Milwaukee Business Lawyer and Litigator

I just came across a really well written article about non-compete clauses, you can read it here www.saleofbusinesslawblog.com . I am a big fan of Non-compete clauses to sweeten a deal. Chances are, that if you are selling the business, it is because you are no longer going to be performing that type of work anyway. But guaranteeing it with a non-compete clause can give the other side a sense of security and can be a nice bargaining chip to help sweeten the deal.

Of course you have to be sure that you do not want to continue in the business and be sure that the amount added to price is sufficient to cover the opportunity cost involved in no longer being able to pursue an industry that you are knowledgeable about.

Often these agreements are limited to 3-5 years. This gives the buyer enough security about the short term without permanently banning the seller from the industry.

Even when a contract is drafted by an attorney, there can be simple clerical errors that may change the whole contract. If you had an option to purchase, and on one line the wrong date was put for that option to end, it could materially change the terms of the contract.

Fortunately, or unfortunately, depending how you look at it, Wisconsin has a fair amount of case law addressing this problem. In a majority of these cases the error will simply be attributed to “Mutual Mistake”. Basically meaning that neither party noticed it was wrong, but did not intend for it to be present. In a case of Mutual Mistake the remedy is usually to reform the contract to reflect the parties true intentions. The reasoning being that an otherwise mutual oral agreement was erroneously put into writing. If the Court reforms the contract, then the parties true intentions are reflected.

[M]utual mistake, or mistake by one party and fraud by another are recognized as basis for the relief of reformation of an instrument, Findorff v. Findorff (1957), 3 Wis.2d 215, 224, 88 , City of Milwaukee v. Milwaukee Civic Devs., Inc., 71 Wis. 2d 647 (1976)

However, the burden of proof is on the party that is seeking reformation.

“A party seeking reformation must offer clear and convincing evidence that both parties agreed on facts different from those set forth in the agreement.” Hajec v. Novitzke 46 Wis. 2d. 590, 594 (1975)

There is an issue to consider if, for some reason, the error does not fall into the realm of “Mutual Mistake” but instead is construed as an ambiguous provision. In those cases, Court’s have held that any ambiguities are construed against the drafter. However, the intentions of the parties is the ultimate factor to be considered. In Wilke v. First Federal Sav. and Loan Ass’n of Eau Claire 108 Wis.2d 650, 655 the Wisconsin Supreme Court held

Construction of an ambiguous contract clause against the drafter is a general rule to be followed only where consistent with the language of the whole contract and the intent of the parties. The purpose of the rules of contract construction is to aid ascertainment of this intent.

So, while it is best to make sure that what you Contracted for is actually in the contract, if through honest mistake, or fraud from the other side, something in the contract is incorrectly represented, there are remedies to fix the contract based on the parties’ true intentions.

The latest news I have seen comes from a Wisconsin Law Journal Article on Tuesday stating that the Metropolitan Milwaukee Association of Commerce’s (MMAC) directors unanimously chose to sue the city of Milwaukee to stop the sick-leave ordinance from taking effect. You can see the article here.

I am very interested to see what the complaint states, as well as how the city responds. Apparently the organization 9to5, which is a branch of the National Association of Working Women, is prepared to file an amicus briefs to support the city in a lawsuit. (An amicus brief is a brief that a third party can submit in support of a party in the action).

I try my best to stay very politically neutral in these posts, but I want to address one portion of this argument. In the above mentioned article is the following

Amy Stear, 9to5 Wiscsonin Director said the MMAC’s decision disregards Milwaukee residents who voted 130,562 to 60,796 Nov. 4 to approve the ordinance in binding referendum.

“Essentially,” Stear said, “they’re saying that they don’t care what’s important to us.”

Regardless of the merits one way or the other of the referendum, basically saying that it is right because the majority wants it, is a very weak argument. Throughout the history of this country there have been some very bad ideas that are held by the majority. As recently as fifty years ago there were portions of the this country where the majority felt that blacks should not be able to vote.

I am in no means saying this is the same situation, but “majority is right” in my mind is a very bad argument. If the referendum had said, “Everyone in Milwaukee gets $10,000″ I am sure it would have passed, but it would not have made it legal, or a good idea.

The final piece of information I would love to get my hands on, is what percentage of Business Owners in Milwaukee, live in the city of Milwaukee. I have a feeling that an overwhelming majority of the people that this referendum adversely affects, business owners, were not even able to voice their opinion on the matter as they did not get to vote on the referendum.

