Business Law

The litigation, arbitration, mediation consideration

Matt McKinney is an attorney at BrownWinick Attorneys at Law PGP_1038

Determining how to resolve a business dispute is an important consideration for any business. For instance, will the business litigate the dispute in open court, before a judge at the local courthouse? Or, will the business prefer to resolve its dispute through alternative dispute resolution (ADR), behind closed doors, before a carefully selected arbitrator or mediator?

The answers to these and other questions can substantially impact the outcome of the dispute, including the cost, confidentiality, and time required to resolve the dispute. ADR provides businesses with various options for resolving disputes.

What is mediation? In general, mediation is a private, non-binding form of dispute resolution. A mediator presides over a mediation proceeding and works to resolve the parties’ dispute by building towards a mutually agreeable outcome. Generally, a mediator will build towards a mutually agreeable outcome by engaging in what is commonly referred to as shuttle diplomacy.

What is arbitration? Arbitration is a second form of dispute resolution that, depending upon the existence of a possible agreement, can either be binding or non-binding. In arbitration, and similar to litigation, parties present their case to an independent third-party. The third-party is referred to as the arbitrator, or in some circumstances, a panel of arbitrators. An arbitrator or panel of arbitrators will hear the case, consider the law, and ultimately render a judgment, much like a judge.

While ADR has several advantages, it is not without disadvantages as well.  In short, businesses and individuals should carefully evaluate all options before setting down the dispute resolution path.

New legislative session begins Monday

Matt McKinney is an attorney at BrownWinick Attorneys at Law   PGP_1038

With the holidays in the rear-view mirror and 2015 upon us, policymakers from around the state are making their journey to the capitol city where they will soon kickoff the 2015 legislative session.

The 2015 session will bring many familiar, as well as new, faces to the floor of both the Iowa House of Representatives and Iowa Senate. And regardless of your industry or business' size, it is very likely that legislation introduced in the coming weeks and months will affect, and perhaps significantly change, your business.  As a result, here's a quick who, what, when and where on Iowa's upcoming legislative session:

Who:  100 state representatives (Republican majority); 50 state senators (Democrat majority) (find your legislators here); 1 governor (Republican).

What:  150 legislators will convene on Capitol Hill to introduce and address hundreds, and likely thousands, of individual legislative bills that will impact Iowans and their businesses.  And while the range of issues will undoubtedly be vast and the specifics of forthcoming legislation largely unknown, you can count on issues that directly impact your business to be discussed, possibly debated, and perhaps even changed. Currently, anyone may access pre-filed legislation on the Iowa Legislature's website - a small glimpse of many issues to come.  

When:  The 86th General Assembly will commence on Monday, Jan. 12.  The session does not have a "hard stop" or "end" date, but considering the legislators' per diem ends 110 days later, on May 1, 2015, you can imagine they will keep a close eye on May Day.  Today, many political pundits anticipate extended debate over budget items given recent revenue forecasts, which may push the 2015 session well beyond May Day.  

Where:  The Iowa Capitol, 1007 East Grand Ave., Des Moines, Iowa 50309.

Follow these posts for future highlights on a few 2015 legislative matters that will impact Iowa businesses.

Your business’s year-end, legal checklist

Matt McKinney is an attorney at BrownWinick Attorneys at Law  PGP_1038

From reassessing your business insurance policies, to reviewing your employee handbook and updating permits and licenses, the holiday season can serve as an annual reminder to prepare your organization for the new year. The list below could easily double or triple in length, but these three items capture fundamental business law issues that many organizations face.

Incorporate or change your business’s legal structure.  Whether you run a startup and hope to seek venture capital in 2015 or you are a partner in a partnership seeking greater liability protection, now is a great time to reassess your business’s legal structure to ensure it will meet your needs and expectations in 2015. A proper legal structure can not only help alleviate many liability concerns, but it can substantially impact tax consequences and help attract savvy employees and future investors. 

Secure authority to transact business in another state.  If business is booming or you are otherwise expanding in 2015 to transact business across state lines, ring in the new year on the right legal foot by securing a Certificate of Authority (if the new state’s law requires).  Some states, like Iowa, require certain out-of-state businesses to obtain a Certificate of Authority before transacting business in the state. Failing to obtain such approval may result in hefty fines and other legal ramifications. The ease and minimal cost of securing such a Certificate, if required, makes this item easy to checkoff your legal list.

Comply with corporate formalities.  Whether you overlooked holding an annual meeting for your corporation or failed to file a biennial report for your limited liability company, keep your business in good standing with the state and the law by complying with corporate formalities by year end.  Following corporate formalities may seem trivial, but doing so can help avoid significant legal headaches down the road.

Intellectual Property 101 (patents, copyrights and trademarks... Oh my!)

Matt McKinney is an attorney at BrownWinick Attorneys at Law



Intellectual property is a term that is commonly and loosely thrown around in the business world, but what does it mean?  The Meriam-Webster dictionary defines intellectual property as "something (such as an idea, invention, or process) that comes from a person's mind."

In a court of law, intellectual property often refers to patents, copyrights, and trademarks.  In addition to the "Big 3," intellectual property also encompasses trade-secrets (discussed here) and publicity rights.

Patents, Copyrights, and Trademarks

Generally speaking, patent rights protect new, unique, and non-obvious product and process inventions.  Copyrights on the other hand can protect original works of authorship, such as literary, musical, and artistic work (e.g. sound recordings, photographs, motion pictures, and architectural works).  Finally, trademark rights can protect words, names, and symbols used to identify a business' goods or services and distinguish them from those of another.

Businesses frequently create and protect their intellectual property rights in many ways.  For instance, businesses often seek a registered trademark through the United States Patent and Trademark Office (USPTO), triggering and/or enhancing protection for the mark.  Similarly, a business can seek patent rights in qualifying products or processes through the USPTO.

If you or your business is seeking to create and/or enhance protection in intellectual property that you own, control, or are developing, you should consider consulting a licensed attorney.

Showing shareholders the money in Iowa corporations

Matt McKinney is an attorney at BrownWinick Law Firm.


As a shareholder in a small business, family business, or other Iowa corporation, you may ask yourself: what kind of financial information is my corporation required to provide me?  Thankfully, Iowa law on this topic is relatively straightforward.  Iowa law requires Iowa corporations to provide certain financial information to their shareholders.

In particular, Iowa Code Section 490.1620 mandates that Iowa corporations provide their shareholders with “annual financial statements.”  As you may suspect, “annual financial statements” should include a balance sheet, an income statement, and a statement of changes in shareholder equity, if any. Further, if financial statements are prepared for the corporation on the basis of generally accepted accounting principles (GAAP), the annual financial statements provided to shareholders must also be prepared on that basis.

If you have questions about your corporation's compliance with these requirements, you should consider contacting a licensed attorney.  

Can I force my Iowa corporation to buy my stock?

Matt McKinney is an attorney at BrownWinick Attorneys at Law

PGP_1038Minority shareholders seeking to exit an Iowa corporation frequently ask, “can I force my closely-held Iowa corporation to purchase my stock.” A great question, but one that is frequently met with a variety of answers. On January 21, 2014, the Delaware Supreme Court published an opinion on this very topic. And while the case applies Delaware law (not Iowa law) and each case is factually unique, the opinion illustrates how other courts, including Iowa courts, may decide a similar case involving a shareholder seeking to force their corporation to purchase stock. The FULL OPINION can be read here.

In short, the Delaware Supreme Court applied Delaware law and held that “[u]nder common law, directors of a closely held corporation have no general fiduciary duty to repurchase the stock of a minority stockholder.” The court went on to find, “[a]n investor must rely on contractual protections if liquidity is a matter of concern … [the shareholder] has no inherent right to sell her stock to the company at ‘full value,’ or any other price. It follows that she has no right to insist on the formation of an independent board committee to negotiate with her.” Upon concluding that Delaware common law did not permit the shareholder to force the company to purchase her stock, the court turned to the corporation’s governing documents, and in particular a shareholder agreement. The court opined:

[t]he Shareholders’ Agreement provides the only protection available to [the shareholder] … But the relevant provision, Paragraph 7(d), gives the stockholder and the company discretion as to whether to engage in a transaction, and as to the price. It does not impose any affirmative duty on either party to consider or negotiate any repurchase proposal.

Clearly, if the corporation’s governing documents contained additional language concerning a mandatory obligation to purchase stock from shareholders, the case would likely have turned out different.

Interestingly, the court did not address the merits of the shareholder’s derivative claim against the directors for breach of the duty of loyalty. The shareholder alleged the directors harmed the corporation and breached their duty of loyalty to the corporation by not “faithfully” considering an investment opportunity (i.e. purchasing her stock). She further alleged they did not consider the investment opportunity because they were concerned about “preserving their personal tax planning interests.” As stated, the court did not consider the merits of this intriguing claim. The court reasoned it did not need to consider the merits because the shareholder failed to make a required derivative demand and otherwise properly plead the claim. Consequently, the merits of proceeding upon such a claim based upon the case facts are still uncertain and warrant consideration.

If you or someone you know are interested in learning more about how you can exit your Iowa corporation, you should consider contacting a licensed attorney.

Hack Attack - New Iowa Law Governing Data Security Breaches

Matthew McKinneyMatt McKinney is an attorney at BrownWinick Attorneys at Law

From Iowa State University and P.F. Chang's to your town's smallest businesses, hackers are indiscriminate when it comes to attacking computers and networks to access and obtain sensitive consumer data.

Against this very alarming and real backdrop, it is important for businesses of all shapes and sizes to not only take steps to proactively protect consumer data, but also understand the legal requirements and ramifications if they do not act timely and properly following a data security breach.  

On April 3, 2014, Iowa Governor Terry Branstad signed into law a new breach notification requirement (amending a prior law) that includes a provision requiring businesses to not only timely notify consumers whose data was accessed as part of a security breach, but it also requires businesses to notify the Iowa Attorney General's office when just 500 or more Iowa residents are impacted by the security breach. Of particular note, failure to comply with Iowa's new breach notification requirement can result in significant monetary and non-monetary penalties being levied against the business.  Considering how often these breaches occur, the indiscriminate nature of the attacks, as well as the relatively low threshold under Iowa's new law to trigger legal requirements and liability, it's not surprising that many savvy businesses (large and small) are now consider policies, procedures, or protocols for how to handle their affairs if they suddenly learn they suffered a hack attack. 

In short, while taking steps to protect and prepare yourself in advance of a data security breach is critical, it is just as important - if not more so - that following a data security breach your business promptly takes proper steps, including seeking trusted technical and legal advice, to determine the scope of a breach and what, if any, additional action your business must legally take.  If you have any questions regarding the issues outlined above you should contact a licensed attorney or certified security adviser.

Clearing the first legal hurdle as an Iowa entrepreneur: whether to incorporate or not

Matt McKinney is an attorney at BrownWinick Attorneys at Law 6a00d83452ceb069e201a511ab4641970c-500wi

Entrepreneurs and small business owners across Iowa encounter countless obstacles as they dash out of the starting gate to pursue their business dreams. And regardless of how much they've "trained," one of the first obstacles they are likely to encounter is the sometimes dreaded legal hurdle of whether to form a formal legal entity, such as a limited liability company ("L.L.C."), or proceed in a less formal manner as a sole proprietor or partner in a partnership. Thankfully, this first, of sometimes many legal hurdles, is realtively straightforward, easy to clear, and generally inexpensive to overcome. This post briefly identifies some of the common advantages and disadvantages of operating a small business in Iowa as a sole proprietor.

