Wednesday, August 25, 2010

To Mediate and/or Arbitrate? That is the Question.

Alternative Dispute Resolution (“ADR”) is sometimes viewed as the latest, “trendy” way to resolve your case. ADR is generally a process that takes place outside the courthouse, although many courts now require parties to utilize ADR at some point before trial during a lawsuit. However, many parties are now leaving the courthouse completely out of the picture, and deciding to solely use some type of ADR, such as mediation or arbitration, to resolve or litigate their claims. ADR consists of several types of processes, but I am only focusing here on mediation and arbitration.

A mediation consists of the parties and their counsel, and a neutral third party known as the mediator. The mediator is not a decision maker, but assists the parties in amicably resolving the dispute. The mediator helps parties in developing settlement options, and may offer his or her opinion as to the strengths and weaknesses of a party’s case. Parties can agree to mediate their claims, or may be ordered by the court to mediate the case prior to trial or arbitration. Mediation is the ADR process in which the parties have the most control of their outcome, versus going to arbitration or court where an arbitrator, judge or jury makes the decisions. Parties often favor mediation because parties are able to mold unique settlements that may not be available in court or arbitration, Furthermore, the costs of mediation are typically less than the costs of litigating a claim in court or in arbitration.

Arbitration is a form of dispute resolution based on an agreement by the parties to arbitrate their claims, rather than utilize the courts. An arbitration consists of the parties and their counsel, and at least one arbitrator who acts as the judge and jury or decision-maker. Whether to use one arbitrator, or a three-person panel, is a decision made by the parties in their arbitration agreement.

Arbitration is conducted similarly to a trial, but is more informal and may not utilize the rules of evidence and procedure utilized in a trial. Generally, parties are able to mutually agree on an arbitrator, or at least strike potential arbitrators, whereas in a Texas court, you are assigned a specific judge. Parties also must give up their right to a jury trial in arbitration. Arbitration is typically binding and unappealable, although there are a few exceptions that allow arbitration to be non-binding or appealable. Once the arbitrator issues a final ruling, the prevailing party files it in court to effectuate a collectable, enforceable judgment.

The costs of mediation and arbitration are generally split between the parties, making it an attractive option for parties. However, in arbitration, unlike a judicial proceeding, all costs, including the cost of the arbitrator(s), are incurred by the parties. Arbitration decisions are typically reached much more quickly than a judicial proceeding, and are generally final. Both mediation and arbitration allow parties to reach decisions and judgments more narrowly tailored toward the parties than a judicial proceeding can allow.

Elyse M. Farrow, Associate
The Vethan Law Firm, P.C.

Wednesday, August 18, 2010

Tulips And Housing – Will We Never Catch Wise?

People were shocked and amazed a few years ago by the crash of the American housing industry. Why is this? There have been crashes before. In fact, it seems that a boom/crash cycle is the natural order of things in finance.

The first great boom/crash cycle of which I am aware is the
Tulip Mania in the Netherlands back in the 17th Century. The Dutch people became enthralled with tulips and many invested their savings in tulip speculation. At the peak of Tulip Mania in 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. And then – inevitably – the crash came.

This is not just ancient history; there have been many boom/crash cycles within living memory, but we just do not seem to remember them when the next boom comes along.

For instance, does anybody remember Beanie Babies? At one time it seemed the
market for Beanie Babies, the plush toys that you could buy in almost every store, would never stop growing. But it did. And many people who had ‘invested’ in Beanie Babies were caught holding the bag, or the baby.

What should we learn from this? Nothing that Mom and Dad did not tell us when we were young:

“What goes up, must come down.”

“If a deal seems too good to be true, it probably is.”

“Don’t put all your eggs in one basket.”

The best protection from being caught out in the next boom/bust cycle is to educate yourself. Know the past so that you are not bitten by the future.

And the next time you hear of a business investment that seems to be too good to be true, ask yourself – “Is it?”

Lee Keller King
Senior Associate at The Vethan Law Firm

Wednesday, August 11, 2010

Origins of a Corporation

Many today do not realize how much our modern financial and business system depends on an ancient creation – the liability-limiting corporation. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, obtained a charter from King Magnus Eriksson in 1347. One of the earliest English joint-stock companies was the East India Company (also known as the East India Trading Company, English East India Company, or the British East India Company), which was chartered by Elizabeth I in 1600. However, it was not until the enactment of the Limited Liability Act of 1855 that publicly owned corporations in Great Britain gave their stockholders protection from liability for the debts of the corporation.

