Tag Archives: commercial litigation attorney

Ten Tips for Avoiding Litigation: Tip #4: Every Significant Business Transaction Should be Documented

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There is a nostalgic notion among traditional businesspersons that the best deals are sealed by a hand-shake (or an elbow in this COVID-19 world in which we live), and you don’t need fancy lawyers and contracts to be successful in the business world. That approach to reaching agreements seems to work well in John Wayne and Clint Eastwood movies, but it can lead to problems in the real world. Robert Frost famously said: “Good fences make good neighbors.” In the business world, good contracts make good deals.

So why should you insist on – and pay the expense of creating – written contracts to memorialize your significant agreements? Consider the myriad of psychological research studies, which show that memories fade with age and the passage of time and that, even under the best of circumstances, we tend to remember what we want to remember. The corollary to that rule is that different people will tend to remember different things, depending upon their varying interests. Next consider that, according to the natural order of the world, otherwise known as “Murphy’s Law,” if something can go wrong, chances are it will go wrong. Finally, consider what will happen when you and the other party to the deal have differing recollections about the terms of the deal but nothing in writing to confirm either party’s position.

For example, suppose you understood that your customer was going to pay shipping costs for the goods it purchased from your company. Your customer, to the contrary, is certain that shipping costs were included in the price it paid for the goods. Similarly, what if our customer thinks it is entitled to receive a 2% price discount if it pays your invoice within 20 business days of receipt. You recall discussion of a discount but swear the terms you agreed to required payment of the invoice within 10 days and a resultant 1% discount.

How will you resolve such disputes without a definitive written agreement that includes provisions for shipping, payment and price terms? To paraphrase Yogi Berra: If you don’t know where you are going, how will you know when you get there? More to the point, if you don’t have a contract, how will you know what the deal is?

Faced with such a disagreement about the terms of the deal, you will either negotiate a new deal to resolve the disputed issues, stop doing business with the other party, or end up in court. If you end up in court, without a written contract, it will be your word against your adversary’s. Unfortunately, that kind of litigation, which depends upon either a jury or judge deciding whose testimony is more credible – a so-called “credibility contest” — is one of the most expensive and unpredictable kinds of contract disputes to resolve. Moreover, even if you are fortunate to prevail in the litigation, you will most likely be responsible for your own attorney’s fees and costs, which could be enormous. Under the so-called “American Rule,” which is followed, with rare exception, by every state and federal court in this country, each side bears its own costs of litigation, regardless who wins. One exception to the American Rule occurs when the contract that is the subject of the litigation contains a “loser pays” provision. But, of course, without a written contract containing such a provision, you will be out of luck and will probably have to bear your own litigation costs.

One additional reason to insist upon a written contract to memorialize significant transactions is the good will it will buy you with your most valuable customers. The truth is that wasteful and unnecessary litigation is just as expensive, time consuming, and distracting for your customer as it is for you. Your adversary will be forced to eat its own attorney’s fees and litigation costs, just as you are, if the dispute ends up in litigation. Therefore, both parties will benefit from a well-drafted contract that resolves disagreements without the need to resort to litigation.

Finally, not every deal requires a full blown contract with all the bells and whistles, but even in those circumstances, there should be some written confirmation of the agreement. In many cases, a simple purchase order with pre-printed standard terms and conditions, sent by one party and accepted by the other, will suffice. Some simple deals will only require a confirming email or two back and forth to provide a record of the principal terms of the deal. With the convenience of electronic communications these days, there is no good excuse for not documenting every deal in writing!

Click here for Tip #1: Always Have a Strong Written Agreement to Govern Your Business
Click here for Tip #2: Avoid Doing Business with Members of your Family
Click here for Tip #3: Check Your Insurance Coverage Frequently to be Sure it Protects Your Business from Exposure and Risk

Phil Kirchner of Flaster Greenberg
Philip Kirchner is a member of Flaster Greenberg’s Litigation Department headquartered in Cherry Hill, NJ. He concentrates his practice on resolving business disputes, including complex litigation of all types of business issues in both the federal and state courts of New Jersey and Pennsylvania. He can be reached at 856.661.2268 or phil.kirchner@flastergreenberg.com.