Sole Proprietorship

A sole proprietorship is often referred to as one of the easiest and simplest business structures to create and operate. Sole proprietorships are run by one person and generally there is no "legal distinction" between the business and the individual owner. As depicted in the infograph below, some of the advantages include:

1.  Sole proprietorships are very easy and inexpensive to create. Indeed, unlike a limited liability company (L.L.C.) or a corporation (Inc.), a sole proprietor is not required to pay fees to the State of Iowa for filing articles of incorporation, certificates of organization, or biannual reports;

2.  A sole proprietor exercises complete control over the business and does not answer to other owners, such as shareholders in a corporation or partners in a partnership; and

3.  A sole proprietorship generally has one of the lowest tax rates of all business forms and is not required to follow corporate formalities.

While conducting business as a sole proprietor certainly has advantages, many drawbacks exist that, for some, far outweigh the advantages. Some disadvantages include:

1.  Sole proprietors are personally liable for business debts and obligations, including any liabilities arising from a lawsuit involving the business. As a result, if the "business" is assessed a fine or has a judgment entered against it, that fine, judgement, or other monetary obligation is, in reality, an obligation the sole proprietor may be required to pay out of personal funds;

2.  Sole proprietors find it difficult to raise capital (i.e. funds from investors) because, as referenced above, there is generally no distinction between the business and the individual - a blurred structure that investors shy away from; and

3.  A sole proprietorship has a "limited life" as it ceases to exist when the sole proprietor dies. In other words, unlike corporations where the corporation will long survive the death of its founders, a sole proprietorship ceases to exist the moment its founder dies. This issue is frequently a consideration for succession, estate, and retirement planning.

If you are an entrepreneur considering starting a new Iowa business or are currently running a sole proprietorship and are looking to avoid personal liability, evade the problem of "limited life," or hope to seek investor money someday, you should consider lacing up your shoes and taking a short run down to your licensed attorney's office to explore alternative business forms.

image from
Image Credit:


To read more about forming an Iowa limited liabilty company, check out this post (CLICK HERE).

Legal Disclaimer and Terms of Use

The information on this website does not constitute legal advice and readers should not rely on it to solve problems or other matters.  Further, you should seek licensed counsel in the appropriate legal jurisdiction before taking any action.

The who, what, when, where, and why of fiduciary duties in small businesses

Matt McKinney is an attorney at BrownWinick Attorneys at LawMatt McKinney

What is a fiduciary duty?

A fiduciary duty is often regarded as the highest duty recognized by the law. In simplistic terms, a person charged with exercising fiduciary duties (commonly referred to as a fiduciary) must discharge their duties with the utmost good faith, care, and the finest loyalty.

More specifically, the term “fiduciary duty” is often used as an umbrella term describing a number of duties that are collectively referred to as fiduciary duties.  For example, “fiduciary duties” frequently encompass duties such as (1) the duty of care - generally to act with diligence and with the care an ordinarily prudent person in a like position would exercise; (2) the duty of informed judgment - the process of gaining sufficient familiarity with the background facts and circumstances to make an informed judgment before acting; (3) the duty of disclosure - commonly interpreted as a duty to disclose certain information to shareholders or members; including, conflicts of interest; (4) the duty of confidentiality - to protect confidential and non-public information; and (5) the duty of loyalty - customarily meaning to act in the best interests of the corporation, company, partnership, etc...

Who is charged with exercising fiduciary duties?

Generally speaking, persons who exercise control over a corporation, company, partnership or similar entity are held to this higher, fiduciary duty standard. Therefore, and not surprisingly, directors and officers of corporations, who by their very nature exercise control over a corporation, are held to this higher, fiduciary duty standard. Importantly, however, directors and officers are not the only persons held to this higher standard.  In fact, in addition to directors and officers, majority shareholders are also often held to this higher, fiduciary duty standard.  Consequently, even if you do not serve as a director or officer of a corporation, be alert, because if you hold an interest in the business, you may nonetheless be held to this higher, fiduciary duty standard.

Business owners in different business entities are also held to this higher, fiduciary duty standard. For example, partners in both general and limited partnerships are ordinarily required to discharge their duties in a fiduciary manner. And, depending upon applicable laws in different states, members and managers in limited liability companies (LLCs) may also be required to discharge their duties in a fiduciary manner.

When do fiduciary duties apply?

Principally, fiduciary duties apply when a fiduciary takes action or declines to take action that relates to or that could otherwise effect the business entity; including, potential business opportunities not yet realized.

Fiduciary duties are generally not extinguished until the fiduciary is relieved or removed from the position that created the fiduciary duties to begin with. It is important to note, however, that in many jurisdictions fiduciary duties can extend beyond the point in time in which a person is relieved from their position within the business entity.

Where do fiduciary duties come from?

Fiduciary duties were developed through the common law - a body of law originally developed in England and later shaped by our courts. Today, fiduciary duties arise from both the common law and state statutes. For example, the Code of Iowa imposes statutory standards of conduct upon officers and directors in Iowa corporations. As explained above and setforth within Iowa Code Section 490.830, the Iowa Code generally requires directors to act in good faith and in the best interest of the corporation. These statutes often form the basis of a claim or defense for breach of fiduciary duty.

Why do you need to be aware of these fiduciary duties?

Whether you know it or not, if you are a part of a business entity (as a director, officer, member, manager, partner, or majority shareholder) you will likely be held to this higher standard when taking action with or relating to the business entity. Failure to comply with fiduciary duties can result in liability to both the business entity and you.  In fact, failing to fulfill fiduciary duties can be considered oppressive conduct, which can result in the dissolution (termination) of the business entity.

It is important to note that this article serves as an introduction to a legal concept and that fiduciary duties can and do differ from state to state and entity to entity. If you have questions or concerns regarding fiduciary duties, you should consider contacting a licensed attorney.  

For additional reading on the topic of fiduciary duties, visit the following links:

Care, or Beware! Iowa’s Fiduciary Duty of Care

A Deeper Dive into a Director’s Duty to Become Informed

A Director’s Duty to Remain Silent

Oppression, Breach of Fiduciary Duties, Freeze Out, and Judicial Dissolution – An Iowa Court of Appeals 2011 Analysis

It's Tax Day and a New Iowa Law Will Govern Shareholder Access to Corporate Financial Records


Matt McKinney is an attorney at BrownWinick Attorneys at Law.

Given that this post is being published on tax day, I thought it would be fitting to dicsuss new legislation signed into law just days ago that changes how shareholders in Iowa corporations receive and access corporate financial recrods. On March 26, Iowa Governor, Terry Branstad, signed a new bill (Senate File 2200) into law that modifies the manner in which Iowa corporations are required to provide financial information to their shareholders.

Previous Iowa law required most Iowa corporations to deliver certain financial information to their shareholders within 120 days of the corporation's fiscal year end.

Such information inlcluded providing shareholders with a balance sheet, an income statement, and a statement of changes in shareholders’ equity. The new Iowa law provides that many Iowa corporations, including those with less than 100 shareholders, are no longer required to deliver financial statements to shareholders if they meet certain minimum standards. Additionally and in an apparent effort to further modernize Iowa's corporate laws and save a few trees, Iowa's new law permits certain Iowa corporations to comply with the new financial notice requirements by making financial statements accessable to shareholders via the internet.  

To read the full text of Iowa's new law, including a redlined verion of Iowa's prior law on the topic click here. Further, if you are curious and interested in learning about all new legislation signed into law thus far during the 2014 legislative session, click here.

The future face of litigation in Iowa

Matt McKinney is an attorney at BrownWinick Attorneys at Law.

Consistent with the “Rule of Threes,” litigation, including business litigation, may soon undergo further changes in Iowa. The first change, which is largely rolled out across the state, enables litigants to access important case documents and submit legal filings with the court online, twenty-four hours a day, seven days a week. Second, litigants in Iowa’s most populous county, Polk, will soon “enjoy” litigating their cases in a new courthouse. And third, if the Iowa Supreme Court’s recently proposed rules are adopted, civil litigants (citizens and businesses alike) could soon find themselves sailing through the litigation process more quickly and at a lower cost.

More than 3,000,000 Iowans, but only 204 Civil Jury Trials in 2012

Statistics clearly show that Iowan’s are utilizing Iowa’s court system less and less. In fact, in just 10 years, civil cases tried to an Iowa jury dropped a staggering 63%. Indeed, in 2012, only 204 civil cases were tried to a jury. Many attorneys and legal commentators attribute the dramatic decline to the rising costs - both time and money - in litigating a case to trial. A 10-year snapshot of Iowa jury trials plainly depicts the drastic downward trend.  

Screen Shot 2014-03-13 at 11.32.39 AM

To address this significant slide, the Iowa Supreme Court established a Civil Justice Reform Task Force. The Task Force was charged with diagnosing weaknesses and prescribing improvements to Iowa’s civil justice system. More than four years and hours of work later, the Iowa Supreme Court incorporated the Task Force’s findings into two (2) proposed rules. As summarized briefly below, both rules aim to reduce costs and delays while simultaneously providing Iowan’s greater access to courts. Our Supreme Court promulgated the draft rules in late 2013 and is currently seeking comments from the public (the comment period closes March 17, 2014).

 First Rule - Expedited Civil Actions

The first proposed rule, titled “Expedited Civil Actions,” contains provisions that allows litigants seeking limited damages (generally $75,000 or less) to try their case in an expedited fashion. Specifically, the rule states cases must be tried within one year or less. Comparatively, today’s litigants often wait two or more years to try their case. To meet this accelerated timeframe, the rule contemplates several changes. For instance, the rule requires parties to voluntarily and timely disclose information to opponents. Currently, parties are not required to voluntarily disclose most information to their opponents. Further, the rule places significant constraints on the discovery a party may conduct by limiting the number of depositions, requests for production, and interrogatories a party may use. Lastly, the rule incorporates a six-hour trial limit and requires cases be submitted to a judge or jury in two business days or less (a far cry from the weeks of trial time that currently drag on in many civil cases).

To read the full text of this First Rule, including additional requirements, click here:

Second Rule - Discovery Amendments

The second rule, titled “Proposed Discovery Amendments,” contains broader reforms that would apply to most lawsuits filed in Iowa, including the expedited actions referenced above. Similar to the first rule, the second focuses on streamlining litigation by providing litigants and the court with a new “toolkit.” One of the new tools requires parties to promptly participate in mandatory conferences within two (2) weeks of first responding to a lawsuit. The mandatory meeting will facilitate early discussions between parties, including perhaps settlement discussions, and spur the parties to drive the litigation forward.  Additionally, the rule requires parties to voluntarily and in a timely manner turn over key information to opponents - yet another acceleration tool that is not available today. Finally, the rule imposes heightened obligations upon parties to fairly respond to discovery and timely resolve discovery disputes without involving the court. This latter tool addresses what many attorneys believe is the greatest cause of delay and cost in litigation.

To read the full text of this Second Rule, including additional requirements, click here:

As referenced above, the Iowa Supreme Court is seeking public comment on these proposed rules. Comments must be submitted prior to March 17, 2014 at 4:30 p.m.  According to this Supreme Court Order (link), comments may be submitted by emailing them to The email must state “Discovery Rules” or “Expedited Civil Action” in the subject line of the email and the comments must be sent as an attachment to the email in Microsoft Word format. Comments may also be delivered in person or mailed to the Clerk of the Supreme Court, Judicial Branch Building, 1111 East Court Avenue, Des Moines, Iowa, 50319.

