Does your business need insurance? Tips from a Utah lawyer

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20160119_103832Insurance covers whatever has a value. I do not sell insurance but I am a consumer of it: in business, at home, and as a source of income. It is a monster topic with many issues. Let me share some bits that you may not have considered.

Why should your startup or new business consider insurance? If this question is a revelation to you, here’s the gist: the more you have to lose, the more diverse insurance products you should consider.

What does insurance do for you? It protects against loss. If you have nothing to lose personally or in business, then I suspect you may be running thin on insurance and keeping only the state-required minimums. (Hopefully you are not going without). If this is where you are, keep the following in mind: legal costs and interruption of your business.

If you or your business is sued on a covered claim and you have insurance, your policy will pay for a legal defense. In business disputes, legal fees mount very quickly. Quite. Legal fees can quickly be the tail that wags the dog.

Insurance allows you to continue to focus on your core business and less on the lawsuit threatening it. Insurance covers both the ultimate liability and the cost to defend the claim.

As an attorney, I consider it my duty to assume the burden of my client’s lawsuit so my client can focus his/her attention on business.

Consider this: A solo startup that is well-protected in its business organization (i.e., LLC or Inc.) could potentially risk running short on insurance when there is little to lose. As the business fills out, however, and assets are obtained (such as equipment, real property, intellectual property, copyright, patents, trademarks, etc.), or employees are hired, so should the insurance. Insurance is a hedge against unknown losses.

Some basic insurance individuals cannot go without include:

  • Auto insurance. If you own a car, it’s required by law.

The minimum amount of Utah auto insurance coverage is $25,000/$65,000/$15,000. This means limits for bodily injury are $25,000 per person, with a total maximum of $65,000 per incident, and up to $15,000 for damage to another person’s property.

  • Property insurance: If you own a home or any real property, it is presumably an asset that you do not want to lose. There is no sense owning property if you do not protect it from loss.

Some basic insurance a Utah business should consider:

  • Auto. If your business owns a vehicle, it must insure it. If employees are required to use a car for business purposes, the business must provide insurance. Typical personal policies do not cover the business use of vehicles. Talk to your insurance agent if your business requires the use of a vehicle.
  • General Liability. Every business is different and you should evaluate your risk. General liability insurance typically covers libel, slander, property damage to others, and personal injury to others.
  • Business Property Insurance. This includes both real property insurance for property you own as well as renter’s insurance. Think of it as homeowner’s insurance for commercial property. It will protect your products (widgets or whatever you manufacture or inventory) and your assets (equipment, furnishings, etc.) from fire, flood, or whatever your policy covers.
  • Worker’s Compensation. If you have one or more employees in Utah, you will definitely want to read the Utah Labor Commission’s Employer’s Guide. A good start from the Guide: “Businesses with no employees may not be required to carry workers’ compensation coverage. For example, sole proprietorships, partnerships and limited liability companies in which the owners perform all the work and have no employees and may not be required to have workers’ compensation coverage. Refer to Utah statute 34A-2-104.”
  • Professional Liability. Some professions (doctors!) are required under Utah state law to carry malpractice insurance. If not required, you really (really) should have it. It is your livelihood at risk.

Here’s the list of optional insurance you may want to consider:

  • Umbrella.  This is excess insurance. Typically if your underlying policy (auto, homeowners, general) covers a claim but the claim exceeds the coverage limit, the umbrella kicks in to cover the loss up to its limit on the claim. Note: policies vary; it is up to you to read the fine print or have your agent explain it to you. I personally have an umbrella policy. It gives me a cushion if my teenager happens to cause a catastrophic accident that my basic auto insurance may fail to cover. It usually comes in increments of one million with the lowest available being $1m.
  • Health and Life. Goes without saying. These topics are too big to address here.
  • Data Breach. If you obtain or collect private, sensitive, or financial information from your clients, you are at risk of having it stolen by a hacker or virus. Data breach insurance covers this risk.
  • Business Interruption. This is often a sub-set of a property policy. It covers your business operations and earnings in the event of a covered event (fire, flood, etc.).
  • Employment Practices Liability Insurance. When you have employees, this insurance covers your management of them.  It covers wrongful acts arising from the employment process. The most frequent claims include wrongful termination, discrimination, sexual harassment, and retaliation. In addition, the policies cover claims from a variety of other types of inappropriate workplace conduct such as employment-related defamation, invasion of privacy, failure to promote, deprivation of a career opportunity, and negligent evaluation. The policies cover directors and officers, management personnel, and employees as insureds.
  • Directors and Officers. This insurance covers claims made against officers and directors for acts in the course and scope of their employment. You can get D&O insurance to cover nearly any business enterprise. It will cover claims arising from managerial decisions that have adverse financial consequences.
  • Errors and Omissions. This is more of a subset of a policy rather than the policy itself. E&O insurance protects you against liability for committing an error or omission in performance of a professional duty. It will cover financial rather than bodily injury or property damage.
  • Miscellaneous. Depending on your business or profession, there may be specialized or niche insurance to cover you.  Some examples include commercial general liability (CGL) policies (often for construction businesses), lender-placed and REO insurance for financial institutions, event insurance, terrorism insurance, and travel insurance.

Insurance is very broad topic but one that you really need to look at closely for yourself and your business. If you have questions, you should ask them. There are many insurance agents, brokers, and options. I can provide some local references if you would like. If you would like more information about insurance and its intersection with the law and how it affects your business, contact me, Utah attorney Ken Reich. I regularly represent companies and the individuals and families that own them. My job is to know and understand my clients and their goals. Together with the right legal and insurance experts, I can help you get the result you want.

Posting Bail in Utah: a Free Tip from the Royal Consulate of the Kingdom of Saudi Arabia

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cash saudiThis is a cautionary tale for those who lend money for bail in Utah. You have to know that your money is at risk if you lend money to bail someone out of jail. It is apparently a profitable business but you should probably leave it to the professionals. So, when your buddy or brother-in-law calls you from jail and begs you to post his bail, remember the mistakes made by the Saudi Consulate and decline.

