Cantor Floman Blog

Cantor Floman’s own Attorney Allison DePaola recently gave a presentation on the presence of legal issues as it pertains to Social Media. One of the major takeaways should have been that Social Media Policies are not something only large companies with numerous employees need to consider. It is something companies of all sizes and in all industries should implement. This is something a popular sports and entertainment based blog has learned the hard way.

One would think that a blog, which utilizes everyone else’s internet and media missteps would not need such a policy. However, a social media policy does not necessarily only lay out what not to do but can also be very useful to set forth how to do something. With no apparent social media policy in place for its bloggers and contributors barstoolsports.com uploaded to its website, via YouTube a video created by one of it’s own: “How to trick people into thinking your good looking”. The video became one of the top viral videos in the world, with approximately 1.4 million views in 2 days and over 6 million to date. The video was featured on YouTube, Reddit, Digg, as well as in The Sun and on NECN in a television segment.

In the words of barstool’s president himself, “[a]wesome right? Well yeah except nobody knew who [ ] Jenna was because she didn’t say she worked for Barstool and there was no logo, no nothing on it. Just a virtuoso performance by the Barstool Dream Team.” When the point of a blog is to generate readership for advertising and promotion of events, losing out on recognition by 6 million people is tough, to say the least.

If there was a policy in place that advised contributors to imbed a watermark logo on to all original content this is perhaps something that could have been avoided. It’s not realistic to think that a single policy can account for all permutations of situations that are liable to arise. However, it is possible to plan in general terms so that large issues can be avoided in the future.

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On Tuesday, July 13, 2010, Attorney Allison DePaola participated in a “Social Web In Business” panel discussion as part of “Social Web Week CT – 2010” in New Haven, Connecticut. The panel discussion was moderated by Lisa Miksis, publishing editor of Zip06 and included the following participants: • Chris Bartlett – from followcb.com, local writer, blogger, public speaker & seasoned business owner and entrepreneur • Ann Nyberg – of TV News Anchor, WTNH-TV, and founder of anniemame.com, social media & CT business advocate • Sherry Boyd- aka the Retail Goddess, Independent Retail Advisor and advocate for Moms4MedMod • Chef Daniel Lanzilotta – well known foodie and owner of the Mindful Chef and well-versed in use of online media tools • Allison DePaola, Esq. – local attorney versed in the area of Social Media in Business Each of the participants shared their insight as to how Social Media has impacted or changed business and how business flows, and the importance of implementing Social Media in a business frame work. The group discussed examples of the ways in which Social Media can help businesses grow and engage their customers and other businesses in the future. Allison highlighted the legal considerations of Social Media with regards to Advertising/Marketing, Employment Issues, Data Privacy and Security, and Intellectual Property. Also discussed was the impact Social Media may have on growing our Connecticut economy. “Connecticut gets it and will set an example we are rebuilding from the bottom up, social media is helping us to do that. Many more will now prosper because of events just like this put together by volunteers all of whom are working at answers thru this “I’ve been laid off-afraid I’m going to be laid off-or having to reinvent myself” times in which we are living.” – Ann Nyberg

To view a segment of the handout provided along with the presentation, click here.

Many thanks to the #swct crew for coordinating this program and inviting Allison to speak at this event.

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George Michael Steinbrenner III, owner of the New York Yankees for more than thirty years, died Tuesday, July 13th, of a heart attack at the age of eighty. While our office is near equally divided with avid Yankees and Red Sox fans, the focus of this post is not a Yankees vs. Red Sox debate, but rather a Steinbrenner Estate vs. the Federal Government…and it seems as though the Steinbrenner Estate has come out ahead.

Mr. Steinbrenner’s 2010 death highlights the unique tax situation that is occurring only this year. His estate is positioned to take advantage of the one year “repeal” of the federal estate tax, meaning it stands to save millions of dollars in federal estate taxes. This one year repeal in 2010, the first of its kind since the federal estate tax was enacted in 1916, was set in place in 2001. In that year, Congress announced that the federal estate tax would expire at the end of 2009. Many tax professionals and estate planners anticipated that Congress would take action to avoid the repeal, but Congress did no such thing. Thus, those dying in 2010 and leaving behind massive wealth, leave estates to their beneficiaries that avoid the federal estate tax.

