This section provides a brief overview of several Business Law issues commonly encountered by business owners and also by buyers and sellers of businesses. Please review the list of Business Law articles below.

Legal Alert - Merchant Retailers at Risk Under New Law
In Contract Situations Consult an Attorney
Plan in Advance When Disputes May Exist
Retain Legal Counsel in the Event of a Dispute
When a Problem Develops, Take Immediate Action

 

Merchant Retailers at Risk Under New Law

Because Identity Theft is such a growing concern, in 1999 the California Legislature passed a new law concerning credit card information that affects every merchant that accepts credit or debit cards. Among other things, the law requires that:

• Any receipt provided to the cardholder not contain the expiration date of the card
• Any receipt provided to the cardholder contain only the last five or less numbers of the credit card number
• Any receipt retained by the merchant not contain the expiration date of the card
• Any receipt retained by the merchant contain only the last five or less numbers of the credit card number

The law only applies to credit card information which is electronically printed at the time of the transaction. It does not apply to cards which are imprinted or photocopied. It also does not apply where the only record or receipt is handwritten.

This California law, which is located at Civil Code §1747.09, does not become effective until January 1, 2009. However, on December 4, 2003 President Bush signed a new federal law that became effective on December 6, 2006 that contains several nearly identical provisions. The first two of the California requirements listed above are therefore now required by Federal Law. The third and fourth requirements listed above will become law when the California statute becomes effective on January 1, 2009.

It's possible that some merchants may think that this law is overly heavy-handed, or that the likelihood of a problem for non-compliance is remote. But Bay Area legal newspapers are starting to report large numbers of lawsuits being filed by plaintiff law firms, with many seeking class-action status, and newspapers reports are being circulated that over fifty new suits have been filed for violations of this law.

Lack of knowledge about the law, or unintentional violation, is likely not a valid defense. For negligent noncompliance, a merchant is subject to the following penalties pursuant to 15 U.S.C.A. §1681o(a):

• Actual Damages sustained by the consumer as a result of the failure
• Attorneys fees plus costs of suit

For willful non-compliance, a merchant is subject to the following penalties pursuant to 15 U.S.C.A. §1681n(a):

• Actual Damages sustained by the consumer of not less than $100 and not more than $1,000
• Punitive Damages as determined by the Court
• Attorneys fees plus costs of suit

These penalties may not seem significant. However, each customer transaction is potentially a separate violation. If a business generates 100 debit/credit card transactions a day for seven days, then at the end of a week the business will have conducted 700 transactions, which at a minimum damage amount of $100 for each transaction means that after one week, the business will have potential liability for $70,000 in minimum damages, and after one month, the business will have potential liability for approximately $300,000 in minimum damages. If a lawsuit is filed, civil subpenas may be used to require that all credit card records be produced, so that all of the evidence needed to establish the liability of the business will be in the debit/credit card records maintained by the business. Since by law the minimum damages are $100 per customer and possibly per transaction, a court may not have the ability to reduce the amount of the damages to be awarded.

Opportunistic plaintiff law firms have already demonstrated a willingness to use the Americans with Disabilities Act ("ADA") to economic advantage since that law provides plaintiffs with the ability to sue merchants and recover attorneys fees. The substantial activity under the new credit card law during the last two months is a strong indicator that this credit card law may become the next new area for such lawsuits.

[back to top]

 

In Contract Situations, Consult an Attorney

I sometimes counsel with people in a legal dispute who advise me that they used a "standard contract" from a book they bought. Because they used a form contract from a published book, they expect the contract to be authoritative and adequate. If the contract is inadequate for their purposes, they sometimes seem surprised, and always disappointed, that the form contract they used has not served them well.

I have seen contracts for leases - or sales - of real property from published books that were ambiguous and vague. The problem with an ambiguous contract is that nobody is sure what it means. If you want to enforce an ambiguous contract, you may have a problem, because at trial, you'll be asking the judge to compel the other side to perform according to the contract. Problem is, if the contract isn't clear, then nobody's quite sure what the other side should do, or exactly what the other side agreed to. It may then be possible for the other side to "break" the contract, meaning that they may succeed in convincing the judge that they shouldn't be forced to do anything.

It's impossible to evaluate whether all of the contracts from all printed sources are adequate. Prepared contracts are available from bookstores, some stationary stores, and even off the internet. Because each contract must be separately evaluated, nobody can say whether prepared contracts are adequate or not. But I can say this much: some of the poorest contracts I have seen have come from prepared sources that people purchased and then used on their own.

Some prepared sources claim to follow California law. But others do not. The problem is that the California state Legislature regularly passes new laws. If a prepared contract does not consult California Law, then it is possible that portions of the contract may be void or unenforceable because they may violate California state Law. If a prepared contract does follow California law, then it is important to know whether the contract followed the legal updates. A contract prepared three years ago may include provisions that have been recently banned or prohibited.

In addition, many people have an inadequate understanding of the legal foundation of contract principles. Unless they have devoted themselves to a serious study of the law, they may change the contract, or use it in such a way that it has unintended consequences.

The best course of action? Enter contracts with care. And if it's a contract you are concerned about, give serious consideration to having it prepared or reviewed by competent counsel. The information in this article is not a complete treatment of the subject discussed and is not intended to be legal advice. Readers with a specific matter or question should consult an attorney.

[back to top]

 

Plan in Advance When Disputes May Exist

An ounce of prevention can be worth a pound of cure - or even several pounds.

