Harness the Power of Incorporation: The Small Business Entrepreneur’s Invisible Friend

Posted on May 22, 2010 by Rick Massey

Consider the forward thinking and planning that went into building the Gateway Arch. 630 feet wide and 630 feet high, every detail had to be precise beginning with the foundation. When its two legs were joined by the insertion of the final four foot piece at the top, everything had to line up perfectly. Anything less would have been a disaster.

Your new business is to be your memorial. So the foundation – the legal framework needs to be solid and enduring. Some people get discouraged by the alphabet soup of legal options. Do you need an LLC, LLP, C-corp, S-corp, or some other legal mumbo-jumbo? Learning all of this stuff, in which you probably have very little interest, should not get in the way of building your business. Like a well built automobile, your business framework should be versatile, rugged and dependable. You know how to drive. And you know where you want to go. You should not have to learn everything about how the engine works before you can get started. You just need to know what kind of automobile is most likely to meet your needs.

There are various ways to incorporate your business. But they all share the primary goal of protecting you from personal liability. In theory at least (there are notable exceptions), you can start any business without fear of losing your house or your life’s savings regardless of how bad your decisions or your luck turn out to be if you take full advantage of the laws of incorporation.

Corporations are amazing creatures. They are the scapegoats of modern business owners. In ancient times, the High Priest would lay hands on the scapegoat and symbolically transfer the sins of the people onto the animal. The goat would then be chased off into the wilderness to atone for the sins of the people. That’s what corporations do. They quite literally legally serve as a “person” that takes on all of the blame – and the resulting loss for the business owner’s bad decisions.

For that reason, the ability to incorporate either as a limited liability company (LLC), C-Corp, S-Corp, limited liability partnership (LLP) or other fictitious legal entity is among the most powerful and important instruments in the small business creator’s toolbox. These tools are widely accessible. But choosing the right tool can be confusing. And the significance of your choice of business entity cannot be overstated. This legal structure will be the framework upon which the entire business entity stands or falls. If you die, decide to sell your business, or if someone files a lawsuit against you, the structure of your business entity can make a major difference in how things play out.

For most Missouri small business men and women there are three important things to know.

  1. You really need to do it. Simply registering a fictitious name with the Secretary of State will let you open a bank account. But it will not offer you any of the protections these legal entities provide.
  2. For most businesses, you need to choose between one of two kinds of business entity – corporation or LLC.
  3. If you are starting a small business and don’t expect to make a lot of money in the first year or so, an LLC may be the best choice for you.

The LLC has a lot of flexibility without the rules, formalities and structural requirements of a Subchapter S corporation. On the other hand, if you expect to generate significant profits early in the life of the business the additional red tape and reporting requirements of the corporation may make more sense for your situation. This is because even though LLCs and Subchapter S corporations both offer pass-through taxation (and therefore avoid double taxation on the company’s profits), there may be significant tax savings by choosing the S-Corp over an LLC if you generate profits beyond what you would normally take as a personal salary in the first year or two.

If you do decide to go with a corporation, LLC or other business entity, you need to realize that you will not get their protections unless you do them right. Setting up these entities without the proper follow-though can result in the same consequences as you would have faced if you had not done anything at all. The best way to cut through the jungle of options is to consult with a lawyer that knows and understands the needs of small business. Going that route is a lot less painful than trying to figure it all out by yourself and guess whether or not you did it right. Because there are experienced business attorneys that don’t charge anything for an initial consultation, there really is no reason not to be safe now rather than sorry later.
Rick D. Massey, JD, Copyright © 2010

Posted in Protecting Small Business | 3 Comments

Missouri Lawmakers Still on the Cutting Edge of Nineteenth Century Ideals

Posted on April 27, 2010 by Rick Massey

Back in the good ole’ days, divorce was among those special privileges reserved for rich people. Given enough money, anything is possible. It seems that some Missouri lawmakers would like to set everyone’s clock back a hundred years or so. Not satisfied with stopping gay people from getting married, Missouri Puritans want to stop everyone else from getting divorced. A new law currently before the Missouri House would repeal the State’s no-fault divorce and impose a two-year waiting period. This could return us to a quieter time when white men controlled their households and women knew their place.

Before states began to change their laws to provide for “no fault” divorce, things were not so good for poor women or for their children. But things were pretty good for rednecks, bullies, and religious fanatics. You could not get a divorce as long as your spouse did not want one unless you could prove something really bad about your spouse.

This gave rise to the cottage industry that has been immortalized in sleazy detective stories. If you were rich, you hired someone to follow your spouse around, take a bunch of pictures, and dig up enough dirt to get your divorce granted. Even if your spouse was clean as a whistle, enough money could usually turn up someone willing to testify about your spouse’s secret dark side. By this time, the spouse that was refusing to grant your divorce before was probably ready to sign anything just to get rid of you. Problem solved!