However, this does not mean that Steinbrenner’s estate will pass tax free; it is still subject to a temporary set up capital gains tax rules. The estate will pay taxes based on the growth of assets when they choose to sell those assets.

While tax experts speculate the savings the estate will experience, it is difficult to accurately determine how much the estate will save without knowing all of Steinbrenner’s assets and the intricacies of his estate plan. However, it can certainly be cogitated that Mr. Steinbrenner, ranked #341 on Forbes 200 Richest Americans 2009, has left an estate behind him that will benefit greatly from the avoidance of the federal estate tax.

See #341 George Steinbrenner – The Forbes 400 Richest Americans 2009, Forbes.com, Sept. 30, 2009. See also Ronald Blum, Yankees Owner George Steinbrenner Dies at 80, Associated Press, July 13, 2010.

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When a Special Needs Trust is established for a loved one, a separate “letter of intent” or “letter of instruction” is a recommended document that accompanies the Trust.  

A Letter of Intent communicates information and knowledge that only parents or caregivers may know to ensure that (1) the Trustee of the Special Needs Trust knows the individual’s needs and how to properly provide for them, and (2) that the future Caregiver knows the individual’s functional abilities, routines, interests, and particular likes and dislikes and how to properly care for the individual.
The Letter of Intent serves as a useful guide to the Trustee in assuming the responsibility of managing and utilizing the trust assets for the individual’s needs.  In the letter, parents can inform the Trustee as to the typical expenditures for the health, maintenance, education, and welfare of the individual.

Whether the Trustee also serves as the future caregiver of the individual, or the role of Caregiver is filled by someone else, the Letter of Intent can educate the Caregiver on how best to meet the individual’s needs after the parents or other caregiver is no longer able to do so. 

For parents of younger children, the letter can set forth the parents’ future hopes and desires for the child, activities that the parents hope the child can still partake in, and can communicate the daily routine or tricks of caring for the child.  Perhaps your child has a particular morning routine that is important to follow, or has a fear of animals, or has other special needs that are important for a future Caregiver to know. 

The Letter of Intent can also provide the Trustee and/or Caregiver with access to helpful resources, such as the names of doctors or other service providers, friends of the family, or friendly contacts at state agencies that are familiar with your child’s needs. 

By compiling as much information as possible, parents and current caregivers are equipping future Caregivers with the knowledge and insight needed to maximize the care provided and tailor the care to the individual’s specific needs, preferences, and daily living routine. 

Some issues to consider addressing in the Letter of Intent are:

• Family history: where and when parents were born, raised, and married as well as where and when the child was born and raised.  Family members, especially siblings and other close relatives (aunts, uncles, grandparents, and cousins) should be listed with current contact information for all.
• A typical day in the life of your child: morning routines, personal hygiene routines, schedules, warning signs, exercise routines, and evening routines.  
• Child’s Favorites: including his or her favorite foods, music, books, television shows.
• Child’s Dislikes: including foods, medicines, habits, and interactions.
• Medical information, including current doctors, therapists, clinics, hospitals, current medications and therapies. Every medication listed should be accompanied with an explanation as to how the medications are given and for what purpose.  Parents should also describe medications that have not worked in the past and any known allergies.
• Resources: local programs or people – public agencies, churches, individuals and private organizations- that provide assistance to persons with disabilities.
• Residential care needs: including past and present accommodations and expected future needs.
• Educational information: past academic records, current enrollment, specialty teachers, future educational goals, special interests and talents, extra-curricular activities, as well as types of educational emphasis, for example, vocational, academic or communication.  
• Employment guidance: including past work history, the work your child may enjoy, sheltered workshops, activity centers and companies that provide employment in the community which may be of interest to your child.
• Social, behavioral and personal relationships: friends and family members, teachers, care providers, or other community members that are important to your family and child.
• Social and recreational activities: including sports, dance, music or movies.  Parents should address whether or not they want their child to have his or her own spending money. 

Parents can also include their final expression of love to their children and special memories they would like any future Caregiver to relay to the child.  The letter of intent should be reviewed periodically and should be updated to reflect any significant changes in the child’s life.