In the United States, legislators of the various states retained a tight rein on corporations for 100 years after the American Revolution. Initially, corporate charters were limited to purposes that benefited the public, such as construction of roads or canals. The powers of corporations were also limited by the states, which often forbade corporations to own stock in other corporations, or own any property not directly connected to the corporation’s chartered purpose. The concept of today’s modern corporation – charted to engage in “any lawful business” was absent. It was not until the 1886 U.S. Supreme Court case of Santa Clara County v. Southern Pacific Railroad Company that the modern concept of a corporation as a separate legal entity took root in the United States.

So what does that have to do with me, you ask? If you are a business owner, it may be the difference between a bad business year and total financial ruin.

Many business owners do not realize the benefits of incorporation, or other forms of liability-limiting business formation. Many a sole proprietor has learned too late that the business’s debts are his/her debts, and failure of the business means the owners’ assets may be seized by creditors to pay the debts of the business. More than 124 years after the Santa Clara County v. Southern Pacific Railroad case, too many business owners risk their personal fortunes by trusting in archaic business forms such as the sole proprietorship or the general partnership, when a limited partnership, corporation or limited liability company might cost little, but protect much.

There is an old saying in equity – “The law does not favor the one who sleeps on his rights.” The law also does not favor the man or woman who is ignorant of their rights and the risks inherent in business. Educate yourself, or you may get a rough lesson from your creditors.

Lee Keller King
Senior Associate at The Vethan Law Firm

Friday, August 6, 2010

Architects and Engineers: What Can They Copyright and Protect?

Recently, there has been much confusion as to what rights architects, engineers, and other professionals have in the original works they create, and remedies available to them if those works are illegally taken. Essentially, architectural and engineering drawings, photographs, and other original works, even though used for business purposes, are copyrightable. Specifically, the U.S. Copyright Act provides certain distinct rights that a creator of works has. These rights include (1) the right to reproduce the works; (2) the right to create derivative works; (3) the right to distribute those works; (4) in the case of literary, music, or dramatic works, the right to perform those works; (5) the right of public displaying; and (6) the right of digital transmission. These are statutory exclusive rights vested in Section 106 of the Copyright Act.

In the event works are illegally taken or infringed upon, the Copyright Act also specifies the remedies available to the author of such original works. One of the initial analyses done is to determine when the work was published or first published, and when the copyright was filed for registration. The Copyright Act allows the Court to impose statutory damages for copyright infringement if the statutory damages and attorney’s fees for copyright infringement if the infringement occurred after the registration or, the infringement occurred before registration but the registration was filed within three months of the first publication. This requirement provides an incentive for a creator of original works to obtain a registered copyright as soon as possible. Regardless of whether the copyright is registered, the author of the original works does have a copyright in what he or she has created. The question is what legal remedies are available at the time the registration is filed. The registration must also be filed as prerequisite to federal litigation for copyright infringement.

Regardless of whether the author of the original works is entitled to statutory damages or attorney’s fees, all cases of copyright infringement involve a claim for lost profits in the form of actual damages, any additional profits of the infringer, and injunctive relief, (which prevents further infringement of the copyrighted works). However in many cases, the owner of copyrights cannot prove what their lost profits were because the infringer has naturally and necessarily taken market share away from the copyright owner. As such, the copyright law allows a copyright owner to establish the infringer’s profits by presenting proof only of the infringer’s gross revenue, and claiming such gross revenues are a proper measure of profits. In other words, an examination of an infringer’s tax return and the gross revenues received is sufficient to prove damages in a copyright case. In no situations, the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted works. See Section 504 of the Copyright Act. Essentially, the recovery of the infringer’s profits is a form of disgorgement remedies allowed by the Federal Copyright Statute.

Two things are important when considering a copyright lawsuit. First, it is imperative that the creator of an original work must timely file for copyright registration. This allows the copyright owner to seek statutory damages and attorney's fees. This is important if the copyright owner cannot prove damages for such infringement. However, even if proof of damages are problematic, the copyright owner may seek disgorgement, which is permitted upon showing that an infringer has presented the same or substantially the same product as his, her, or its own.

Charles M. R. Vethan
Managing Partner