It seems quite often you see contracts that contain provisions similar to the following:

Either party may cancel this contract at any time by giving the other party 60 days written notice.

This always sounds like a good idea when you discuss it. Basically it is the back-out provision, if things are going badly, you can get out before it gets worse. While this may be appropriate in some cases, in many cases it ends up destroying the entire reason for the contract.

The point of most contracts is to set a series of provisions out defining what each party is responsible for. Most of the value comes from the fact that both parties know they are tied to each other for a certain amount of time as long as both parties live up to their end. If you provide a get out of jail free card, with one of these provisions, then you do not have a 1, 2 or 3 year contract, all you really have is a self renewing 60 day contract.

There is nothing wrong with 60 day self renewing contracts, if that is what both parties want, but more often then not, when these provisions are used it is not the case.

Always be sure that what you contract for is what you intend. As my father always said to me “Say what you mean, and mean what you say.”

There are many situations where two existing businesses, or two just starting entrepreneurs want to jointly take on an endeavor, but do not want to be so tied to each other as to be the same entity. This is where a joint venture can come in handy. It creates a legally binding relationship, and if done correctly all of the fiduciary duties of being in business together with out all of the red tape when it is time to go your separate ways.

Like any contract, it is important to ensure that it is well written and extremely explicit as to what each person’s duties and responsibilities are. Some more explanation of the importance of well drafted contracts can be seen in my “Anatomy of a Contract” series.

Probably the two most important things to ensure that are included, other than what the contract is about, are that each member has a fiduciary duty to the Joint Venture (this means they have a duty to put the best interests of the Joint Venture first) and that you properly indemnify all parties from each other’s potential wrong doings that occur outside of the Joint Venture. The whole point of the Joint Venture is that you are not tied, lock stock and barrel to the other party, not being properly indemnified ends up defeating that purpose.

The law that was passed by referendum sets out a rule that mandates that Milwaukee Businesses provide mandatory sick leave to their employees. The rule states that employees will earn 1 hour of sick time for every 30 hours they work, with a cap of 5 days to 9 days depending on the size of the company.

The Wisconsin Law Journal and reporter Sean Ryan reported in a November 5th article “Business Group Preps for Sick Leave Suit” that the Metropolitan Milwaukee Association of Commerce (MMAC) is planning on attempting to challenge the law in the courts.

While the group, 9-5 that sponsored the bill is trying to work with businesses and the Mayor’s office to discuss enforcement mechanisms, the MMAC seems reluctant to do so. The quote from Steve Baas, the MMAC’s government affairs director pretty much summed it up:

If this new ordinance is illegal, you are not improving an illegal law by rearranging the deck chairs on the illegal Titanic.”

Although the MMAC filed a notice of claim to the City of Milwaukee on November 5th, as of today no actual suit has yet been filed, it remains to be seen if a lawsuit will actually emerge and what the legal basis of the suit will be.

The short answer: YES. DirecTV is cracking down on Commercial Misuse over the last year and a half, particularly misuse of NFL Sunday Ticket, resulting in huge fines. Previously DirecTV had limited its focus to just those who were using “Pirate” boxes or illegal access cards to get at its content. Now, DirecTV is unleashing its “Office of Signal Integrity” on commercial businesses large and small, especially sports bars, showing its content without paying for a commercial subscription. It even maintains an anti-piracy website www.hackhu.com listing all of its recent settlements and judgments against those both violating the piracy rules and what they have dubbed “Commercial Misuse” ranging from $50,000 to $100,000 settlement awards.

DirecTV has two different types of subscriptions, residential or commercial. The residential rates range from $30 per month to about $90 per month. In contrast, the minimum commercial package starts at $151.99 per month and maxes out at $361.99 depending on the size of your establishment. Add in the fact that commercial NFL Sunday Ticket prices range from $869 per season all the way to $45,799 based on your establishments fire code occupancy, you can see why business are trying to avoid paying for commercial licenses.

However, DirecTV has been making these business pay, and in a big way. Its anti-hacking website lists dozens of examples of $50,000+ settlements for violations of showing DirecTV programming without paying its commercial license rates. DirecTV also has not limited its blitzkrieg to large commercial bars, small mom and pop establishments are getting slapped down with four and five digit fines. Its main cause of action is based on 47 U.S.C. §605 “Unauthorized Publication or Use of Communications” which sets out damages of $1,000 to $100,000.

