Articles Posted in Business Law

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Tort litigation, unlike criminal litigation, involves civil wrongs committed against a party or entity–such as a corporation. A plaintiff must demonstrate in court that the defendant is liable for plaintiff’s damages to be successful in a tort case. Mass tort litigation involves very much the same concepts except the number of plaintiffs and defendants is different. Specifically, mass tort litigation involves large numbers of plaintiffs who have suffered an injury at the hands of the same defendant, or group of defendants.

What Is Mass Tort Litigation?

Mass tort litigation involves a single wrongful act that results in harm to several victims. These types of cases involve many plaintiffs, who are all suing defendants for the wrongful act. Generally, mass tort litigation involves cases where a large group of plaintiffs are injured by defective drugs, or defective products. Cases dealing with defective drugs, or pharmaceutical claims, deal with medical products that have caused injury to consumers. These cases include both over-the-counter and doctor prescribed drugs. Alternatively, defective product cases involve consumer product claims where plaintiffs have sustained injuries, or even died, from defective products. Courts must grant permission for parties to proceed with mass tort litigation. Courts will look to see how many plaintiffs are involved, how far these consumers are located from one another, whether there are similar injuries among the plaintiffs, and whether the injuries come from a common cause or product. This last factor is necessary for a mass tort case. Otherwise, courts balance the other three factors to determine whether a case is properly deemed mass tort litigation.

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In September 2013, California’s legislature enacted a new “Do Not Track” law–Assembly Bill 370 (“AB-370”)–that requires websites to disclose their practice of tracking consumers’ personal identification information. The new law may be the first step towards universal anti-tracking standards, which will provide greater protection over the Internet for online users and their personal information. According to the executive director of the Center for Digital Democracy, Jeff Chester, at the very least the new law is a signal to websites that political bodies are mobilizing to protect online consumer privacy.

What Are the Provisions of California’s “Do Not Track” Law?

Under AB-370, any website that collects personal information from online users will have a duty to disclose the specifics of their tracking behavior to consumers. The “Do Not Track” legislation requires that websites inform consumers their protocol for responding to do not track signals (“DNT signals”). For instance, consumers who use Mozilla Firefox have the option to request that the browser not track the users’ personal information. However, Mozilla is still under no legal obligation to follow this request. AB-370 also addresses any practices that allow third parties and sites to access and use consumers’ personal information. Specifically, the new law requires websites to disclose whether they grant third-party access to personal information the website has gathered from online users. This law does not prohibit websites from continuing to track personal information, or grant access to this information to third parties. Instead, the law aims to improve disclosure standards, so that consumers are better informed of how their online activities can affect access to their personal information.

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The decision of where to register a legal entity–such as a corporation, partnership, or LLC–affects the management and operation of such a business. For example, different states have different tax standards for registered entities, different operational requirements, and ultimately, the law effects businesses differently based on where they are registered. Indeed, legal entities are free to register wherever they prefer. Accordingly, California businesses can take advantage of certain benefits based on where they register. Please contact us today to speak to an attorney about the circumstances and characteristics of your business to decide the most advantageous state in which to register your business.

What Are the Advantages of Registering a Legal Entity in California or Nevada?

Nevada is a favorable jurisdiction where legal entities can register primarily because it does not have corporate or personal income tax liabilities. Nevada also does not have a franchise tax for legal entities. Furthermore, a corporation that is registering in Nevada enjoys an extremely strong defense against attempts to “pierce the corporate veil.” Accordingly, in the event that the corporation is involved in a lawsuit, Nevada’s corporate law makes it difficult for a claimant against the corporation to hold the individual officers responsible for personal liability. In fact, this level of protection for corporate officers stems from a California case. As such, California corporations also enjoy a similar level of protection for corporate officers. Indeed, California also provides heightened confidentiality for corporate officers–a corporation must only disclose its corporate director and resident agents, not its stockholders. Also, California provides corporations with a greater level of flexibility in its management. Other than requiring a president, secretary, and chief financial officer, California corporate law allows corporations to organize as they see fit.

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A business’s trade secrets are an essential component of its foundation, growth, and development. A trade secret is any sort of confidential and proprietary information that a company seeks to protect from unauthorized access.  For example, a trade secret, includes a formula, pattern, compilation, program, device, method, technique, or process (e.g., computer algorithm).  By definition, a trade secret is only valuable so long as it remains a secret.   In recent years, as businesses conduct more transactions over cyberspace, there is a higher probability of trade secret theft or loss. However, the constantly changing nature of cyberspace, and the anonymity users enjoy over the Internet, make protecting trade secrets a complex issue.

