Making It Legal:

Have you ever Googled yourself? (Of course you have.) That’s just what Beverly Stayart did. Curious about what she would find when she checked Yahoo’s search engine, she typed in her name and hit “enter.” What she found upset her greatly. Among the results, she found that her name links to pharmaceutical websites, porn sites and other sites promoting sexual escapades. So she did what any red-blooded American would do: She sued Yahoo.

However, as Evan Brown notes in his Internet Cases blog, Stayart was not successful. First, she asked Yahoo to remove the search results. Yahoo refused. Then she brought her lawsuit, claiming that the results (showing the name “Beverly” or “Bev” Stayart) on the porn and pharma sites implied that she endorsed — which she never did. The District Court sided with Yahoo, and Stayart appealed.

Unfortunately for Stayart, the Seventh Circuit Court of Appeals sided with Yahoo. As Brown points out, they did so for one significant reason: Stayart did not have any “commercial interest” in her name. Although she had written some articles, blog posts and poetry that appeared on the internet — and was involved in charitable causes — this wasn’t enough to be considered “commercial.” In short, Stayart was not using her name in connection with a business.  Nor was her name a registered trademark (like, say, Martha Stewart). Trademark/trade name/false advertising claims are limited to commercial parties.

This leaves an open question: Would the Court have decided the same way if Stayart had had a business that used her name?

For a full text of the decision, click on Stayart v. Yahoo.

It’s an unfortunate aspect of American life that you can’t stop someone from bringing a frivolous lawsuit.

Even some politicians have recognized the ways in which frivolous lawsuits can hamper America’s small businesses, and proposed legislation just last year — most notably, the “Frivolous Lawsuit Prevention Act of 2009” (S. 603), which apparently died in committee and was not passed.

So unless you’re in the “cement shoes” business, you can’t prevent a claimant from filing trumped up charges at the courthouse. What you can do, though, is halt her progress as quickly as possible.

How do you do that? It means you need to have your ducks in a row. As I outline in my article, “The Intelligent Way to Handle Frivolous Lawsuits“:

• Don’t delay. Especially if the person bringing the claim owes you money, she is counting on your wanting to avoid the situation and hope it will go away. It won’t. Get counsel, and respond to the complaint.
• Review your paper trail. If you’re being sued because you didn’t deliver as promised, your records may tell a different story. Check your invoices, purchase orders and other correspondence with the client.
• Audit your “arsenal.” Can you catch your adversary in a lie? If you have clear evidence that your adversary is making up stories out of thin air, you can use that as leverage. Surprise, surprise, but people don’t always tell their attorneys the full story. Attorneys aren’t keen on being sanctioned for bringing a frivolous lawsuit on behalf of their clients. If you can point out major areas where the client is leaving out significant facts, her attorney will want to bring this matter to a rapid conclusion.

Let’s face it: Once you’re headed to the courthouse to collect a bad debt, you’ve lost. Lost, because you rarely, if ever, get 100 cents on the dollar. Lost, because you lost time and energy dealing with the situation. Lost, because you had a client who likely will never return.

As Monica Mehta writes in Businessweek, business bankruptcies are nearing a 16-year high. So now there’s even more incentive not to get caught short with a slow payer, because you may get nothing in the end. 

My colleague, collections attorney Jocelyn Nager, is a staunch advocate of having a credit and collections policy for your business. Not only does it eliminate guesswork when this uncomfortable situation arises, but also, as she points out in Mehta’s article, “[it's] your best defense against bad debt.”

Have you done what you can to have clear payment terms and get credit details in advance? Mehta suggests that small businesses implement the following steps:

1. Initiate direct contact after a payment deadline is missed.
2. Take broken promises seriously.
3. Contemplate hiring a collections agency or attorney.
4. Review your legal options.
5. Create a credit policy (to avoid having to go through steps 1 through 4).

“Can I talk to you personally?” asked Linda. She seemed a little hesitant, so after we ran into each other at a networking event recently, we sat down over coffee. Linda had given some marketing work to a mutual colleague, Ingrid, whom I’ve known for many years.

“I have to tell you that, categorically, I will never refer another piece of business to Ingrid ever again,” Linda stated. “The work she did was terrible, she totally overcharged me, and I know enough about what needed to be done — but it didn’t make sense for me to do it myself.” Turns out that Linda is in a field that Ingrid doesn’t usually work with . . . so there may well have been nuances Ingrid wasn’t aware of.  Ingrid was lucky: Linda chose to complain to me (and probably a number of others). She could have chosen to sue Ingrid and complain to other people.