For more information on these or other rules, please consider contacting a licensed attorney.

A director's call of duty

Matt McKinney is an attorney at BrownWinick Attorneys at Law.

You may serve as a director on the board for a for-profit business, a nonprofit charity, or even a homeowners’ association, and whether you know it or not, Iowa law likely imposes upon you one the highest duties under the law: a Fiduciary Duty. While a fiduciary obligation is certainly not the most exciting topic in the business or legal world, it often tops the list as one of the most important. So what does this often-referenced but frequently misunderstood duty require of you and your fellow directors? To paraphrase the wise Supreme Court Justice Felix Frankfurter, one’s status as a fiduciary only begins the inquiry.

To fully answer the important inquiry, this post could go on ad nauseam cataloging fiduciary requirements imposed upon directors, but rather than lulling you to sleep with a dissertation, we’ll simply touch on a few high points.  A logical starting point is where Iowa’s legislature left off when it codified the concept of fiduciary duties in the Iowa Code. Pursuant to black-letter Iowa law (Iowa Code Section 490.830), each board member must abide by the following requirements when acting on behalf of the entity they serve: (1) they must act in good faith; and (2) in a manner the director reasonably believes to be in the best interests of the corporation. Additionally, when becoming informed in connection with the director's decision-making function or devoting attention to the director's oversight function, the director must discharge  his/her duties with “the care that a person in a like position would reasonably believe appropriate under similar circumstances.”  Id

The words above, while straightforward and upon first blush appear very clear, result in countless lawsuits against directors for allegedly breaching their fiduciary duty.  

Given the large volume of lawsuits on the matter, it’s not surprising that Iowa’s courts frequently interpret and apply the requirements above. In so doing, our courts have provided further direction as to fiduciary duty requirements in Iowa. For instance, in one often-cited case, Iowa’s Supreme Court boiled down the concept to two main duties, “consisting both of a duty of care and a duty of loyalty.” Cookies Food Products, Inc., by Rowedder v. Lakes Warehouse Distrib., Inc., 430 N.W.2d 447, 451 (Iowa 1988) (emphasis added). Iowa’s high court continued, opining “[t]he duty of care requires each director to ‘perform the duties of a director ... in good faith, in a manner such director reasonably believes to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances.” Id. (internal citations omitted). 

With respect to the duty of loyalty, Iowa’s court stated “[t]hat duty derives from the prohibition against self-dealing that inheres in the fiduciary relationship …  As a fiduciary, one may not secure for oneself a business opportunity that “in fairness belongs to the corporation.”  Id. (internal citations omitted). Failure to abide by these legal duties (e.g. failing to act in good faith, failing to become properly informed before making decisions, failing to exercise proper oversight, engaging in self-dealing) may not only result in damages to your organization, but may also result in personal liability (read, you are sued individually). 

In short, as a director in an organization (for-profit and non-profit alike) it is imperative to understand the duties that Iowa law imposes upon you. The foregoing is but just a glimpse into some of the requirements imposed upon directors in Iowa. For a more detailed explanation about fiduciary duties, consider checking out the following links:

Link:  Care, or Beware!  Iowa's Fiduciary Duty of Care

Link:  The Who, What, When, Where, and Why of Fiduciary Duties in Small Businesses and Corporations.


2014 Iowa Court of Appeals case addressing personal liability in an LLC


Matt McKinney is an attorney at BrownWinick Attorneys at Law.

On January 9, 2014, the Iowa Court of Appeals published its opinion in Northeast Iowa CO-OP., n/k/a Viafield v. Joel Lindaman et al., No. 3-1058 / 13-0297 January 9, 2014 (Full Opinion Here), an opinion addressing member liability in an Iowa limited liability company (“LLC”).

While the opinion addresses several legal issues, of particular note is a portion of the opinion that covers whether the plaintiff, Viafield, could pierce an LLC’s corporate veil and hold the defendant LLC member, Mr. Joel Lindaman ("Lindaman"), personally liable for the LLC’s debts.

At the trial court level, Viafield requested the Bremer County District Court disregard the LLC's corporate structure and hold the individual defendant, Lindaman, personally liable for the company's debts. The district court, however, rejected Viafield's argument and refused to pierce the LLC's corporate veil and hold Lindaman personally liable. On appeal and before assessing Viafield’s legal theories, the Iowa Court of Appeals acknowledged an LLC’s corporate veil (i.e. shield of personal liability protection) may be pierced in Iowa upon establishing one of six different factors:

Iowa courts may disregard a corporation’s existence if (1) it is undercapitalized, (2) it is without separate books, (3) its finances are not separated from individual finances, (4) it pays an individual’s obligations, (5) it is used to promote fraud or illegality, or (6) it is merely a sham.

Viafield, p. 17 (internal citations omitted).  

One of Viafield’s many arguments for piercing the LLC’s veil and holding Lindaman personally liable was that the LLC “did not hold meetings and no minutes exist.”  Viafield, p. 18.  Citing black letter Iowa law, the Iowa Court of Appeals recognized that under the facts of the case, the LLC’s failure to hold meetings and lack of corporate minutes did not require the court to pierce the LLC’s veil of protection and impose personal liability upon Lindaman for the LLC’s debts:  

Because the statute [Iowa Code Section 489.304(2)] specifically provides the failure to 'observe any particular formalities is not a ground for imposing liability on the members' for company debts, we are not persuaded [to pierce the corporate veil]. 

Id.  As evidenced by the excerpt above, despite the LLC’s failure to hold regular meetings and despite its failure to keep corporate minutes, the Iowa Court of Appeals refused to pierce the LLC’s veil and hold Lindaman personally liable for the LLC’s debts. It is important to note that this opinion only addresses Iowa law relating to LLCs, not corporations, and that each case is factually unique.

To learn more about piercing the corporate veil and personal liability protections afforded under Iowa law, see the business law articles linked below:

(1)  As an Owner, am I Liable for the Debts of my Iowa Limited Liability Company?

(2)  Holding A Corporation's Owners Personally Liable - Piercing the Corporate Veil in an Iowa Corporation.

(3)  Are Shareholders in Small Family Businesses Personally Liable for Business Debts and Liabilities? 

Shhh... Can your business keep a trade secret?


Matt McKinney is an attorney at BrownWinick Attorneys at Law.

It's no secret that trade secrets are often invaluable to Iowa businesses. Without adequate safeguards, however, your trade secret's protectable status, value, and the business it supports may cease to exist. Indeed, whether information (a formula, technique, process, customer list, etc.) qualifies as a trade secret under Iowa law, and thus receives legal protection, may hinge upon whether and how your business guards the secrecy of its valuable trade secret.  

One of the most iconic and frequently cited examples of a trade secret is the authentic Coca-Cola formula. Playing on the secrecy of their formula and the extremes to which they guard their valuable trade secret, Coca-Cola released this advertisement:


With the foregoing in mind, businesses and business owners often inquire whether their valuable information will receive legal protection as a trade secret in Iowa. In November 2010, the Iowa Court of Appeals published an opinion (Full Opinion Here) identifying six different factors a court may consider when determining whether information qualifies as a trade secret in Iowa. The six factors the Iowa court cited are: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. As may be gathered from these factors, generally speaking, the more secret and valuable the information, the more likely it will receive protection under Iowa law.

So, in coming full circle, can your business keep a trade secret? To read more about trade secrets in Iowa, including the type of information (such as a formula, process, list, data, technique, etc.) that may qualify as a protectable trade secret, click Here.

Get to know Matt McKinney

Matt McKinney Iowa Attorney

Matt McKinney is an attorney at BrownWinick Attorneys at Law. This is his first post for IowaBiz.

My name is Matt McKinney. I am a trial attorney and government relations consultant that counsels business owners and entrepreneurs on how to protect their rights, navigate Iowa’s court system, and when necessary, traverse Iowa’s political theater.

Through future blog posts, my goal is to provide Iowa entrepreneurs and business owners with a unique perspective and insight into Iowa business law. From describing basic legal concepts that affect Iowa businesses to analyzing new business law cases and alerting readers to upcoming legislative changes, I hope to provide valuable content to our local business community. 

By way of background, I am a native Iowan that grew up on a family farm just outside of Booneville, Iowa. I dedicated four years at the University of Iowa to studying political science and entrepreneurship and immersed myself in the law at Creighton University School of Law, graduating cum laude. Following graduate school, I served as a prosecutor in Des Moines where I cut my teeth trying misdemeanor and felony cases with the Polk County Attorney’s Office. 

I was then called to the desert southwest where I litigated, almost exclusively, lawsuits on behalf of Arizona businesses, shareholders, officers and directors.  In 2010, my wife and I returned home to West Des Moines where I joined BrownWinick, a full-service law firm located downtown Des Moines.  

Outside of the office, I enjoy hitting the links, staying up on the latest technologies, and pawing around with our French Bulldog, "Judge."   

Should you have any questions, comments, or rotten tomatoes to throw my way, you can find me on BrownWinick’s website, or read more on my business law blog,


Phone:  515-242-2468


Law Firm Website


Your "Corporate Counsel": Part 1- Finding the one

Large companies reach a benchmark at which the company adds a full-time lawyer. But should you have an attorney before you get “big?" If so, how do you find that attorney? This blog addresses finding the best attorney for your business. My next blogs address:

  • Responsibilities of your business attorney before start up?
  • Responsibilities of your business attorney on an ongoing basis?
  • How to determine if your attorney is still the best for your business?

If you do not think that you need an attorney, talk to a successful CEO in a similar field. Ask that CEO if the business has an attorney and what that attorney does. If you believe that you need an attorney, the following steps may lead you to the right attorney for your business:

1.)    Look for firms or attorneys who represent similar businesses. Years ago, I represented a friend’s bar. When I walked in, the bartender would introduce me as the “bar lawyer.” The mixed compliment aside, within two years I obtained four bars as clients. I got to know the system and my clients benefited from this knowledge. I have a friend who is a “babysitter lawyer.” She knows exactly what it takes to set up a child care facility and keep it moving. Attorneys who represent multiple restaurants understand the compliance and HR issues that are unique to food service. Attorneys who represent multiple ag producers know environmental law and the changing legal landscape facing farmers. Attorneys who represent multiple cosmetologists are familiar with the applicable Iowa regulations. 

2.)    Get an opinion from your tax advisor. You want your "trusted advisors" to work well together.

3.)    Interview at least two attorneys. You would not hire a receptionist without an interview? You want a lawyer who is with your business for the long haul.

When interviewing a potential attorney, look for someone who is genuinely interested in what you do and wants to help you reach your objectives. An attorney does not have to ride to represent a motorcycle shop, but that attorney better know that a Hog is not a Kawasaki.

- Christine Branstad

How to protect your business from an employee background check

Hand.Pen.Paper.DupontCircle.WDC.17sep05Image by ElvertBarnes via Flickr

President Obama’s proposed American Jobs Act purports to offer a $4000 tax credit for hiring a worker that has been unemployed for more than six months.  

Hiring someone who has been unemployed comes with obvious questions. When sifting the unfortunate from the incompetent, savvy employers use available tools to complete the profile of a potential hire.