What is the Threat to Trade Secrets in Cyberspace?

Trade secrets in cyberspace, which involve software and digital information, can be misappropriated or wrongfully taken and used without detection.  It is also known as “cybertheft.”  For example, an online user has the capacity to view and distribute trade secrets without detection within minutes.   Online message boards allow users to post trade secrets over the web anonymously.  By concealing their identity, it is possible to steal a trade secret without detection.  Indeed, the courts continue to issue decisions that recognize individual privacy rights in digital trade secret misappropriation cases, preventing the trade secret owner from seeking legal remedies. Furthermore, in the past, trade secret theft was intended to secure an economic advantage between competing companies. However, recent cases, such as Ford Motor Co. v. Lane, illustrate that trade secrets are vulnerable to dissatisfied employees who distribute trade secrets only to harm an employer.  On a side note, hackers may even steal and distribute trade secrets simply to show off their technical skills.

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In recent times, alternative dispute resolution (“ADR”) is emerging as a favorable option for legal disputes due to rising litigation costs and the strain of growing caseloads for California state and federal courts. While state courts adopted ADR as an option to legal resolution earlier, federal courts are adopting various ADR options now as a means of resolving cases. ADR includes any method of seeking a legal resolution outside of court other than traditional civil litigation, which takes place in court. The various ADR options, include, but are not limited to, early neutral evaluation, mediation, arbitration, and negotiation. As federal courts look to these options to resolve cases, ADR continues to move to the forefront as a viable tool for all types of legal disputes.

What Role Does ADR Play in Federal Courts?

While parties can instigate ADR proceedings on their own, often courts will refer cases to ADR in order to resolve a legal dispute. Indeed, according to a study by the Federal Judicial Center, all federal courts authorize some type of alternative dispute resolution. Today, more than 30% of federal courts allow for various forms of ADR proceedings. Mediation has emerged as the most common form of ADR for federal cases. Courts will refer cases to mediation in an attempt to resolve the conflicting issues outside of court, which also allows a resolution that is mutually-beneficial and less hostile than litigation. Arbitration and Early Neutral Evaluation are also common forms of ADR in federal cases. Most recently, federal courts have adopted ADR programs for pro se litigants, or parties who are not represented by attorneys.

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As part of California’s laws against unfair competition, the state provides a remedy to businesses that are victims of trade libel. Trade libel constitutes published false communications regarding the quality of services of products that a business provides, resulting in financial loss to this business. Are you a victim of false representations regarding your products or services? Have you sustained financial damages as a result of these false representations? If you answered “yes” to either question, you may have a claim for trade libel against these false representations! At the Law Offices of Salar Atrizadeh, an attorney with experience and knowledge in business law and trade libel suits can help guide you through the legal remedies.

What Are the Necessary Elements of a Trade Libel Suit?

To maintain a suit for trade libel, a plaintiff must first prove that another party published a false statement. A published statement is not limited to a printed book. Indeed, “published” can include anything from communications over the internet to advertisements. While the specifics of what constitutes “published” is a controversial area of law, courts will generally find that if a third party has access to a communication, that statement is deemed published. Such a communication can be either written or spoken to satisfy this requirement. Next, the statement must actually be false. If a defendant makes a statement about a business that results in financial damages, the business cannot file a lawsuit if the statement was true. Additionally, the defendant must know that the statement is false. While there are remedies available if a defendant negligently makes statements that cause financial harm to a business, to maintain an action for trade libel, the defendant must knowingly make the false statement. The false statement must also cause financial loss to the business. Such a loss can include a loss of reputation if the business can establish that the reputational decline will lead to a loss of future business, and as such, a future financial loss. Finally, a person making a false statement must intend to communicate the statement as a fact, not merely as an opinion. Therefore, a customer who expresses an opinion that a business provides a service of a poor quality is not subject to a trade libel suit.

