Internet Lawyer Blog

In July 2011, the Federal Deposit Insurance Corporation (FDIC) brought a lawsuit in a California federal court against Michael Perry, former CEO for Indymac Bank, over his purported actions during the United States mortgage crisis. The lawsuit alleges Perry allowed Indymac Bank to pool approximately $10 billion worth of unsalable and risky subprime loans that resulted in a $600 million loss to the company. When Indymac Bank ultimately closed, the FDIC was appointed as the company's receiver.

Perry argued before the U.S. District Court for the Central District of California that California's business judgment rule, which protects a corporation's directors from legal liability for their business decisions, also protects corporate officers. Judge Otis Wright disagreed and allowed the FDIC's case against Perry to proceed. Last week, Perry filed an interlocutory appeal with the Ninth Circuit Court of Appeals. In his appeal, Perry has asked the Ninth Circuit to consider the reach of California's business judgment rule before the FDIC's lawsuit against him proceeds.

Although the state's business judgment rule applies solely to directors, Perry has argued a common law component to the rule also exists which ought to be read by California courts to protect a corporation's officers from liability for business decisions. Perry also argued every other state in the nation has construed the common law associated with the business judgment rule to provide protections to corporate officers as well as directors. If the Ninth Circuit disagrees with Perry, California will be the only state in the nation that does not apply the business judgment rule to corporate officers.

A corporation is a business entity provided with many of the same legal rights as an individual. A variety of corporate structures exist in the United States. The most common corporate structures include closely held corporations, S corporations, and C corporations. Every corporation is subject to the laws of the state in which it was incorporated regardless of where its principal business takes place.

If a corporation issues stock, the company will normally be governed by its stockholders either directly or through a board. A board of directors must govern the corporation in a manner that serves the best interest of its stockholders. A corporation's board of directors is responsible for making major business decisions. The board will also appoint and supervise corporate officers who handle the company's daily business decisions.

By choosing to incorporate your business, you can normally limit an individual's personal liability to corporate assets. The business judgment rule also generally protects agents of a corporation from liability for losses incurred during corporate transactions that are within the scope of the agent's authority and made in good faith. A qualified business lawyer can explain the benefits of incorporating your business.

Continue reading "California's Business Judgment Rule and Corporate Officers" »

An effective employee manual is an essential tool for any business or corporation that employs workers. It is a valuable way for businesses to communicate a company's expectations to its employees. A well written employee manual will outline company procedures, policies, and expectations. A poorly written manual can create both legal and personnel headaches for your business.

The following policies are important for any employer to consider when writing or revising an employee manual:

• Each employee manual should include a disclaimer which states that the publication is not an employment contract. This can protect a business from terminated workers filing breach of contract claims against the business.

• An employee manual should successfully communicate company objectives and the organization's mission statement. By doing so, the manual can foster each employee's understanding of business goals and provide them with an enhanced sense of purpose.

• An effective employee manual will state your business has a zero tolerance policy for any kind of discrimination or harassment. The manual should also explain how to identify and report harassment. A company's employee manual should also specifically prohibit discrimination based upon sexual orientation.

• Employee leave and termination policies should always be addressed in an employee manual. Any leave eligibility differences or restrictions based on job functions or employee status should also be addressed. A well written manual will also remind employees that any discrimination based on disability will not be tolerated, and also discuss the Family Medical Leave Act.

• An employee handbook should define worker misconduct and discuss the company's disciplinary process. A disciplinary policy should be flexible and include a disclaimer which states misconduct is not limited to behaviors specifically outlined in the manual.

• A well written employee manual will describe the process for raising workplace issues and filing a formal complaint or grievance. This is important because it shows workers the company will take employee concerns seriously.

• Because no one should feel threatened at work, each employee manual should provide workers with guidance regarding how to address and respond to workplace violence and other conflicts. An employee handbook should also include a zero tolerance policy for workplace bullying.

• Finally, as the use of social media such like Facebook and Twitter becomes more common, it is essential for businesses to address employee use or misuse of social networking websites. An employee handbook should discuss what sort of workplace-related communications are inappropriate and remind workers that disseminating confidential or proprietary information is prohibited. A social media policy should also address disparaging or harassing the company or fellow employees.

