Business Law

What is the goal of a minimum wage hike?

- Gretchen Tegeler is president of the Taxpayers Association of Central Iowa.

The Polk County Supervisors appear poised to follow the lead of Linn and Johnson counties in raising the minimum wage from $7.25 per hour. The change, to $10.75 per hour, would take effect on Jan. 1, 2019; the idea being the Iowa Legislature would have an opportunity to act first by raising the rate statewide.

But what is the goal of a minimum wage hike? Because the Polk County task force began its work based on the assumption there would be an increase (the only question being how much), there never was a discussion of goals, or whether a minimum wage hike is the best way to accomplish them. It’s a relevant discussion, even if the Polk County Supervisors don’t have the power to implement other options. Certainly if the Iowa Legislature eventually feels compelled to act, the discussion is essential.

So what is the underlying goal of minimum wage discussions, and what does the research indicate?

If the goal is to reduce poverty, or the incidence of families living in poverty, a minimum wage increase is indeed a blunt instrument, and there is a better tool.

According to data cited in a December 2015 paper by the Federal Reserve Bank of San Francisco, “a sizable share of the benefits from raising the minimum wage would not go to poor families. In fact, if wages were simply raised to $10.10 with no changes to number of jobs or hours, only 18 percent of the total increase in incomes would go to poor families, based on 2010-2014 data.” (1)

According to the paper, this is because:

  • Many nonelderly poor families (57 percent) have no workers;
  • Some workers are poor because of low hours, not low wages; for example 36 percent have hourly wages above $12; and
  • Many low-wage workers, such as teens, are not in poor families.

The paper goes on to point out that 49 percent of the benefits would go to families that have incomes below twice the poverty line. Some 32 percent would go to families in the low-income range, but with with incomes at least three times the poverty line. 

Others, including the San Francisco Federal Reserve paper and a Feb. 6, 2016 Des Moines Register guest opinion written by Steve Hensley (2), suggest a better approach for reducing poverty would be to increase the earned income tax credit (EITC).

A full-time minimum wage worker in Iowa with two children already receives checks from the state and federal governments that together raise family income above the poverty level. The EITC could be increased and potentially expanded to include single-individual households. Because our state and federal tax systems are progressive, these costs would be borne by higher income taxpayers. And all of the benefit would go to the target population.

In contrast, many business owners who employ minimum wage workers are operating close to the margin. They are not well positioned to finance an income redistribution program, especially when so little of the benefit is actually reducing poverty and so much is actually going to higher income families.

If the Iowa Legislature does believe that government should do more to move people out of poverty, let’s hope they begin with the end in mind, and fairly evaluate all options.

Correction: An error in the date and the amount of the minimum wage in this blog when it was first published has been corrected. 

Business 'divorce' and discounts

Matthew McKinney is an attorney at BrownWinick Attorneys at Law. PGP_1038


Ownership in a business (whether a limited liability company or a corporation) is often shared among many individuals.

As a result, in businesses across Iowa most owners do not control and do not own more than half of the business. In other words, they are noncontrolling owners, bound by the "vows" they've accepted in the business's governing documents.

In the eyes of a court, such owners are often referred to as "minority owners." Unfortunately, in the same manner that some married couples seek a divorce before a court, so too do business owners appear before a court seeking divorce from their fellow owners.

In a business divorce, however, a court is not calculating alimony or child custody; rather, it is often valuing ownership in the business. During this valuation process, majority owners frequently seek to impose a minority or "lack-of-control" discount on the value of the minority owners' interest.

Consequently, a familiar question frequently arises both in and out of court: Should minority discounts apply in such circumstances?

Iowa's appellate courts have repeatedly found minority or "lack-of-control" discounts do not apply when valuing a minority owner's interest in such cases. In fact, in July the Iowa Court of Appeals reiterated this important point when it clearly stated "the fair value of (the minority shareholder's) shares should not include a minority discount." Baur v. Baur Farms, Inc., No. 14-1412, 2016 WL 4036105, at *4 (Iowa Ct. App. July 27, 2016) (emphasis added).