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In April 2012, President Obama and the United States Congress signed the JOBS Act into law. The Jumpstart Our Business Startups (“JOBS”) Act goes a long way towards accelerating and promoting crowdfunding. Crowdfunding is the practice of raising capital for a project or business by seeking small amounts of money from several individuals or small groups. Do you operate a small business? Are you looking for new ways to gather revenue for your growth and development? Are you an individual investor looking for your next investment project? If you answered “yes” to any of these questions, then the 2012 JOBS Act allows you to redefine your approach to future investments and business.

How Will the JOBS Act Change How Small Businesses Operate?

Since the JOBS Act passed into law, crowdfunding has increased through platforms such as Kickstarter, Indiegogo, and Fundable. These platforms have helped launch all sorts of small businesses, including startup companies, film projects, music projects, and non-profit organizations. Crowdfunding has essentially redefined traditional notions of how small businesses gather funds to support projects and growth. As such, in order to take advantage of this new opportunity, small businesses must learn to market their operations and projects to the masses. Reaching a wide array of people helps these businesses appeal to the individual investors who participate in crowdfunded business. Successful crowdfunding requires a small business to establish and maintain supporters at all stages of a project or throughout the course of a company.

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As of January 1, 2012, under California Corporations Code §§ 2500-3503, traditional business corporations may organize as “Flexible Purpose Corporations.” Whereas previously, corporate directors were bound to manage corporations strictly for economic gain, this new organizational model grants directors the freedom to manage the corporation for social and environmental benefits. This gives corporations the opportunity to organize and operate as socially-aware entities, while preserving their right to maintain a for-profit operation.

What Are the Advantages of Flexible Purpose Corporations?

To qualify as a flexible purpose corporation, a company must operate so as to have a positive effect on one of the following: the community, society, environment, its employers, customers, creditors, or suppliers. Flexible Purpose Corporations also maintain greater freedom because in certain circumstances the company can waive out of extensive annual reporting requirements. Supporters of flexible purpose corporations explain that serving as a shareholder for such a corporation is increasingly beneficial because such shareholders are able to embrace the rewards of serving a greater societal interest.

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In general, small businesses are often a labor of love for their owners. They require a massive commitment of time and energy to build, nurture, and grow, but along the way, small businesses can get caught in a wide variety of legal quagmires. Understanding these risks, and knowing how to prepare for and mitigate them, is key to avoiding time- and resource-consuming legal disputes that can hinder or even ruin a business. Legal risks of small businesses could fit into seven very broad categories:

1. Maintaining a Safe and Secure Premises: Brick and mortar businesses may encounter claims from customers or others injured by an unsafe condition on business property, such as a broken step or a spilled substance on the ground. Regular maintenance of the premises, along with liability insurance, can mitigate this risk.

2. Consumer Complaints: Businesses that do not promptly respond to customer complaints about products or services may encounter legal claims. Customers should receive prompt responses to reasonable complaints or concerns.  All advertising and marketing materials must accurately portray the company’s products or services in order to avoid deceptive trade practice claims.  Robust quality control may help a business avoid putting faulty or defective products into the marketplace. This can help companies avoid product liability claims.

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California entrepreneurs should carefully consider the structure of their new business. There are many ways to organize a business, and their suitability depends on factors like the nature of the business, the number of owners and investors, and even the personalities of the principals. We will examine four business structures and discuss their advantages and the differences: DBA’s (for “doing business as”), C corporations, S corporations, and limited liability companies (LLC). Three major factors come into play in evaluating these business structures: the taxation of income, the liability of the owners for business debts, and the desired level of formality versus flexibility in running the business.

DBA (“Doing Business As”)

A DBA, also known as an assumed business name or a sole proprietorship, is the simplest business organization, because there is no organization. It is simply a business name used by an individual to transact business. The owner pays taxes on business income with a Schedule C attached to a federal income tax return. A major pitfall of a DBA is that it provides no liability protection for the owner whatsoever, since the business is not a separate legal entity. In terms of flexibility, any recordkeeping requirements would depend on the nature of the business. Any requirements imposed on DBA’s in general are minimal.

C Corporation

A C corporation, named for the subchapter in the Internal Revenue Code governing corporate taxation, is a very common business structure, providing a high level of liability protection for its owners. Owners in a corporation are called shareholders, and they are usually not liable for the business’ debts. Income in a C corp is subject to “double taxation,” meaning that the business entity pays income tax on its revenue, and then shareholders pay income tax on dividends distributed to them by the company. The C corp requires a high degree of formality, with regular shareholder and director meetings, minutes, and annual financial reports required by law.

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