In a recent case from the Utah Supreme Court, Saudi Arabia v. Pullan, our good Judge Pullan got it right. A Saudi Arabian citizen, Al Shammari, was arrested in Orem on rape charges. The Royal Consulate of the Kingdom of Saudi Arabia posted his $100,000 bail in cash. Shammari immediately high-tailed it to the Tijuana border and tried to cross over to Mexico where he was arrested by the Customs and Border Patrol. When Shammari failed to appear at his next hearing, the bail was declared forfeit without providing notice to the Consulate.

The mistakes by the Consulate were to post the bail on its own, post it in cash, and not bother to read the Utah Code. Bail bonding companies make money because they do everything they can to keep their money. They know the rules and follow them. If the Consulate had followed the rules it would have been entitled to notice before forfeiture.  Or, if it had posted bail through a bail bond company, the bonding company would have done it right and protected the $100,000.

In this appeal, the Consulate claimed it was a “surety” for purposes of the Utah Code and was entitled to notice before the bail was forfeited. Unfortunately for the Consulate, it did not meet any of the requirements to demonstrate it was a surety.

Bail in Utah can be made in one of two ways:  (1) filing with the court an undertaking tendered by an individual or entity that ordinarily will be accompanied by the posting of a bond (i.e., agreement to pay money supported by evidence of ability to pay); or (2) depositing into the court a bail by cash or an equivalent form of payment. The first method requires the court give notice to the person posting the bond and the second does not.

The Consulate argued that it should have been given notice because it loaned Shammari the cash bail money, making it like a bond. The Supreme Court clarified that the source of the funds is not relevant and does not make a deposit into a bond without following the Utah Code:

“The statutory scheme for bail does not concern itself with the manner in which the defendant obtains the funds for cash bail or the nature of the relationship between the defendant and another provider, if any, of the funds. The person posting the cash bail may be merely functioning as a courier for the defendant’s own funds, may be providing the funds out of friendship or familial loyalty, or may have extracted some agreement that may or may not be legally enforceable as a private contract.”

Be careful with your money- you worked hard to get it. If you have questions, ask them. If you would like more information about criminal law or bail bonds, contact me, Utah attorney Ken Reich. I am no expert on bail bonds or criminal law, but I have partners, friends, and colleagues who are. I would be happy to answer whatever questions you have and send you to people I trust for ones I cannot.

Utah Property Rights: Tips for Claiming Adverse Possession

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20150501_143806What is adverse possession you ask? Good question. It’s when a possessor of land claims ownership of land when title is held in the name of someone else. It can make a claimant into the legit title owner of real property. It applies to raw land as well as the all structures on the land. The laws governing adverse possession are found at Sections 78B-2-208 to -219 of the Utah Code.

Let me give an example: You and your neighbor own adjacent real property. Over the generations that your family has owned the land, you and your family have believed and acted like you owned a bigger tract of land than what your record title shows. It happens all the time. You have used the land for grazing, maintained fences, used portions for hunting pheasants, posted ‘no trespassing’ signs, and let your friends ride dirt bikes on parts of it. You also have paid taxes on the entire portion that you used. One day your neighbor dies and his heirs have a survey done that shows that you have been trespassing on a substantial portion of the neighbors land all these years. The neighbor politely asks you to stop using the land and starts moving fences. You politely tell him you own it by adverse possession and commence a quiet title action to get the title changed into your name.

Here’s what you need to prove adverse possession in Utah:

  1. Show that your use of property is actual use. This means it cannot be ‘in theory’ but requires you to do something. In the example, this would be actually grazing your animals or giving permission for someone else to do it. People get in trouble when they get cute and try to claim they ‘intended’ to develop the land or had plans. Intentions or plans are not actual use, even if you spend money on your plans. Adverse possession is all about putting land to good use.
  2. Show that your use was open and notorious. This means you do it in such a way that someone looking at the property would know that you are using it. Fence the land. Build something. Enforce rights against others (keep them out or let someone in to use the land). If asked, tell others that its yours and you claim ownership.
  3. Show that your use was exclusive. You must act like an owner and not share your use with others or the record owner. Do what an owner would do.
  4. Show that your use was hostile. Do not let anyone, especially the record owner, exert control over the land you claim as owner. If you do, then you are not acting like a true owner but are acquiescing to others as an acceptance that you do not own the property.
  5. Your use must use the land continuously for seven consecutive years.
  6. You must pay all taxes levied on the property for the seven years.

See Allred v. Allred, 2008 UT 22, ¶17. I was extensively involved in the Allred case with my partner Mike Carlston. It was a hard-fought family dispute. In Allred, a son (an attorney) obtained legal title to his parents’ commercial property by disputed means. Over the course of many years, the parents continued to act like they still owned the property (because they believed they did) by collecting all rents, paying taxes (triple net lease), and signing new leases and amendments. When the son tried to take over the property, the parents were able to successfully have title returned to them via adverse possession.

Here are some other things to consider in adverse possession claims:

  • If it is open, unimproved land, a few other rules apply:
    • If you claim title based on a written document that unfortunately fails to give you title, then you must do one of the following three things:
      • (1) cultivate crops or install an improvement,
      • (2) enclose the claimed property with a fence; or
      • (3) use the property for agricultural uses, pasture, or to harvest fuel or fencing timber.

Any one of the these activities may constitute possession and you may acquire entire parcels described in the written claim even if only a portion is actually used or cultivated.  See § 78B-2-211.

  • If the claim is not based on a written document, but on some other claim to title, then possession is established by performing all of the following:
    • (1) a substantial enclosure;
    • (2) cultivation or other improvement; and
    • (3) at least $5/acre expended on irrigation improvements.

All three criteria must be satisfied, and only the land actually occupied may be acquired through adverse possession.  See §§ 78B-2-212 and 78B-2-213.

