Business Litigation

Post-Closing Disputes In Mergers and Acquisitions

January 6, 2017 | Mark Figueiredo

In the early stages of a merger and acquisition (M&A) transaction, owners may be willing to overlook certain differences in favor of focusing on the benefits of the deal. However, as the M&A transaction is completed, the rose-colored glasses may come off and sudden concerns may develop into serious legal disputes between owners. If these disputes are not handled correctly, it can result in long-term consequences, both financially and regarding the relations of the parties. The following are some information regarding common post-closing M&A disputes.

Deferred Payment of Purchase Price

Many M&A agreements are structured such that part of the purchase price is paid at closing and the rest is paid at some point in future. This is done with “earn-out” clauses and purchase price adjustment clauses, among others. An earn-out clause is where the amount of future money paid depends on selling company’s performance after the acquisition, i.e. the money has to be earned after the closing before it is paid out. These types of clauses are sometimes interpreted differently by buyers and sellers after the closing. For example, if the selling company’s product is upgraded after the closing, the buyer and seller may view the revenues from those sales differently under an earn-out clause. As another example, if the buyer and seller have different accounting practices that could certainly affect their interpretation of purchase price adjustment clauses. Resolving these disputes can involve complex accounting and negotiations by both parties.

What is a Preference in Bankruptcy?

December 30, 2016 | Ryan Penhallegon

The last thing a business wants is the unexpected surprise of having to pay back money it has received from a customer for goods or services. Although charge-backs and payment disputes may be more common in today’s digital world, a startup or business will likely be caught off guard when it is served with a “preference action” filed by a bankruptcy trustee or bankrupt customer.

The Bankruptcy Code permits the trustee to avoid and recover from creditors for the benefit of all creditors of the debtor’s bankruptcy estate certain pre-petition transfers made within 90 days (and sometimes longer) of the debtor’s bankruptcy filing that would otherwise benefit one creditor at the expense of others. Such transfers are referred to as “preferences.” Simply put, a preference is where a trustee can recapture certain payments made by the debtor prior to its bankruptcy filing.

The avoidance and recovery of a preference payment helps to ensure equal distribution among the debtor’s creditors and is intended to discourage aggressive collection tactics by creditors that force the debtor into bankruptcy. An adversary proceeding (a lawsuit filed in the debtor’s bankruptcy) is required to avoid and recover a preference, but a preference action is often preceded by a demand letter from the trustee setting forth the trustee’s claims and demanding immediate repayment of the preference payment.

Tips to Avoid Business Litigation

November 11, 2016 | Jaclyn Ford

Going to court is expensive and can take your focus away from running your business for a significant period of time. In order to avoid the added cost and stress of litigation whenever possible, include these steps in your business practices.

Have effective and enforceable contracts

Every business relationship should be memorialized in a written contract. This includes between owners, with clients and customers, with employees, with vendors, and more. Having a contract that is properly drafted to best govern the specific relationship and responsibilities at hand can help avoid disagreements down the road. Each party will know his or her obligations and expectations because it is in writing and the contract can help dictate how disputes will be resolved out of court.

Shareholder Lawsuits in California – Explained

November 4, 2016 | Mark Figueiredo

When a shareholder of a corporation believes that he or she has been wronged, the shareholder generally has two options to file a lawsuit. The shareholder may either bring a direct action or a derivative action, depending on the facts of the case. In many instances, it is only appropriate for the shareholder to bring one of these two types of actions against the company. Below is a general explanation of how a corporation is set up, and a discussion of the differences between the two types of shareholder actions.

General Corporate Organization

Let’s say that you decide to open a lemonade stand by yourself as a simple business. In a simple business, you would own the lemonade stand. If the lemonade stand did well, you would make more money, and if it did badly, you would not. In addition to being the owner, you would also run the lemonade stand. You would make day-to-day decisions about the lemonade stand, like how where to order to the lemons from, what equipment to use, and how much customers should pay for the lemonade. To sum up, you alone would both own and run everything.