If you were poor, and especially if you were a woman and married to some controlling creep who didn’t “believe” in divorce, but did believe in beating you up in private and sleeping with everyone else in the neighborhood – well you were just out of luck. No one really cared much what happened to you behind closed doors anyway. Because your friends and neighbors were most likely birds of the same impoverished feather, they had their own problems. Meanwhile, the “haves” of the village, completely oblivious to how their rules affected the lives of the “have-nots”, attended their church functions and cocktail parties and patted one another on the back to salute the statistically low divorce rate in their community.

We can only hope there are enough rational twenty-first century legislators in the Missouri House to keep HB1234 from becoming law. Many of my colleagues are already expressing concerns that this will make people think twice about getting married in the first place. People with the means and foresight will get around the law by drafting contractual arrangements to avoid getting trapped in a terrible marriage. Those less fortunate who cannot afford to hire creative lawyers will simply live together and not get married at all. Surely that is not the result these lawmakers intended. But then it wasn’t thinking things through that got them far enough down the road to draft such a stupid puritan law in the first place.

Rick D. Massey, JD, Copyright © 2010

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The Truth about “Free” Legal Forms

Posted on April 7, 2010 by Rick Massey

Don’t be misled. If you see any company offering “free” Missouri divorce forms – don’t walk – run from that slippery sucker! They aren’t going to give you anything.  Then if they want to sell them to you, run faster!  They want to lure you into their reach so they can sell you something that in many cases you can’t even use. They don’t spend advertising dollars just so they can give you something for nothing. Worse yet, the Missouri Courts actually do provide free Dissolution of Marriage forms directly to the public. Because the Missouri forms were drafted and approved by the Missouri Supreme Court, many Missouri Courts will not accept the forms these companies created in the first place. If a company is trying to steer you toward anything else, you will pay for that something else you finally do get.

What About Cheap Forms?

Some online options enable people to do virtually all of the paperwork for uncontested divorces themselves. These companies usually charge between $250 and $300 to prepare basic uncontested divorce forms. However, because these are document companies and not law firms, there is no legal representation. They only provide a set of document templates (that may not be accepted by many Missouri Courts) and some automated word processing.

Anyone in Missouri that is considering going it alone without an attorney to assist with his or her divorce proceeding should, at least go online to the Missouri Courts’ Litigant Awareness Program. This program explains the risks of going through the process without an attorney. It helps you determine whether or not you are a good candidate for representing yourself. And finally, it generates a certificate of completion that many Missouri Courts require if you are filing without an attorney.

There are Affordable Options – You Just Have to do Your Homework

So is there really any such thing as a free dissolution package? Yes. Well, almost. If you go to the Missouri Courts’ website, complete the Litigant Awareness Program, and download and complete the free forms in their Dissolution of Marriage Package, then your only costs for an uncontested divorce will be the filing fee and (if necessary) the service of process fee.

If you want to represent yourself, but also want assistance in completing the free forms followed by professional legal review to make sure you don’t miss something important, all of that is available for less than some companies charge for the forms you didn’t need to buy in the first place.

It’s your life and your money. So you have to make your own decisions. But be careful. You know “there ain’t no free lunch.” So if it seems too good to be true, step up, brace yourself and grab your ankles.

Rick D. Massey, JD, Copyright © 2010

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Who Says You Are Dead?

Posted on March 12, 2010 by Rick Massey

 

For some of us, the answer depends upon on a particular religious belief. For others, it may be determined by a personal feeling that is not easily defined by religion or any established philosophy. For the rest of us, it may have more to do with our convictions about the quality of life and the when it makes sense to simply let go.

As Arri Eisen, a Senior Lecturer at Emory University points out in his discussion of a recent article in the New England Journal of Medicine, the answer is even less clear cut than you may think.

When researchers in Belgium attached more than fifty patients that had been proclaimed to be in a “persistent vegetative state” to an MRI machine to monitor active neurons in the brain, some of them did not respond exactly like vegetables! In fact, some of them while lying there in an apparent state of total oblivion, indicated brain activity in response to specific questions exactly the same as most of us would experience. Their brains light up with a “yes” or “no” response just like everyone else’s.

Aside from the fascinating philosophical questions this suggests, I believe it introduces another practical consideration for those people facing end of life decisions for themselves or for their loved ones.

Should the family demand an additional MRI test similar to the one conducted in these experiments when a doctor proclaims the patient to be brain-dead? For some it may not make much difference. Is it better to go on “living” when you are totally cut off from the rest of the world with no realistic hope of rejoining them? What about the traditional approach of removing artificial feeding and hydration when there is a possibility that the “vegetable” may know what you are doing?