  • If you fulfill each element for adverse possession, you still only have a claim. In order to turn your claim into title, you must either obtain an agreement with the record owner or bring legal action (quiet title, trespass, eviction, etc.). Once successful, you then take your judge’s order and have it recorded with the county in which the property is located.
  • You cannot adversely possess any land owned or held by a government entity and designated for public use or lands owned or controlled by the state or federal government.  See § 78B-2-216.
  • Water rights may not be acquired by adverse possession unless the seven-year possession period was completed prior to 1939. See Otter Creek Reservoir Co. v. New Escalante Irrigation Co.
  • Do not ever accept ‘permission’ from the record title owner. If you claim to own the property, you must act independent of everyone, especially the record title owner. Permission, if accepted, breaks your hostile possession.

Adverse possession can require a complex bit of legal wrangling. I do not recommend attempting it on your own. If you have questions, you should ask them. If you would like more information about adverse possession, contact me, Utah attorney Ken Reich. I regularly represent companies and the individuals and families that own them. My job is to know and understand my clients and their goals. Together with the right legal experts, I can help you get the result you want.

 

 

You Want to Appraise Real Property in Utah? Here Are Some Pointers

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faceThe Utah courts of appeal recently are breaking out the creative stick. Here’s the most recent literary opening gambit: “The best-laid schemes o’ mice an’ men gang aft agley an lea’s us nought but grief an’ pain for promis’d joy.” Robert Burns, Tae a Moose, in The Best Laid Schemes: Selected Poetry & Prose of Robert Burns 48 (Robert Crawford & Christopher MacLachlan eds., 2009). The court used Burns to gild a rather dull decision, AmericanWest Bank v. Kellin, that gives us a few pointers about appraising, foreclosure valuation, and litigating in Utah.

Kellin and her partner bought two fancy Deer Valley condos for more than a million dollars each with plans to sell one-eighth shares in each. They sold one share of the sixteen. The real property market promptly collapsed. Hence, the “best laid plans of mice and men” quip. In an action to recover the difference between the bank’s loans and the now depressed value, the court provided these nuggets:

  • If you want to establish how much you are owed after foreclosing on real property, you, the lender, have the burden to establish 1) the amount you are owed and  2) the fair market value of the property at the time of the foreclosure. The difference is the ‘deficiency judgment’ you get from the debtor.
  • Your appraiser had better comply with the Uniform Standards of Professional Appraisal Practice (USPAP) standards. Utah has adopted the standards by statute. See Utah Code Ann. § 61-2g-403(1).
  • An appraisal in Utah cannot value “the whole [of a property] solely by adding together the individual values of its various estates or component parts.” (quoting USPAP Standards Rule 1-4(e) (2014–2015 ed.), http://www.uspap.org/#2. Kellin tried this and failed.
  • The lender has the burden to prove any offsets to fair market value. If the lender fails to prove entitlement to the offset, it is lost. AmWest Bank tried to prove an offset for the one 1/8th share that was sold but failed to do so. The failure led to the denial of an offset in an amount of around $77k.
  • Finally, if your contract includes attorney fees, the prevailing party will normally be awarded attorney fees and costs up through trial and then again on appeal. In many cases, attorney fees can turn into the tail that wags the dog. In small cases, attorney fees can quickly make an insubstantial case into a substantial one.

When you foreclose on property, get your ducks in a row and you will recover max value. It often takes careful planning and always requires good legal advice. If you have questions, you should ask them. If you would like more information about foreclosure and recovery of your assets, contact me, Utah attorney Ken Reich. I do not claim to be a foreclosure guru but I have fantastic partners who are. I regularly represent companies and the individuals and families that own them. My job is to know and understand my clients and their goals. Together with the right legal experts, I can help you get the result you want.

The Utah Supreme Court Guide to Family Property Disputes

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20150718_135027The Utah Supreme Court quipped recently: “‘In the beginning God created the heaven and the earth,’ Genesis 1:1, and families have been fighting over them ever since.” Rawlings v. Rawlings. Family disputes over inheritance and land is like a Ronda Rousey opponent: a bloody mess.

Everyone in a family dispute is convinced they are right, everyone else is wrong, and they are getting defrauded. Inheritance law can be confusing and full of ‘gray’ areas and blind alleys.

The Utah Supreme Court offers us a few nuggets of wisdom in Rawlings.

There were five Rawlings siblings fighting over the family farm. Over the years, Dad Rawlings deeded portions of the farm to the eldest Rawlings, Donald, and to the second eldest, Dwayne. In 1966, Dad got cancer and deeded the remaining farm property to Donald so that Dad could qualify for Medicaid. Over the next twenty-five years, the siblings treated the farm, for the most part, as a jointly-owned asset.

Then, in 1993, Donald sold some of the land. When Dwayne objected, Donald told him to shut his trap and take a flying leap– or words to that effect. Donald declared he could do whatever he wanted with the farm since it was in his name and he owned it. Donald, apparently emboldened by a lack of legal response by his siblings for a number of years, sued his siblings in 1997 to get them to stop pestering him about ownership and quiet title in himself.

Donald took the initiative and lost. He lost at nearly every step in the process: at the trial court, on his first appeal (he prevailed at the Court of Appeals but lost at the Supreme Court), at the trial court again, and on appeal again. Donald’s wife also joined the fray by adding a ‘memo’ to old checks to support Donald’s claim to the farm.

The court told Donald and his siblings that the transfers in 1966 were made in trust and that made Donald a trustee.

If you are ever named a trustee, watch out. Trustees owe fiduciary duties to the beneficiaries of the trust. In this case, Donald owed these ‘strong’ duties to his siblings.

“A fiduciary duty is a legal duty to act solely in another party’s interests.” This meant that Donald, over the years, was obligated to act in the best interests of his siblings– exactly opposite what he in fact did. Ouch!

The court told the Rawlings family that legal title may have been transferred to Donald, but equitable title had not. This meant that all of the siblings owned the property and Donald just held the title for them.

Estate planning is an art form that, if done poorly, looks more like Jackson Pollock than Rembrandt. Dad Rawlings chose to implement his estate planning scheme on his own. I’m sure Dad Rawlings worked hard for his money and wanted to keep his tidy nest-egg intact for his children. Unfortunately, without appropriate guidance, it was an ill-planned scheme, at best. At worst, it was a fraudulent scheme to obtain welfare benefits he was not entitled to and imprudently placed trust in one son to be fair to all his children. Dad Rawlings chose poorly. And, schemes to defraud Medicaid earn a frowny face (and penalties).