Continue reading "Employee Manual Guidance for California Businesses" »

A new California law provides companies with the option to legally organize as a benefit corporation. The benefit corporation law, which took effect on January 1st, 2012, allows companies to utilize a new organizational structure which goes beyond that of traditional corporate and nonprofit formations. The new corporate category allows a company to place environmental or social policies within the corporate charter. It also expands the fiduciary duties of board members and company executives beyond the traditional role of creating a profit for shareholders. In effect, the law limits a shareholder's ability to sue based on social and environmental policies which may impact the value of his or her stock.

Since the law took effect, more than a dozen companies like Patagonia have already filed the necessary paperwork to become a benefit corporation. In California, the board of directors and executives of a corporation generally have a fiduciary duty to place the interests of shareholders above any other company interests and policies. As a benefit corporation, a company may take into account the interests of its employees and community in addition to profitability.

In order to convert the corporate structure of a company to a benefit corporation, two-thirds of shareholders must approve the change. Returning to a traditional corporate structure requires similar shareholder approval. California is the seventh state in the nation to provide a benefit corporation option to companies.

A corporation is a business entity that is afforded many of the same legal rights as an individual. A corporation may be made up of a single individual or a group of people. Although a variety of corporate structures exist in the United States, the three most common include closely held corporations, C corporations, and S corporations. Each corporation is subject to the laws of the state in which it was incorporated regardless of where its business takes place. If a company chooses to issue stock, it will generally be governed by its shareholders either directly or through a board. In a traditional corporation, a board of directors has a duty to govern the company in a way that serves the best interest of its shareholders.

One of the chief benefits of incorporating a business is it can limit an individual's liability to corporate assets. This is especially important for those engaged in highly litigated fields and trades. Contact an experienced business lawyer today to learn more about the benefits of incorporating your business.

Continue reading "New California Law Allows Benefit Corporation Status" »

Last year, the California State Legislature made various efforts to regulate commercial transactions on the Internet. These efforts provide interesting questions and concerns regarding practical and constitutional limits on a state's capability to legislate or regulate transactions on the world-wide-web (i.e., the Internet) due to its intrinsic interstate character.

One important consideration is the Dormant Commerce Clause, which stems from Article I, section 8, clause 3 of the federal Constitution. This doctrine implies that Congress only has the power to regulate interstate commerce and that the states do not have such power. Its application to the regulation of activities on the Internet is not quite developed and includes a series of judicially-created analyses. So far, the United States Supreme Court (which is the nation's highest court) has not issued any definitive rulings. In addition, we do not have authoritative decisions by federal courts regarding the capability of the states to control online privacy and data security, tax online sales, or regulate online gambling.

As mentioned in this article, the legislators in this state passed or proposed laws that would develop our state's regulatory power over transactions on the Internet which relate to the following topics: (i) privacy and data security; (ii) taxation of retail sales over the Internet; and (ii) online gambling.

California's legislation (i.e., enactment of laws) may be different from federal legislation efforts which could cause the United States Supreme Court to repeal or strike down the law. SB 761, which is "Do Not Track" bill, posits that legislation would violate the Dormant Commerce Clause since it would cause regulation of an out-of-state activity and would subject online businesses to inconsistent state regulation. As such, a state's efforts to tax online retail activity are limited by current federal laws (e.g., court decisions and/or statutes) preventing the states from taxing sales of businesses which do not have a geographic presence in the specific state. A state's power to control or regulate online gambling is still uncertain, especially because of the absence of clear federal law on the subject. Thus far, one state supreme court has upheld a state's right to ban online gambling over a Dormant Commerce Clause challenge.

The future of state regulation of Internet activity depends on various developments. For example, it depends on the standard of scrutiny which courts apply to state regulation of the Internet. Second, it depends on the arrival of new technology which can help website operators to distinguish users from different states. Third, it depends on the viewpoint of Congress towards online transactions and whether it is willing to subject activities exclusively to federal regulation or to grant states the power to regulate these type of activities.