If nothing else, this reinforces something I have believed for a long time: we never know as much as we think we do about the realities of the universe. When in the presence of a loved one that seems gone already, I am not sure people always conduct themselves as if the person can nevertheless hear and understand what is being said. Maybe this is one more reason we should assume they can – even if they probably can’t – just in case.

As a long-time advocate of preparing advance healthcare directives (“living wills”) both to ensure that your own wishes are known and followed, and to spare your loved ones the stress of having to make these decisions for you, it seems to me that this adds another layer to an already complex problem. If we are indeed all free to control our own destinies with inalienable rights to “life, liberty and the pursuit of happiness”, we should have and exercise the right to make the ultimate decisions concerning our own life and death for ourselves. These decisions should be based on our own convictions and philosophical or religious beliefs. And they should never be forced upon us by the convictions or beliefs of anyone else. The law does not completely protect that right so far. But it does go a long way in that direction.

Science does not (and should not) provide these answers for us. But it does provide more information with which to make our decisions.

Rick D. Massey, JD, Copyright © 2010

Posted in Watching Your Egg Basket | Leave a comment

Do You REALLY Need a Will?

Posted on February 28, 2010 by Rick Massey

I am often asked whether or not one really needs a will at all. The assumption is that because Missouri’s intestate statutes govern what happens if you die without a will, and because the division of property is handled pretty close to the way you probably would have wanted it anyway, why bother? Unfortunately, many people who assume they don’t need a will may be inadvertently making things much more difficult than necessary for their loved ones – or worse, leaving them out entirely.

One of three things will happen when you die in the State of Missouri: some of your property will go into probate (see below); all of your property will go into probate; or your property will completely avoid probate.

Probate is the legal process that governs what happens to your property, minor children, and your remaining debts and obligations that were not otherwise dealt with before your death. The purpose of a will is not to avoid probate, but to retain better control over how your estate is administered through the probate process.

Based on all of that, the real question is not so much whether or not you need a will. The question is whether or not you need to do some estate or life planning that may include a will and other tools to better control your destiny, that of your children, and the final disposition of your most important things.

It is true that not everyone needs a will. But almost everyone can benefit from some basic estate planning. If you are still very young, don’t have a large estate, don’t have children, and don’t care if what you do have is tied up in probate for a while after your death, you probably don’t need all of the bells and whistles of a complex, attorney drafted estate plan. Even so, you do need to know the pros and cons of the basic options that are available to avoid probate (such as living trusts, beneficiary deeds, and transfer on death designations). Therefore, it is still wise to consult an attorney to discuss your intentions just to make sure you are not overlooking something important. For example, TOD (transfer on death) designations on items such as motor vehicles, and carefully choosing beneficiaries on insurance applications usually work just fine for those situations. But when someone unexpectedly dies before you, these can lead to unintended results.

You also need to prepare an Advance Healthcare Directive (also known as a Living Will) to determine what happens to you if you are not able to speak for yourself. You can do most of these things without spending a lot on legal fees. You can get the forms for free from the Missouri Bar Association’s website. And you can view a free tutorial that walks you through the questions on the form at my website. If you decide to delay all other estate planning, you should at least do this. It doesn’t cost anything. And it can save your family a lot of stress and unnecessary anguish if something happens to you. While you can obtain and prepare this document for free, you should strongly consider combining it with a Durable Power of Attorney. That way, you can delegate financial control to your agent to make decisions involving additional expense. You can also download a Durable Power of Attorney form at the same website. Of course you should never execute either of these documents for anyone that you do not absolutely trust with your life.

If you have a total estate (including proceeds from life insurance) totaling $500,000 or more, you need professional estate planning. If you have minor children and want to choose who will take care of them if something happens to you, and you want to provide for them after you are gone, you need professional estate planning.

If you do not belong to a “traditional” household, you should think long and hard about getting professional help with your estate planning. If you have a life partner to whom you are not married, you need formal estate planning. If you are a gay or lesbian couple you need special planning with an attorney that understands the legal options that are available to you to help compensate for the unfair and discriminatory laws that otherwise deny you many of the rights and privileges everyone else takes for granted. Your estate plan should be more of a Life Plan because you face additional challenges (such as maintaining the right to see your partner in the hospital, or to handle burial details) as well as many personal and property rights issues that no else has to worry about.

You can, of course, download forms for all of these documents from various places on the internet.  Some are better than others.  Some are actually pretty good.  But they are all missing one very important thing: the advice and direction of an attorney that knows and cares about the end result.  Everyone is unique.  Every situation is different.  Out of the box forms can never replace the careful editing and crafting of a professional that understands and cares about your needs and your circumstances.