Sometimes, you get what you pay for. Dad Rawlings implemented a scheme to save money on his end of life issues. He unwittingly unleashed a dispute among his children that endured from 1997 to 2015 and likely forever. Not what he had in mind (at least I hope not).

Estate planning (and related succession planning) is a bit of complex legal and familial chemistry. It takes careful planning and good legal advice. If you have questions, you should ask them. If you would like more information about estate or succession planning, contact me, Utah attorney Ken Reich. I do not claim to be an estate planning guru but I have fantastic partners who are. I regularly represent companies and the individuals and families that own them. My job is to know and understand my clients and their goals. Together with the right legal experts, I can help you get the result you want.

Utah Supreme Court Strengthens the Uniform Trade Secret Act for Utah Employers

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20151030_110325-EFFECTSUtah businesses recently received a boost to their ability to protect their trade secrets from misappropriation by employees. The Utah Supreme Court smacked down a former employee’s efforts to make off with trade secrets in violation of both an employment agreement and Utah’s Uniform Trade Secret Act (UTSA). The case is Innosys, Inc. v. Mercer, 2015 UT 80. The gist is that Utah businesses now have a clearly easier time protecting their trade secrets.

Innosys has some pretty basic facts that a Utah employer will find common in nearly any attempt to enforce rights under the UTSA. Mercer worked for InnoSys, a technology company focusing on the defense industry, as an engineer. In its suit against her, InnoSys alleged that Mercer had violated a non-disclosure agreement and misappropriated company trade secrets. Mercer‘s disclosures and misappropriations were undisputed. During and after her employment with InnoSys, Mercer forwarded confidential emails to her private Gmail account, copied a confidential business plan to a thumb drive, and placed protected information on the record in an administrative (unemployment) proceeding.

InnoSys failed to convince the trial court that it had suffered a demonstrable injury as a result of the misappropriations. Convinced in its righteous position, InnoSys appealed. The Utah Supreme Court reversed and ruled against Mercer.

The Supreme Court teaches Utah employers and employees a number of important (and some more interesting than important) lessons:

  • Just because the trial court ruled that way does not mean the court got it right.

This case was batted around between three different trial court judges who all got it wrong. The Utah Supreme Court straightened them out. Cases do not always need to be appealed and will not always have issues that have a likelihood of success on appeal. Sometimes they do. An appeal is expensive and should be considered carefully but with the understanding that trial courts don’t always get it right.

  • Keep on enforcing your company privacy rules even if you think it seems pointless at the time.

InnoSys had rules about how its confidential materials could be accessed and precluded its employees from sending its materials through third-party email addresses like Gmail. The employee at first asserted that InnoSys had helped her set up her Gmail account and bypass InnoSys’s safeguards. She later recanted. If it had been true, however, InnoSys would have been deemed to have waived the problem. If your company has safeguards and rules about its confidential information, take them seriously and enforce them as necessary. Otherwise, you may be deemed to have waived them.

  • Emailing your companies’ trade secrets through a Google account (or other provider other than through your company email) “is at least arguably” an unauthorized disclosure of those trade secrets.

The trial court in this case received mounds of expert testimony (i.e., it was expensive and the parties took it seriously) on the issue of whether emailing through a third party provider such as Gmail was a disclosure of the trade secrets. The trial court and Supreme Court accepted the possibility and damages may be awarded. Hence, if you permit your confidential information to be transmitted via Gmail, you may have waived any disclosure that occurs as a result of the information being disclosed through Gmail.

  • There is no ‘necessary and appropriate’ defense for use of trade secrets by an employee.

Your employees have no right to use your confidential information under a claim that it is “necessary” or “appropriate” under the circumstances. Stick to your guns: this is your confidential information and you need to protect it. Mercer used confidential information in a wage dispute with InnoSys. She was wrong to do so and violated InnoSys’s trade secret rights.

  • A trade secret is a property right and any invasion of that right is actionable in court regardless of whether it causes measurable damage.

Mercer claimed (and the trial court agreed) that her violation of InnoSys’s trade secret rights was so small to be of no value. Wrong. The trial court fined InnoSys (among other reasons) because it could not prove actual or threatened harm. Wrong. The Utah Supreme Court made it clear that a violation of a trade secret right is presumed to have caused harm and an injunction to vindicate that right and prevent future harm is warranted. Your new motto should be (if you have valid trade secrets): ‘when in doubt, protect your rights.’

  • An injunction barring use of trade secrets does no harm.

An injunction protecting your trade secret rights is appropriate even if the other party (former employee, etc.) asserts they are not violating your rights: “If the defendants sincerely intend not to infringe, the injunction harms them little; if they do, it gives [plaintiff] substantial protection.” If you believe you need a court’s injunction to protect your rights, the Utah Supreme Court made it clear that you are entitled to such an injunction regardless of a defendant’s asserted innocence or lack of bad intent.

  • As long as you have a good faith basis to pursue your claims, “it matters not that [you] may have harbored an ulterior motive of retaliation.”

Mercer claimed that InnoSys was only bringing the trade secret action as retaliation against Mercer. Utah Supreme Court: so what. InnoSys was entitled to prectect its trade secret rights and its action to protect its rights in good faith cannot be deemed retaliatory.

  • The terms of and language used in your non-disclosure agreement (NDA) is important and a generic agreement will not be as helpful as one tailored to your business.

Mercer signed an NDA with InnoSys that defined “protected information” and limited Mercer’s use of protected information. Mercer also agreed to return to InnoSys and that due to “measure in money damage to InnoSys” from her breach, she agreed that “an injunction” would be appropriate to “minimize or prevent damage to [InnoSys].” The specific language of the NDA made it easier for InnoSys to enforce its agreement. Make sure your agreement has easily enforceable language too.