 

Tip for Avoiding Costly Business Litigation: Always Have a Strong Written Agreement to Govern Your Business

Tips for avoiding litigation

As a career commercial litigation attorney, I have been asked by several people why I would write a column advising business people on how to avoid needing my services. That’s a good question for which I do not have a good answer, other than to say I believe, in our ever-more complex commercial world, there will be plenty of commercial litigation to keep me busy. At the same time, I hope my clients will benefit from using an ounce of prevention to avoid paying a pound for a cure involving litigation.

Litigation is expensive, time-consuming, a distraction from running a successful business, and unpredictable. It is NEVER a good thing for a business to be involved in litigation; it generally means you owe someone money or someone owes you money. Either way, you are not happy, but you will be even less happy if you end up in litigation, regardless whether you are the plaintiff or defendant.

I plan to post one litigation avoidance tip per week for the next several weeks. I hope you find these tips helpful, and if you have questions or want to discuss any of them with me, I am happy to oblige. So, here is my first tip for avoiding litigation:

Tip #1: Always Have a Strong Written Agreement to Govern Your Business.

No matter what type of business you have, be it a pizza parlor or a high tech company, and regardless how your business is organized, as a corporation, partnership, LLC, or whatever, you should start your business with a well-drafted operating agreement. This is the document that governs all the important decisions and activities in the life of your business, such as ownership structure, voting rights, management responsibilities, resolution of disputes between owners, death or disability of an owner, adding new members, transfers of ownership interests, and, ultimately, dissolution of the business. For example, the death of one of the owners of the company need not automatically lead to the death of the business. A well-drafted agreement will spell out exactly how the deceased owner’s interest in the company will be distributed and valued and how the company will be managed going forward. Without such an agreement, however, an owner’s death could lead to a power struggle among the remaining owners, expensive litigation, and, eventually, dissolution of the company.

Business operating agreements are generally ignored until there is a significant event in the life of the business. When such an event occurs, however, you will be happy you have one. For example, many businesses with multiple owners reach a stage in their development where the owners develop different visions for the future of the business and how the business should be managed. They might disagree about whether to expand the company into a new line of business, take on additional debt, hire a new employee, or any number of other critical business decisions. Without a strong agreement that specifies how such disputes are to be resolved, the company could find itself in a stalemate position, requiring resort to a court to break the deadlock. The cost of a court battle alone (payment of attorney’s fees and costs of suit, plus the expenses associated with the possible appointment of a receiver to run the business while the owners and the court sort things out) is reason enough to avoid litigation. The other detriments inherent in business litigation, such as the business opportunities the company is unable to pursue, and the time spent by the business’s owners and key employees on the litigation that should be devoted to the business, reinforce the conclusion that litigation is not a desirable outcome. Finally, the litigation might very well produce a result that neither of the owners wants.

In short, every business should avoid litigation if possible, and one of the best ways to do that is to have a well-drafted, comprehensive operating agreement. Be sure to entrust this most important task in the life of your business to an experienced and able business attorney who has drafted many agreements of this kind.

Stay tuned for more tips in the coming weeks!

Phil Kirchner of Flaster Greenberg
Philip Kirchner is a member of Flaster Greenberg’s Litigation Department headquartered in Cherry Hill, NJ. He concentrates his practice on resolving business disputes, including complex litigation of all types of business issues in both the federal and state courts of New Jersey and Pennsylvania. He can be reached at 856.661.2268 or phil.kirchner@flastergreenberg.com.

 

 

Trends in Arbitration Agreements

Trends in arbitration agreementsThe New Jersey Supreme Court in late November 2019 heard oral argument in Flanzman v. Jenny Craig, Inc., 456 N.J. Super. 613 (App. Div. 2018), cert. granted, 237 N.J. 310 (2019), in which the Appellate Division boldly refused to enforce arbitration agreements that fail to identify a specific “arbitral forum.” At least one Justice hinted during the argument that Flanzman may have taken Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430, 447 (2014) – the Supreme Court’s landmark decision requiring arbitration agreements to waive unambiguously the parties’ “time-honored right to sue” in court – to an unintended extreme.