I occasionally counsel with clients who have sensed a legal problem was developing long before any lawsuits were filed. These clients may have sensed that the personalities involved would likely lead to litigation, or that at some point a negotiation has started having problems. Some of these clients have taken no preventive action and have hoped the problem would resolve itself without the need for attorneys to get involved. And some of these matters have eventually resolved themselves, but others only seem to get resolved after litigation is filed and thousands of dollars of attorneys fees and costs are spent.

A simple legal motto goes like this: People look most closely at documents the second time they read them. The meaning is this: When contracts or deals are being made, read, and signed, people are often anxious for the contract to be completed, and they may gloss over terms, conditions, disclosures and provisions. But when problems arise as they sometimes do, these same people look at their contracts and their documents a second time, but this time they are looking for assistance for their case. At this stage, the language in the contract or the document can be very important, because frequently the language in the written agreement will control the rights of the parties involved in any dispute. The bottom line? It's a good idea to have the most written protection possible in any contract situation. The problem? Many people who sign contracts have little or no legal expertise in contract law. This means that in order to get the best protection, the parties need to hire an attorney.

It's a difficult problem. Many contracts are drafted, signed, and executed without any kind of significant dispute. California real estate practices rely to a significant extent on this proposition, because California law does not require an attorney to be involved in a house transaction, whereas several other states require an attorney to be involved in such transactions. If the parties knew when a dispute would develop, they could hire attorneys to help them draft contracts for those situations, and could do the others themselves. In a situation where it appears likely a dispute may develop, parties are certainly well-advised to retain legal counsel. But what about situations where all of the parties appear to get along well, and no dispute appears likely?

In such situations, the parties must evaluate their degree of comfort with the risk of a potential dispute or lawsuit. If the parties are comfortable with the transaction, then they may decide to save the cost of retaining an attorney, and recognize that if a lawsuit develops, they will then hire an attorney. On the other hand, if the parties want to maximize their protection in the event of a dispute, they may decide to spend the money up front to have legal counsel review their documents or help them prepare revisions. Competent, thorough legal counsel can frequently make recommendations on contracts that can provide invaluable assistance in the event of a dispute. But there is no easy answer, because of the up-front costs involved. Each person must ultimately decide whether or not they will incur the costs to acquire the contractual protections that competent counsel can provide.

[back to top]

 

Retain Legal Counsel in the Event of a Dispute

At a party several years ago, someone asked me what it was like to be a lawyer. I responded "It's just like L.A. Law. People come into my office each day with the most astounding problems. We resolve everything in an hour, and we handle eight matters a day.

"After the laughter died down, I explained that people who go to law school based on what they see on television or in theatres are likely to be sorely disappointed. In over 10 years of practice, I can count on the fingers of one hand the number of times I've seen a witness break down, or 'fess up, or produce the 'smoking gun,' and admit that he or she was either guilty or wrong. But Perry Mason managed to do it every episode.

My clients are sometimes surprised, and always disappointed, when they learn that people in litigation don't always follow "truth, justice, and the American way." At trial or deposition, attorneys are often civil to each other and to the opposing sides, and may even smile at each other. While litigation may sometimes appear to be civil, in many ways it is a hard-fought contest, with both sides struggling to win, often at a very high cost. Clients are sometimes surprised at the substantial costs involved. But building a case in many respects is like building a house and in significant cases even the costs can be similar.

Because such a conflict often consumes such a significant amount of time and resources, I generally counsel clients to prepare themselves as best they can prior to such an event. By the time a matter gets to litigation, the time for some of the preparations has passed. When clients are concerned about possible litigation, I advise them to have the best contracts they can. How do they have such contracts prepared? By competent counsel. People who aren't lawyers often look at lengthy contracts and think "that's just boilerplate" or it's "just a standard contract." There really is no such thing. At trial, the judge may decide significant portions of your case in your favor - or against you - based on that very contract that at one time appeared so mundane. The best protection? If you're signing a contract that you're concerned about, have it reviewed by competent counsel.

[back to top]

 

When a Problem Develops, Take Immediate Action

The parties have signed a contract, and now it's time for performance. One side begins to sense that important facts in the transaction may not have been disclosed before the contract was signed? What should both parties do?

A contract is an agreement between two or more persons where both sides agree to provide goods, services, or something of value to the other side. What happens when one side fails or refuses to perform? Or what happens when one side begins to feel that the contract was not fairly negotiated, such as a situation where defects in goods or services were not disclosed?

The parties, having entered a contract, now find themselves in a situation where performance is not what was expected. At this point, the party that doesn't receive full performance has a problem, and that party actually has two problems. The first problem is how to get the other side to perform, and the second problem is the potential cost of getting the other side to perform.

When contract disputes arise, many people have a natural tendency to try to informally resolve the problem with the other party. This approach can sometimes be successful, and if successful both parties can save attorneys fees in attempting to resolve the dispute. But what about situations where the other party absolutely refuses to perform, or where the party lacks the necessary resources to perform?

At this point, one or both of the parties frequently seek legal counsel. In some situations, an attorney is consulted early in the process, but in others an attorney is consulted after extensive efforts by the parties to informally resolve the dispute.

What should the parties consider in deciding whether to retain counsel? Cost is often an issue, and in very small matters an attorneys fee may not but justified. But when dealing with matters of any significance, in almost every situation people's rights are better preserved when they consult competent counsel. An attorney is trained to spot legal issues, legal rights, and to counsel clients on how best to preserve their rights. On a practical level, many attorneys deal with disputes, confrontation, and problems on a daily basis, and over a period of time they develop a sense of dispute resolution, and like a river guide, they can sometimes help clients know what to expect. They can often use their experience to help clients see what may be around the next bend. Because such attorneys are experienced in dispute resolution, they can sometimes provide invaluable assistance in helping clients decide which steps are necessary or best for resolving a particular dispute.

[back to top]