Rick D. Massey, JD, Copyright © 2010

Posted in Watching Your Egg Basket | Leave a comment

Virtual Persons?

Posted on January 31, 2010 by Rick Massey

Did things really get so bad so fast? Or have we all been asleep while our status as human beings was being systematically destroyed? Our country gained a lot of ground in the last fifty years. We evolved from a political system that did not understand the simple fact that all people should be entitled to the same basic human rights, to one in which it became illegal to discriminate against anyone based on color, race, sex (as long as one follows the government sanctioned and accepted definitions of sex), or religion (well sort of until recently anyway). But on January 21st, the United States Supreme Court finally placed the cherry on top of the dismantling of every moral and decent principal this country is supposed to represent.

Corporations do NOT really exist. They are fictions created by lawyers and business people. Corporations are nothing more than fairy tale entities whose only function is to protect business people from being held legally responsible for their actions. They are quite literally nothing more than a group of business people’s imaginary friends. Yet these fictitious entities gained equal rights to those of real flesh and blood human beings long before black people were allowed to sit on the bus or eat in the same room with everyone else – long before women were allowed to vote. And now, these non-existent phantoms have been handed the legal right to control our political system. If I sound disgusted, that does not scratch the surface.

The corporatization of this nation has now reached an unprecedented low that could well mean the end of any pretense that we still have a democracy. The highest Court in the land has officially placed the control and leadership of America on the auction block for sale to the highest bidder. I wish this were an exaggeration. But it is simply the plain and honest truth. Congressman Alan Grayson has accurately summed up the results of this ruling.

By gutting the 100-year-old Tillman Act ban on corporate contributions, the U.S. Supreme Court has opened the door to political bribery and corruption on the largest scale imaginable. As Teddy Roosevelt said at the time, ‘property belongs to man, and not man to property.’ That’s why we have federal election laws, and that’s why we need them, both then and now . . .

George Orwell’s 1984 in which the government convinces everyone that the lie is the truth and that the obvious reality is the lie, has clearly come to pass. In deed our government has a pretty dismal history of figuring out what a “person” is. In 1857, the Supreme Court declared that Dred Scott had no authority to sue anyone because a slave was property and not a “person” under the U.S. Constitution. A mere twenty-nine years later (1886), and only eighteen years after the 14th Amendment (1868) guaranteed equal protection to every “person” in this country, the Supreme Court not only acknowledged the right of corporations to equal protection of the laws afforded to “persons” under the Constitution, but said so in a smug almost matter of fact fashion.

The Court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution which forbids a state to deny to any person within its jurisdiction the equal protection of the laws applies to these corporations. We are all of opinion that it does. Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394

This insanity has culminated in our lifetime in the ridiculous argument that because corporations are “persons” whose right of free speech is protected under the Constitution, no law should restrict the amount of money a corporation may spend to drown out the voices of the actual people in this country who presumably also still have a right to “free” speech as long as they can afford it. This is a High Court and a government that cynically believes you and I are too stupid to tell the difference between “persons” and fictitious human-created entities – or between “speech” and money.

If you don’t think elections can be bought in this country, you must know something the politicians and PR agencies have missed. They already spent unbelievable amounts of money in their efforts to win elections. They have always done so. But in the past, the money had to come from identifiable human sources. If someone wanted to put up money in the name of his or her imaginary friend: those amounts were strictly limited. All of this came out of the archaic idea that in a democracy, the people (you know the old fashioned definition of people, human beings) have a right to know who is speaking and who is behind the candidate that is running for office.

No longer is it necessary to bribe candidates behind closed doors. We now live in a country that sanctions the right of wealthy conglomerates to openly bribe them and to use their power to remove them from office.

This was beautifully summarized in an old episode of Giligan’s Island. Someone reminded the millionaire, Mr. Howell that “all men are created equal.” Mr. Howell responded, “created equal of course, but once a man comes into money . . .”.

Rick D. Massey, JD, Copyright © 2010

Posted in Politics | 2 Comments

Another Side Effect of the Economy: Legal Professionals Gradually Accept the Twenty-First Century

Posted on June 23, 2009 by Rick Massey

I am not incredibly old. But I do remember full-service gas stations. All you had to do was pull up at the pump. They were watching for you inside. They would come running out before you had time to shut off the engine. They would wash your windshield, check your radiator and your oil, inflate your tires and ask “fill’er up?” while you sat there waiting for their next question.

As I recall, these full service gas stations did not move into extinction because no one wanted to offer the service anymore. The world changed around them. When gas jumped to more than twenty-five cents a gallon, forward thinking gas station owners found a way to satisfy their customers’ desperate quest to pay less for a tank of gas. As it turned out most people were perfectly capable of pumping their own gas and were more than willing to do it if it didn’t cost so much to fill up their tanks.