In reaching its decision, the Iowa Court of Appeals relied upon the Iowa Supreme Court and its prior holdings, which provide in relevant part: "(O)ur legislature made a policy decision when it adopted the current definition of “fair value.” By not allowing a discount for lack of marketability or minority status ..."  Nw. Inv. Corp. v. Wallace, 741 N.W.2d 782, 787–88 (Iowa 2007); "Such a discount in effect would let the majority force the minority out without paying it its fair share of the value of the corporation." Sec. State Bank, Hartley, Iowa v. Ziegeldorf, 554 N.W.2d 884, 889 (Iowa 1996).

In sum, before divorcing your business partner and selling your shares in an Iowa business at a discount, you should consider contacting a licensed attorney.  

When LLC owners are personally liable

- Matthew McKinney is an attorney at BrownWinick Attorneys at Law.

Entrepreneurs and business owners often elect to create a formal business entity, such as a limited liability company ("LLC"), to shield themselves from personal liability.  In other words, they create such an entity to ensure that if an adverse court judgment is entered in relation to the business' activities (e.g. breach of contract; slip & fall; infringement, etc.), the judgment is solely collectible against the LLC and not against the individual owner(s) in their personal capacity.  

A recent Iowa Court of Appeals case illustrates that limited liability is not an "automatic" benefit conferred upon business owners when creating an LLC. Specifically, the Iowa Court of Appeals determined that while business owners may set up a new entity (e.g. LLC), creation alone is not the only factor a court will assess when determining whether a business owner may be personally liable. In rendering its opinion, the Court identified six different factors a court may consider when determining whether to hold a business owner in an LLC personally liable: 

Factors that would support such a finding include [whether] (1) the corporation is undercapitalized; (2) it lacks separate books; (3) its finances are not kept separate from individual finances, or individual obligations are paid by the corporation; (4) the corporation is used to promote fraud or illegality; (5) corporate formalities are not followed; and (6) the corporation is a mere sham.

Keith Smith Co. v. Bushman, 873 N.W.2d 776 (Iowa Ct. App. 2015)

While no one factor is determinative, these factors illustrate various characteristics an Iowa court will consider in determining whether to "pierce the corporate veil" and hold a business owner personally liable. The Bushman case is yet another important reminder that while formally establishing an LLC is a great first step in seeking limited liability, it is not the only step.

To learn more about piercing the corporate veil and personal liability protections afforded under Iowa law, consider contacting a licensed attorney and 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? 


Greater transparency for out-of-state LLCs? Not so fast.

Matthew McKinney is an attorney at BrownWinick Attorneys at Law. 6a00d83452ceb069e201b8d17a5a67970c-320wi

On April 12, the 2016 Iowa Legislature passed a new law that seeks greater transparency into foreign limited liability companies (read: out-of-state LLCs) seeking to transact business in Iowa.

Specifically, the legislation (HF2373) mandates that when out-of-state LLCs apply to transact business in this state they must disclose at least one of their owners (if member-managed) or one of their managers (if manager-managed).

Importantly, the newly-passed legislation was amended on the Senate floor to remove a requirement that ALL members or ALL managers be disclosed - an important change from how the legislation was originally introduced on February 19.  

Currently, when out-of-state LLCs file an application with the Iowa Secretary of State's Office to transact business in the state, they are not required to disclose the identity of any owners or managers. This new legislation eliminates previous anonymity.

However, because Iowa law permits members and managers in an LLC to be corporations, estates, trusts, partnerships, and LLCs, complying with the new legislation would not necessarily require the out-of-state LLC to identify an actual person.  For instance, an owner in an out-of-state LLC who does not want his/her identity known under the new law could largely side-step the transparency requirement in one of two ways:


  1. If the LLC has multiple owners or managers, the individual could simply disclose another owner or manager.
  2. If the member or manager in the out-of-state LLC is a corporation, trust, or even another LLC, the owner could simply disclose that entity and thereby avoid disclosing her/her personal identity.