Atalese focused on the need for arbitration provisions to reflect, through unequivocal language, the parties’ understanding of the rights they give up by agreeing to arbitration. Id. at 443-45. Flanzman, by contrast, held they must also demonstrate they understand the process that will replace those rights. According to the Appellate Division, only a mutual assent to a specific “arbitral forum” – which it defined as the “mechanism” or “setting” for arbitration – reflects “a meeting of the minds about what rights the parties gave up and what rights they received.” 456 N.J. Super. at 624. Justice Patterson, noting this foundational gap in Flanzman’s premise, remarked, “Atalese is about what you’re giving up.”

In fact, Flanzman rested not so much on Atalese as on the Appellate Division’s decision in Kleine v. Emeritus at Emerson, 445 N.J. Super. 545 (App. Div. 2016). In Kleine, the arbitration clause named the AAA, but when the suit arose the AAA no longer arbitrated claims of that type. The appellate court, finding no mutually agreed-on forum should the AAA prove unavailable, held the clause unenforceable for lack of mutual assent; it then proceeded to ground its holding in Atalese: “As Atalese instructs, the party . . . must be able to understand – from clear and unambiguous language – both the rights that have been waived and the rights that have taken their place.” Id. at 552-53. But Atalese spoke only of the waived rights; it said nothing about an understanding of the rights that will take their place.

As for how to adequately show the parties’ mutual understanding, Flanzman stressed the need to identify an arbitral forum. According to Flanzman, different sets of arbitral rules – for example, those of the AAA and JAMS – can mean different substantive and procedural rights for the parties. Flanzman, 456 N.J. Super. at 626-27. But the significance of that identification was not obvious to the Court. “How will knowing the name of the arbitrator assist your client in knowing the rules of the game?” Justice Albin asked. Flanzman itself conceded that parties, instead of actually naming a forum, may agree to decide later on a forum when the need arises, or to each select an arbitrator who would, in turn, select a third. Id. at 629. However, the court did not explain how such a broad provision would inform the parties of their rights in the arbitral process. Nor did it say how much detail an arbitration clause must contain, insisting only that parties “generally address in some fashion what rights replace those that have been waived.” Id. at 626. “The question is, what is essential?” Justice LaVecchia asked. In reply, respondent’s counsel tried to direct the Court’s focus towards Flanzman’s larger point: “How can you waive your right to a jury trial if you have absolutely zero information?”

The Justices’ comments and questions may have shown a reluctance to broaden Atalese, itself a bold decision that stopped just short of enforcing arbitration agreements more narrowly than other contracts, which the Federal Arbitration Act forbids. Interestingly, in a 2019 unpublished decision, the Appellate Division declined an opportunity to limit Atalese to consumer and employment agreements. The court explained that Atalese’s central concern – that waiver of the right to judicial resolution must be clear and unambiguous – applies to sophisticated parties, too. See Itzhakov v. Segal, No. A-2619-17T4, 2019 N.J. Super. Unpub. LEXIS 1829, *10 (App. Div. Aug. 28, 2019). That decision was in keeping with Atalese, which continues to control New Jersey courts’ enforcement of arbitration agreements. Nonetheless, the Court may well decide, under the Federal Arbitration Act and established principles of contract law, that it has gone far enough in requiring greater specificity in arbitration provisions.

Daniel Epstein Litigation Attorney
Questions? Let Daniel know.

Daniel C. Epstein is a member of Flaster Greenberg’s Litigation Department, where he represents corporate and individual clients in all aspects of litigation.

City of Philadelphia Enacts Law Making it Unlawful for Employers to Ask Job Applicants for Their Salary Histories

Philadelphia has been prominently featured in the local and national news lately for enacting new laws that can be classified collectively as having as one of their primary purposes an attempt at “social engineering.”  Just last year, the City enacted an ordinance, popularly referred to as “Ban the Box,” which made it illegal for Philadelphia employers to inquire about a job applicant’s history of criminal convictions.  In so doing, Philadelphia joined a national trend of similar enactments by several other government entities, all motivated by a desire to improve employment prospects for ex-cons. Then, a little later last year, Philadelphia enacted a first-of-its kind soda tax, which, although probably aimed primarily at creating a new source of revenue, was rationalized, in large part, by the Philadelphia City Council that passed it as a measure to try to curb juvenile obesity among inner city children.