As an attorney who deals with business people every day, I have watched the winds of change transforming every profession. And the practice of law is no exception. People are better educated and in a better position to do things for themselves than they were even a few years ago.

Legal services are very expensive. According to a 2008 survey of 127 law firms, the national average exceeds $350 per hour – and actually increased at the same time the economy was rushing down the tubes for most businesses. In the St. Louis area, it is virtually impossible to get a lawyer to take even a small case for less than a $1,500 retainer. And at $175 to $250 or more per hour it doesn’t take long to burn through that first retainer payment. But do these services have to be so expensive? The secret is out. They really don’t have to be. And people do have options.

The Premium Services of Traditional Law Firms are Beyond the Reach of Many Who Need Legal Services

Does it really make sense to pay for legal services that are still based on a pricing model that was designed to accommodate the business world before word processors, e-mail, data bases, document merge programs, laser printers, and on-line legal research?

I was negotiating a legal settlement with an attorney for one of the big-name law firms several years ago. The gentlemen was very professional, extremely bright, and obviously had years of legal experience under his belt. However, he was definitely “old school.” Because I was General Counsel for the client I represented in this transaction, he made particular assumptions about me – assumptions that may have been true twenty years ago, but are not true today. He had spoken with my paralegal earlier in the process, but I guess he couldn’t remember her name. “Just have your girl draw this up and send it to me, and we should be good to go”, he said. He had no idea that I draft my own legal documents because I don’t dictate documents and letters, and I can do it myself in the same amount of time it would take to communicate what I wanted to someone else.

On the other hand, once I get something started, I often ask my paralegal to review, edit and format the documents because she is better at all of this than I am and can do it in a fraction of the time. Even so, all of this will take her infinitely less time today than it would have with the best technology that was available when we were watching Perry Mason dictate his letters to Della Street. It is time for the legal profession to come to grips with the fact that people don’t work the same way in 2009 as they did in 1979.

Missouri Officially Adopts a Rational Solution

As is the case with any profession, the prospect of change is perceived as a threat by many old-timers, and the idea of providing legal services in a more cost efficient way by “unbundling” the mix of legal services provided by attorneys has not exactly been welcomed by the legal community. The concept is not new. But until recently the law has been unclear. The manner and extent to which these services should be permitted varied between different Missouri courts and judges.

On December 21, 2007, the Missouri Supreme Court adopted rule changes to clarify the boundaries lawyers must follow in offering limited scope representation to their client. The final amendments to the new rules became effective on July 1, 2008. While some attorneys continue to be highly skeptical of this approach, others have embraced these changes as an exciting opportunity for change to benefit individuals, business people, and the legal profession.

Unbundled legal services are segments of legal representation that are carved out and offered in blocks that may be purchased separately or partially performed by the client. Because lawyers and clients can limit the scope of the attorney’s representation, clients can decide how much or how little they want to participate in the process. The component portions of legal representation traditionally reserved exclusively to lawyers such as performing legal research, gathering of facts, drafting and responding to discovery, negotiation, drafting of court documents, trial preparation and court representation may now be allocated between the lawyer and the client, based on the client’s education, comfort level, and ability to pay.

The lawyer is still responsible for advising the client and for letting the client know if the case is becoming too complex for a non-lawyer to handle. But this gives clients more control over their own case than ever before. More importantly, it makes the courts available to many people who would never have their day in court if making that happen depended on their ability to finance every aspect of the case.

In the future, taking a more active role in one’s own legal services will be as natural as purchasing and using a home pregnancy kit, or pumping your own gas. That future is approaching fast.

Rick D. Massey, JD, Copyright © 2009

Posted in Legal Trends | Leave a comment

Have a Dispute with a Credit Card Company? Good Luck Getting a Fair Hearing.

Posted on May 3, 2009 by Rick Massey

Unfair Binding ArbitrationEveryone has heard that we were all created equal, but some are more equal than others. The law applies to credit card companies the same as to the rest of us. But they have exercised one of the fastest growing special rights that only apply to a privileged few – the right to buy justice. We all know major banks have employed lobbyists to buy legislation permitting them to charge usurious interest rates and to raise them at any time. But few realize this is the tip of a much larger iceberg many debtors will encounter soon.

People who have had their houses burglarized often say they feel as though they have been personally violated. Thanks to a huge brick that has been thrown on the big business side of the scale of justice, we have all been personally violated unless we are a large corporate entity. That brick is called “binding arbitration.” And it almost completely separates you from your constitutional right to a fair and meaningful trial.