Make sure your NDA is up to date in terms of specific, protected information that it contains all of the terms that are needed to enforce it. I do not attempt to get into the specific provisions you need (I’ll save this for another time), but if you have questions, get legal help. It’s important to the long-term viability of your business.

  • Keep the original or a copy of your non-disclosure agreement or employment agreement if you want to be able to quickly and easily enforce it.

InnoSys initially could not find a signed copy of the agreement and Mercer claimed she did not have one. When InnoSys attempted to enforce an agreement it could not find, the trial court ruled against Innosys including fines and charging InnoSys with Mercer’s attorney fees in the amount of $229,481.58. Although the Utah Supreme Court appeared prepared to enforce the NDA without a signed copy (consistent with Utah Rule of Evidence 1004) you need to keep a copy. It will save you time and money when you need it most.

  • Even if you do not have an NDA, the Utah Uniform Trade Secret Act still protects your trade secrets.

Under the UTSA, an employer establishes a claim for misappropriation “on the basis of two essential elements: existence of a protectable ‘trade secret’ of a plaintiff and demonstration of ‘misappropriation’ by a defendant.” Utah Code § 13-24-2. An NDA helps a court rule in your favor but is not necessary. The NDA simply makes it easier to convince the judge that the employee misappropriated a trade secret.

InnoSys could have brought claims against Mercer independent of its NDA but would have face a much bigger challenge. With an NDA, InnoSys (and the Supreme Court) had a simple application of the definitions in the NDA to the information Mercer took. Without the NDA, another often difficult step is added: proof that the information was confidential and was provided to Mercer under circumstances showing it was confidential.

There are issues and nuances that cannot all be addressed here. If you have questions, you should get specific legal advice. If you would like more information about trade secrets, confidentiality agreements, protecting your rights, or rectifying wrongs committed against you, contact Utah attorney Ken Reich directly. Mr. Reich has represented both companies and individuals in business matters and disputes involving trade secrets, confidentiality issues, and enforcement actions. Using his many years of experience and backed by a firm of legal specialists in nearly every legal field, Mr. Reich can help you evaluate your situation and help you make smart decisions about your business and your life that will best fit your circumstances.

Commercial Damages You Cannot Afford to Not Pursue: the Contingency Fee Solution – Part III


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This is Part III of a three part series on business or commercial contingency fee cases. See Part I and Part II.

IMG_20141223_104740
Killer day at Brighton Resort.

You may have a claim for damages that you may not be able to afford to pursue. Damages run the gamut from personal injury to lost profits, lost income, loss of business opportunities, defamation, or losses related to trademarks, patents, or copyrights. A contingency fee can be a good option to pursue your claim.

In Part I, I discussed the benefits of pursuing your case on a contingency fee basis. In Part II, I discussed how an attorney evaluates your potential claim. In this third installment on contingency fee claims, I discuss what you need to know when negotiating with an attorney once the attorney agrees to take your case.

Your claim is an asset with an uncertain value. It may have substantial value or no value (that’s what your attorney needs to determine- see Part II), but once you know it has some value, the negotiations begin. Remember, if one attorney has evaluated your claim and believes you have a claim worth pursuing, it is very likely that there is another, equally competent attorney willing to pursue your claim. Feel free to shop around. You are not committed to one attorney until you sign a contingency fee agreement with him/her.

WHAT YOU NEED TO KNOW WHEN NEGOTIATING YOUR CONTINGENCY FEE ARRANGEMENT WITH YOUR ATTORNEY.

When you hire an attorney, there should always be a written agreement establishing what the attorney will do for you and how you will pay for it. Some attorneys are good about explaining everything and walking you through the terms of the agreement. Others have their secretary send you the fee agreement with very little discussion. Although we all agree to contracts every day without understanding all the fine print (Facebook games anyone?), do not accept a contingency fee agreement without understanding it thoroughly.

Your claim is an asset that you are inviting lawyers to share in the risk of pursuing. You will be negotiating the terms of that joint risk and potential reward with your attorney. The attorney does not obtain a legal ownership interest in your claim (that would be illegal) but structures a deal where the attorney only gets paid fees if you recover. The structure of this financial agreement will be established in a written contingency fee agreement. (NOTE: if your attorney does not put this in writing, a red flag should go up– by law, it’s always in writing). Feel free to use your imagination in structuring your deal. Nothing ventured, nothing gained. If you do not ask, you will not receive.

When entering into a contingency fee agreement, Utah attorneys are bound by the Utah Rules of Professional Conduct. These rules limit and shape the agreement between a client and attorney. Under these rules and good practice, the basic terms of any contingency fee agreement with attorneys should discuss the following:

1. Scope of engagement- client, matter, and limits: Attorneys want to define exactly what legal services they are providing to you. In a contingency fee matter, your attorney will typically only represent you regarding the piece of litigation that will lead to a recovery (hopefully a big one). If you want your contingency fee attorney to do more, like work on tax implications of your recovery (or loss), estate planning, or that nasty neighbor threatening you about the condition of your fence, plan on either including those issues in your contingency fee letter or paying extra later on. A well-written contingency fee agreement should spell out the bounds of what the attorney will do for you.

2. Fees: You already know that your attorney’s fee will get paid out of the recovery (if any). The amount of that fee is negotiable: it is whatever you agree it is- there is no set formula.

Typically, a contingency fee starts at 33% and goes up from there. You and your attorney could agree to a lower fee if the attorney settles your case very early with very little effort. You should also expect that the fee will likely increase if it takes longer or more effort to obtain the recovery.

Often the fee percentage is tied to identifiable landmarks in the case such as the filing of a complaint, the close of fact or expert discovery, the first day of trial, the issuance of a verdict, appeals following trial, or collection of a judgment. You and your attorney can decide which landmark is used (if any) to trigger a higher or lower contingency fee.