Now, Philadelphia has stuck its neck out again trying to control its private employers’ hiring practices and procedures and, thus, so the theory goes, their hiring results.  Motivated by a desire similar to the Ban the Box legislation, the City has now focused its attention on gender-based wage inequality, by enacting legislation making it unlawful for employers to consider a job applicant’s salary history in deciding what salary to offer that candidate.  In so doing, Philadelphia has put itself in the forefront of the attack on gender-based salary inequality.  Massachusetts passed a similar law last year, but, when the new Philadelphia Wage Equity Law becomes effective on May 23, 2017, Philadelphia will become the first US city to make it illegal for an employer to ask a job applicant to reveal his or her salary history.

As it had done with the Ban the Box ordinance, Philadelphia’s City Council made a number of findings on the record in support of the Wage Equity Law.  For example, City Council noted that women in the job market, especially minority women, on average, earn less — in some cases, significantly less — than men in comparable positions.  Specifically, City Council found that, basing salary decisions on an employee’s past earnings history “only serves to perpetuate gender wage inequalities.”  Finally, City Council concluded that the salary for a position should be based upon the responsibilities of the position, rather than an applicant’s prior salary.

What Does The New Law Prohibit?

The Wage Equity Law makes it an unlawful employment practice for an employer or an employment agency to (1) inquire about a prospective employee’s wage history, (2) require disclosure of wage history, (3) condition employment or consideration for an interview or employment on providing a wage history, (4) retaliate against a prospective employee for failing to provide a wage history in response to a request for one, or (5) rely, at any stage of the employment process, upon a wage history provided by a current or former employer in determining the employee’s wages or in negotiating or drafting the employee’s employment contract.  There are 2 exceptions to the law’s prohibitions.  First, the employer can rely on a prospective employee’s wage history if the applicant “knowingly and willingly” disclosed it.  And, second, the law does not apply to any action taken by an employer or employment agency pursuant to a federal, state or local law that specifically authorizes the disclosure or verification of wage history for employment purposes.  As just one example of the second exception, many government positions are authorized by statutes or regulations that include a requirement that the candidate’s employment and salary history be reviewed and verified.

What Is The Likely Impact Of This New Ordinance?

It is difficult to predict whether the Wage Equity Law will have its desired effect.  On the one hand, despite widespread criticism of the new law from the business community, a case certainly can be made that some portion of the apparent gender pay inequality is based on past wage discrimination by other employers, and that this ordinance will, in time, help stop the perpetuation of that inequality.

Eventually, as employers get used to the new law, perhaps they will also get used to the idea of offering salaries based upon the responsibilities of the job, rather than the candidate’s salary at a previous position.  After all, not that long ago, it was standard procedure for employers to inquire about female candidates’ marital status and family plans, but now most employers will readily acknowledge that such questions are discriminatory and should be precluded, as the law now provides.  Perhaps in a few years, as a result of the new ordinance, questions about salary history will be viewed in the same negative light as we now view questions about plans to have children.

In addition, most employers, including those who routinely ask their applicants for past salary information, will acknowledge that trying to hire employees at the lowest possible salary can lead to other employee relations problems for the employer.  Consider, for example, the possible tensions that could be, and, in fact, often are caused by two employees who have the same job responsibilities and comparable performance ratings, but are paid very different salaries due solely to their different salary histories before they came to their current employer.

On the other hand, some critics have suggested, although, to date, no concrete evidence has been presented to support their position, that the Wage Equity Law will actually hurt the movement to equalize salaries.  The theory is that, if employers cannot ask for a candidate’s salary history (or criminal background), they will simply guess or assume one.  For a female candidate, so the theory goes, the employer will assume she has a lower salary and will, in turn, offer her a lower salary.  If the employer’s assumed salary is lower than the candidate’s actual salary, the lack of a salary history, under this set of assumptions, will result in a lower offer than would have been the case if the employer had been able to ask the candidate for her salary history. The proponents of this viewpoint cite as support for their argument what they claim is anecdotal evidence that the Ban the Box law has actually hurt ex-convicts’ chances of landing a job, but there have been no scientific studies performed to date to prove or disprove the assumption.