DirecTV has been smart about gathering its evidence and making sure that it can prove its case, but never actually has to. By forcing violators to settle regardless of how “innocent” or “grievous” their violation is out of fear of exorbitant legal fees, DirecTV manages to keep its claim of action intact and unchallenged by an actual fact finding hearing. DirecTV knows that it will be successful in summary judgment, be awarded the statutory fees as well as attorney’s fees. So, all of you small businesses, especially bars, that think that you are saving a few bucks a month by not paying for the commercial license, you are playing with fire, and one day soon may end up with a demand for a $50,000+ settlement to avoid a protracted law suit. If you get one of these demand letters make sure to contact an attorney and see if at the very least the damage can be minimized.

In an opinion that was issued last week the Wisconsin Appellate Court upheld a circuit court decision in which the plaintiff’s were not able to sue for actual damages in a failed residential real estate transaction because they did not return the earnest money to the buyer. The court ruled that they irrevocably elected liquidated damages as their remedy and forfeited their right to sue for actual damages when they refused to direct the return of the earnest money to the buyer.

What does this mean? The Wisconsin courts are saying to sellers that you need to make a choice as to whether to sue for actual damages or simply accept the earnest money, you cannot go after both when a buyer backs out of a deal. Earnest money is intended to be a form of insurance against buyers backing out of the offer. If you decide to keep the earnest money, then that is the extent of the damages that you can receive.

It seems that this decision will impact sellers in a couple of ways. One, there is now some incentive to require a higher earnest money amount from buyers. While this would not have been a problem a couple of years ago, sellers are no longer in the position to be especially picky about the offers that they will consider. The other is that we may see a chilling effect on the number of lawsuits for actual damages. This number is usually low anyway, but now that the earnest money must be returned prior to seeking actual damages many more people may choose to simply take the bird in the hand versus the two in the bush and accept the earnest money as liquidated damages and move on.

You can read the Appellate Court’s as yet unpublished decision at http://www.wisbar.org/res/capp/2008/2007ap001799.htm

Often, when a company is looking to acquire another business, it looks at all of its gleaming equipment and its wonderful balance sheet as the reason to purchase the company, but in reality all of that success is probably more tied to the employees that work there then the systems or equipment associated with the business. Both Buyers and Sellers of businesses need to keep this in mind from the very outset of negotiations.

A business, as a buyer, needs to be aware of where the value lies and ensure that it is receiving that value when it purchases the company. This may be through opportunities to retain the current employees as well as non-compete agreements for after the sale commences.

For sellers it is extremely important to ensure that there is an agreement that the potential buyer will not simply hire away the sellers most valuable employees. When negotiations begin the potential buyer is given access to the inner workings of the sellers company, and thus may realize that the real value lies in a handful of employees. If there is not a Letter of Intent or other agreement prohibiting the hiring away of that top talent, the buyer may simply call the deal off and acquire the most valuable part of the seller’s business without paying the seller a dime. Courts in Wisconsin will generally up-hold Non-Solicitation agreements for up to 2 years.

From a buyer’s standpoint it is important to be diligent and ensure that the valuable part of the company comes with the deal, and conversely it is in the seller’s best interest to protect that valuable commodity until the deal is finished.

This is a question that is frequently asked, or thought of, even if it is not verbalized, by my clients. The lawyerly answer is because language is an imperfect medium to describe complex thoughts, ideas, and meanings. There are vagaries to every word, and every sentence written.  However, a better way to explain it may be through an example.

New legislation is passed to protect city parks. As a part of that legislation a sign which reads “No Vehicles in the Park” is put up. Now most people, on the surface, would be happy with this. It is a simple sentence, devoid of legalese, and defines its purpose. However, think about where the ambiguities come into play. Continue reading →

There are two mainstream ways that Businesses go about acquiring other businesses. This is through either an Asset Purchase or a Stock Purchase. There are advantages and disadvantages to both approaches, taking a look at what you want to accomplish will go a long way towards helping you decide which method to take. Continue reading →

What is an ESOP? An ESOP is exactly what it sounds like, an Employee Stock Ownership Plan, the employees literally hold the stock to the company. The better questions are how do you go about implementing an ESOP? and what are the benefits? While a small percentage of ESOPs (which get most of the news coverage) are large publicly held companies that utilize the vehicle to stop a take over or to buyout a failing company, an overwhelming majority of ESOPs are enacted by smaller, closely held companies as a contribution to its employees. This can serve to motivate and empower your employees, but it can also serve to help in the borrowing of money for acquiring new assets in pretax dollars. Continue reading →

Everybody hates to pay taxes, but Small Business owners seem to hate it the most. Small businesses will go to great lengths, both legally and illegally to hide their income from the IRS, and thus have a lower tax bill each year. While this may seem ideal for the present, is this practice hamstringing your companies overall goals if you ever go to sell?