Suppose you are the CEO of a major credit card company. When you meet with the mega law firm to discuss how you would like your contracts drafted, you are looking for a number of things. But these four will always be at or near the top of your wish list:

  • Reduce your costs of litigation
  • Structure your contracts for the highest probability of predictable results
  • Ensure the greatest likelihood of favorable results
  • Reduce the cycle time (and therefore the costs) of dispute resolution by streamlining the process and reducing the odds of appeal

Of course, you also want to control the entire proceeding as much as possible. As people are now beginning to realize, the banks and credit card companies are not trying to find ways to do you or me any favors.

The reasoning goes something like this: Who knows what a judge or jury is likely to do? But what if we force people into giving up their right to a jury trial? Better still, what if we could force them into giving up their right to the most important rules of evidence they would otherwise have in a court trial? Better still, what if we could buy the judge and force them to accept that verdict as the final decision? As this ABC News story shows, none of these assertions are far-fetched.

The private arbitration contractor, National Arbitration Forum (“NAF”) that is the subject of this story has its own website where it pitches the concept of buying a “neutral” private judge to the corporate world. Included on the website is a publication entitled “From the Bench: Selected Judicial Opinions Supporting Arbitration”. The first opinion cited is a reference to them by Justice Ruth Bader Ginsburg in which she appears to be one of their fans.

[N]ational arbitration organizations have developed similar models for fair cost and fee aliocation … They include National Arbitration Forum provisions that limit small-claims consumer costs.

What the NAF fails to mention is that this quote was taken from a footnote in a dissenting opinion regarding the issue of whether or not a consumer could be forced to arbitrate even when she cannot afford to do so. The NAF doesn’t mention Justice Ginsburg’s expressed concern that “[t]he arbitration agreement at issue is contained in a form contract drawn by a commercial party and presented to an individual consumer on a take-it-or-leave-it basis”, or that she concluded by saying “As I see it, the Court has reached out prematurely to resolve the matter in the lender’s favor.”

Of course, an argument could be made that people aren’t “forced” to agree to these draconian binding arbitration provisions. They could move into a cave and go back to the barter system if they wanted to. But few non-lawyers understand the extent to which they are giving up their basic rights to the American justice system every time they sign one of these agreements.

As Judge Beam noted in his dissent to an opinion that granted punitive damages in an arbitration case (even though such damages were prohibited by State law) the structure of an arbitration proceeding eliminates so many protections otherwise available under the rules of evidence that it lacks almost all of the minimum requirements of due process and fundamental fairness.

In the arbitration setting we have almost none of the protections that fundamental fairness and due process require for the imposition of this form of punishment. Discovery is abbreviated if available at all. The rules of evidence are employed, if at all, in a very relaxed manner. . . Here, as noted by the opinion of the court, the scope of review of the arbitrator’s award is narrowly limited if not almost nonexistent. “An arbitration award will not be set aside unless it is completely irrational or evidences a ‘manifest disregard for law.’”

Binding arbitration agreements are popular with most large corporations, not just credit card companies. Some are more even-handed than others. But the goal is always to keep the matter out of the courts and into a more predictable if not more biased tribunal. If you are the little guy, you are almost always worse off than you would be if you could have your day in court.

Rick D. Massey, JD, Copyright © 2009

Posted in arbitration | 2 Comments

One Thing You Should Do This Year: And it Won’t Cost you a Cent!

Posted on May 2, 2009 by Rick Massey

 
Who will make your most important medical decisions? You have the right to determine whether you receive (or are subjected to) medical treatment. But when you can’t speak for yourself, you can only control what happens if you take the necessary precautions before it’s too late.

Under Missouri law, you can execute an advance healthcare directive (also known as a living will) that will determine in advance:

  • Your decisions regarding important medical decisions
  • The ability of healthcare providers to follow your direction without fear of increased risk or liability

Without an advance healthcare directive, your wishes may not be followed. As we have seen in Missouri cases such as that of Nancy Cruzan and in the later Florida case of Terri Schiavo, not preparing in advance can lead to devastating results for you and your loved ones. Your family or significant others may find themselves in a bitter dispute over what happens to you. This is even more likely if you have a domestic partner to whom you are not legally married according to the rules of the powers that be.

When combined with a Durable Power of Attorney, an advance healthcare directive can maximize the chances that your wishes based on your feelings, convictions and beliefs will be followed. Missouri law allows you to make all choices regarding medical care or the withdrawal of medical care. But you have to leave clear and specific details of where you want those boundaries to be.

The Forms Are Available Free

You can get both forms from the Missouri Bar website. If you also prepare a Durable Power of Attorney to designate someone to speak for you, you will want to make sure that you include a HIPAA (Health Insurance Portability and Accountability Act) release to allow the designated individual to have access to your medical records and to permit your doctors to discuss your medical issues with the designated person. The Durable Power of Attorney is not necessary. But it allows someone you trust to make decisions about things you may not have thought about and specifically covered in your advance healthcare directive. You can also determine whether or not you want to delegate the power to override something you said in the advance healthcare directive based on changing circumstances.