Ask Your Employees To Take A Seat

October 14, 2016 | Jaclyn Ford

Owners of businesses with at least one employee should stay fully apprised of all federal and California state laws that relate to the treatment of employees. For example, there are various state and federal laws related to wage and hour matters, discrimination, and insurance and taxes. Laws can change and courts regularly issue new interpretations of existing laws. Accordingly, it can be difficult for you to know whether you are truly in compliance with the most up-to-the-minute versions of employment laws. After all, your focus is on your business and not the latest court opinions. However, a skilled business attorney makes it their job to know new developments in any laws that would be applicable to your business and your employees.

California Court Ruling on Employee Seating Requirements

Earlier this year, the California Supreme Court issued a decision on a class action case that involved an employer who forced its employees to stand during their work and subjected those employees to potential discipline for sitting down. This discipline occurred even though their job duties did not require standing. Even if some employees were not actually prohibited from sitting down during work hours, they were not provided with chairs, stools, or adequate seating by their employer. While employee seating may not seem like a hot-button issue to you, it is important to many employees who experience foot pain, back pain, or other ailments from standing for long hours unnecessarily.

Implied Consumer Warranties

October 7, 2016 | Katya Mezek

The State of California protects consumers of retail goods by limiting warranty disclaimers on products sold in the state. California’s warranty protection extends to manufacturers, distributors, and retailers alike. The warranties apply to both the sale and lease of consumer goods. The seller can disclaim the warranties by following very specific and highly detailed statutory requirements. Failing which, the seller cannot disclaim the warranties implied in every consumer sale. The sale of a service contract at the time of or within 90 days of the sale of the goods adds another aspect to the seller’s ability to protect themselves after the sale. San Jose’s preeminent business attorneys at Structure Law Group, LLP possess a high level of experience and skill drafting warranty disclaimers for businesses.

The implied warranty of merchantability protects consumers in every sale of goods in California. Specifically, the implied warranty of merchantability extends to the retailer, distributor, and manufacturer of goods. The retailer is indemnified by the manufacturer for the full amount of liability. Merchantable goods must either conform to the contract description or be of acceptable quality in the trade or business. In addition, the goods must be fit for their ordinary use, rather than for a specific purpose. The goods must also be identified, labeled and packaged appropriately. Lastly, the goods must conform to the promises made on the label or packaging. Goods are non-conforming if the goods fail to satisfy any one of the necessary requirements set forth above.

A second implied warranty arises in specific circumstances. This warranty is the implied warranty of fitness for a particular purpose. The warranty of fitness for a particular purpose attaches to the sale of goods when the retailer, distributor or manufacturer knows or has reason to know that the consumer is relying on the goods to perform a very specific purpose. Additionally, the buyer is relying on the seller’s expertise and advice that the goods purchased are sufficient to satisfy the particular purpose. Additionally, the seller must know or have reason to know that the buyer is relying on the seller’s expertise and judgment. The goods must conform to the seller’s expectations, i.e. the particular reason the consumer purchased the goods.

What Are Fiduciary Duties?

September 30, 2016 | Katya Mezek

Corporate officers, partners in a partnership, and members of a limited liability company owe a fiduciary duty to the principal, i.e., the business entity, to act in the best interest of the organization. Failure to act in the principal’s best interest or actively competing against the principal to which a fiduciary duty is owed exposes the fiduciary, the agent of the principal, to civil liability. Care must be taken by the fiduciary not to compete against the organization to which they owe their duty of loyalty. The Silicon Valley Business Attorneys’s at Structure Law Group, LLP are highly experienced in preventing and resolving corporate disputes that may arise from a breach of fiduciary duty.

The foundational tenet of agency law is the duty of loyalty owed by the agent, or fiduciary, to the principal or business entity. The duty of loyalty obligates the fiduciary to act in the best interests of the principal. The duty of loyalty extends to “all matters connected with the fiduciary relationship.” Thus, the duty of loyalty prohibits fiduciaries from obtaining a benefit from others as a result of the fiduciary relationship. This prohibition extends to all dealings in which the fiduciary is involved on behalf of the principal. The duty to act with loyalty is not limited to financial matters.