What can you legally find out? Online research includes: social media, criminal history, and paid sources.  I assume each online reader is proficient enough with Google, Bing or at least lycos to run an internet search; therefore, this blog focuses on Iowa criminal searches and credit checks.

One simple preliminary source is Iowa Courts Online which compiles case dockets for Iowa legal matters. As stated in a previous blog, docket information for criminal charges remains on the Iowa Courts Online website, even if the charges are subsequently dismissed.

For certified confirmation of charges and disposition, the Iowa Department of Criminal Investigations (“DCI”) certifies search requests for a fee of $15. Iowa Code provides the Department of Criminal Investigation “may provide copies . . . [of] criminal history data to . . . (1) a person . . . upon written application[.]” The available “criminal history data” includes: arrests, convictions, the disposition of charges, correctional institution information, and any adjudications.

Note, employers do not need signed authorization for a search by the Iowa DCI, but, without an authorizing signature, an employer may not receive information about arrests more that 18 months old if the arrests do not have a final disposition. Additionally, without authorization, employers will not receive information about deferred judgments.  

Employers increasingly rely on credit checks. Credit checks require signed releases. More importantly, employers must comply with specific requirements if adverse action is taken based on the candidate’s credit score. If a potential employer uses a credit score in the hiring process, the employer must disclose:

  • that a credit score was used
  • information on the credit score
  • the credit score
  • up to four key adverse factors in the score
  • the agency that provided the score

If an adverse hiring decision is made, the employee must receive:

  • a copy of the report
  • the name of the reporting agency
  • the guidelines on disputing the report

As you consider taking advantage of any incentive to hire the previously unemployed, be aware that checking criminal history and credit comes with restrictions. Make sure that your job posting clearly requires consent to these checks and that you get written authorization from the candidate. If you find anything adverse, you will save time. If you get the green light, you may find a great employee in time for an incentive under the American Jobs Act. 

Christine Branstad 

Enhanced by Zemanta

Business blockbusters from the Iowa Supreme Court

My last post discussed Summer Reads for Iowa Businesses

Starting today, viewers may again watch arguments in front of the Iowa Supreme Court. In case you missed reading Iowa Supreme Court cases this summer, this post reviews some of the summer’s business cases from the Iowa Supreme Court.

Iowa Supreme Court decisions are readable and a few decisions are released each week. If you skip the criminal and divorce cases (which are fascinating but hopefully not necessary for your business), a few business cases might help you spot potential problems and help your business steer clear of potential legal situations.

This year not only were the Green Hornet and Green Lantern in theatres, we also saw State Office v. Polk County Court and State Office v. Linn County Court.


In both cases individuals were charged with criminal offenses which were later dismissed. Though the charges were dropped, certain information remained on the Iowa Courts website. The individuals attempted to expunge their records, including those on the Iowa Court’s website. Read the cases to understand the epic battle between “public records” and “due process.”

At present, docket information remains available to the public regardless of the outcome of a criminal charge. Watch this for sequels by the court or the legislature . . .


An employee of a trucking company was allowed to receive cash from credit card transactions at a truck service station, purportedly for fuel purchases by other trucking company employees. The pattern of transactions was noticed by management. The employee was convicted of theft and ordered to pay $298,524.79 in restitution. The trucking company could not recover from the credit card transaction company because of a written agreement that company cards could be used for purchases and cash advances, that the trucking company was responsible for fraudulent use of the cards, and that the trucking company would hold the transaction company harmless for the acts of the trucking company employees. The trucking company had no such agreement with Kum and Go and sued, asserting Kum and Go was negligent in allowing the trucking company employee to receive the cash. The court determined that the trucking company’s recovery was barred due to the economic loss rule, which “. . . bars recovery in negligence when the plaintiff has suffered only economic loss.” Also discussed was the “contractual economic loss rule” which “bars tort claims for economic loss, on the theory that tort law should not supplant a consensual network of contracts.” For an alternate ending, read the dissent of two justices.


In Pavone v. Kirke, the parties entered into an agreement in which Pavone and his company, Signature Management Group, LLC, would provide consulting services in obtaining gaming licenses and casino management services to defendants. In applications to the Iowa Racing and Gaming Commission (IRGC), it was stated that Signature Management Group would manage casinos for the defendants. Over time, the parties renegotiated their agreement and defendants hired an operations consultant. The relationship fell apart and disagreements ensued about management fees stated in the agreement versus those offered by the operations consultant. After the IRGC was informed of the breakdown in negotiations, it awarded a gaming license to defendants. Defendants then terminated their agreement with Signature Management Group and agreed to work with the operations consultant. Pavone sued, and a jury found the defendants breached the original agreement pertaining to the management agreement between the parties and a first look option and good faith negotiation obligation for future opportunities, and awarded $10 million to Pavone. The Iowa Supreme Court reviews many business issues and lends insight into what can go wrong in dealings.


If the parties weren’t real people, this would almost be a comedy.

Mark Peak broke his leg while helping Ellis and Rachel Adams move furniture with a U-Haul truck. During the process, Peak sustained substantial damage to his leg and incurred $50,000 in medical bills. In negotiating settlement with U-Haul, Peak’s attorney received a “Release of All Claims” to be signed in exchange for U-Haul’s $20,000 settlement. Mistakenly, the release named U-Haul, U-Haul’s insurance company and Ellis Adams as parties discharged. The mistake was not caught by Peak’s attorney nor Peak and the release was signed. The Adams’ insurance company then refused to pay on the grounds that Ellis Adams had been discharged in the signed release.

The plot twists and turns as the district court finds that the release was unambiguous, but the Iowa Court of Appeals reverses because of the surrounding circumstances and the parties’ intent in signing. In the final act, the Iowa Supreme Court states “enforcement [of the release] is governed by principles of contract law” and “it is well settled that failure to read a contract before signing it will not invalidate the contract.” “In the construction written contracts . . . the intent of the parties must control . . . [as] determined by what the contract itself says.” The court declined “[t]o allow a party to avoid a signed release based on a unilateral mistake,” and affirmed the district court’s judgment pertaining to Ellis Adams; however, the court reversed the district court’s judgment pertaining to Rachel Adams as she was unnamed in both the U-Haul rental agreement and the release signed by Peak.

After this chilling read . . .  you won’t sign without reading again.

Check back frequently for additional installments from the Iowa Supreme Court, and remember, light reading now may save you a trip to the litigator later.

-Christine Branstad


Summer reads for Iowa businesses

Summer Reading for business leaders often includes motivational books. Classics include: 300px-IPad-02

Good to Great - Jim Collins 

Getting to Yes - Roger Fisher and William Ury   

How to Win Friends and Influence People - Dale Carnegie  

If you read my blog, you are likely a family member or recognize the need to “brush up” on the law before your business is in trouble. With so many topics of interest for savvy business people to cover, I have developed my list of “Summer Reads for real Businesses in Iowa.”

Summer Reads for Businesses in Iowa:

Cyber Law: A Legal Arsenal for Online Business -  Brett J. Trout

Cyber Law offers a guide to online business, including navigating pitfalls Cyber Law effectively translates “online geek” to “everyday business owner.” Unlike, the rest of my list, this book is actually fun to read.

The Human Resources Manual of a large organization or state agency.

You can get one from a business associate or buy an up to date version. As you read the manual, ask yourself why each provision is in the manual and if your business (no matter how small) may use some of those ideas.

Your own Human Resources manual.

Each business owner should be the expert in the business’s human resources manual. If you don’t understand it, talk with your lawyer about re-writing it. No business owner ever won a case by saying “I did not understand my own manual.”

The “standard” contracts used by your business. 

If you don’t understand it, talk with your lawyer about re-writing it. No business owner ever won a case by saying “I did not understand my own contract.”

The actual regulations of your industry (and then the website that explains the regulations that you just read). 

For this I recommend an iPad, Kindle or reader. State and federal regulations are free to the public and published in the Code of Federal Regulations (“CFR”). The US Government site provides a keyword search.

Some agencies provide websites with quick explanations of their regulations as well as FAQ pages. Additionally, many agencies publish updates on their websites, of which a complete listing is available here.

Iowa also publishes administrative regulations in the Iowa Administrative Code, available from the Iowa General Assembly’s website. Familiarizing oneself with these resources can not only consume numerous hours of free time, but also allow a quick answer to be found when issues do arise.

Iowa Supreme Court cases (just the business cases).

The Iowa Supreme Court regularly releases opinions which touch on business, as does the Iowa Court of Appeals. The Iowa Supreme Court and Iowa Court of Appeal opinions are well reasoned, concise, and usually enjoyable to read. More often than not I find my weekly review of recent opinions has bearing on a client’s matter or a personal interest. My next blog will be about recent Iowa Cases.

The Iowa UCC.

Iowa has adopted the Uniform Commercial Code (“UCC”), which governs myriad aspects of business, from creation of a contract (see Article 1) to sales of goods (see Article 2) to transactions involving security interests (see Article 9). The UCC is no light afternoon read. An entire law school course may only cover one Article of the UCC; though this should not dissuade you from reading it. Knowing the actual language of the law will help any business leader to ask the right questions when the next contract is negotiated.

Anything your tax advisor tells you to read.

Finally, a bit of a reminder that professionals are here to help you. Often, articles or other materials that are “suggested” for reading could end up saving a business (and any professionals employed by that business) time. Whether it is keeping receipts or ensuring a document is signed and notarized, advice from professionals is meant to aid a business. My advice is to take some time and read up on a topic which affects your business. Not only will you be more knowledgeable, you may just head off a “situation” before it arises, or prevent one from growing exponentially.

Christine Branstad

Immigration for Businesses

Green BlueImage by doug88888 via Flickr

You have a non-U.S. citizen working at your business, so get a green card for him or her.

End of blog post.


It isn't that easy. But you knew that. Numerous factors influence immigration status:

-          Is the immigrant in the United States for the first time?

-          Is the immigrant from India, Canada or Nigeria?

-          Is the person an unskilled owner, part owner of the company or an artist?

The U.S. government provides information for businesses regarding non-U.S. citizen workers, but immigration is complex. Many businesses find the only way to navigate the field is to get a lawyer who specializes in immigration.

There are also resources available online to gain an understanding of the process of working with an immigrant.

Whether your business has an immigration attorney on speed-dial or is wading into the immigration pool without counsel, there are “dos” and “don’ts."


-   Don't believe there is such a thing as an “easy guide”. The first reliable Immigration guide that I found was over 400 pages long. Do not believe a pamphlet, or website, that explains immigration any more than you would believe a pamphlet that explains world history.

- Don't think a current legal immigrant is an expert. Immigration cases have many moving parts. Listening to a person who has immigrated successfully can be like getting advice on starting a pet shop from someone who runs a successful restaurant.

-   Don't ignore warning signs. Hiring an immigrant as an independent contractor to “keep your distance” may garner trouble. Businesses that have a reason to believe a new hire is using a fictitious name or social security number probably have a duty to investigate.

-  Don’t use ignorance as an excuse. Just as the state trooper will not allow ignorance of a speed limit as an excuse for speeding, government agencies may be less than willing to accept ignorance of a worker’s immigration status as an excuse from a business. And remember, it may not only be the illegal worker in legal trouble.


-  Do fix problems that you already have. Often, government agencies look more favorably on - and work better with businesses that engage in - self-reporting than on those “caught in the act.”