If you are involved with an out-of-state LLC seeking to transact business in Iowa, you should consider contacting a licensed attorney who practices in this area of law. 

Challenges in checking potential employees' backgrounds

Matthew McKinney is an attorney at BrownWinick Attorneys at Law. 6a00d83452ceb069e201b8d17a5a67970c-320wi

Steve Jobs once said, "[g]reat things in business are never done by one person. They're done by a team of people."  As many successful business leaders know, gathering the proper individuals to form a winning team, however, doesn't happen on its own.

One step that leaders often implement in assembling a winning team is to perform background checks, including past employment, criminal background, driving record, and credit history on prospective employees.

When it comes to many of these checks, however, the process is not as simple and quick as performing an internet search.  For instance, the Fair Credit Reporting Act (FCRA) governs how businesses may legally screen certain matters and the Equal Employment Opportunity Commission (EEOC) has its own interpretation of how checks may drive hiring decisions.

Moreover, while you are working to build a winning team, your prospective employee's former employer may not be willing to share detailed information about your candidate for fear of a lawsuit by the candidate alleging claims of defamation, slander, breach of privacy, and retaliation. In short, simply assembling a team can involve several legal issues.  

The foregoing merely scratches the surface on a myriad of legal issues facing employers seeking to assemble a winning team.  So, what is an employer to do to navigate these issues?

For starters, many employers make sure to utilize carefully crafted waivers, written authorizations, and releases when seeking to obtain or use information. Further, savvy employers will document certain important steps throughout the hiring / screening process.

A licensed attorney can assist with each of these items - and others - as well as provide guidance on the types of positions that Iowa law requires certain background checks be performed prior to hiring.  

5 steps to protect your trade secret

Intellectual property, including trade secrets, can serve as one of the most valuable assets in an organization.  Like most assets, however, if trade secrets are not protected, their value can quite literally vanish overnight. As such, it is important for businesses to protect their trade secrets. Here are five common practices that businesses frequently use to protect trade secrets: 
1.  Classify and conspicuously designate trade secrets.  After identifying your business' trade secret(s), clearly designating such materials as trade secret by stamping them "TRADE SECRET," is an easy first step to establishing protection. Caution should be exercised, however, when designating materials so as to avoid mistakenly identifying materials that are clearly not confidential - a mistake that can dilute the effectiveness of the entire protection process.
2. Use nondisclosure agreements.
Incorporating the use of nondisclosure agreements, especially for individuals that come into contact with trade secrets and confidential information, can add further protection. Well-crafted nondisclosure agreements often: (1) identify materials that are deemed trade secret/confidential; (2) include disclosure restrictions (e.g. restrictions on disclosure to vendors and other third-parties); (3) address the term of protection (e.g. perpetual v. term of years); and (4) provide for enforcement.
3.  Incorporate destruction strategies.
Using shredding equipment when disposing of physical materials that may reveal trade secret information is yet another logical, yet often overlooked step in protecting trade secrets. Caution must also be exercised when disposing electronic equipment that has stored trade secret information.  
4.  Adopt computer security practices.
Trade secrets and confidential information contained in computer systems may be protected through encryption as well as strong passwords and restricted access. Such practices help reduce misappropriation by not only outsiders, but also by inside employees with ulterior motives.
5.  Proactively consider departing employees.
Whether during an exit interview or otherwise, when employees depart it serves as a logical opportunity to remind employees of their confidentiality obligations and be provided with copies of any nondisclosure agreements.
If you are working to protect a trade secret, you should consider contacting a licensed attorney who practices in this area of law.


Anonymous ownership in an Iowa LLC

PGP_1038Matthew McKinney is an attorney at BrownWinick Attorneys at Law.