The following is a list of new and pending legislation in California:

I. Privacy and Data Security

1. S.B. 24 (Data Security Breach Notice)
2. S.B. 445 (Library Records
3. S.B. 602 (Reader Privacy )
4. S.B. 761
a. Do Not Track
b. Un-passed

II. Taxation -- A.B. 28 ("Amazon" tax)

III. Gambling

1. S.J.R. 14 (opt out of federal regulation)
2. S.B. 40 & 45
a. State framework
b. Did not pass

The potential value of the Hostess name and how Twinkie, Ding Dong or Wonder Bread could be repurposed into other consumer products was being assessed as Hostess Brand filed for bankruptcy this last Wednesday.

For the time being, Hostess will continue to produce Twinkies, but some experts are concerned about whether the company can survive. This is Hostess Brands' second trip in bankruptcy court where it resurfaced in 2009 after a four-and-a-half year corporate restructuring.

Throughout history, buyers have placed high bets on brand names like Borders, Polaroid and Sharper Image which continue to resonate with consumers even after the company has filed for bankruptcy and has liquidated its assets.

If you use email in your day-to-day business operations the CAN-SPAM Act is a law that sets the rules for commercial email. It also establishes the requirements for commercial messages, provides recipients the right to have the sender stop emailing them, and mentions the penalties for related violations.

The CAN-SPAM Act applies to bulk email and all commercial messages, which the law defines as "any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service," including email that promotes content on commercial websites. The law makes no exception for business-to-business email which means all email. As an example, a message to former customers announcing a new product line is required to comply with the law.

Each violation of the CAN-SPAM Act is subject to penalties of up to $16,000. Here are the CAN-SPAM Act's main requirements:

1. Do not utilize false or misleading header information. Your "From," "To," "Reply-To," and routing information - including the originating domain name and email address - should be accurate and identify the person or business who initiated the message.

2. Do not utilize deceptive subject lines. Stated otherwise, the subject line must accurately reflect the content of the message.

3. Always identify the message as an advertisement. Generally, the law provides some freedom on how to do this, but you must disclose clearly and conspicuously that your message is an advertisement.

4. Inform the recipients of your location. In sum, the email message must include your valid physical postal address. This can be your current street address, a post office box you've registered with the U.S. Postal Service, or a private mailbox you've registered with a commercial mail receiving agency established under Postal Service regulations.

5. Inform the recipients about opt-out options related to future emails. The email must include a clear and conspicuous explanation of how the recipient can opt out of getting email in the future. Make sure your spam filter doesn't block these opt-out requests.

6. Always honor opt-out requests promptly. Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your message. You must honor a recipient's opt-out request within 10 business days.

7. Always monitor what others are doing on your behalf. The law is clear that even if you hire another company to handle your email marketing, you cannot contract away your legal responsibility to comply with the law. Generally, both the company whose product is promoted and the company that actually sends the message can be legally responsible for any discrepancies.

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The Securities and Exchange Commission stated that publicly-traded companies should disclose the threat and potential impact of cyber attacks that pose a risk to their investors.

The commission made its comments in a letter to Senator Jay Rockefeller, chairman of the Senate Commerce Committee, that was released on June 8, 2011. Last month, Senator Rockefeller and four other Democratic senators wrote a letter to SEC Chairman Mary Schapiro, urging the agency to issue guidance on disclosure of data- security risk, including "material network breaches," attacks that may result in the theft of intellectual property or trade secrets.

Will investors move out of their "safe haven" markets? In 2009, downgrades and debt auction failures in countries like the UK, Greece, Ireland and Spain were a stark reminder that unless advanced economies begin to put their fiscal houses in order, investors and rating agencies will likely turn from friends to foes. The severe recession, combined with a financial crisis during 2008-09, worsened the fiscal positions of developed countries due to stimulus spending, lower tax revenues and support to the financial sector. The impact was greater in countries that had a history of structural fiscal problems, maintained loose fiscal policies and ignored fiscal reforms during the boom years. Going forward, a weak economic recovery and an aging population is likely to increase the debt burden of many advanced economies, including the U.S., Britain, Japan and several eurozone countries.

To read more please go to www.forbes.com.