- Do document they way you insure you only employ legal hires. Train your human resources personnel and provide for an audit of HR files. The easiest way to execute the plan is to have a checklist in each file.

- Do make a plan before it is too late. Know the right steps to take before your worker leaves his or her country of origin can save, money, time, and hassle - also known as dealing with “red tape."

Christine Branstad


Enhanced by Zemanta

I Spy [an Employee on Facebook]

Spy vs. SpyImage via Wikipedia

As discussed in my previous blog, the electronic age provides ample opportunities for publishing mistakes. Increased technology also provides additional opportunities to monitor employees to record their missteps. When contemplating employee monitoring, employers must address three questions:

1)    What do you have the technical ability to monitor?

2)    What may be legally monitored?

3)    What should you monitor?


Ability is Limitless:

With technology, employers have the ability to monitor everything but employees’ thoughts. With the full spectrum of gadgets, an employer can tell how fast an employee drove to work, with whom they communicated, what information they relayed, and where they went. Video and audio technologies provide the ability to track every word and facial expression made in the office. Perhaps employees' thoughts can be monitored.

Technology has a role in the workplace. Monitoring employees is on the rise. One study indicates that:

Two out of three employers review internet usage of employees;

More than fifty percent of employers use website blocking;

Emails and/or phone reviews occur at more than 25% of workplaces.



Rules are not easily defined. Before you take action: talk with your HR or internet lawyer; have a specific plan; and follow that plan.

Examples of restrictions to employee monitoring include the Electronic Communication Privacy Act of 1986, which bars intentional interception of wire, oral, or electronic communication, or unauthorized access of stored information (anyone who receives email from me sees a disclaimer citing the statute).

In Iowa, it is a misdemeanor to listen to, record, or intercept a conversation or communication without proper authorization.

The Fourth Amendment to the United States Constitution, which guarantees "[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures,” has been applied to monitoring by government employers.

Exceptions to privacy laws may allow employers to monitor business-related communications under cerrtain circumstances. One case held that an employee did not have a reasonable expectation of privacy regarding information stored on a work computer in a folder labeled “personal” and password protected. Another case found no reasonable expectation of privacy in business email, even when the company stated that emails were not monitored.  Once the limits are ascertained, the questions is “should you monitor?”


Monitoring Employees has Pitfalls: 

The benefits of monitoring employees are easy to ascertain. Employers get better data to determine if employees are using time appropriately and if they are following the rules. Employers may also determine if employees are sending illicit photographs or messages by tweet or email.

The downside of monitoring is also easy to ascertain. Monitoring can be expensive. Employee morale may be damaged by feeling that trust is breached, and improper monitoring may lead to liability or PR gaffes.

If you decide to use technology to monitor or limit employees, the following steps may be helpful:

-          Develop a computer policy for:

  • Permissible usage (no personal, no personal use during working hours, no restrictions, etc.).
  • Email usage (no personal emails, no profanity, no personal emails during company hours, etc.).
  • Search usage (personal sites are unlimited, discouraged, restricted, banned, blocked, etc.).

-          Develop a phone usage and monitoring policy.

-          Delineate WHO does the monitoring, as well as when and how.

-          Determine how the monitor responds to different types of violations. Some violations may merit a warning. Some may merit a report to law enforcement.

-          Share the policy with employees (and determine if you need consent to the policy).


-          Train employees and plan to refresh training.

For many businesses, the simplest answer is to take the steps one at a time. First, just set the policy. See if it works. Ask employees if it is difficult to abide the policy. Once you are sure you have the right policy, determine if you need to take steps to enforce the policy. Finally, always ask whether a monitoring policy is really needed. Sometimes it is best not to know how the sausage is made.

- Christine Branstad


Enhanced by Zemanta

Avoid Risk. Behave as if You are on TV (or YouTube or Twitter . . .)

Anthony Weiner, NYC, May 2011 (Pre-"Weine...Image by Tony the Misfit via Flicker

A recent New York Times article addressed the Economics of Men Behaving Badly. Bad behavior has potential personal and business costs. In this technological age, the risks are heightened.

Historically, liability for bad behavior could be hidden or limited by plausible deniability, as many accusations of bad behavior turned into a “he said she said” debate. Now, a moderately priced cell phone offers a plethora of methods to capture bad behavior for mass distribution. Any of the following can become 'exhibit 1':

  • Social media content (Twitter, Facebook, Youtube…)
  • Emails
  • Voicemails
  • Photos
  • Videos (surveillance or just some kid with a cell phone)
  • Audio recordings
  • Texts

Bad behavior resulting in liability (and embarrassment) can occur at all levels of a business. Transmission of an illicit photo may be harassment. Intimate emails on the corporate PDA could be misuse of company property. Either could be a breach of contract.

Customer service gaffes are abundant on the web (Warning: Explicit language).  A captured gaffe may be a PR snag, but a video may be prima facie evidence of a breach of contract or even a criminal actViolations of sanitary requirements are the subject of stings. Work conditions are broadcast. Fired by Facebook is now a reality (and has at least one Facebook page).  Anti-business Facebook pages can have thousands of “friends.”   

Bad behavior is fodder for amateur journalists and competitors. Diligence and planning may stave off future issues resulting from bad behavior. To avoid a personal injury action, assume your entire business is on a surveillance camera. To avoid a sexual harassment suit, assume each conversation is recorded. To avoid a charge of misappropriation of funds or breach of fiduciary duty action, assume that each transaction is recorded and shared. To avoid administrative penalties, assume that your business activities will be audited. To avoid penalties for unsafe work conditions, assume that the next visitor or employee is using a camera to record the conditions.   

An unfortunate technological reality is that computers and cell phones transform rumors into allegations into facts. What can you do?

  • Assume you are always being watched.
  • Live accordingly.
  • Encourage your employees to do the same.
  • Every time you consider questionable behavior, weigh the benefits.
  • Coach your employees. Sit down. Show them videos of ‘caught’ behavior.
  • Make a plan for how technology will  help you benchmark your business aspirations for safety, compliance, customer service, and integrity.

In 1933, U.S. Supreme Court Justice Louis D. Brandeis stated, “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants.” The Digital Age has brought new methods for “sunlight” to peer into a business. The best path to avoiding an embarrassing discovery is to have nothing to hide.

In my next blog . . . tips if you decide to monitor your employees.

- Christine Branstad



Enhanced by Zemanta

Changing the nametag: Independent Contractors v. Employees

Blog entryImage via Wikipedia

If you are considering changing an employee into an independent contractor, wait.

First, weigh the actual benefits. Ask your lawyer, your liability insurance carrier and your CPA.

Second, determine what role the person really fills. Pretending an employee is an independent contractor may cause legal hassles.

Most businesses explore how to cut overhead and maintain productivity. I am no business process expert, but I know that numerous companies explore achieving “cost efficiency” by changing a worker’s status from employee to independent contractor.

The change should not be taken lightly. Employees and independent contractors may occupy the same amount of desk space at your business, but they differ in control of work, risk of loss and tax liability.

Who controls the work may determine whether a worker is an employee or independent contractor. Employees tend to have work directed through a hierarchy. For example, employees may have set arrival and departure times, breaks and vacations. Employers may discipline or terminate an employee for unsatisfactory performance. To the contrary, independent contractors typically enter contracts regarding the expected work product, control their own work and simply provide the deliverable work product. Independent contractors often set their work hours, breaks and vacations, subject only to the deadline of the work product.

The employer carries the risk of loss regard an employee’s work product. If the employee performs poorly, the employer suffers. Conversely, independent contractors carry the risk of loss regarding their work product. Depending on the terms of the independent contractor agreement, the employer may terminate a contract with an independent contractor for poor performance, and may even bring legal action based on breach of contract.

The Iowa Department of Revenue and the Internal Revenue Service (IRS) also have an interest in how a business classifies its workers because of tax liability. Employers withhold and pay taxes to the federal and state government regarding earnings, social security and certain other benefits. Federal and state governments also offer certain rights and protections to employees versus independent contractors (See, for example, Title VII of The Civil Rights Act of 1964).

Thus, governments have an interest in both protecting workers and collecting tax revenues. Given the budgetary issues of late in the federal and state governments, there have been increased audits focused on misclassification of workers as independent contractors. When found, the IRS may reclassify workers as employees and assess back-taxes as well as interest and penalties. Iowa also charges fines, back-taxes and penalties for misclassification of workers. These accumulate quickly and can be taxing (pun intended) for businesses when hit.

Resources are available to assist businesses in determining whether a worker is an employee or an independent contractor. The IRS provides tips for small businesses and allows questions to be submitted on Form SS-8 for worker status determination. The Iowa Department of Revenue also provides a website to guide in this determination. Finally, the IRS has a guide and Iowa Workforce Development has a guide for determining correct worker status determinations.

A rose by any other name would smell as sweet.-Shakespeare

An Employee by any other name may stink.-IRS

- Christine Branstad

Enhanced by Zemanta

Boring Blog 3 - More Secured Interests

White&blackImage via Wikipedia

This is the final blog about secured interests.

Boring Blog 1 addresses security interests in goods sold.

Boring Blog 2 deals with perfecting security interests.

This blog addresses priority of secured interests.

Priority of a security interest may determine who receives payment when a debtor cannot fulfill obligations to multipe creditors. If the same collateral was used to secure different loans, or if a debtor is in bankruptcy, priority will determine distribution. Often, the first security interest that is perfected takes priority. This post is limited to Iowa UCC provisions on priority.

Priority by first to perfect/file:

Filing prioritizes security interests over later-created perfected interests and prior unperfected interests. Iowa Code Section 554.9322 provides the general rules for prioritization. Common interpretations include first to perfect, first in priority; and if no interests are perfected, first in time, first in priority. There are many exceptions to the priority by filing rules. Examples of exceptions include perfection by possession of collateral, perfection through a Purchase Money Security Interest (PMSI), and automatic perfection of PMSIs in consumer goods.

Filing a financing statement with the Iowa Secretary of State perfects a security interest in the listed collateral. If an interest is unperfected, Iowa Code Section 554.9317(2) provides that a future buyer of that collateral may take it free and clear of a security interest, leaving a secured party with an unsecured open account against the original debtor.

Perfection by possession or control:

Iowa Code section 554.9312 provides that perfection in deposit accounts, investment property and certain other collateral may be perfected by filing, or through possession or control by the secured party, without filing. The Iowa UCC defines possession and control, and, significantly, states that those taking a security interest in a deposit account may ONLY perfect that interest through control of the account as set out in section 554.9104.

Priority by PMSI[1]:

In Iowa, security interests may be created and perfected in categories of goods such as “equipment,” “inventory,” or “all confection ovens” (harkening back to examples in prior blogs). Section 554.9317(5) allows a PMSI in goods of a certain category (except inventory) to take priority over other pre-existing security interests for that category, if the PMSI is perfected through filing within 20 days after delivery of the goods to the buyer. For a PMSI in inventory, Iowa Code section 554.9324(2) states that, to take priority over pre-existing interests, the PMSI must be filed and any holders of perfected security interests must be notified before delivery of the goods to the buyer.

Automatic perfection, PMSI in consumer goods:

Security interests in consumer goods are perfected upon attachment (see Boring Blog 1), and require no filing. This rule makes business dealings in smaller goods, like dishwashers or stereos, easier as there is no need for a race to perfect by filing. Some consumer goods which are transferred through certificates of title (e.g., cars) may have specific requirements for perfection of security interests that are not listed in the Iowa UCC.