In today’s business world, the internet is in everyone's pocket and privacy has become a precious commodity. Nearly all states publish “public information” on the Internet, allowing anyone with a smartphone to obtain detailed corporate filings with the flick of a finger, for free, or for a very modest cost.

So, in this highly-connected information age, is it possible for you, as a business owner, to keep your identity as an owner in an LLC anonymous?

The answer: it depends upon in which state you choose to form your legal entity. For example, when filing in Arizona to create an Arizona Limited Liability Company, the business owner should first consider that Arizona law requires disclosing - in a public filing accessible online - each member (i.e. owner) in the LLC under many circumstances.  See Arizona Revised Statute 29-632.

Comparatively, Iowa law does not require business owners in an LLC to reveal their identities. This subtle, yet important distinction for many business owners, may dictate the state in which the company is ultimately organized and underscores the importance of seeking legal counsel who can guide you through such considerations before forming a legal entity.

Iowa's open records law - who, what, when, and why?

Matthew McKinney is an attorney at BrownWinick Attorneys at Law. 6a00d83452ceb069e201b7c7f097a3970b-320wi

Iowa's Open Records laws permit Iowans and Iowa businesses to obtain numerous types of records and communications from government bodies and officials. Frequently, Iowans and Iowa businesses use these laws to obtain general information about government activities as well as information about how competitors may be communicating with the government. Access to such records is governed by Iowa Code Chapter 22.

Who may request a public record?

Iowa Code Chapter 22 explains how "[e]very person shall have the right to examine and copy a public record..." Iowa Code 22.2 (emphasis added).  Put another way, Iowans and Iowa businesses have the right to access qualifying public records.  

What constitutes a public record?

Iowa law defines a public record broadly and includes, among other things, "all records, documents, tape, or other information, stored or preserved in any medium, of or belonging to this state or any county, city, township, school corporation, political subdivision." Iowa Code 22.1(3).  In other words, letters, emails, text messages, and other correspondence are all examples of public records. In describing the breadth of Iowa's Open Record laws, the Iowa Supreme Court acknowledges "[t]he right of persons to view public records is to be interpreted liberally to provide broad public access to public records." Gannon v. Bd. of Regents, 692 N.W.2d 31, 38 (Iowa 2005). It should be noted that at the time of this publication, Iowa law recognizes nearly seventy different categories of "confidential records."  See Iowa Code 22.7.  

When must public records be provided?

Generally, upon making a proper request, records should be provided by the government body to the requesting party in a prompt manner. Notably, however, Iowa law permits the records custodian a "good-faith, reasonable delay" to determine whether the government record in question is a public record, or confidential record. See Iowa Code 22.8(4).

Why does Iowa's open records law exist?

"The purpose of the statute is to open the doors of government to public scrutiny [and] to prevent government from secreting its decision-making activities from the public, on whose behalf it is its duty to act... Accordingly, there is a presumption of openness and disclosure under this chapter." Horsfield Materials, Inc. v. City of Dyersville, 834 N.W.2d 444, 460 (Iowa 2013), reh'g denied (Aug. 6, 2013).

If you are considering making an open records request, you should consider contacting a licensed attorney who practices in this area of law.  


Single taxation versus double taxation and the Iowa LLC

PGP_1038-Matthew McKinney is an attorney at BrownWinick Attorneys at Law.

As discussed in this prior post, Iowa Limited Liability Companies have the benefit of electing to have a single layer of tax.

When an LLC chooses a single layer of tax, LLCs are taxed as pass-through entities, meaning all earnings pass through to its members (i.e. owners) in the year they are earned and are not taxed at the corporatelevel. Comparatively, in a traditional corporation, the corporation is taxed on earnings and then its shareholders (i.e. owners) are taxed on any dividends when distributed - often referred to as double taxation.

For demonstration purposes, the following example helps illustrate the difference.

