I own a business, so I might as well have a target on my back that says, “SUE ME.”
It is seriously ridiculous. The lawyer part of me says, “why does anyone own a business?” The entrepreneur part of me says, “screw those guys, they aren’t taking me down!”
But I digress. I was sued. Why? Because I was driving a car when someone broadsided me in an intersection. As the insurance company dawdled on settlement, the woman who hit me learned that I owned a business (through the magic of Google, I presume). She thought she could threaten me and my business insurances and assets.
You see, if you or your employees are driving within the scope of business or employment, then the business can be liable if you cause an accident.
I wasn’t driving anywhere on business nor was I at fault, but those details didn’t seem to matter to her. Fortunately, I own a law firm, so her lawsuit did not last very long.
Still, it made me think about the employer liability rules for employees. Do you have a company car? Or do your employees sometimes go on errands, drive to see clients or take pit stops from lunch or work? Do they go to more than one office?
If so, you have some risk as a business and business owner if they get in an accident. (Uber’s strategy to avoid this is to classify everyone as independent contractors. It won’t work in the end and is not recommended. Uber has a lot of money to spare for legal fees so that they can delay and game the system; but most businesses don’t and this strategy will make things worse for them.)
Here’s a little video outlining some of the things you should consider when it comes to employees driving. Get insurance accordingly. And talk to your lawyer about ways to keep you lawsuit-free.
Say your employee got into a car accident driving home from work. Can you get sued or be held liable for the accident?
Like many questions in law, the answer depends on the facts.
The answer is “yes” if the employee was driving a company vehicle.
The answer is “no” if the employee was driving their own vehicle as part of their daily commute.
The answer is complicated when the employee sometimes uses his or her car for work during business hours.
Or if the employee is not commuting at the time of the accident.
For example, the employee is driving home from a different office or job site than usual.
Or from a side errand run for the employer.
In these scenarios, the employer may get sued, but may win at trial anyway.
How useful is a condom that is never taken out of its box and wrapper?
If you were the kind of person with enough forethought to buy a condom, you would probably want it to protect you from several things.
But it would not be very useful to go through the trouble of buying the condom and not taking the additional necessary steps to get its benefit.
Lawyers call certain legal services “prophylactic.” That’s because their purpose is to prevent problems and unwanted consequences.
Completing your necessary corporate compliance and regulatory paperwork is prophylactic. Buying an LLC and not taking it out of the box will not give you the desired results.
Say you filed an LLC using Legal Zoom. Are you personally protected from lawsuits?
Maybe a few, but mostly, no.
Because they don’t give legal advice, budget legal sites don’t tell you there are numerous things to do after you file the LLC to legitimately and legally set up your business.
After years of starting businesses, we have developed a list that is several pages long made up of single spaced bullet points.
If you don’t do all the things on this list for your LLC, then the “corporate veil” can be pierced.
But more likely, if you don’t do all of the things you are supposed to do to start up your business legally, you will violate one of several laws that carry personal liability even if you are incorporated.
A few weeks ago, a friend of mine offered to let me use his lake house for a weekend getaway.
I was blown away by the generosity of the offer. As I talked to him about it, he told me that he often lets friends and acquaintances use the property (nice guy right!). He was also considering using a vacation rental website called airbnb.com to make extra money.
As lawyers, we are trained to always worry about the potential problems the best laid plans can bring. This time was no different. What if someone he let use the place stole things from the property? What if the person he invited in refused to leave on time?
The truth is that he hadn’t thought about what would happen if things went wrong. When pressed on the issue, he said that he would just call the police and let them handle it.
Unfortunately, when dealing with a once invited guest, the police will often not intervene. You see, once you invite someone on to your property, the police see the issue as a civil one, rather than a criminal trespass (like a robbery).
This is especially the case for an overnight or multiple night visit, a guest can argue that they are tenant and must be afforded the protections of state tenant laws.
Law enforcement officers are trained to be aware of tenant rights and so are wary of getting involved in what may be a landlord-tenant dispute.
With companies like airbnb.com and couchsurfing.com becoming common place, there has been a boom in these types of incidents around the country.