Perfection and priority tips[2]:

  • Inspect proposed collateral before accepting. First, to confirm the collateral is not in the possession of another, and second to assess the value of the collateral.
  • Ascertain the history of the collateral. When and how did the party receive it? Did the debtor borrow money to obtain the collateral?
  • Check online records under the debtor’s name and under any prior owners' names for perfected security interests. The Iowa Secretary of State offers two search sites to assist, here and here.
  • If a filed financing statement references the collateral, determine if the debt is paid. A termination statement may be filed.

I hope the boring helps you avoid the truly aggravating.

 - Christine Branstad

[1] Boring Blog 1 describes a PMSI as “a security agreement…where the entity which gave the funds to the debtor to procure the good/s has a security interest in those goods as collateral." As some may have expected, this special definition leads to special treatment when it comes to priority.

[2] These are only tips and cannot substitute for specialized legal advice.

Enhanced by Zemanta

Boring Blog - Part 2

Jimmy Gill - Confectionary Stand BImage via Wikipedia

If you read my previous blog, you may recall that the boring stuff saves money. The last blog addressed Iowa law regarding security interests in goods sold.

Iowa’s UCC provides that it may be necessary to place the public on notice of a security interest to protect that interest. This blog focuses on filings at Iowa Secretary of State to protect or "perfect" security interests. 

Bill’s Bakery Supplies has a security interest in equipment sold to Smith’s Confectionary Inc. Bill will want to protect his security interest and place others on notice of his interest. (This is called perfection[1].)

Article 9 of the Iowa UCC codifies the steps necessary for Bill to perfect his security interest. If the security interest is in goods, Iowa Code section 554.9501 designates that a financing statement is to be filed with the Iowa Secretary of State. A form that has all the required information is available from the Iowa Secretary of State’s website.

 A financing statement must provide:

(1) the name of the debtor;

(2) the names of the secured party or a representative; and

(3) the collateral covered by the financing statement.

Financing statements are filed under the debtor’s name. For registered organizations (LLC, corporation, limited partnership, etc.) the exact name of the organization as it appears in a state’s record must be used on the financing statement. If the debtor is an individual, the full legal name must be used. For example, If Bill’s Bakery Supplies mistakenly placed Joe Smith’s name on the financing statement instead of Smith’s Confectionary Inc., Iowa Code section 554.9506(b) states the financing statement would be seriously misleading.

"Seriously misleading" financing statements are not sufficient to place the public on notice of the security interest or to protect the secured party. Even simple errors such as spelling a corporation’s name incorrectly or using a symbol instead of a word (“&” instead of “and”) may render a financing statement seriously misleading.

The necessity of these nuances becomes clear when viewed through the eyes of a third party who attempts to determine if there is a security interest in certain property. If Smith's Confectionary Inc. later attempted to use the ovens purchased as collateral for a bank loan, the bank would check the public records to ensure there are no security interests attached to the ovens. Without proper filing under a specific name, the bank would have  difficulty verifying information.

Avoid problems by:

  • Knowing with whom you are dealing. As a matter of dealing, get government issued verification of names.
  • Checking public records. Many Iowa organizations must file with the Iowa Secretary of State.
  • Remembering that handshakes seal deals, but contracts prevent problems. Putting it “in writing” is a greater show of trust than a handshake.
  • Filing immediately. In my next post (and last in the series of boring blogs), I will address how to determine the priority of competing security interests.

If you read through to the end, I commend you. Business leaders who read the boring stuff avoid pesky problems . . . and have less need for me (a litigator).

- Christine Branstad 

[1] Lodge complaints about legalese elsewhere. I use NO legalese in my writing.

Enhanced by Zemanta

The Gift That Keeps on Giving…Until Expiration

Walmart Gift CardsImage by sdc2027 via Flickr

This week, I spoke to merchants from the Historic East Village and answered questions about gift cards. Gift cards, or gift certificates, are subject to state and federal restrictions - some overlapping, some conflicting and some confusing.

Federal regulations are found primarily in the 2009 Credit Card Accountability Responsibility and Disclosure Act (“the Credit CARD Act”). This Act gives the Federal Reserve Board authority to govern business practices regarding credit cards, gift cards, pre-paid cards and the information consumers receive. The federal regulations are controlling unless a state enacts laws which provide greater protection for consumers.

“Can my business place expiration dates on gift certificates issued?” Yes. But federal regulations allow expiration dates as long as certain requirements are met. Requirements include:

  • allowing a purchasing consumer at least five years before expiration;
  • providing a toll free number or website where information about the card can be obtained;
  • providing information about replacing the card; and
  • informing of any fees charged against the balance and where information about the fees can be obtained.

In Iowa: Iowa law states that unredeemed gift card funds are considered abandoned after three years have lapsed since purchase or last use, compared with the five-year requirement in the federal regulations. The Federal Reserve Board chose to not preempt (overrule) state laws regarding abandonment of property which took effect before the federal five-year mandate. The board instead reserved the right to declare individual states' laws preempted on a case-by-case basis. The board has not yet ruled on Iowa’s three-year abandonment law regarding unused gift cards, leaving open the possibility that a gift card issuer will have to turn over abandoned property to the state treasurer after three years, but honor gift cards for five.

“What are the reporting requirements after the three year period in Iowa?”

Iowa Code provides that a holder of presumed abandoned property is to file a report regarding the property with the state Treasurer. The code also provides that when filing the report, the property shall be paid or delivered to the treasurer.

“What if I give gift cards to a charity or an auction and receive no money for them?”

Federal regulations create exceptions for cards issued for ‘loyalty, award, or promotional purposes.’ For example, shorter expiration dates are allowed. Significantly, there must be a disclaimer on the face of the card or certificate stating it was issued for loyalty, award or promotional purposes to qualify for this exception.

If you are confused, the Federal Reserve Board has a guide to gift cards.

The Iowa Treasurer has a complete guide to reporting.

The Iowa Attorney General also has a guide.*

- Christine Branstad 

* Be careful. It appears that the Iowa Attorney General guide came out in 2007 and the most recent federal rules came out in 2010.

Enhanced by Zemanta

Boring Blog

White on WhiteImage by Alan Bell via Flickr

The UCC is only exciting when you are in a dispute. Read this boring blog and avoid the excitement.

Article 9 of the Iowa UCC (Iowa Code Section 554.9101 et seq.) governs the purchase and sale of goods and related secured interests. This blog will deal with protecting a business during an initial transaction. My next blog will deal with placing the public on notice of a security interest.

Bill’s Bakery Supplies is an equipment wholesaler.

Joe Smith is CEO (and sole employee) of Smith’s Confectionary Inc.

Smith purchases equipment from Bill's. If Smith cannot pay, how can Bill’s recoup the unpaid balance?

Often, security agreements arise where an item is sold on account (six months same as cash) or a loan is received for the purchase of an item (bank loan for a car), and the purchaser is allowed to pay off the balance over a period of time. A seller may want to retain certain rights to the goods until paid in full.[1]

Smith pays 10 percent of the total price, signs the purchase agreement, and takes the equipment. Bill’s Bakery Supplies may be entitled to full payment on the account, but has it retained a security interest in the goods?

Likely no. In Iowa, an agreement to sell goods alone is not enough for a security interest to attach to the goods. Iowa Code Section 554.9203 provides that for a valid security agreement there must be:

(1) value given;

(2) a right in the collateral that the debtor can transfer to the secured party; and

(3) a signed security agreement with a description of the collateral or the collateral in  possession of the secured party.

This means Bill’s no longer has an interest in the goods sold and, essentially, has an unsecured open account.

If your business wishes to keep a secured interest after sale, create an agreement that:

(1)  specifies that a security interest is held by the seller;

(2)  is signed by the purchaser; and

(3)  includes a detailed description of the goods (e.g. serial number, make, and model).

[1] (Author’s Note: The UCC refers to a security agreement in this situation as a Purchase Money Security Interest, where the entity which gave the funds to the person to procure the good/s has a security interest in the goods as collateral.)

Enhanced by Zemanta

Following Rules is Easier when you Write the Rulebook

Philadelphia - Old City: Carpenters' Hall - Ca...Image by wallyg via Flickr

My last blog was about dealing with “red tape” and following agency rules and regulations. Sometimes the most efficient way to deal with rules is to help write the rulebook.

 There are many ways to write the rules.

1)      Write to your legislator.

2)      Participate on a board or commission.

3)      Join a trade association that lobbies on your behalf.

4)      Lobby for yourself.

5)      Hire a lobbyist.

U.S. citizens have a first amendment right to petition their government. Corporations also have first amendment rights.  Many businesses exercise that right through lobbying.

Lobbyists are paid advocates who educate and persuade legislators. Most people assume lobbyists simply push for or against proposed legislation, but lobbyists may help draft proposed legislation or suggest amendments. Often, the lobbyist’s job is simply to make a bill “fit.” For example, if a proposed bill would heavily regulate balloon sales, the clown lobby may seek an exception for non-helium balloon animals.

Lobbyists may also put together research that would otherwise go unnoticed by legislators who have to address legislation on myriad issues.

A skilled lobbyist will:

  • Have rapport with lawmakers and know who will serve a key role in specific legislation.
  • Be proactive by heading off contrary or obstructionist legislation.
  • Keep clients informed of upcoming legislation and the associated rules.  
  • Maintain contact with legislators or members of the executive branch with influence over government agencies.
  • Develop relationships with other lobbyists for collaborative efforts and negotiation.

If you help write the book, it is less likely they will "throw the book at you."

- Christine Branstad

Enhanced by Zemanta

New Administration -> New Rules

The Iowa state seal.Image via Wikipedia

Despite the refrain of pundits, new administrations are not "same old same old." New leaders come in with new ideas, new agency leaders, and plans to “make a difference."

The most direct effects are felt at the agency / administration / department level (I will just use "agency" for the remainder of the blog). If your company has someone dedicated to the regulatory process, that person will get to know the new guard and review changes. If, like most small businesses, that job falls on you, take steps to recognize upcoming changes.

1)    Check the agency website every week until June.

2)    Call and find out if the agency sends out a newsletter. Get on the list.

3)    Call the lobbyist for your business association and ask to be in on the lobbyist’s newsletter.

4)    Check your association website regularly.

If you are tech-savvy, get the appropriate RSS feeds. If you are not, ask a teenager to help you.

Most agencies want you to be in compliance and want things to move smoothly. Find a liaison who will help ensure that you have the appropriate information to be in compliance.

My next blog will focus on proactive steps you may take regarding the laws/rules before you become ensnarled in red tape.

- Christine Branstad

Unexpected Partnerships: Santa and Lemonade Stands

Wanted: Santa ClausImage by kevindooley via Flickr

(It is good he never crashed the sled.)

Your lemonade stand with your best friend was probably a partnership. Unlike many other business entities (LLC, LLP, Corporation), a simple general partnership requires no paperwork.

Iowa adopted the Uniform Partnership Act ("UPA"), which defines partnership as "the association of two or more persons to carry on as co-owners a business for profit." If you provide half the service and your friend provides the other half, you may both have all the liability for breaches of contracts or negligence.