Another document that contains some very useful information as well as planning forms and questionnaires for preparing your advance healthcare directives may be downloaded free at the American Bar Association’s Commission on Law and Aging website.

Preparing these documents in advance and discussing them with your family and healthcare providers is the best way to ensure that your wishes are likely to be followed. You should also know that under Missouri law you can verbally modify or rescind your healthcare directives at any time as long as you are conscious. So if they are wheeling you into surgery and you have second thoughts, don’t be afraid to speak up. Don’t leave your loved ones guessing about what you would want when you cannot speak for yourself.

Rick D. Massey, JD, Copyright © 2009

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I Agreed to What?!!

Posted on March 19, 2009 by Rick Massey

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By: Rick D. Massey, J.D.

Copyright © 2009

 

We have all agreed to contract terms that we probably didn’t read and that are not in our best interests.  The legal theory (like most legal theories) governing contract law appears at first glance to be fair and reasonable.  The parties can agree on almost anything as long as what they are doing is otherwise legal, there is a “meeting of the minds” after an “arm’s length” negotiation, and the other basic requirements to form a contract are satisfied. 

 

But the devil is in the details.  Most small business people understand that they need contracts to protect themselves.  But they don’t want to seem difficult to do business with.  They don’t want the contracting process to interfere with the flow of their business.  If they know and trust a lawyer who will not charge them an arm and a leg to draft their contracts they may go that route.  But many will grab a form they found on the internet or from a bargain table at an office supply store.  They want to keep everything clean, simple and cheap.  

 

Whether or not the form is a “good” one depends on a number of variables – not the least of which is which side of the table you are sitting on at the time.  In subsequent blogs I will talk about some of the things you may want to look for if you are that business person who wishes to maintain adequate protection without scarring away potential customers.  But this post addresses some of the things that should concern you if you are on the receiving end of the contract. 

 

A Big Part of Seeing is Knowing What to Look For

The first thing you should realize is that there is almost always room for negotiation.  If you see something you don’t like, you have a couple of options.  Assuming that the person with whom you are communicating has authority to change the contract you may discuss your concerns then and there.  You don’t want to approach them in a confrontational way.  Just explain why you would be more comfortable with the contract if they would change the part that says whether or not they pay you is at their sole discretion.  If you are not in direct communication with the decision maker, you can mark up (“redline”) the document to say what you believe it needs to say to be fair and reasonable and give it back to them. 

This is where it gets interesting.  You may choose to sign the agreement and initial your changes before you return the document.  Under Missouri law, this action amounts to a counter-offer, which means there is no contract unless they accept your modifications.  It would not be a good idea to do this if they have signed the agreement before presenting it to you (which most know better than to do anyway).  While the general rule still holds true, that action could complicate things and lead to disputes about who knew and/or agreed to what when. 

Following are some commonly employed one-sided tactics.  You might want to look for these the next time you are presented with a contract:

·         Choice of Law and Forum Selection Clauses

·         Disclaimer of right to jury trial

·         Binding Arbitration

·         One-Sided Indemnification

·         Penalties disguised as liquidated damages

·         No Construction Against the Drafter

·         Time is of the essence

Choice of Law and Forum Selection Provisions

You will usually find these somewhere near the bottom of the contract.  Let’s say you are buying a franchise from St. Louis Widgets, Inc.  You know the President of SLWI lives and works here in the State of Missouri.  You also know that you will be operating your franchise here in the State of Missouri.  But the contract says any contract dispute must be resolved in Miami Florida and be interpreted by Florida law.  These provisions are more common than you may realize.  More often than not, they are legally enforceable.  If he owes you money and doesn’t pay – no problem.  You just have to go to Florida, find local counsel there and file a lawsuit against him in Florida.  The guy from SLWI doesn’t really mind going to Court in Missouri.  In fact, he knows that if he obtains a judgment against you he will likely have to get the judgment certified in a Missouri Court before he can collect against you.  He may believe Florida law is more favorable for the kinds of disputes he is most likely to have with you.  But most likely, he just wants to make sure going to court against him will be as expensive and painful for you as possible. 

If you are both in Missouri you should ask that this be changed to Missouri law and jurisdiction or in the alternative, removed (which in that case would still keep the matter in Missouri by default). 

Which leads us to another common provision in commercial contracts. . .

Discalimer of Your Right to Trial by Jury

You may recall from high school civics class that the Seventh Amendment to the U.S. Constitution guarantees you the right to a trial by jury for any claim in an amount greater than $20.  But we are giving up that right every day – and not just in the microscopic print on the back of credit card statements.  I am seeing it more and more in all kinds of business contracts.  Big companies don’t like jury trials because they don’t trust real people (like you and me) to judge them. 