Assume ABC Entity, a new small business, sells 100,000 widgets for a net taxable income of $100,000. Assume that the tax rate for corporations on this income is 20 percent, and the personal income tax rate for the owner is 25 percent. ABC Entity and its owner would pay the taxes shown on the following table. 



LLC Electing Pass-Through Taxation

Corporate Net Income (Revenue-Costs)



Corporate Tax @ 20%



Income Available To Distribute



Dividend Taxes @ 15%



Personal Income Tax @ 25%



Earnings After Taxes



Pass-through taxation can have significant advantages for small-business owners. In this hypothetical, ABC Entity's owner would save approximately $7,000 in taxes. Actual results will vary depending on the size of the business, the owner’s other income, and the marginal tax rates of the corporation and owner.

3 key differences between an Iowa LLC and a corporation

PGP_1038Matthew McKinney is an attorney at BrownWinick Attorneys at Law.  

Whether you are looking to form a new business, or perhaps you are seeking personal liability protection by "upgrading" your existing business entity, you may find yourself wondering what is the difference between an Iowa Limited Liability Company (LLC) and a traditional Iowa Corporation (C-corp). Here are three key differences between an Iowa Company (LLC) and an Iowa Corporation (Inc.): 

  1. Single Taxation v. Double Taxation LLCs may be treated as "pass-through" entities at the election of its owners. In other words, the members (i.e. owners) of an LLC are allowed to pass their share of the company's profits to their personal income tax return. A corporation on the other hand has two layers of taxation. A corporation's first tax level occurs when the company files taxes as a business. The second tax occurs after dividends are paid to the corporation's shareholders, who are then required to pay taxes on dividends received from a corporation on their personal income tax return. In short, while members in an LLC can take advantage of a single layer of taxation, shareholders in a corporation cannot.  
  2. Legal Formalities Iowa business law requires corporations to follow many more formalities than their LLC counterparts. For example, corporations must maintain certain books and records of the corporation, including minutes from all director and shareholder meetings  Comparatively, LLCs are not required to maintain minutes from meetings that occur. Similarly, while a corporation is generally required to have an annual meeting, there is no such formal requirement for LLCs. Additionally, while LLCs are not required to create financial statements that detail the company's financial status, corporations are required to prepare annual financial statements for its shareholders.  
  3. Management Structure Members in an LLC can elect to manage the LLC's daily affairs. Alternatively, the members can also choose to hire non-member managers to oversee day-to-day activities. Such flexibility allows an LLC's owners to participate in managing the company. Comparatively, corporations have rigid management structures that must be followed and which consist of shareholders, directors, officers and employees. As a result of such rigid structures, unlike an LLC, the owners (i.e. shareholders) do not necessarily participate in managing the entity, which in a corporation is generally left to elected directors and officers.

Iowa shareholders can remove a director from the board of directors

PGP_1038Matthew McKinney is an attorney at BrownWinick Attorneys at Law

Shareholders in large and small corporations often inquire: How is a director removed from a corporation’s board of directors?

The question may be posed out of concern that the shareholder – who also serves as a director – feels threatened about being ousted as a director. Alternatively, the shareholder may be frustrated with a particular director’s conduct and is seeking a change in board composition and leadership. Either way, in theory, removing a director from a corporation’s board of directors is relatively straightforward.

As the corporation’s owners, shareholders possess power under Iowa law to “remove one or more directors” in an Iowa corporation. Importantly, pursuant to Iowa law, so long as the corporation’s articles of incorporation do not state otherwise, “shareholders may remove one or more directors with or without cause.” In other words, if the corporation’s articles of incorporation are silent and do not address the issue, shareholders may remove a director or directors without providing any justification for their decision – they can simply act and remove the director(s).

Notably, however, if a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that director.

As with many corporate actions, removing a director requires shareholders to follow a very specific process. For instance, as of the time of this posting, shareholders may only remove a director at a shareholder meeting that is called for the express purpose of removing the director and after proper notice is provided. The notice must state that the purpose (or one of the purposes) of the meeting is removing the director(s).