In addition, employers who want to get around the law will, no doubt, be able to find ways to avoid or work around the law’s restrictions.  Just as employees often seem to know, despite their employers’ best efforts to maintain confidentiality, what their fellow workers are earning, employers will, no doubt, find ways to gather salary histories “off the record” if they really want them.  However, employers who engage in such behavior will run the risk of liability under the Wage Equity Law, which also prohibits reliance on salary history information in determining wages at any step in the employment process, regardless of the source of information.

More importantly, the consequences of getting caught violating the law could be severe.  In addition to having the power to order the hiring or reinstatement of an aggrieved employee, the Philadelphia Commission on Human Relations, which is the agency designated by the ordinance to enforce its provisions, also has the power to award the following relief to any person damaged by a violation of the Wage Equity Law:

  • Back pay
  • Compensatory damages.
  • Punitive damages up to $2,000 per violation.
  • Attorney’s fees and costs incurred by the Commission

The real enforcement hammer in the Wage Equity Law is reserved for repeat offenders, who can be imprisoned for up to 90 days for subsequent violations.        This provision will likely serve as a deterrent to willful violations of the law.

More difficult to assess will be the predictions of critics of the law that it will have a negative impact on the creation of new jobs in Philadelphia.  The Philadelphia Chamber of Commerce, among others, lobbied hard against the bill.  The Chamber criticized the bill as just the latest example of an overly-controlling City government telling companies how to run their businesses.  It warned that the law would hurt job growth and business expansion, claiming that the bill sends the message that “Philadelphia is not open for business.”  Indeed, Philadelphia has been accused in the past of having a reputation for having a high cost of doing business.

Finally, some business leaders, led by David Cohen, a senior vice president of Comcast, which is headquartered in Philadelphia, have challenged the legality of the law, saying that it impinges on employers’ First Amendment rights to ask prospective employees their salary history as one means of determining a fair salary for their new positions.  To date no court challenges to the law have been filed.  However, after City Council approved the new law but before the mayor signed it into law, Comcast’s legal team sent a lengthy memo to the City, which was made public.  The memo threatens a lawsuit against the City if the new law was not vetoed by the mayor, which we now know did not happen.  Instead, Mayor Jim Kenney signed the pending law, which now becomes effective 120 days from the January 23, 2017 signing date.  The ball is now in Comcast’s court whether to sue or not.

What Should Employers Do To Prepare For the Effective Date of the New Ordinance?

Philadelphia employers should begin now to revise their hiring processes and application forms to be ready for the May 23 effective date.  Obviously, written application forms will have to be edited to remove any questions about prior salaries.  More difficult will be training interviewers not to ask questions that they have routinely asked job candidates for countless years, especially for companies that give line managers, rather than human resources department personnel, responsibility for hiring decisions.  Such employers might be better advised to tell all interviewers that they should refrain from any discussion of salary, past, present or future, with job candidates, and that such discussions will be undertaken by human resources personnel trained in the nuances of the Wage Equity Law.

Employers who plan to ask their job applicants for “knowing and willful” waivers of their right not to reveal their salary histories, should be sure to put the request for waiver in a written document to be signed by the candidate.  That notice should explain to the candidate her right not to reveal her salary history and include language that the applicant has agreed, knowingly and willfully, to waive that right and provide the salary history.

What about non-Philadelphia employers who come to the city to recruit employees; does the Wage Equity Law apply to them?  How about an employer located outside the city, an executive of which comes into the city to meet with a job candidate?   And if a Philadelphia resident goes to New York for a job interview with a national employer that happens to have operations in Philadelphia, does the ordinance apply to that situation? As with any new law, the scope and applicability of the law will become clearer as time goes on, as the Philadelphia Commission on Human Relations decides how broadly it intends to try to enforce it, and as the courts rule on the legality of the Commission’s decisions and interpret the gray areas of the law.

 

Philip Kirchner is a shareholder in and former chair of Flaster/Greenberg P.C.’s Commercial Litigation Practice Group, a member of the Labor & Employment and Construction Litigation Practice Groups, and member of the Restaurant & Hospitality, Construction, Nonprofit & Charitable Organizations, Gaming and Alternative & Renewable Energy Industry Groups.

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