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During employment, many key employees inevitably gain access to a vast amount of information that is both unique and valuable to a business.  This information can include customer lists, potential client lists, processes and operations information, trade secrets, or other important information that has been acquired by the business over time.  For many businesses, it is necessary for key employees to utilize this information to build relationships with current and potential customers and to work with and access this information on a daily basis during employment. 

But what happens when employment ends?  How do you, as a business owner, prevent a key employee from taking this unique and valuable information when he or she leaves your business?  Moreover, how do you prevent a key employee from sharing this information with a competitor employer, or using this information to directly compete with you and your business?

The answer depends largely on whether you are just now hiring the key employee, or whether the key employee is currently employed at your business.  While it is best to speak with an attorney to determine which agreements, it any, are appropriate for your business, here is a brief overview of three frequently recommended documents: 

When hiring new employees, the following three clauses and/or contracts can be preventative solutions to these potential problems.  Depending on your business’s activities and operations, it may be advisable for you to have one or a combination of the following three documents:   

(1)  Non-Compete Clause or Non-Compete Agreement.  Inserting a Non-Compete Clause in a contract for employment or having an employee sign a Non-Compete Agreement (Contract) prevents a key employee form working in your company’s industry or business practice area for a specified time period and within a specified geographic area after he or she leaves employment with your company.  The specified time and geographic limitations must be “reasonable.”  What is “reasonable” varies depending on the industry and business practice area, so it is advisable to consult with an attorney when drafting a Non-Compete Clause or a Non-Compete Agreement. 

(2)  Non –Solicitation Clause or Non-Solicitation Agreement: A Non-Solicitation Clause in a contract for employment, or having an employee sign a Non-Solicitation Agreement (Contract) prevents an exiting employee from soliciting your other employees and/or customers for a period of time after he or she leaves your company.  This helps protect your business interests in retaining employees that you have invested time and resources to train, or customers who your business has developed a relationship with, It does so by prohibiting the exiting employee from attempting to entice other employees or customers to also leave your company. 

(3)  Confidentiality Clause or Confidentiality Agreement: A Confidentiality Clause in a contract for employment, or having an employee sign a Confidentiality Agreement (Contract) prevents a key employee from disclosing sensitive company information, such as customer lists and related information, company processes or operations, or trade secrets or future company strategies. 

When dealing with current employees, the question of whether an employer can require existing employees to sign Non-Compete Agreements or Non-Solicitation Agreements as a condition to continued employment has not been clearly answered by the Connecticut Courts.  It is often required that some form of valid “contractual consideration” be given to the employee in exchange for the employee signing the Non-Compete or Non-Solicitation Agreement. 

In many circumstances, requiring an existing employee to sign a Confidentiality Agreement as a condition to exposing them to confidential information within the office is an acceptable practice.  Again, it is advisable to consult an attorney to determine the legality of these Agreements and Clauses for your specific business in your specific business situation.

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Here’s the story of what happened that led to the legal dispute.

Mr. Blackwell (Buyer) and Mr. Mahmood (Seller) entered into a contract for the purchase and sale of real estate in Windsor. The sales price was $1,800,000.00. Mr. Blackwell gave a deposit of $40,000.00. Mr. Blackwell’s obligations under the contract were contingent on his ability to obtain a mortgage in the amount of $1,440,000.00. If Mr. Blackwell was unable to obtain a mortgage commitment in that amount within 30 days, he had an option to cancel the contract and get back his deposit. A provision such as this is typical in Connecticut real estate contracts.

To everyone’s surprise, the appraisal ordered by the Bank to which Mr. Blackwell applied for a mortgage set a value for the real estate of $1,220,000.00, considerably less than the contract price. In those circumstances, of course, the Bank would not approve a mortgage for $1,440,000.00.

Mr. Blackwell and Mr. Mahmood wanted to keep the deal together, if possible. Several written extensions and one oral extension of the mortgage commitment date were granted. Although the original contract was dated as of September 20, at the end of December the Buyer and Seller still were discussing ways of making the deal work. Mr. Mahmood was leaving for a trip out of the country and he and Mr. Blackwell agreed they would continue discussions at the end of January when Mr. Mahmood returned from his trip.