The fiduciary’s duty of loyalty encompasses situations involving parties adverse to the principal. The fiduciary has an absolute duty not to act on behalf of a third party whose interests are adverse to those of the principal. The fiduciary is duty-bound not to compete, either personally or on behalf of, another entity. The agent’s obligations last for the entire duration, and in some instances depending on contract language, last beyond the termination of the fiduciary’s relationship with the principal. However, agency law does provide for the fiduciary to plan and prepare to leave the principal, even to then compete with the principal. Notwithstanding, the action taken by the fiduciary must not violate any other duty owed to the principal.

What is the “WARN” Act?

September 23, 2016 | Jaclyn Ford

California’s Worker Adjustment and Retraining Notification Act, “WARN” for short, obligates employers of 75 or more employees to follow certain procedures when downsizing the workforce. The WARN Act does not apply to a few layoffs. Rather, the WARN Act applies to what is known as a “mass layoff,” in which the business lays off 50 or more employees during a 30-day period. Businesses considering downsizing their workforce must be wary of the consequences of failing to comply with the WARN Act. Failure could cost the employer a significant amount of money in back pay and other compensation. Consulting with an experienced Silicon Valley Employment Lawyer at Structure Law Group, LLP will help you avoid the pitfalls associated with downsizing your workforce.

Owners of “covered establishments,” that is, businesses employing 75 or more employees in a 12-month period, must give proper notice of a mass layoff. The employer must give notice to its employees 60 days in advance of the layoff order. “Layoff” means cessation of employment because of insufficient money or an insufficient amount of work. The term “layoff” does not apply to seasonal employment or employees in certain industries including logging and motion pictures. The WARN Act also applies to mass relocations and when an employer’s business closes down. To qualify for the WARN Act’s protection, an employee must be employed by the company for 6 of the preceding 12 months.

In addition to giving notice to the affected employees, the employer must also give written notice to several state and local agencies. These notices must include the following:

How to Comply With The Anti-Trust Law

September 16, 2016 | Structure Law Group, LLP

Public policy in California dictates that businesses should be free to compete against each other in the marketplace. Competition among businesses greatly benefits consumers. At the same time, competition engenders higher quality goods and higher service quality at price points advantageous to the consumer. Toward that end, California’s antitrust law, known as the “Cartwright Act,” prohibits a wide variety of conduct designed to restrain competition in the marketplace.

The San Jose business lawyers at Structure Law Group, LLP dedicate their practice to helping business owners grow their company while insulating them from harm. Unfair competition has a negative effect on consumers and businesses. Business entities should avoid structuring agreements which arguably cause unfair competition. Failure to do so could subject those businesses to lengthy and costly litigation and expose them to potential damages.

According to California business, trusts are unlawful and against public policy. California law defines a trust as a “combination of capital, skills, or acts by two or more persons” to:

Protecting Private Information In California

September 9, 2016 | Structure Law Group, LLP

The exchange of cash for payment for a goods or services is rare these days. We have certainly become a digital society. Business make advances daily to make transactions more efficient and convenient. However, businesses engaging in e-commerce must not compromise security for expediency. Additionally, businesses store infinite amounts of personal data about their customers. These businesses, such as health care providers and health insurance companies, not only must safeguard their electronic transactions but must also secure sensitive information and proactively combat data breaches. Failure to do so can lead to a huge economic loss for the customers and the company. The savvy business attorneys at Structure Law Group, LLP advise businesses on the best practices to prevent data breaches and counsel them on the necessary steps to take if such an unfortunate event occurs.

In California, people have a constitutional right to the safety and integrity of their personal information. California’s information security act defines personal information as any information that could identify or describe a person. Personal information is also an individual’s name, address, social security number, license number, medical information, and the like. A business in possession of such information must take reasonable steps to prevent disclosure of private information. California law obligates businesses to implement security measures reasonably designed to protect the integrity of the private information. Every business entity, from a sole proprietorship to a multi-national corporation is subject to the information security act.

California law broadly defines “data breach.” Data breach includes any “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business.” The information may be used in good faith for the benefit of the person whose information is disclosed, provided that such disclosure is authorized.