Similar to a corporation, partnerships are distinct entities from the forming partners. A general partnership leaves all partners sharing liability for partnership debts and obligations. In terms of your lemonade stand, this means that after your pal fails to provide lemonade promised to a party, that angry customer can come after the lemons and pitchers (partnership assets) as well as your piggy bank (partner’s personal assets).

In the absence of a partnership agreement, there may be internal conflict between partners about who gets to make decisions (voting rights and weight of votes), who contributes to the business entity (through money, other assets, or time), and who gets paid (partners can receive distributions, if any, from the partnership, or reinvest the money in the business).

If you have no partnership agreement, there may also be conflicts about who owes external parties, such as the lemon supplier or the sugar provider. The Iowa UPA has gap-filling provisions which kick in if aspects of a partnership are not agreed upon by the partners, such as the "equal rights in management and conduct" provision and "differences settled by a majority"  provision. If you cannot get along, breaking up is pretty easy, but your liability will likely remain to people who sue for conduct that occurred in the course of the partnership. 

Dear Santa:

I would like to memorialize our agency arrangement so that we are not confused as partners or joint venturers.

Please agree that I will work as an independent contractor obtaining presents and wrapping them for you to deliver. Although I may be paid in cookies, milk and reindeer jerky, I shall not be responsible for late deliveries, chimney damage, or the aggrieved child who didn’t get a present because of an erroneous listing of naughty instead of nice. All responsibility belongs to Santa, which should be made clear in all contracts, communication and marketing materials. I request an indemnity clause in our agreement.

I want to make sure we avoid internal disagreements in our mutually beneficial relationship, and also that the world (especially the two little customers in my house) is on notice that we are not partners.

 . . . and new gloves.


 - Christine Branstad

Enhanced by Zemanta




Be Thankful for Mistakes (Yours and Others)

NEW YORK - NOVEMBER 26:  Crowds watch the Than...Image by Getty Images via @daylife

It is easy to be grateful for friends and family. It is easy to appreciate bounty. The happiest people (and businesses) appreciate their mistakes and the related lessons learned.

The smartest also learn from the mistakes of others.

When you stay current on business law in Iowa by reading cases and summaries from the Iowa Court of Appeals and Iowa Supreme Court, you get the current law and a look at how mistakes could have been avoided.

Before you have to see your lawyer, read about others’ mistakes and be thankful for the opportunity to avoid litigation.

 - Christine Branstad

Enhanced by Zemanta

Use Your Email 'Draft' Folder

screenshot of an intentionally blank page on p...Image via Wikipedia

It is better to write nothing than to be wrong.

As I started to post my blog today (at deadline), I checked a source and found an error.

This reminded me why I usually hold blog drafts a week before final edits. Quick work is often inaccurate.

Electronic media encourages hasty writing. Employer/employee communication may incorrectly reflect terms. Buyer/seller communication may misstate conditions. When one party fires off an email agreeing to an untenable term, that email is later labeled “Plaintiff’s Exhibit 1.”

If you are not positive that your words will help the situation (and reflect the truth), write nothing.

It is acceptable to write “I need to reflect on this matter. I will respond soon.”

- Christine Branstad

Eminent Domain and Condemnation: Taking a Bone from a Dog

Private PropertyImage by mollybob via Flickr

My property professor described ownership as “how a dog feels about his bone.”* Your ownership can be taken away by the government to discharge its functions, including: appropriating resources for military service, turning swaths of private property into streets, or even giving to another business (if it qualifies as a public use). This is the power of ‘eminent domain’ and it occurs at municipal, county, state, and federal levels.

There are many debates about that power and how it is used.

The relativity of ownership is a result of governmental limitation on its own sovereignty. The Fifth Amendment to the U.S. Constitution reads, "...nor shall private property be taken for public use, without just compensation." The Fifth Amendment, therefore, limits the power to taking private property for public use. The exercise of this power is called condemnation. This blog only addresses condemnation for public use. Condemnation for public safety includes the act of declaring a building uninhabitable, a corollary use of eminent domain. 

What does this mean to the average Iowa citizen or business owner? There you are, minding your business [of making widgets/developing software/cooking pork tenderloins]. You receive notice that the city is going to acquire your property to build [a park/a road/an electric substation/an area for a large business]. You are outraged. What can you do? 

The taking of private property must be for “public purposes which are reasonable and necessary as an incident to the powers and duties conferred upon” the city or county in most cases. If the government's justification is shaky, you may challenge the condemnation. An experienced property attorney will make sure that the condemning entity has legislative authority, that the proposed conversion of your property to public use is for a valid purpose, that no more property is taken than necessary, and that the effect of the taking does not diminish the value of your remaining property. 

Then, you may seek just compensation, including a fair relocation benefit. In Iowa, the condemning authority must offer to buy the property for fair market value and must make a good faith effort to negotiate. While the purchase and closure or relocation of your business is a tremendous hassle, it can also be a financial boon to your business. In many cases, established businesses find they are given an unexpected opportunity to receive a publicly-financed relocation, a better location, a newer facility, and/or a cashout of a good lease rate. In the best cases, businesses expand, sometimes in conjunction with economic development incentives if they qualify. Some find that this alleviates questions about how to cash out and retire.

If you cannot agree with the government on a buyout amount, you may hire an attorney and an appraiser and duke it out in front of the county compensation commission. If you have been low-balled by the government, a good result from the commission can even get your fees and costs paid (if the award given is at least 110% of the final offer made by the condemning authority).     

Even if you find that you are just a dog and your property is just another bone . . . get your bite in. 

-          Christine Branstad           

* He credited former law student Roxanne Conlin with that colloquial definition. 

Practices that Supplement Contracts

baker's dozenImage by foreverdigital via Flickr

How Many in a Baker's Dozen?

Industry practices and specific relationships may create unwritten contractual terms that bind the parties. This blog has more legal analysis than usual, but read on. Really.


Iowa’s Uniform Commercial Code (UCC) governs transactions in goods. Iowa’s UCC section 554.1303 addresses three principles that may supplement or amend contracts:

  • course of performance,
  • course of dealing, and
  • usage of trade.

Course of Performance: This addresses conduct between the parties in a current contract when:

(a) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(b) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. To better understand Course of Performance read ABC Metals & Recycling Co., Inc. v. Highland Computer Forms Inc. which is a case involving claims about amounts paid for paper. A contract provision provided the price for the paper was on a particular website. After the contract was formed, the website shut down, but the information became available on another website. The second site was used by both parties. The five year use of the second website became a determining Course of Performance.


Course of Dealing: Your prior dealings with a party may create a Course of Dealing, which is an understanding that becomes part of a future contract, even if not specifically stated. To better understand Course of Dealing read St. Ansgar Mills Inc. v. Streit which is a case involving a hog farmer who regularly ordered feed corn from the mill. The mill would either send order confirmations to Streit for signature, or hold the orders for Streit’s signature. Often, turnaround for signatures was a month or greater. The hog farmer called in two orders for future delivery of corn; the mill held the confirmations for a signature. When the farmer returned more than one month later, the price of corn had significantly dropped. The farmer refused to sign the order, stating that the written confirmation had not been delivered within a reasonable time. The Iowa Supreme Court considered prior orders showing Course of Dealing where significant time passed between oral purchase orders and delivery of written confirmations.


Usage of Trade: Some industries work with such similar goods that industry-wide standards and practices develop. To better understand Usage of Trade read C-Thru Container Corp. v. Midland Mfg. Co. which involves a contract between a manufacturer of bottles and a buyer. The manufacture asserted that the buyer did not order a sufficient amount. The buyer asserted that the manufacture did not provide samples to assure a suitable product. The Iowa Supreme Court found that the buyer was allowed to provide evidence of trade practice and could argue that the industry has a standard of providing samples prior to orders.


What does this mean for your business?

1)    Know how other businesses handle similar contracts. (Especially if you are venturing into a new industry.)

2)    If you want to deviate from a common business practice, get written agreement.

3)    Define your business relationships in the same way that you define the actual terms of a contract, with attention to clarity.

- Christine Branstad

Enhanced by Zemanta

It is Hereby Time to Use the "Replace" Function

Yes checkImage via Wikipedia

In 2003, I finally received a set of checks with a blank date line. After much crossing out of the 19___, my checks acknowledged the new millennium. In an attempt to save paper, business forms often are used well after they are obsolete.

The handiest tool to meet changing times is the word processing “replace” function. This year when you change dates, look at other aspects of your forms. Some governmental agencies have changed names. If your form requires INS compliance, you may be out of date AND vague. I recently received an application with a request for my wife’s name. A simple replace of “husband” to “spouse” and “wife” to “spouse” is a quick fix to sexist stereotypes and also acknowledges same-sex spouses.[1]

Look at contact information. If a telefax number is still requested, but there is no blank for an e-mail address, it may be time for an update. Also, look at all the locations where forms are stored. Oddly, the forms that are often out of date are the online forms. (I suspect this is because too many businesses outsource all Web content and have no means to update Web forms in-house.) Additional issues may arise if your online offer binds you to an out-of-date contract.

“Replace” is also a tool to trim legalese from your agreements. Words such as heretofore, thusly and aforesaid, and phrases such as "party of the first part" can be retired. UCLA Law Professor Eugene Volokh created a chart to interpret legalese which may help you expedite your simplification of these arcane obfuscations. As a rule, you can hereby eliminate hereby with no replacement.

I hereby say it is that easy.

I say it is that easy.

Christine Branstad

[1] If your forms also address domestic partners, you may need to gather additional information.

Until same-sex spouses are treated the same uniformly, be aware that tax implications and domestic partnership implications may vary.

Enhanced by Zemanta

Avoid fighting even the little gorilla

A promotional image distributed by A Glass and...Image via Wikipedia

In case you haven’t heard, YouTube won its case against Viacom, who sued for copyright infringement based on thousands of Viacom videos that were uploaded to YouTube.

Now that YouTube escaped liability for piracy, you may post ANYTHING you like on your website, right?

To put the answer in legal terms: no, no, No, NO.

The 1000-pound gorilla just defeated the 800-pound gorilla. (800-pound gorilla has vowed to appeal.)

Before drastically changing the content policy for your website, consult your Intellectual Property attorney. Copyright law is old but evolving. At this point it may be better to stay the course and heed trusted advice for your online business.

Now may be the wrong time to mess with the 800-pound gorilla who is looking for the fight it can win.

- Christine Branstad


We are from the government; We are here to help [your business]?

Seal of the United States Department of Agricu...Image via Wikipedia

Federal, state and city government agencies are crucial partners to many businesses. Regulation ranges from determining import tariffs on goods and the tonnage a truck can carry, to proper workplace safety procedures to sanitation requirements for combs and brushes.  Government agencies’ rules and regulations define, clarify and sometimes muddy the water swum in by the big and small business fish.

Federal and State agencies are created by the legislature, often to oversee specific realms of commerce or interactions in business. These agencies can be given the power to create rules and regulations that carry the force of law, and can take action to enforce their rules against businesses or individuals.

Who makes the law affecting your business? The Department of Health and Human Services, Department of Agriculture and the Environmental Protection Agency are just a few prolific rule-makers, and compliance considerations can be especially daunting considering that the rules are enforced by the Department of Justice which includes the FBI, DEA, INS and US Marshall Service.

For example, the FDA recently sent a warning letter to a Canadian company stating their website is marketing products that are intended to treat or mitigate symptoms of the H1N1 flu virus, but the company has not yet received FDA approval for sale in the U.S. While this may seem a bit far from home, the small mom-and-pop holistic medicine shop across the street may be subject to the same FDA regulations as Bayer and Pfizer. The difference is in the ability to afford a legal defense and penalties for rule violations.