Where appropriate, you may be asked to set a fee ‘ceiling’ or a fee ‘floor’ regardless of recovery. For example, if your best case potential recovery is $100,000, it may be appropriate to agree to a set fee for any recovery greater than $50,000. The economics of the case may not justify an attorney taking the case unless such a greater fee was assured. In other words, you may not be able to entice any attorney to take your case unless the recovery was big enough to justify the risk.  A fee ceiling might be appropriate if your case has a substantial value with little downside risk. Also, it could be a convertible ceiling, meaning that if the case drags on for too long, becomes more expensive due to unforeseen issues, or actually has to be tried to verdict, the ceiling may be removed.

3. Costs: In a contingency fee case, you will typically only pay costs if your case produces a recovery. Costs of litigation most often include court filing fees, copy costs, subpoena costs charged by others, expert witness fees, trial exhibits, legal research, courier fees, and travel costs. You will find that typically the largest costs are the expert witnesses. Your agreement should specifically define exactly which costs are recoverable so there is no question later on.

Also, your out-of-pocket costs are not reimbursed by the attorney unless agreed to. If you are asked to make copies, travel to a deposition, or take time off work for matters involving the case (trial, hearings, etc.), your costs will not be covered. You will be expected to have your costs reimbursed from the recovery.

Attorneys like to know that you are committed to the case and will often ask you to invest some of your cash to go towards costs. Note that costs do not include attorney fees or any fees or costs normally attributable to any of the attorney’s overhead or staff.

4. Calculation: Assuming you win, recovery is often divided in the following order:

  1. Attorney recovery of fees: Gross recovery X contingency fee percentage = attorney fees.
  2. Recovery of costs (attorney or client) is then subtracted from the amount remaining after the recovery of attorney fees (gross recovery – attorney fees).
  3. Everything left after paying attorney fees and costs is yours (after payment of medical liens, if any).

Some will deduct the costs before calculating fees. Know what you agree to; it makes a difference. For example: Assume 33% fees and $10,000 costs for $100,000 recovery. Costs calculated as above: $100,000 X 33% = $33,000 fees; $67,000 – $10,000 = $57,000 recovery to client. Costs calculated before fees: $100,000 – $10,000 = $90,000; $90,000 X 33% = $29,700 fees; $90,000 – $29,700 = $60,300. It’s a $3,300 swing.

5. Withdrawal/Dismissal: This part of the agreement lets you fire your attorney or your attorney to withdraw from representing you. Neither situation is without consequence. Typically, even after you fire your attorney or s/he withdraws, the agreement will allow the attorney to retain an interest in your case and be paid a certain percentage if you ever recover anything.

6. Retainer: Although this is normally a requirement when hiring an attorney, you should not be asked to provide a retainer in a contingency fee case unless it is a retainer for costs (see above). If you are asked to pay a fee retainer, find another attorney since it should be clear that they do not know what a contingency fee case is.

Negotiating a contract, including a contingency fee contract, is a creative endeavor. Even if your case is a run-of-the-mill personal injury claim (dog-bite, car accident, etc.), you should have room to get creative in your deal. And, because this is a creative process, there are questions you may have that I have not addressed. Below, I have attempted to make a FAQ (frequently asked questions) section to hopefully address some of your questions. If you still have questions, please feel free to ask in the comments or contact me directly.

FAQ:

  • In a personal injury case, who pays medical liens? You do. In a case involving medical liens, your attorney is legally obligated to pay for such liens out of the recovery after the attorney fees and costs are deducted. In many cases, your attorney should be able to negotiate lower rates with insurers and Medicare/Medicaid based on a number of factors including the cost of recovery (attorney fees and costs) and whether the expenses are related to the claim or something else.
  • Will you and/or your attorney advance costs? Depending on your ability to invest and the claims and anticipated costs, an attorney will often require you to put some skin in the game and invest cash towards costs. You may not have any money to invest so it may cost you in other areas such as percentage of recovery.
  • If your attorney advances costs, will the recovery of advanced costs be contingent? This is a variation of who is advancing the costs. If a lawyer advances costs, it typically does so at his/her risk.
  • Will the party advancing costs be entitled to interest on such costs? Usually, yes.
  • Will costs come out of the total recovery before the fees are calculated or after? The attorney will want his/her fee recovery based on the gross recovery, however, this decreases your overall recovery. It’s a numbers issue. Typically, costs come out after fees but it’s negotiable.
  • Will you have to pay for your opponent’s attorney fees if you lose? Depends. The loser only pays attorney fees in Utah if provided for by contract, statute, or some exception. Your case may not involve an attorney fee clause or statute. If it does and you lose, then, yes, you will be responsible for an attorney fee judgment. Note that if you are entitled to attorney fees if you win, then your opponent is typically entitled to have you pay fees if you lose– even if the contract or statute does not explicitly say so.
  • If your recovery includes an award for attorney fees, how is that award divided at the conclusion of the matter? Depends. If it has not been addressed in your contingency fee agreement, then it is considered part of the recovery and is subject to the percentage of recovery. There may be tweaks to this outcome. It’s best to discuss this on the front end instead of fight about it later.
  • Will attorney’s percentage increase with trial, appeal, retrial, or substantial collection efforts? Typically, yes. Attorneys will often demand a higher percentage of recovery at each stage of litigation in order to cover the increased work and risk involved.
  • Will you be required to reasonably cooperate with your attorneys? Yes. It’s in your best interest and you will be under a duty to do so.
  • Will you have any ability to approve or disapprove of a settlement? Yes. Typically, both you and your attorney agree to the settlement. You may give your attorney advance approval to settle within a certain range.
  • Will your attorneys be able to withdraw from the representation? Yes, and so will you. That does not mean, however, that if you later obtain an award in the case (usually with other attorneys) the attorney may not retain some ability to collect the costs and fees it expended in the case while acting as your attorney. Your agreement should spell out the parties’ rights so there is not another lawsuit about any recovery.
  • In the event of a dispute with your attorney, how will that dispute be resolved?
    There is no typical situation. Some attorneys like to keep issues confidential and will insert an arbitration clause in the agreement. Many will require arbitration before the local bar association in order keep it fair and the playing field level. Some attorneys prefer courts and juries. There are risks and benefits of both. You should understand that the attorney-client privilege is typically waived in such a dispute and whatever you told your attorney will be fair game. And, your agreement will likely have an attorney fee provision requiring the loser to pay the fees of the prevailing party.
  • In commercial cases there may be potential for non-monetary compensation paid as part of a favorable settlement. How will these things be valued for purposes of calculating a fee? There is lots of leeway to value a ‘win’ that does not include money. Even if you cannot come up with a value, at least acknowledge the issue in your agreement and establish a way to value it later once the dust settles. For example, if disputed, it can be given to a mutually agreeable third-party to establish the value.
  • Should I get an attorney to help me negotiate with my attorney on the contingency fee agreement? Not likely. If you do not feel comfortable with or are confused by the terms proposed by your chosen attorney, discuss it with the attorney. You should feel comfortable discussing this or any part of your case with your attorney. This is your asset and you are asking the attorney to help you recover it. If after discussing the agreement with your attorney, you still do not feel good about it or do not understand it, feel free to have another attorney look at it and advise you. Your attorney on the contingency fee matter should have no problem with you seeking separate advice. You may find that you want a different attorney to handle your case.

