should be included as part of your personal estate planning. Tredway, Lumsdaine & Doyle has four estate planning attorneys to assist clients with these kinds of issues. One of our partners, Mark Doyle, is also a corporate and tax attorney who can provide additional insight and expertise in this area should you have a very successful small business in need of estate planning or other corporate work.

Article Submitted By: Attorney Jennifer Sawday