If you want to get full market value for your company, a key component is showing a profit. It can’t just be this month or last quarter either, you have to make a commitment 2-3 years before selling your business that you are going to have your books show a profit. This means no longer hiding income or taking “questionable” deductions. As an Attorney, I would say you should never do these things, but everyone knows that they happen. If you will not stop those activities for fear of the IRS, then stop them when you want to sell your business because the added return on that sale will be well worth the additional tax hit you may incur.

In a January 2007 decision, Estate of James H. Matteson v. Robert R. Matteson et al. , the Wisconsin Appellate court takes the time to further clarify its decision from Lange v. Bartlett , 121 Wis. 2d 599, 602 which stated

[W]hen one partner leaves a partnership and allows the other to continue the business, the departing partner is entitled to receive, in addition to a share of the value of the business, a share of the profits until the business is wound up. We also held that the continuing partner is entitled to be compensated for work done during this time.

In this case, Robert and James had a partnership in a radio sales and service business. In 2001, James left the partnership, but Robert continued the business as an LLC. They never agreed how James should be compensated for his half of the partnership, and unfortunately soon thereafter James died. His estate filed suit and 3 years of litigation ensued. Continue reading →

To the unsuspecting business, there are a surprising amount of consumer protection laws in Wisconsin, especially relating to penalties from a business. Businesses regularly get themselves into hot water by imposing sanctions on consumers without taking those laws into account, the consequences can be dire and expensive. A recent Wisconsin Appellate case James Cook et al v. Public Storage, Inc. reminds us of the consequences of not taking proper legal action when owed money by a consumer.

The basics of the case were the following: Cook rented a storage facility from Public Storage Inc. He fell behind on his payments and then defaulted. Public Storage then proceeded to auction off his goods for $600 to pay for the $200 that was owed to the Storage unit. It turned out that the items were worth $19,000 Continue reading →

Unless you are making all other parties actually aware of your business entity, you may not be. A recent Wisconsin Appellate decision Black v. Bach, 2005AP3010 reminds us that agents (this means anyone, employees, owners, or anyone acting to bind the LLC or Corporation) need to take steps to ensure that everyone they deal with know the specifics of the entity and its liability protection, or that protection may vanish when it matters most. Continue reading →

It is probably relatively obvious how to find an attorney, open the yellow pages or jump on Google and you will have thousands to choose from. The title of this post should be “how to find a GOOD attorney in Milwaukee?”

The first thing to realize is that a good attorney for one person, is not always a good attorney for another person. This holds true the other way around as well, a good client for one attorney is not always a good client for another attorney. I cannot write from experience about what to look for in an attorney, as I have never hired one before. However, from the other end of the table, I can write about what makes a good working relationship and what makes a bad one between attorney and client. Continue reading →

If you are looking to start a business in Milwaukee, Wisconsin, or already own a business in the Wauwatosa or Milwaukee area, you might think, “I can save some money on using contracts and business formation services from an on-line website.” And this is true, you will certainly get a cheap alternative. Of course, as in all things in life, you get what you pay for.

Every well written contract can be broken into three main parts. These three parts I like to call Information, Action, and Insurance. You can read more about this in the three part series of posts “The Anatomy of a Contract” The information part of the Contract simply describes what the contract is about: who is involved and what they are contracting for. The on-line contracts, with your input, can usually cover the Information portion of the Contract pretty well. At the end of the day, if you fill in the proper blanks, you have at the very least an outline of what each party is looking to accomplish. Continue reading →

The short answer- Yes; but you can only recover damages of up to $5,000 plus statutory attorney’s fees ($250-$500) and court costs. A recent decision in the Wisconsin Court of Appeals Winkler v. Spaman Wholesale confirmed as much when it denied the defendant’s motion to vacate the default judgment for $5,000 because the demand in the complaint was for $8,000. The defendant’s attorney, while trying to get the default judgment set aside and the case reopened, argued that Small Claims court did not have jurisdiction because the amount of the suit was over $5,000. Continue reading →