Whether or not Linda is right is irrelevant. She saw me and wanted to vent. But there’s a lesson here for Ingrid (whose name has been changed to protect her business) — and for all of us.

Having known Ingrid for a long time, I see, sadly, that this is a pattern of hers. As I discuss in my program, “How to Train Your Clients to Pay You,” one of the primary reasons that clients don’t pay — or don’t give you any future work — is that they weren’t happy with what you did. And Ingrid has run afoul of this many times. She routinely complains about how difficult it is to get business. But she makes it more difficult for herself by taking on clients where:

• She doesn’t know the industry
• She hasn’t had experience with the potential client’s needs
• The client’s budget is incompatible with what she wants to charge.

As a result, Ingrid is plagued with clients who show up for one project and never return for another. So she is constantly on a “hamster wheel,” seeking new clients. And while Linda, as the customer, was not wrong, that didn’t make her right — that is, the right fit for Ingrid.

Does that sound familiar?

What will $105 billion get you? For some, it equals the gross domestic product of a small island nation in the Caribbean. However, here in the United States, it’s the burden that small businesses shoulder in tort liability costs.

As reported on Small Business Trends, a recent study by the U.S. Chamber Institute for Legal Reform showed that small businesses paid $105.4 billion in 2008 — and litigation liability costs are expected to continue to rise. What’s more, these figures don’t take into account the amount that small businesses have paid in connection with breach-of-contract lawsuits.

With the economy in its current condition, it’s clear that small businesses can ill afford to become embroiled in litigation. It’s a scenario where “the only way to win is not to play.” Here are several steps small businesses can take to provide added protection in the event they hear those fateful words: “You’ve been served”:

1. Make sure you have adequate insurance for the nature and size of your business. Trying to self-fund a lawsuit, much less a judgment or award, is a surefire recipe for madness. Speak to an insurance broker to make sure you have the right policies in place and the right coverage amounts to protect you.
2. Have written agreements with all your clients and vendors. In particular, you may want to include a provision that entitles you to get your attorney fees paid if you have to bring the matter to court (and you win). Note, though, that these kinds of terms are often mutual, so speak to an attorney about whether they’re a risk you can handle.
3. Take preventive measures. Look at your facilities carefully to see whether they are accident-prone. And keep in close contact with your clients and vendors to ensure that any possible misunderstandings or miscommunications don’t escalate.

The best way to handle a lawsuit is to avoid getting into one.  Rare is the small business that has the funds set aside to pay for the lawyers (and possible judgment) of a lost case–heck, these companies often can’t afford to pay their owners a regular salary!

So how do you keep lawsuits off your back?  Attorney and syndicated columnist Cliff Ennico has his top 5 tips, which include:

1. Have a limited liability business entity.
2. Get insurance and keep it updated.
3. Disclaim legal liability in your contracts (but check with your attorney to make sure they’re worded properly).
4. Transfer assets out of your own hands (mind the timing of this, though).
5. Say “sayonara” to high risk customers.

It’s said that more than 40 percent of all marriages in this country end in divorce.  So there’s a not-insubstantial likelihood that your business could be affected by divorce . . . even if you’re not the one divorcing.  Here’s today’s query:

Q:  My partner’s ex-wife is suing him for a large amount. Can it affect our business if my partner doesn’t pay on the due date? Also, I am thinking of buying the business from my partner. What are things I need to ask and sign?

A:   There is a possibility that your partner’s ex-wife’s lawsuit could cause a problem for your business. Among other ways, if she gets a judgment against your partner, she may be able to collect against your partner’s assets . . . and his ownership of the business is one of his assets. Make sure to review your partnership agreement (if you have one)–many of them provide that if the stock (or ownership interest) of one of the owners becomes subject to a lien or judgment, it triggers a buyout by the corporation (or other owners).

If you choose to buy out your partner at this time, you’ll want to consult with an accountant to get a fair value of the business, determine the price you’ll pay and how much time you’ll have to pay it. You’ll also want to speak to an attorney to make sure that your purchase/sale transaction doesn’t somehow get embroiled in your partner’s litigation. Look for certain safeguards in your purchase and sale documents (often referred to as “indemnification”) where the partner will protect you and the company in the event that the wife widens her litigation net to include you.

Above all, get it in writing and be aboveboard in handling the transaction. The last thing you need is the wife poking around in your transaction (and possibly voiding it) with the allegation that you didn’t offer fair value or that it was a “sham” you and your partner cooked up to stiff her out of her rightful due.