If you find yourself in a situation where an invited houseguest has become an unwelcome intruder, several legal principles come into play.
If you can convince law enforcement officials that the unwanted guest is not a tenant, you can have them removed from the premises as a trespasser.
Police will often consider a variety of factors in determining whether someone may have tenant rights. For instance: has the intruder brought personal property there (like clothes, furniture or other possessions)? Do they have personal care products, such as a toothbrush, there? Have they paid rent or bought groceries?
The length of the stay is a factor, but it is not conclusive.
If the police will not arrest them and they will not leave voluntarily, you may have to bring a lawsuit to get a court order for ejectment. Ejectment is when the court orders the sheriff to physically remove someone from a property and to lock them out. That is usually the remedy if someone is a squatter or trespasser, rather than a tenant who has overstayed their lease.
Once they are removed from the premises you can also bring a claim for civil trespass to recover for any damage that was caused by the unwelcome intruder. To state a successful claim for civil trespass, you will have to show:
(1) your lawful possession or right to the property;
(2) defendant’s wrongful act of trespass on the property; and
(3) damages caused by the trespass.
Unlawful Detainer / Eviction:
If someone is considered a tenant, you may have to seek a court order in unlawful detainer or eviction. The legal proceeding is sometimes called different things in different states. Remember that someone can be considered a tenant even by an oral agreement and you do not always need a written lease. If you can’t get rid of a house guest to the point that you need to take legal action, you should call a lawyer.
Unlawful detainers are court proceedings that can be time consuming and technical in nature. An unlawful detainer proceeding is usually initiated by serving a notice to quit (to get out) with a mandatory grace period. The Notice to Quit period can be anywhere from three to sixty days, depending on the situation.
Statutory requirements for service of the notice to quit must be strictly complied with.
Next, like civil actions generally, unlawful detainer actions are initiated by the filing of a complaint, issuance of a summons, and service of the complaint and summons on the defendant. The “tenant” will than have an opportunity to respond and a hearing will be held to determine whether eviction is appropriate.
If you find yourself in this situation, it’s best to consult with an attorney who is aware of all the statutes and ordinances applicable to unlawful detainer proceeding in your state. If you do it wrong, you can lose rights.
You may be able to use a paralegal or eviction processor for less than a lawyer. But those companies are best when you have a written lease and the tenant failed to pay rent. Other situations have trickier laws.
If the unwelcome guest leaves with any of your personal property, you may also have a claim for civil conversion. The easy way to understand conversion is that it is the civil damages claim for someone who stole your property and won’t give it back.
The legal definition of Civil conversion is: the unauthorized assumption of the right of ownership over the personal property of another to the exclusion of the owner’s rights. In other words, they took your property without your consent, or kept it after you withdrew your consent, and then they refused to return it when you asked for it back.
To win a claim for civil conversion, you will have to show:
(1) your ownership or right to possession of the property;
(2) the defendant’s conversion by wrongful act inconsistent with your property rights; and
(3) damages (more often than not, this is the value of the property taken).
Ultimately, allowing someone to use your property for any period of time has risk, particularly if you allow them to stay for an extended period. Before you start letting acquaintances use your property, or before you turn to companies like airbnb.com or couchsurfing.com to make some extra money, make sure aware of the risks so that you can make an informed decision. One squatter can cause substantial headaches, both financial and otherwise.
And that’s not even scratching the surface of what happens if someone gets hurt or victimized while staying at your place…. But that’s another blog post.
One of the hardest things about my job is getting clients to understand lawsuits. No one wants to pay for lawyers and lawsuits. Lawsuits are destructive, not creative. They take forever. Everyone is angry.
They cost a lot (A LOT) of money.
Lawsuits are designed to be painful. They are designed to encourage everyone to work things out without having to go to court.
And when you do go to court, expect to feel like a whipped mule for months (maybe even years).
I fully appreciate how much lawsuits suck. I live with them every day as a lawyer. I am an empathetic person and I feel my clients’ pains and frustrations. Sometimes I get the brunt of those frustrations, which is also stressful for me.