Additionally, a shareholder may also petition a court and request a judge remove a director from the board. Not surprisingly, there is also a very specific process by which to seek removal through the court system.

If you are considering removing a director from your Iowa corporation’s board of directors, or if you are a director concerned about future removal, you should consider contacting a licensed attorney who practices in this area of law.

Do equal, 50/50 shareholders owe each other fiduciary duties?

SealIAMatt McKinney is an attorney at BrownWinick Attorneys at Law

Fiduciary duties are often described as the highest duties recognized under the law. Their application, however, is often challenged by litigants in court.  In a recent case before Iowa's Business Court, the Honorable Judge John Telleen was tasked with determining whether equal, 50/50 shareholders in a corporation are charged with exercising fiduciary duties in their dealings with each other. 

Judge Telleen began the June 4, 2015 opinion by explaining Iowa's long history of applying fiduciary duties: (1) by directors and officers of a corporation to the corporation and its shareholders; (2) between a majority shareholder and a minority shareholder; (3) between joint venturers through the life of a venture and its dissolution; (4) between partners in a partnership; and (5) between shareholders in closely held corporations.  After reviewing and explaining Iowa's well-established history of applying fiduciary duties in numerous business settings, Judge Telleen concluded, "[e]qual shareholders owe each other a fiduciary duty" (emphasis added).  In support of this holding, the court explained

[i]f equal partners, joint venturers and shareholders in closely held corporations owe each other [sic] fiduciary duties, the Court sees little reason why those same duties should not be required of equal shareholders.  

Based upon the holding in this June 2015 opinion, 50/50 shareholders in Iowa corporations should consider exercising caution in their dealings with one another consistent with the fiduciary duty concepts adopted and imposed upon Iowa shareholders.

Click here to learn more about the who, what, when, where, and why of fiduciary duties.  

Download a copy of the June 4, 2015 Opinion.  A special thank you to Ben Weston, of Lederer, Weston, and Craig for providing a copy of the opinion.  

Protecting your trade secret in a court of law

Matt McKinney is an attorney at BrownWinick Attorneys at Law   Matthew McKinney Iowa Attorney

Savvy business owners understand the value of protecting proprietary information, especially when the information provides a competitive advantage in the marketplace (commonly referred to as a trade secret).  What happens, however, when your business is unexpectedly defending claims in our public court system or protecting itself by filing a lawsuit in open court?  Will your business trade secrets be publicly exposed?  Will a competitor have access to the court's public records (now online statewide) and the ability to review proprietary practices, pricing, or customer lists revealed through litigation?  Fortunately, Iowa's courts are empowered to protect your business' trade secrets.  

A recent Iowa Supreme Court opinion, filed June 26, 2015, identifies several protections that Iowa's courts may employ to preserve trade secrets, including:

  1. Closing court proceedings to the public;
  2. Sequestering witnesses during testimony of other witnesses;
  3. Excluding parties from the courtroom when trade secrets are presented;
  4. Restricting attendance at trial; 
  5. Sealing transcripts of court proceedings.
Our high court also recognized “[i]t would be of little practical value to file a lawsuit to protect the confidentiality of a trade secret if the secret became part of the publicly available court record and was thereby lost.” In short, while our court system is open and public by design, sophisticated parties can and do protect their trade secrets in the court of law.  
Click here to learn more about whether your information may qualify as a trade secret in Iowa.

The 2015 Iowa Legislative session - By the numbers

Matt McKinney is an attorney at BrownWinick Attorneys at Law  6a00d83452ceb069e201b7c77f9c7f970b-320wi

The 2015 Iowa legislative session ended June 5, a little over one month longer than originally scheduled (May 1), but  earlier than June 30 date that some had projected.