A written contract doesn’t have to be filled with legal mumbo-jumbo in order to bind your business. That was a hard lesson learned by a Missouri company, in the case of Baum v. Helget Gas Products, Inc.

In the Baum case, the prospective employee (Baum) took copious notes during his interview, including descriptions of salary, benefits and the length of his contract. He wrote “Contract With Helget Gas Products St. Louis Mo. Market” across the top and handed it to the Helget manager, who signed it. When Helget fired Baum a year later, Baum sued and won, saying he had a three-year contract. The court agreed.

The moral of the story: Don’t sign anything employee-related without first running it by legal counsel or HR. What the Helget manager could have done is to make a copy of Baum’s notes and tell him that they’d be provided to corporate counsel, who would draw up the appropriate documents in accordance with company policy.

A sad tale of woe crossed my desk.  Seems that, a couple of months ago, an unsuspecting entrepreneur from Mexico bought into a U.S. franchise to import products to Mexico. She sent her 25 percent deposit (many thousands of dollars) to reserve the franchise for her city, but the franchisor cannot get the documents that she requires to import the franchisor’s products. According to the agreement she signed, the 25 percent is nonrefundable . . . but can she recover anyway because the mistake was not her fault?

The short and obvious answer is: It depends.

Franchises are strange and furry creatures. They involve a lot of regulation and disclosure to establish them. They also require a certain degree of rigor in creating the business model to ensure consistency in the franchise results. Whether or not “Melinda” can recover her money depends on the actual wording of the franchise agreement. It also depends on the laws of the state that governs her agreement (often called “governing law” or “jurisdiction”).

Contract principles generally provide that if there’s a problem or mistake that the parties weren’t aware of at the time they signed the agreement, it’s not fair for one or the other to be SOL. Courts may allow the contract to be “rescinded”–like a “do-over” in kickball. Everyone goes back to where they were when they started–no lost points, no gained advantage. But now you have to factor in the cost of an attorney to bring this claim for you.

Because franchise laws vary from state to state, it’s always advisable to consult an attorney who specializes in franchises in the state where the agreement is decided. And do it BEFORE you sign the paperwork, so that you know the risks of getting involved in this venture, and what your recourse will be if problems arise.

For companies with employees, there’s a new rule in town (at least, in Chicago’s federal court): Under the Pregnancy Discrimination Act, women cannot be fired from their jobs for needing time off for infertility treatments.

As reported in the Wall Street Journal online, the ruling involved “a secretary who was laid off after taking time off for in vitro fertilization, then asking for more [time off for a further procedure]. Without ruling on the merits of her case, the court last month set a precedent by giving Ms. Hall a green light to sue her former employer for pregnancy-related bias.” Apparently, the plaintiff had been singled out for absenteeism as a result of seeking in vitro fertilization treatments.

For now, the decision applies only in Indiana, Illinois and Wisconsin, as it’s the first time a case like this has made its way to a formal (public) court hearing. However, other jurisdictions could pick up on it and adopt it in their own.

Writer and humorist Ambrose Bierce (1842-c1914) once wrote of litigation: “[It is] a machine which you go into as a pig, and come out of as a sausage.” The sentiment still holds true today.

The New York Times reported on a recently released study of civil trials, which indicated that plaintiffs who settled their cases before trial ended up recovering more ($$$) than those plaintiffs who took the case through trial. In other words, proceeding to trial ended up being a mistake for the majority of plaintiffs surveyed. It was a mistake for only 24 percent of defendants. As reported,

In just 15 percent of cases, both sides were right to go to trial–meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.

According to the study’s co-author, Robert Kisner, “the vast majority of cases do settle– from 80 [percent] to 92 percent by some estimates.” So, depending on which side of the fence you’re sitting, make sure you accurately assess your chances for success. After all, half a loaf is better than none.

Damaged corneas were probably not what Victoria’s Secret had in mind when it designed its cheeky (ha, ha) little “low-rise v-string” (part of the “Sexy Little Thing” line). According to a lawsuit brought by a California woman last month (see Today show interview), the thong flew apart and struck her in the eye. She declined to state her damages, but her attorney declares, “It’s a matter of consumer protection.”

When you have stopped snickering and snorting (hey . . . I sure did), realize there is a lesson here. When placing products in the stream of commerce, you never know when you’re going to hit a rock. All the more reason to make sure you have the right insurance in place and that you’ve shielded yourself by operating as a corporation, LLC or other limited liability entity.