One last note: at the end of your case, win or lose, your attorney owes you a written statement showing the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination. If you do not get one, demand one. It’s your case and the attorney is along for the ride.

There are issues and nuances that cannot all be addressed here. If you have questions, you should get specific legal advice. When in doubt, go with your gut feeling. If you don’t like the attorney you first talk to, find another– there is always another. Talk to your friends, get referrals from people you trust, read the American Bar Association suggestions, or talk to me.

For more information about your potential contingency fee case or a complementary consultation, contact Utah attorney Ken Reich directly. Mr. Reich routinely represents both companies and individuals in business matters and disputes involving a contingency fee arrangement. Using his many years of experience and backed by a firm of legal specialists in nearly every legal field, Mr. Reich can help you evaluate your claim and help you make smart decisions about your business and your life that will best fit your circumstances.

Commercial Damages You Cannot Afford to Not Pursue: the Contingency Fee Solution – Part II

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This is Part II of a three part series on business or commercial contingency fee cases.

20151115_164150You may have a claim for damages that you may not be able to afford to pursue. Damages run the gamut from personal injury to lost profits, lost income, or loss of business opportunities. A contingency fee can be a good option to pursue your claim. In this second installment on contingency fees, I discuss what an attorney needs from you to effectively evaluate your potential claim. In Part I, I discussed the benefits of pursuing your case on a contingency fee basis.

HOW AN ATTORNEY EVALUATES YOUR COMMERCIAL CONTINGENCY FEE CLAIM

Where the rubber meets the road for an attorney is an evaluation of a number of factors which are, in order of importance:

  • Liability
  • Damages (amount and collectability)
  • Jury appeal
  • Potential defenses, counterclaims, and unsettled points of law

Information is king in this process to get an attorney to agree to take your business or commercial contingency fee case. Provide documents, names of witnesses

Liability is the legal basis for your claim.

Liability is often the most critical area of inquiry. Depending on the claim or ’cause of action,’ the liability analysis is typically an evaluation of duty, breach, and causation (damages is addressed below). Duty can arise from a number of sources: contract, judge-made law (i.e., uncodified common law), statutes, and course of dealing between parties.

Here is a list of the most common types of claims that work well with a contingency fee arrangement:

  • Breach of contract
  • Negligence
  • Breach of the covenant of good faith and fair dealing
  • Bad faith: insurance claims
  • Business torts: interference with contract, breach of fiduciary duty, partnership liability, join venture liability, privacy, cybersecurity
  • Intellectual property: trademark, patent, copyright
  • Professional liability: legal, accounting, medical, etc.
  • Product liability: strict, negligence, and warranty
  • Premises liability
  • False statements: defamation, slander, and libel
  • Misrepresentation: fraudulent and negligent
  • Employment: ADA, FMLA, FLSA, wage claim, whistleblower, wrongful termination, privacy
  • Civil rights: Section 1983, state and federal laws
  • Personal torts: death, personal injury, emotional distress, battery
  • Miscellaneous: will contests, malicious prosecution, false arrest, abuse of process

Some claims, however, do not work well in a contingency fee arrangement. Typically, such claims are where money is not the result sought. Some such situations include guardianship, criminal and domestic relations (divorce/alimony) cases (it is illegal), regulatory matters, non-litigation matters, and restraining orders.

When you meet with your attorney, tell them everything. Remember, your conversation is confidential and protected. It is critical that the facts that will ultimately be revealed in discovery be revealed to the attorney up front. An attorney cannot evaluate and strategize for facts s/he does not know. I have had clients try to hide or down-play facts in the hope that they can settle the case before the facts are revealed. This seldom works. Moreover, the facts clients are most worried about are often not the facts that are most critical to the case. The best way to deal with worrisome facts is to tell the attorney so that the facts, if truly damaging, can be dealt with appropriately. Otherwise, the facts may come out at the most disadvantageous time or in the worst possible light.

     Duty and Breach

A duty is what you are required to do (by contract, law, etc.) and breach is the failure to meet that duty. The causes of action above all require the person or business causing the harm to meet a duty of some sort. For example, every driver on the road is expected to follow the law. Likewise, every party to a contract is expected to do what they promise to do. When a driver fails to follow the law or a contracting party fails to keep their promise, they have breached their duty.

     Causation ties a breach to a harm.

Causation is often a non-factor when causation is obvious such as a car accident: Car A and Car B collide and the cars were damaged. The issue is not what caused the damage (cars colliding) but who caused the cars to collide (breach of duty). Causation can get particularly complex in terms of lost profits due to harm to a business or lost wages. There are complex market factors that influence lost profits and numerous factors to evaluate. Such a calculation nearly always requires expert testimony from an economist specializing in the business at issue.

Damages and Collectability

It is hard to underestimate damages. This issue is a very close second to liability in terms of importance. If there is no pot at the end of the rainbow or if the pot is empty or missing, there is no reason to chase the rainbow. An attorney will only agree to fund a contingency fee case if the outcome has some way of paying for the attorney’s investment of time, money, and resources. The larger the potential outcome and collectible source (insurance, or solvent company), the more interested an attorney will be to take a risk– even if your case has warts.