As a business owner, I have been sued several times. Each of those lawsuits were completely frivolous. I have never paid a dime out to anyone who has sued me; but, you know, it takes time, a lot of effort and tolerance to get to that point.
Every client I have ever had wants to know how to get out of a frivolous lawsuit quickly. It is rare that you can do so.
Here’s my 60-second explanation why.
I’ve been sued, but the case is frivolous. What is the fastest way to get rid of it?
What if you’ve been sued, but the case if frivolous? You want to know how to just get out of it, RIGHT NOW! Well, to be quite blunt, only a few can be disposed of quickly, even when they are frivolous. Why is it that? Because of due process. The plaintiff is allowed an opportunity to get evidence from you and others, and to bring their case to a judge or jury. So even if you know that the plaintiff is lying or mistaken, the judge cannot just take your word for it! That is not fair to the others involved in the lawsuit. What if you are wrong? So once a lawsuit is filed, you are required to show up and participate through trial, or else face a default judgment or contempt of court. Frequently, the whole process takes a year or more and requires a lot of work. Have you been sued? Visit us at bellatrixlaw.com to request our ebook Help! I’ve Been Sued! or to schedule a consultation with one of our attorneys.
The distinction between unfair competition and deceptive trade practices is that unfair competition covers only situations which target consumers, while deceptive trade practices also injure businesses. Unfair competition laws are almost always applied against small businesses, while the corporate behemoths are subject to antitrust litigation. Despite the fact that federal law does have some application in this area, unfair competition is almost always dealt with at the state level. The Federal Trade Commission (FTC), the federal agency responsible for consumer complaints, investigates unfair or deceptive trade practices.
Because so many business practices are currently recognized as unfair trade practices, few legislatures attempt to list every single action that could constitute unfair competition. Instead, most courts which have addressed the issue have concluded that each act of unfair competition must be judged individually on a case-by-case basis. However, despite the general lack of clear legislative delineations, unfair competition usually encompasses the following categories:
Slandering a competitor’s products or services.
Presenting a competitor’s products or services as your own, or otherwise violating trademarks or copyright law.
Predatory pricing or dividing up territory.
If your company has been accused of engaging in unfair competition, you need assistance from a knowledgeable business defense attorney who can safeguard your legal rights and aggressively protect your entity’s best legal and financial interests. To arrange for a private legal consultation with the experienced attorneys of Bellatrix PC, call our law offices at (800) 449-8992 today.
Predatory Pricing and Misappropriation of Assets
Many people are surprised to learn that predatory pricing doesn’t only apply to usury or gouging (in which, as business owners should be advised, the Federal Trade Commission takes a particular interest). Counter-intuitively, predatory pricing or “undercutting” also results where consumer goods and services are priced too low. A deep-pocketed company can always disrupt a market by drastically undercutting the prevailing market rate with the intention of inflating its prices as soon as all the other competitors have been starved into bankruptcy.
Contrary to popular belief, misappropriation in this context does not refer to misappropriation of funds. Misappropriation, when stated mononymically, usually refers to the misuse or unauthorized use ofintangible assets, where those intangibles are not otherwise covered by copyright or trademark law. Theft of trade secrets falls under this umbrella.
Commercial Disparagement and Tortious Interference
In plain terms, commercial disparagement is the business version of slander and libel, which are separate forms of defamation. Traditionally, slander refers to oral defamation, while libel indicates injurious statements made in writing. All forms of defamation involve intentionally false statements made with the intent to damage reputation.
If a competitor makes libelous or slanderous statements targeting your business, you may have a cause of action under commercial disparagement. First Amendment protections aside, no one has the right to make false statements concerning your business. Commercial disparagement laws are designed to protect you and provide you with legal recourse if such disparagement causes a financial loss.
Tortious interference occurs when a business, or a group of businesses, convinces a supplier to commit a breach of contract. It goes without saying that if your competitor is legally able to interlope between you and your supplier, and persuades your supplier to sell you his services for a greater price than he provides to your competitors, you would soon be out of business. If you suspect that you are in this situation, our business defense lawyers can provide aggressive representation.