Here is a look at some stats for the 2015 session:

  • 145 calendar days in which legislature was convened (January 12 - June 5).
  • 1832 bills introduced.
  • 98 of those bills, to date, have passed the Iowa House of Representatives and the Iowa Senate and have been signed into law by Gov. Terry Branstad.  An up-to-date list of all bills signed into law by Gov. Branstad can be found here.  
  • 30 days. The governor has 30 days to sign a bill passed by the legislature or it is effectively vetoed.  Considering that a number of bills were sent to Branstad in the past 30 days, many will wait until July, 5 to learn the fate of all bills.  
  • Jan. 11, 2016: The date the legislature will reconvene unless a special session is convened.
  • Of the 1832 bills introduced, the Iowa House and Iowa Senate Judiciary Committees saw the most. The tables below identify the respective committees and number of bills in each chamber:
House Committees# Bills 
Judiciary 86  
Education 66  
State Government 49  
Human Resources 44  
Ways and Means 40  


Senate Committees# Bills 
Judiciary 77  
Education 59  
Ways and Means 57  
State Government 53  
Human Resources 34



Cleansing emails may muddy legals waters

Matt McKinney is an attorney at BrownWinick Attorneys at Law 6a00d83452ceb069e201bb08175a84970d-320wi

Scrubbing emails has been the topic of conversation amongst political pundits over the past few weeks, but how, if at all, can cleansing emails create legal problems for your business?

One example... the Court system.

In short, Iowa law generally prohibits individuals and businesses from destroying evidence, such as emails, that would be relevant to an existing case or case that is reasonably anticipated. Importantly, this long-standing principle applies whether the matter is a criminal or civil case. 

Our Iowa Supreme Court has recognized that “[i]t is a well established legal principle that the intentional destruction of or the failure to produce documents or physical evidence relevant to the proof of an issue in a legal proceeding supports an inference [that a jury may be instructed about] that the evidence would have been unfavorable to the party responsible for its destruction or nonproduction.”  Phillips v. Covenant Clinic, 625 N.W.2d 714, 718 (Iowa 2001). 

Importantly, the inference is regarded “as an admission by conduct of the weakness of the party’s case,” and is based upon “the common sense observation that a party who destroys a document with knowledge that it is relevant to litigation is likely to have been threatened by the document.”  Id. 

Based upon the forgoing, when litigation is filed or even reasonably anticipated, parties are often advised they should institute what is commonly referred to as a “litigation hold,” and preserve relevant evidence, including emails. 

Consequently, before your business begins cleansing emails and shredding documents, you may want to think twice and consider whether such cleansing is truly beneficial or whether its the first step in muddying legal waters. 

Cybersecurity and your board of directors

Matt McKinney is an attorney at BrownWinick Attorneys at Law  PGP_1038

A recent court opinion underscores the importance for a company's board of directors to assess cybersecurity. As we've explored in several prior posts, directors are charged with exercising fiduciary duties, including the duties of care, loyalty, and oversight.

It is this latter duty - the duty of oversight - that resulted in a plaintiff filing a lawsuit against against his corporation and the corporation's board of directors for failing to exercise proper oversight that purportedly harmed the company.

The opinion provides valuable insight into steps that directors may undertake to minimize potential liability (both to the company and personally) for such claims.  For instance, the court noted the asserted claims were potentially weak because the company implemented cybersecurity measures before the first data breach.  

Further, the board addressed security matters "numerous" times before the breach.  Moreover, the corporation took time to enact security policies, reviewed those policies, and even hired outside technology firms to issue recommendations on enhancing security.  Had the company not taken such proactive steps, including before the breach occurred, the outcome certainly could have been different.  

While there is no one-size-fits-all approach to data and cybersecurity, given the increasing threat such issues pose to companies, a board should at the very least consider data and cybersecurity in fulfilling it's fiduciary duties.  Such consideration may result in no action being taken, or it may result in consulting with privacy counsel, technical experts, or insurance professionals to insure against cyber-related liabilities (including costs related to forensic analysis, breach notification, business downtime, credit monitoring services, and third-party claims).

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

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.