Jury Appeal

Does your case have some sexy facts that will interest a jury? Or, is the value of your case so high that a jury will have to sit up and take notice? For instance, does your case involve blatant (i.e., easily proved) fraud or misrepresentation or abuse of position? If your facts make a compelling story at a cocktail party, it probably has some jury appeal. It’s not necessary, but it helps.

Potential Defenses, Counterclaims, and Unsettled Points of Law

Your attorney needs to know the limitations and risks of your claim. In business disputes in particular, there are often counterclaims that can be filed against you and defenses to your claims. You may or may not be able to identify the potential counterclaims and defenses, making it vital that your attorney has all information possible when evaluating your case. Your attorney will also evaluate whether gaps in the law create risks to your claim.

For more information about your potential contingency fee case and for a free consultation, please contact Utah attorney Ken Reich directly. Mr. Reich routinely represents both companies and individuals in business matters and disputes involving a contingency fee arrangement. Using his many years of experience and backed by a firm of legal specialists in nearly every legal field, Mr. Reich can help you evaluate your claim and help you make smart decisions about your business and your life that will best fit your circumstances.

Commercial Damages You Cannot Afford to Not Pursue: the Contingency Fee Solution – Part I

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This is Part I of a three part series on commercial contingency fee cases.

Rockstar Asset RecoveryI have had clients come to me with stories about how they have suffered massive damages but cannot afford to pay an attorney to pursue the case. It happens all too often.

For example, when a business is losing money or has a catastrophic loss, there is not often extra money available to pay an attorney to investigate your potential claims. Attorneys are expensive and most often want a hefty retainer up front.

Yet, you potentially have a great case! Someone embezzled, defrauded you, or breached duties they owed to you.

Sometimes, you just know that that someone did something wrong that caused you financial harm– you just don’t know how or what the legal claim is. Attorneys do and paying for it is the problem.

If you find yourself in this situation or the risk of litigation is more than you are willing to bear, there are attorneys willing to take your case on a ‘contingency fee’ basis. This first installment on contingency fees evaluates the reasons why a contingency fee arrangement might be right for you personally or your business.

 

WHY YOU SHOULD CONSIDER A CONTINGENCY FEE ARRANGEMENT

A ‘contingency fee’ agreement is where your attorney gets paid out of the successful outcome of the case or not at all. The out-of-pocket costs of the litigation are often fronted by the law firm but may be negotiated between the parties. Except in the personal injury arena, most contingency fee agreements are unique and depend on the facts of each case.

Where appropriate, there are good reasons to engage attorneys on a contingency fee basis:

You can pursue claims against the big guys.

Not every business or individual can afford to pay attorneys by the hour. That’s generally how attorneys get paid. Rich opponents can mire your case in court for years with discovery and motions knowing that you will cave once the fees get too high. A contingency fee arrangement allows you to share the costs and risks of litigation with your attorneys and have the case resolved on its merits– not on who has more money.

Your attorney shares your burden.

A contingency fee arrangement aligns your interest and your attorney’s interest. Your interest is in a successful outcome while avoiding spending more money on a potentially losing claim. Your attorney is interested in a successful outcome in order to get paid. Your attorney will be finely tuned to the successful outcome of the case and not just billing hours. You can expect that an attorney will evaluate your claim on a deep level since s/he will be investing in its successful result. When an attorney is paid by the hour, the outcome is important but the method and efficiency of reaching it sometimes gets out of focus. In the right hands, a contingency fee arrangement fosters efficiency and ultimate mutual success.

You control your costs and risk.

Your core capability is not the law. You have a business to run and a life to live. A contingency fee arrangement allows you to use your money to keep your business running and to focus on your core capabilities. An attorney becomes your partner for the purpose of recovering your losses using his/her core capabilities in the law.

In Part II of this series, I let you know how an attorney evaluates your claim.

For more information about your potential contingency fee case or a free consultation, contact Utah attorney Ken Reich directly. Mr. Reich routinely represents both companies and individuals in business matters and disputes involving a contingency fee arrangement. Using his many years of experience and backed by a firm of legal specialists in nearly every legal field, Mr. Reich can help you evaluate your claim and help you make smart decisions about your business and your life that will best fit your circumstances.

Re-think Your Privacy Policy- the Snapchat Example

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20151109_101835Perhaps the first question is: does your Utah business have a privacy policy?  If yes, you get a star.  If no, go back two spaces and lose a turn.  Next question: does your company’s privacy policy do what you mean it to do?  And, are you sure?  That is where Snapchat and Spotify (and probably others) are at: they re-worded their privacy policies and the Internet illuminati heaped scorn. The point is less about draconian policies (i.e., policies that threaten to scrape your phone or computer of all private information and sell it to the Russian mob) and more about making sure your user/clients get clean, clearly defined information with simple explanations up front.

For example, if you are going to use your client information for a specific purpose, tell your client.  Or, if you are Snapchat and your policy appears to say that Snapchat may use your private photos (or photos of privates) across all Internet-dom, tell the user/client up front.  Be specific, Bob.  If you don’t, your business is likely to get some backlash.  And Snapchat’s update was supposed to reflect the “way people actually talk” in order to be “upfront and clear” with users.  Didn’t quite work out so well.

Perhaps it’s time for all of these companies to begin thinking seriously about hiring some better lawyers.

Source: Snapchat tells everyone to chill out over its new privacy policy

Privacy policies are about being transparent, legible, and open while maintaining all of the legal swords and shields you need.  Each one is as unique as your business and should not be a ‘boilerplate’ or ‘one size fits all’ affair that you found on the internet. Cheers!

For more information about writing your company’s privacy policy or complying with federal or Utah privacy laws, contact Utah attorney Ken Reich. Mr. Reich routinely represents both companies and individuals in business matters and disputes. He can help you earn the gold star you deserve and hopefully avoid the negative attention companies like Snapchat and Spotify garnered.

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