It was not until after Mr. Mahmood returned from his trip that the Buyer and Seller finally concluded the deal could not work. In early February, Mr. Blackwell formally notified Mr. Mahmood of this, in writing, and requested the return of his deposit. Mr. Mahmood refused to return the deposit. The reason he gave was that the written notice was sent later than 30 days after Mr. Blackwell had learned of his inability to obtain a mortgage. Mr. Mahmood maintained, therefore, that the deposit was forfeited as liquidated damages, all as specified in the contract.

Here’s what Mr. Blackwell did next.

Since Mr. Mahmood refused to return his deposit, Mr. Blackwell brought suit to recover his deposit. His Complaint alleged that the course of conduct between them estopped (legally prevented) Mr. Mahmood form insisting on strict compliance with the contract. After all, Mr. Blackwell said, we were continuing to talk about how to keep the deal together and I was waiting for Mr. Mahmood to return from his overseas trip, and he had encouraged me to wait. But, Mr. Blackwell did even more than that. In addition to that, however, Mr. Blackwell alleged that Mr. Mahmood’s failure to return the deposit constituted statutory theft pursuant to Section 52-564 of the Connecticut General Statutes. This significantly upped the ante because proof of statutory theft allows the trial court to award triple damages. Finally, Mr. Blackwell alleged that Mr. Mahmood’s failure to return the deposit violated the Connecticut Unfair Trade Practices Act, commonly referred to by the acronym CUTPA. This also significantly upped the ante because a violation of CUTPA allows the trial court to award the plaintiff attorney’s fees and punitive damages as well as monetary damages.

Here’s what happened at the trial.

The trial was to a single Judge, not to a jury. The Judge found in favor of Mr. Blackwell on all counts of his Complaint and awarded him a total amount of $136,930.41. That’s quite an award. Imagine this all could have been avoided if Mr. Mahmood simply had returned the deposit when requested.

Here’s what the Appellate Court said.

Not surprisingly, Mr. Mahmood was unhappy with the result at trial. He asked Connecticut’s Appellate Court to review the decision of the trial Judge. The Appellate Court did so and the Court’s decision was released on April 27, 2010. It can be found at 120 Conn. App. 690. The Court unanimously affirmed the trial Judge’s decision. In doing so, the Appellate Court followed a well established legal doctrine which says the decision of a trial court is to be set aside on appeal only if the decision “is clearly erroneous” either because it is legally incorrect or not supported by the evidence. The job of an Appellate Court is not to retry the case; rather, the job of the Appellate Court is to determine if the trial Judge’s decision is based on evidence presented at trial and is legally correct. Applying that standard, the decision of the trial judge was affirmed.

Analysis.

The result for Mr. Mahmood appears particularly harsh. As often is the case in legal disputes, the party who tells the more credible story usually wins. A corollary of that statement is that a party who appears not credible often pays a price. In this case the trial Judge said “Mahmood was not credible during this trial and in various documents that are either part of the file or are exhibits in this case.” It appears that this type of finding played a significant role in the trial Judge’s conclusion that Mr. Mahmood was liable for triple damages, attorney’s fees, and punitive damages, all in addition to the basic monetary damages of $40,000.00 (the amount of the deposit). Once he lost at trial, Mr. Mahmood faced an uphill battle at the Appellate Court. Since the trial Judge’s decision was based on the evidence and legally correct, the Appellate Court, following well established precedent, had no choice but to affirm the decision.

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The ever increasing use of social media by businesses and their employees offers businesses vast opportunities and benefits for growth, prosperity, and customer outreach, yet simultaneously exposes businesses to great risks. 

Risks can be presented when an employee uses social media to discuss your business’s activities and operations, your business’s other employees, or even you as an employer.  Risks can also be presented when an employee uses Social Media to discuss clients, potential clients, or current or potential business deals.  Consider the following:  

• Your employee is excited about a new client he or she is working on securing – can they Tweet about the client they might sign?
• Your employee is very upset that your office is not recycling newspapers – can he or she write a blog commenting on how environmentally un-friendly your business is?
• Your employee tweets: “@ServiceSam Crunch time! 1 hour left until big presentation but far from done.  My plan: wing-it and make stuff up as I go!

