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.

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.

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

Why Employee Stock Ownership Plans (ESOPs) Are Not Just for Big Companies in Wisconsin

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. Read more

Why Doing Everything to Avoid Business Taxes may Hurt Your Bottom Line

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.

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

How to Find an Attorney in Milwaukee?

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. 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

Can I sue in Small Claims court for more than $5,000?

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. Read more

Why choose an LLC? All of the benefits without a lot of the hassle

LLCs in Wisconsin have become the entity de-jour for new businesses in Milwaukee and the rest of the state. The real strength of the LLC is its ease to set up and maintain and its versatility. 

An LLC provides all of the liability protection of a Corporation. The same rules generally apply about piercing the corporate veil. In order to maintain the liability protection an LLC affords you have to be sure that you follow the requirements of maintaining your LLC as well as keeping all personal and business money separate. 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

Anatomy of a Contract (Part 2 of 3)

If you missed “Anatomy of a Contract (Part 1 of 3)click here

In that section I discussed the recitals, or as I refer to it, the “Information” part of a contract. The other two parts are “Action” and “Insurance”. In this post I am going to talk a bit about the “Action” portion of a contract.

To me this is the most important, and often most overlooked part of a contract, especially by those drafting contracts without the help of an Attorney. The most important aspect of the contract is setting out exactly what it is that the parties are contracting for. This takes work and some foresight, but the dividends for spending the extra time upfront pay off 10 fold in its ability to prevent and resolve future disputes.
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