Binding Arbitration Provisions

This looks innocent enough.  What could be fairer than taking your claim to a “disinterested” third party and having things sorted out without the expense and hassle of litigation?  Who does this benefit?  Not you if you are the little guy.  By agreeing to binding arbitration you have not only given up your right to a jury trial or to a hearing before an impartial judge, you have given up most of your rights regarding the established rules of civil procedure relative to evidence, due process, and discovery as well as (in most cases) your right to appeal the decision.  But at least you will get to have your case heard by someone who is probably a steady customer of the party with whom you are litigating.  In other words, how much subsequent business the arbitrator gets will be directly influenced by how your opponent likes the outcome of your case.   Just sign here and we are good to go. . .

One-Sided Indemnification

Most contracts include an indemnification provision.  This is fancy legal speak for an agreement that you will insure the other party against losses that are caused, said to be caused, or arguably caused by something you did.  In about half of the contracts I review, the indemnification is all in favor of the company that wrote the contract.  But when you push back and tell them you need it to go both ways (they will also insure you against costs and damages they cause) almost everyone agrees to make that simple change.  You just have to know to ask. 

Penalties Disguised as Liquidated Damages

Penalties are not enforceable in contracts.  You cannot agree that if one of the parties breaches the contract, the other party can punish them by being entitled to something they would not have gotten otherwise.  Liquidated damages on the other hand, are enforceable if you can show the amount claimed is realistically close to the actual damage a breach would cause to the other party and that actual damages would be difficult to determine.  Whenever you see a liquidated damages provision, it will almost always go out of its way to claim that the amount is liquidated damages and not a penalty.  If they are asking you to agree to an amount of liquidated damages, make sure the amount is a realistic estimate of what it would cost them if you breach the agreement.  If it is too high, the provision may not be enforceable.  But you will have to overcome the fact that you signed a contract stating that the amount is reasonable. 

No Construction Against the Drafter

This is one of my favorites.  Anyone with kids knows that an excellent way to avoid disputes is to separate control over the process from the right to define the outcome.  Two kids want to split the last piece of candy.  You know that if you cut it in half it will never be perfect enough.  So you allocate responsibility.  One sibling gets to cut it in half and the other gets first choice.  This ensures that the pieces will be as near perfectly divided as is humanly possible.  And it keeps either from crying foul in the end (that’s the theory at least). 

Common law has a similar rule.  If the parties come into Court to argue the meaning of an unclear or ambiguous provision in the contract, all else being equal, the Court will rule against the meaning that favors the drafter.  Because the drafter of the contract presumably knew what he meant to say, any lack of clarity is his fault or at least should not be held against the other person who did not draft the agreement. 

It is becoming quite common to see something like “The parties have negotiated this Agreement in consultation with their attorneys.  This Agreement will not be construed against either party due to authorship.”  I always ask that this provision be removed because it is an attempt to circumvent a very fair and reasonable common law rule.  Interestingly, the ones who resist removing this because after all we did “negotiate the terms” are usually the ones that are least flexible in working through contract modifications.  The argument that it should not be removed because the parties agreed on all of the language is contradicted by their own refusal to remove the untrue statement. 

Time is of the Essence

Depending on the nature of the contract, this provision can make sense.  It is almost always included in real estate contracts and lease agreements.  If you are entering into a services contract and are the one providing the services, don’t walk, run away from this language.  “Time is of the essence” is a legal term of art that sets you up for damages.  If the other party can make a claim that your delays cost him more money those five words can make the difference in whether or not you are held responsible for those losses.  Remember, unless it involves real estate or you are the one buying services this phrase will almost never help you.  But it can hurt you very badly.    

Contracts Are Supposed to be a Meeting of the Minds

Don’t be intimidated by a printed form or other indications that there is no room to negotiate the terms.  When you apply to GigantaBank for a credit card you have no bargaining power.  But when you walk into the auto dealership you absolutely do.  And speaking of car dealerships, many of those in the St. Louis area have began incorporating binding arbitration clauses in their contracts.  You don’t have to sign these without modifying the terms.  If they want to sell the car badly enough they will work with you.  If not, you can always go down the street.  Contracts were meant to be negotiated, not dictated by the one holding all of the cards. 

 

You may forward your comments to Rick Massey at Rick@PeoplesLegalSolutions.com.

The information posted on this blog reflects the author’s opinions and may provide general information about the law.  However, nothing on this blog is, or is intended to be understood as legal advice.  You should consult an attorney for specific advice regarding your individual situation.   The choice of a lawyer is an important decision and should not be based solely on advertisements. 

 

 

 

 

 

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