Your clients who follow Sam may not be too happy to hear your employees “wing-it” during presentations

• Your employee dislikes his or her co-worker or dislikes you as a boss – can he or she express these complaints on his or her Facebook profile?
• Can current employees use social media to recommend the work or employment of former employees?
• Your employee receives a new laptop from a network marketing program he or she participates in.  This program frequently sends the employee freebies and encourages the employee to blog, tweet, or post about the freebies.  Can the employee blog or tweet about this freebie on your business websites or blogs without mentioning that this is an “endorsement,” (as recommended by the FTC)? 

Despite these risks, social media can be an invaluable business and brand building tool if used properly.  A balance between the benefits and risks must be struck to carefully draft a Social Media Policy (or “Social Media Guidelines) that can minimize risks, can harmonize employees’ rights to freedom of speech with businesses’ rights to confidentiality and protection from employees posting about work related issues yet can concurrently preserve the positive uses of social media.  A Social Media Policy cannot impose so many restrictions that it paralyzes employees from communicating with the public and potential customers, or prevents employees from offering responsive customer service to current customers.  In many businesses, employees need access to social media just like they need access to phones and email.

Because the size, activities, and operations of every business are unique, your business’s Social Media Policy should reflect its unique characteristics in a way that optimizes the benefits of Social Media but sufficiently protects against the risks.  Additionally, your Social Media Policy should correspond with any other documents already signed by your employees, such as employment contracts, Non-Disclosure Agreements or Confidentiality Agreements, Internet Usage Policies, or Email Policies.  It is important to consult a knowledgeable attorney to discuss drafting a Social Media Policy that is right for your business. 

To get you started, here are some general topics to take into consideration when drafting a Social Media Policy or Social Media Guidelines:

• Define Social Media: Social Media includes any internet based media created and disseminated through social interaction.  Popular Social Media websites include Facebook, Twitter, MySpace, LinkedIn, and YouTube.  But Social Media doesn’t just end there; Social Media also encompasses personal and corporate blogs, interactive calendars, chats, and the like.
• Ensure that your Social Media Policy compliments and conforms to any existing employment contract, internet usage policy or email policy your business currently uses.
• Ensure that your Social Media Policy encompasses all stages of employment – from pre-employment to departure from employment.
• Consider including ways that encourage positive social media use or “social media training” to optimize employees’ use of social media.
• Inform employees as to the procedure you will follow when reacting to unfavorable social media postings or discussions. 
• Instruct employees that the misuse of social media can be grounds for discipline or termination.
• For some businesses, consider regulating employees’ access and use of only certain social media sites and forums for business related purposes.
• Consider regulating employees’ access and use of social media for business purposes or business and personal purposes during work hours. 
• Consider requiring employees with personal blog sites to post a disclaimer notification that the views expressed on his or her blog are those of the individual and not the business.
• Consider reinforcing the importance of employees submitting complaints to appropriate personnel rather than using social media to express dissatisfaction with the business.
• Instruct employees that they are not to use social media to discuss confidential or proprietary information.
• Instruct employees that they are not to use social media to discuss confidential or identifying information pertaining to clients.
• Instruct employees that they are not to use a business email address to register for social media sites or forums that they will access for purposes other than business.
• Instruct employees that they may not use social media to discuss false information about the business, its employees, customers, or affiliates.
• Instruct employees to use common sense and good judgment when using social media for business and personal purposes.
• Appoint someone within the business as the point of contact for overseeing the policy and answering questions regarding the policy.
• Write the policy/guidelines in plain English!  There is no need to complicate things; make the policy/guidelines easy to read and comprehend.  Use examples, when possible, but emphasize that examples are not comprehensive.  

For new businesses, Social Media Policies or Social Media Guidelines can be incorporated into Internet and Email Usage policies.  For existing companies with current internet and email usage policies, a separate Social Media Policy or separate Social Media Guidelines can be drafted and adopted by the business.

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Many people have the preconceived notion that when incorporating their newly formed business they will derive some benefit from forming their business under Delaware law rather than that of their own state. 

When it comes to incorporating, new business owners seem to think they know something others do not and want in on the mysterious benefits of incorporating in Delaware that only those “in-the-know” are aware of.  The truth is, that although incorporating in Delaware makes sense for large, publicly held corporations, it usually does not for the general partnerships, corporations, and limited liability companies that most business owners are establishing.  This is particularly so, since the smaller, privately held companies will primarily only be doing business in the state in which the owners, members or managers reside.   