In Iowa, the EPA’s recent decision to tighten air pollution levels may force some Muscatine County businesses to invest large amounts into controlling pollution from existing factories to comply with the new air quality standards.

Also, the family farmer must comply with wide ranging regulations from the Iowa Department of Natural Resources to the multiple aspects of the Department of Agriculture. Iowa farmers may find they are soon involved with the EPA in the same way that the EPA is currently involved with Amish and Mennonite dairy farmers in Lancaster County, Pennsylvania to stop manure run off from fields and pastures.

The examples that get the most press involve large companies, and the state or federal court system may be called upon when agency rules are violated or decisions are appealed. For example, the Supreme Court recently decided the case Monsanto v. Geertson Seed Farms, about the USDA decision to allow sales of a genetically engineered alfalfa seed before completing an Environmental Impact Statement. Environmental groups and conventional alfalfa growers brought suit to stop the sale of the seed until an EIS was completed. A district court entered an injunction banning the sale of the genetically engineered seed pending the completion of the EIS and Monsanto appealed. Ruling for Monsanto, the Supreme Court overturned the lower court’s ban on the sale of genetically engineered alfalfa seed so that limited sales could occur until the final impact statement was completed.

The same rules that govern large corporations apply to Joe and Jane Business-owners. Savvy business people keep their ear to the ground and sometimes even have a compliance officer on staff. You may be able to give input on proposed regulations before they take effect, or change your business ways before a regulation is enforced. Often, administrative regulations take years to develop and agencies may allow input from those potentially affected by proposed regulations. Even after a regulation is passed, there may be a certain amount of time given for your business to become compliant with the new rule/regulation. Keep up-to-date on your industry’s news and developments. You just may be able to defer agency action or spread out the costs of compliance over a couple years, instead of a couple months.

Quick Rules for dealing with Agencies:

-    If you are too small to have a compliance officer, have one person whose job is to review and stay in compliance.

-    Have a yearly review of compliance for each agency that regulates you. During that review, make sure you have up-to-date manuals and checklists.

-    Subscribe to newsletters or email from each of those agencies.

-    Get to know your agencies and officers. Most agencies prefer initial compliance over initiating penalties.

Learn which agencies affect you. In Iowa, the list may include:

-    Department of Natural Resources

-    Department of Public Health

-    Department of Public Safety (including Fire Marshall)

-    Workforce Development

-    Department of Revenue

As you are developing, look to their websites and reference materials for tips on compliance and maintaining good status. Otherwise, you may have to deal with the government when they show up at your door to “help”.

- Christine Branstad

Enhanced by Zemanta

Arbitration: Decision by the Village Elder

Myth (Sphinx)Image by tricky ™ via Flickr

My last post was about mediation. Mediation is often confused with its less attractive cousin, arbitration. Arbitration and mediation are NOT the same even though they are both considered forms of alternative dispute resolution (ADR).  Many myths surround arbitration.

Benefit 1: Arbitration may take less preparation because you do not need to plan for a jury trial. Arbitration eliminates jury studies and preparing for mixed experiences of juries. Preparation is still extensive. (Then again, solid attorneys are fully prepared before entering mediation.)

Myth 1: You can “wing” arbitration. Arbitration requires knowledge of the facts and the law of your case. Arbitration requires a different type of preparation than trials because (if done properly) the case will be decided by an expert in the subject matter. Think of it this way: As an architect, you can explain your building design by educating a layperson about the general principles and then the specifics. Explaining the same design to another architect can be done more quickly and artfully, however it will require detailed preparation to be persuasive to another expert.

Benefit 2: Arbitration may eliminate much of the waiting time. Some of my cases took longer to reach trial than a good cheese takes to age.  Arbitration may eliminate much of the waiting time.

Myth 2: Arbitration is often instant. ‘nuff said.

Benefit 3: Arbitration allows the parties to narrow the issues and get to the point.

 Myth 3: Arbitration is as casual as Friday. Arbitration comes in as many styles as clothing. The parties may agree that the arbitrator has great discretion and may base the decision on “anything” or the parties may have four pages of rules, and require the arbitrator to set out findings of fact and legal reasoning. The parties may waive appeal or may set out specific appeal procedures. The parties may also waive evidentiary rules or even add new ones.

Benefit 4: Arbitration often gives you final resolution.

Myth 4: I can appeal an arbitration award against me and have it reversed. Generally, an award is final and binding and can only be reversed or vacated by courts in very limited circumstances, See I.C.A. § 679A.12.

Benefit 5: Arbitration may be flexible.

Myth 5: Arbitration is either mandatory or discretionary. Look at your contract. If you have agreed to a specific form of arbitration, you may be stuck with that form. If not, you may have some leeway to determine certain aspects the arbitration.

Benefit 6: Arbitration may be used to decide only one or two issues instead of an entire case. For example, the parties want one expert (instead of a jury) to determine who is responsible for a building collapse. The parties then want a jury to determine damages.

Myth 6: You have to decide in advance if you want mediation or arbitration. The parties may decide prior to mediation that, if they don’t agree, they want to put the decision in the hands of the mediator (med-arb). If the mediator agrees, that decision may be made mid-process.

Benefit 7: Arbitration may allow you to get a real expert in the area. There are attorneys who only arbitrate construction cases or who only arbitrate specific business claims.

Myth 7: The arbitrator must be a lawyer. Although I often believe an attorney is the best arbitrator, there are times when a chemist, engineer or fire expert may be better suited to interpret technical information. In those cases, the expert may serve as the sole arbitrator or may work with a lawyer to decide the case.

Benefit 8: Arbitration may provide the parties with some limits. The parties can do anything from agreeing to a floor and ceiling on the award (high-low arbitration) to providing the arbitrator with only two options (pendulum arbitration).

Myth 8: You can gain or lose as much in an arbitration as a trial.

Benefit 9: Arbitration is a cost savings.

Myth 9: Arbitration is cheap. See Myth 1.

Benefit 10: You may negotiate confidentiality into the process and the final decision. Court cases are usually open records and proceedings are public. Arbitration usually allows the parties to agree to maintain confidential proceedings and/or outcomes.

Arbitration clauses are also increasingly being thrown into the fine-print of many consumer contracts (read one of your credit card agreements), website click-through agreements (see previous blog about reading what you sign/agree to), and sealed user manuals that come with products (pretty hard to meaningfully agree to arbitration if you have to purchase a product in order to read the agreement).

Searching for the right arbitrator can be similar to searching for a mediator. Ask trusted advisers, research credentials. If you use an organization to find an Arbitrator, make sure the rules fit your case.

Christine Branstad

Enhanced by Zemanta

Mediation in Business

Cropped portion of Abraham Lincoln Photograph,...Image via Wikipedia

Most of my business clients see mediation as the thing you do when you are almost at the end of litigation.

Mediation can be a cost-savings tool if used early when a dispute is still minor.

Times to use mediation early:

1) You have a good business relationship that you would like to save

2) You suspect the other party "doesn't get it"

3) The other party says you "don't get it"

4) The best solution involves something other than just money

A mediator may help you find resolution while you can still afford it. You may use mediation to resolve issues with suppliers, contractors, employee and customers.

Find a great mediator the same way you find a great lawyer:

   a) Ask trusted advisors

   b) Research credentials

   c) Interview more than one and make comparisons

Getting to the solution may be easier if you have someone who specializes in facilitating calm meaningful negotiation. As Abraham Lincoln said, "Discourage litigation. Persuade your neighbors to compromise whenever you can."

-  Christine Branstad

Reblog this post [with Zemanta]

“Nobody expects the Spanish Inquisition!” (Legal Defenses to Contracts)

"Nobody expects the Spanish Inquisition!&...Image via Wikipedia

My last post was a sprint through the factors to consider when seeking to avoid contract obligations. In some cases, you may be seeking avoidance due to an unforeseen event where release of obligations is a fair and legally justified result.


Contracts for future performance (executory contracts) are formed to promote stability and certainty of business relationships. Although we would like to believe that the best-laid plans will follow through swimmingly, nearly all contracts are premised upon assumptions, which, if incorrect or modified may result in unfairness. Natural disasters, changes in governments and legal systems, or sudden enforcement of orthodoxy laws by an ad hoc tribunal (e.g. The Spanish Inquisition) can render a contract relationship not only undesirable, but absurd.


The doctrines of Impossibility/ Impracticability of Performance and Frustration of Purpose are the main avenues used to justify termination of service contracts.  Contracts regarding goods have different rules on this subject governed by the UCC.


Impracticability for services contractsImpracticability is more that the etymology of the word suggests. For an unforeseen event to render and contract "impractible", the following must be true: 

(1) occurrence of the event (or the 'condition') must have been assumed not to occur when the contract was made,

(2) that event makes performance extremely expensive or difficult, and

(3) there is no contract provision for "unforeseen events".


Impracticability for good contracts: The UCC generally governs contracts for goods. Again "impractability is more than the word suggests. A party who undergoes an event that creates expenses or difficulty  cannot excuse performance, but rather that party must allocate their limited resources between current customers and inform them of change, reason, and the expected timeframe. Increased expense does not usually constitute impracticality under the UCC.

Impossibility: Impossibility mirrors impracticability, except that the unforeseen event renders performance impossible rather than just expensive or difficult.

Frustration of Purpose: This occurs when an unforeseen event removes the principle purpose that one party entered the contact to obtain. To use this defense, both parties had to have known of the principle purpose at the time they entered the contract, and the event that created issue could not have been foreseen at the time of contracting. These situations may appear similar to those in impracticability as one party, typically the paying party, could still perform their aspect of the contract, but their reason for the contract is removed.   


Since a legal defense is a justification for terminating a contract, possibly in a manner that is unfair to one party, the party seeking termination needs to make a very good case.  In Mel Frank Tool & Supply, Inc. v. Di-Chem Co., 580 N.W.2d 802 (1998) the Iowa Supreme Court considered a lessee’s claim of impossibility to get out of a warehouse lease that the lessee used to store chemicals. After the lease began, the city passed an ordinance restricting the storage of hazardous chemicals.  The Court stated that Di-Chem did not establish that all their chemicals stored were hazardous and therefore did not meet their burden to excuse performance through the frustration of purpose doctrine.


Sophisticated parties may agree to waive the right to the aforementioned legal defenses.  These are commonly called “hell or high water clauses” and typically mandate continued payment in the event of an unforeseen occurrence that would normally frustrate the purpose or render performance impossible/impracticable.


Another option is to simply agree which party bears the risk of unforeseen events thorough a “Force majeure” clause.  “Force majeure” is “an event that can be neither anticipated nor controlled.” Black's Law Dictionary 657 (7th ed. 1999).


Legal defenses which void contracts are intended to avoid unfair or even absurd results unless parties agree otherwise. Plan for the expected; and plan for the unexpected by agreeing who will be responsible.  Or risk finding yourself in the position of that Monty Python character who said “I didn’t expect the Spanish Inquisition.”


- Christine Branstad

Reblog this post [with Zemanta]

This site is intended for informational and conversational purposes, not to provide specific legal, investment, or tax advice.  Articles and opinions posted here are those of the author(s). Links to and from other sites are for informational purposes and are not an endorsement by this site’s sponsor.