The California Unfair Competition Law
Up until 2004, the Unfair Competition Law was very controversial, as the person filing the claim did not need to have been deceived or harmed by the business in question. Additionally, if the individual won the claim, it would be in his or her name, leaving the business vulnerable to being sued again for the same conduct, since it was not a true class action lawsuit. As a result, many attorneys were using Section 17200 as an “add on” claim in traditional product liability or torts lawsuits to raise the prospect of a larger payout. Section 17200 also required attorney’s fees to be paid to the winning attorneys, which motivated lawyers to add on the claim to their current lawsuit.
In November of 2004, the law was updated to more clearly define Section 17200 and Section 17500 with the passing of Proposition 64. The Unfair Competition Law now requires that a representative claim seeking relief on behalf of others may be brought only by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Proposition 64 also added language that cross-references California’s class action statute, meaning all representative actions under Section 17200 or Section 17500 must meet regular class action requirements.
The ability to defend a typical California Unfair Competition Law action requires an in-depth knowledge of this unique statute, a command of the rules and procedures governing class-action litigation and, in many cases, an understanding of substantive areas of law that are used to trigger the Unfair Competition Law violation. Examples of actions that violate Section 17200 and Section 17500 include:
False Advertising and Promotion:
A business makes a statement in advertising that is either untrue, or is likely to deceive the customer.
Misleading or Deceptive Trade Practices:
A business deceives the consumer as to the quality, source, origin, or endorsement of the product. Not to be confused with false advertising.
“Palming Off” Goods:
A business portrays its goods to the public as being the goods of another, or originating from another source.
Trade Dress Violations:
A business very closely copies the appearance of a competitor’s product and/or packaging so much that the consumer has trouble telling the difference between the two products. This issue affects goods ranging from makeup to computers to cigarettes.
While healthy competition in the business world leads to innovation and efficiency, it also increases your risk of being accused of violating California’s Unfair Competition Law. If your business is concerned about or has been served with a Section 17200 or Section 17500 violation claim, Bellatrix PC’s aggressive Unfair Competition Law attorneys are here to help. We will carefully and thoroughly investigate the claim, and then work with your team to strategically develop a defense plan.
Call our law offices today at (800) 449-8992 or contact us online to schedule your confidential legal consultation.
Happy New Year! The beginning of the year is a good time to start some things fresh. If you are like most people, you probably have some lofty goals about losing the holiday weight. And if you are like most business owners, you probably have some goals about improving your business this year (faster, better, stronger, more profitable, more organized, less stressful, etc.).
Goodness knows, starting Thanksgiving, I feverishly review my goals and accomplishments, scramble to accomplish stale tasks, and read motivational books like the 31st of December is the end of days.
And as I consider my year-end profitability, I think about taxes and liabilities (a lot) and consider how I can do things better next year. Because both taxes and liabilities cost me money and take up my time without giving me any return on investment, I want to minimize them as much as possible. Taxes and liabilities are blocks to my business’s growth and success.
If you are a business, the turning over of a new calendar year it is a good time to think about your liabilities, legal documents, tax situation, sunk costs and corporate structures. Let’s start with this: if you are not incorporated but you are doing business (even as a micro-business), you should incorporate immediately. Right now in fact. Here’s our incorporation package: New Business Legal Jump Start.
But even though I recommend you incorporate, you may be surprised to learn that you can still be liable for torts, employment law actions, and debts as the owner of a closely-held corporation or LLC (meaning you have less than 35 owners). When I tell my clients this, they usually argue with me.
“But I keep all the bank accounts separate!”
“But I thought that was the whole point of incorporating!”
“Why bother to incorporate at all???”
Unfortunately, the law is complicated and fickle. But that does not mean you should not take advantage of the corporate form. You just need to understand its limitations. Please let me explain.
First of all, you should incorporate so that you pay less taxes. Jeff Cane at Expert Accounting (and someone with whom I’ve worked since 2010) recently shared a PDF with me (Sole Prop vs S Corp). He broke down the tax savings of an S Corporation over a Sole Proprietorship in a hypothetical microbusiness. The tax liability was reduced by thousands of dollars.