A business-owner is not necessarily going to save any money in taxes by incorporating in Delaware.  For small businesses, it is likely your business makes money primarily from operations in the state in which you reside.  Therefore, you will pay your own state’s income taxes on this income.

Furthermore, while it is true that Delaware generally has lower incorporation fees, there are other fees associated with incorporating in Delaware if you don’t actually plan on doing business there.  Businesses must qualify to operate and do business in your state in addition to incorporating in Delaware. This prolongs the process and creates additional costs by having to file papers to operate as a “foreign” corporation in your home state.  Companies incorporated in Delaware and doing business elsewhere must also appoint a corporate agent to receive official notices in Delaware.  Though many companies and services operate as these corporate agents it does add additional cost.  There are also additional expenses each year regarding tax returns and filings.

There are times when incorporation in a state other than your own can make sense.  This is particularly so if you plan to expand rapidly into other states, take the company public or are looking to investors for capital outside of your home state.  In those instances it may be beneficial, and many attorneys or accountants will recommend either Delaware or Nevada. 

The advantages of incorporation in Delaware are that there are: lower incorporation and LLC formation fees; no state corporate income tax for companies operating outside Delaware; no minimum capital required for incorporation; one individual can hold all the corporate offices; shares owned by Delaware non-residents are not subject to Delaware personal income tax or inheritance tax; lower franchise fees; and the names of the initial directors need not appear in the public records.  Delaware also has a greater scope of corporate-themed legal authority should litigation arise involving your business. 

Nevada is another state known to have similar benefits to Delaware, such as: no state tax on corporate profits; stockholders do not have to appear on the public records; there is no state personal income tax; and there are no state franchise taxes.  However, as with Delaware and most other states, companies formed in Nevada will have to pay fees and register in the state(s) in which it is intended that the company operate.  Additionally, filing fees in Nevada are generally higher than in other states. 

The best recommendation for smaller partnerships, limited liability companies or corporations primarily doing business in the state in which the owners, members or managers reside is to incorporate in the same state where the business operations take place; your home state.  If you plan on significant rapid expansion into other states or are looking to find investors that wish to be anonymous it may make sense to look to incorporation outside your home state.

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What is a Buy-Sell Agreement?

A Buy-Sell Agreement (also known as a Buyout Agreement) is a binding contract between two or more owners of a business that sets forth what will happen if one of the owners dies, chooses to leave the business, or is forced to leave the business due to external circumstances.  A Buy-Sell Agreement can be a separate document or can be several legally binding clauses incorporated into an operating agreement or business partnership agreement.  The document, or clauses, set forth what will happen during various contingencies, such as:

• What events will trigger a buyout?  Common events that trigger a buyout include death, disability, retirement, or owner leaving the company willingly or unwillingly).

• Who can buy an exiting owner’s share of the business? Only current partners/shareholders, or outsiders?

• How will business determine the value and buyout price of the exiting business owner’s interest?

When should I enter into a Buy-Sell Agreement?

People usually enter into business ventures with people they like, who they get along with, and who share their long term business goals; no one ever enters into a business agreement intending for things to go sour. 

However, just like a pre-nuptial agreement guides the divorce when marriage ends, a Buy-Sell Agreement guides the buy-out of an exiting partner when the business partnership ends.  Even though the business venture may be entered into with the best of intentions by all partners, it is best to execute a Buy-Sell Agreement at the inception of the business venture.  

Even if you do not foresee a “business divorce” in the future, a Buy-Sell Agreement is an important contract to have because it also acts as a “business will.” 

• If a business partner suddenly dies, could his or her spouse or other family member become a business partner? Would you want to be business partners with his or her spouse or other family member? 

• What if the spouse or family member of the deceased partner does not want to operate the business with you, and demands a payout of the deceased partner’s share?  How should his or her share be valued and paid? 

• What monies, insurance or other funds will be used to pay the deceased partner’s share?

A Buy-Sell Agreement allows you and your business partners to address these questions and others in advance and set forth a plan of action as to how various contingencies will be handled.  If you are currently in business with a partner or partners, and do not have a Buy-Sell Agreement, it is advisable to execute such an Agreement.  

It is advisable to consult an attorney to discuss the various issues that should be addressed in your specific Buy-Sell Agreement to be sure the contract is tailored to your specific business partnership venture.

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