How do I preserve my lien rights as a contractor in Wisconsin?

Lien laws are both stringent and confusing. Any contractor who improves real property is given an extraordinary power of being able to place a lien on the property in the event of non-payment, before obtaining a judgment. However, in order to maintain that right, there are strict requirements for notice to the land owner that must be met. Read more

Is My Automatically Renewing Contract Enforceable?

The Wisconsin legislature, effective May 1, 2011, has implemented strict notice requirements for any automatically renewing “Business Contracts” entered into after May 1, 2011.

The rule is codified through Wis. Stat. 134.49, and sets forth that any automatically renewing contract that does not make the following disclosures, will be held to be unenforceable as to the renewing term.

1. A statement that the contract will be renewed or extended unless the customer declines renewal or extension.
2. A statement indicating the duration of the additional contract period that would result from an automatic renewal or extension period.
3. A statement indicating whether an increase in charges to the customer will apply upon an automatic renewal or extension.
4. A description of action the customer must take to decline renewal or extension.
5. The date of the deadline for the customer to decline renewal or extension.

The statute also imposes new obligations on contracts in existence prior to May 1, 2011 that have an initial term of more than one year. If your business utilizes, or intends to utilize automatically renewing contracts, you should contact a Wisconsin Lawyer to ensure that they are in compliance with Wis. Stat. 134.49 and that they will be enforceable.

There are two purposes for a contract: 1) is to make sure the parties understand the deal, and 2) make sure one party or the other can enforce the deal if need be. If you don’t have a well written contract, you may not accomplish either of those goals.

The Importance of a Well Written Contract- Revisited

I have written in the past about the importance of a well written contract, but as my litigation practice expands I am constantly reminded about how important this is. The importance of not only including all of the legal boilerplate, but also making sure the specifics of dispute resolution are ironed out is paramount.

While this is certainly a problem with small businesses that are (understandably so) trying to save money by drafting contracts themselves, it also is a problem with large corporations that have Attorneys draft their contracts. It seems so often the Attorneys get caught up in the minutia of who is warranting and representing versus providing notice or knowledge, that they miss defining important practical aspects of the contract.

I am currently involved in a major arbitration proceedings that involves two large companies with a dispute about how to interpret a provision of the contract. The contract sets out all of the proper legal positions of each party, but fails to define a mechanism to determine who actually has what rights. (I cannot give specifics, but it has to do with calculations of different percentages of sales, and there is no method given to determine such calculation)

Now, instead of spending a few more attorney hours sorting this problem out in advance, both parties are spending tens of thousands of dollars arbitrating the dispute.

Karma applies in Contracts as well- Fraudulant Contracts will not be upheld

The Wisconsin Law Journal brought a recent case to my attention about a man who wrote up a contract with his brother to try and cheat his now ex-wife out of some of the family assets.

The terms of the contract were that Stanley, who was thinking of getting divorced, transferred 20 acres of land to his brother at a steep discount to prevent his soon to be ex-wife from getting any of it. The deal was that after the divorce, Thomas would transfer the property back. Only, Thomas decided to keep the property instead. When Stanley sued to enforce the contract, the Court’s refused to uphold it and assist Stanley with his fraud.

The opinion stated,

Because the court does not reward the perpetrator of a fraud upon the court, we affirm the trial court’s decision to void the contract and permit the parcel to be titled in Thomas’ name.

Oddly enough this leaves the now ex-wife with no ability to recover for her half of the property. Perhaps she could go after Stanley for her half through Family Court.

Either way, it just goes to show that what goes around comes around, and if you intend to create fraudulent contracts, don’t expect Wisconsin Courts to help you enforce them.

Using Non-Compete Clauses to Add value to your business

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. Keep in mind however that non-competes vary in large degrees and that there are many specific rules you must follow in order for your non-compete to be enforceable. In Wisconsin, often times non-competes against individuals are limited to around 2 years.

What happens when there is a mistake in the Contract?

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.

Be Careful When Granting the Power to Terminate a Contract Early

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.”

The Benefits of a Joint Venture

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.

Do I need a DirecTV Commercial License for my bar?

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.

Can I just keep the earnest money if a buyer backs out? (A recent Wisconsin Appellate Court decision gives us pause)

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

Where is the real value? In the Company or the Employees?

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.

Why does legal language need to be so complicated?

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. Read more

Difference between an Asset Purchase and a Stock Purchase

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. Read more

What Happens when one Partner Leaves a Partnership?

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. Read more

Dangers of Businesses taking the Law into their own hands

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 Read more

Are you actually getting the personal liability protection from your LLC or Corporation?

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. Read more

The Problem with On-Line Form Contracts

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. Read more

What if there was no written Contract?

This is an issue that comes up quite often in my Business Litigation Practice. When two businesses, especially small businesses, first get together they are excited to have the service/ a new client and other than maybe a written a proposal have nothing in writing setting out the terms of the agreement.

If everything does not go exactly according to everyone’s plans, this can lead to costly and frustrating litigation. Read more

The importance of negotiating your commercial lease.

While the rent per square foot is an important consideration, money is not the only thing that can be negotiated in a commercial lease.

A colleague of mine, Attorney Chris Moander, recently wrote an article “The lease is a beast I can’t stand in the least” on his blog, and he warns of the danger of being on the hook for maintenance of a building that you thought you were just leasing.

This brought me to another topic that needs discussion, and that is negotiating the commercial lease. Read more

Can I get attorney’s fees in my business lawsuit?

Everyone always wants them, very few people actually get them. There are generally three ways to get attorneys fees.

One, if they are explicitly granted as a part of a contract for which you are pursuing a breach of contract claim, if you win you will get Attorney’s fees. If you do not, you may have to pay theirs. I am a big advocate of including Attorney’s fees in the provisions of contract, especially if you have chosen not to include a mediation or arbitration clause.

Read more