But you should also incorporate to avoid liability. And this is where people get confused. You see, the point of the corporate veil is to prevent you from being liable as the business owner of the torts and debts of others, including the business, particularly when you have no ability to control them or prevent them. But it does not mean you can act with reckless abandon in the name of the business. Some of that liability still comes through.
You see, a tortfeasor is always personally liable for their own torts even when they commit the tort while at work or in the name of a business. (Translation: you are always personally responsible for the wrongs you personally do.) The business may also be jointly or vicariously liable (i.e. equally and concurrently responsible). And (here’s where it gets tricky) when you own a business, and that business commits a tort, it is possible that, as the owner of the business, you are also considered to have personally committed the wrong based on your own actions in controlling the business (without anyone having to pierce the corporate veil). Let me give several examples.
Let’s say you are a small business. You bake and deliver cakes. You have only a couple of employees. You have a cake to deliver one day and you do it yourself. While driving the cake, your run a red light and hit another car. Even though you were delivering for the business, you are also personally responsible for the accident. The fact that you incorporated does not relieve you from personal responsibility. But it may make the business equally responsible with you.
In contrast, let’s say you own a bakery and you have 100 employees. One of your employees is delivering a cake, runs a red light and gets into an accident. You do not know that employee well, had no reason to think he would drive negligently that day, have good company training and policies, and did not even know he was going out to deliver that cake. In that situation, the company and the employee are both liable, but not the business owner personally.
And another example: you are the small business cake baker again. You send an employee out to deliver a cake, but know that he’s a terrible driver, it’s snowing, and the delivery is late so it is foreseeable that he will drive hurriedly. In that case, depending on a number of factors, you may be personally liable when he blows through that red light, despite the fact that you incorporated, because you decided to send him out under those conditions.
Similar rules apply to debts (when they are incurred in bad faith or fraudulently, both of which are torts) and certain employment actions (i.e. sexual harassment, which is sort of like a tort). You may also enter into a separate contract to guarantee a debt (this is common with small businesses), which makes you personally liable for the business’s financial burdens even you otherwise would not be.
Some of this makes sense to me — you shouldn’t be able to commit fraud and then hide behind your corporation. But with respect to negligence and certain torts like trespass and conversion, I feel like they create an unfair burden on small businesses that does not exist against big businesses. Sometimes, if you are a small shop (like most businesses are), being incorporated may do you no good if you get personally sued for certain torts. Indeed, I recently defended a very ugly lawsuit where the owner of a business was personally on the hook for a business conversion because a security lien had not been perfected before a repossession. One paperwork error can devastate a small business owner!
But that being said, it is still worth incorporating to protect against liability. Why? Because of all the things it does protect you against. For example, most wrongful termination claims are still only against the company and not the owner. Most wage claims are charged against the corporation and not the owner. Most debts are charged against the corporation and not the owner. And there is even some coverage for torts. Plus, there are a lot of lawyers who do not know that torts may carry direct liability and so they try for alter ego instead (something I can usually win in defense). So perhaps incorporating is a little like taking shelter in a house with a leaky roof; that’s far better than no shelter at all!
Savvy business owners keep different assets in different buckets (like your business cash in a corporate savings account and your personal residence in your own name or a trust). It is a good idea to split your assets up so that they are sheltered. You work hard to earn your money and build your business; “bank” it whenever you can.
Do you know whether your papers, titles, contracts, corporate records and potential business liabilities are in order? Don’t wait until you get a tax bill or get sued to find out that a paperwork error can bankrupt you. Get a Business Risk Review and find out or contact our business law attorneys for a consultation at (800) 449-8992.
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Alicia I. Dearn is the founder of Bellatrix PC, a woman-owned law firm with offices in Missouri and California. Bellatrix PC handles lawsuits and business transactions. We advise in business, employment, real estate, intellectual property, civil litigation, and election law.
The articles published by Bellatrix PC are for informational purposes only and do not constitute legal advice. If you have a legal issue, please get competent advice from a licensed attorney in your jurisdiction. Use of Bellatrix PC's site is subject to our Attorney Advertising Disclaimers.