Chicago Business Lawyer Blog

A case out of Illinois decided recently by the 7th Circuit Court of Appeals in Chicago shows just how important it is to have strongly worded contracts when dealing with major acquisitions in Chicago.

Our Chicago business lawyers would also point out the importance of doing your due diligence on the environmental factors on a piece of property for sale in Illinois. That cuts to the heart of the matter in this Illinois case that was recently decided.

In 2000, the Wilder Corp., a cattle company, agreed to a deal to sell 6,600 acres of land in Fulton County, Illinois to an organization that wanted to turn the land into a natural preserve. As part of the deal, the cattle company promised to ensure the land was free from any toxins or chemicals and to clean up any trash on the property. The total price of the deal was $16.35 million.

There were no issues until 2006, when the Nature Conservancy found there was petroleum on part of the site. The organization sued the cattle company for breach of warranty and a judge ruled in favor of the organization, forcing the cattle company to dish out $800,000, even though the cattle company claimed it wasn't aware of any problems. It appealed and lost.

In an effort to pass the buck, the cattle company sued a local drainage district that stored petroleum in tanks near the property. The company attempted to argue that the district was responsible for the contamination and should have to pay the damage.

A court found in favor of the drainage district and the 7th Circuit Court of Appeals recent affirmed the ruling, writing that a "blameless contract breaker...cannot invoke non-contractual indemnity to shift the risk that he assumed in the contract."

Experts said the ruling wasn't hard for the appeals court because the drainage district had no part in the contract. It was the cattle company's responsibility to ensure the property was free from environmental issues, per its contract.

Analysts believe that the ruling is significant for two reasons. For one, it shows the importance of strongly worded contracts that allow for no loopholes that could potentially harm a company doing business with another company or an individual. Secondly, it shows that companies must do their research of potential environmental hazards when purchasing a property.

Just as future home buyers must ensure the property is properly inspected not only for structural issues, but also potential toxins, a company planning to purchase a piece of land must make sure there aren't any environmental issues or local ordinances that would make the property unusable for the company's purpose.

Our Chicago business lawyers have experience handling these environmental issues as they relate to local, state and federal environmental laws and the potential hazards for companies looking to purchase land. It's not as simple as buying a property and starting construction.

Along with the frustrations of local government permitting, there are also bigger environmental issues that must be taken into consideration. Rushing through the process without an experienced Chicago business lawyer can make it much more expensive and time consuming.

Continue reading "Illinois Land Acquisition Case Shows Importance of Breach of Warranty Litigation in Chicago" »

A recent lawsuit filed in Chicago alleges that giant cell phone company Motorola misappropriated trade secrets on technology that allows cellular networks to track emergency callers.

This lawsuit comes down to employment issues that Chicago small businesses deal with all the time.

This is especially true with technology start-ups because of how intense the competition is and how high-impact the development of new technologies can be. In this global economy, new technology is perhaps the most valuable asset a company can have. Being able to create something that completely changes the face of business or consumer products can be very profitable.

But it can also be easily pilfered by employees who leave the company and take the company's trade secrets with them. This is why a small business start-up must consult with an experienced Chicago small business attorney.

Many small business owners are so concerned with office space, financing, registering the business and other important first-step acts that they don't consider the implications of structuring employment contracts, establishing policies and handbooks and making sure there are provisions to ensure employees don't steal company secrets when they leave.

In this case, Lemko Corp. alleges, an engineer that created technology that allows emergency callers from cell phones to be detected by law enforcement went to Motorola because she had "access to and knowledge of Lemko's trade secrets," according to a lawsuit filed in Chicago.

The engineer left Lemko, the lawsuit states, and then was hired by Motorola, which then incorporated the technology into its phones. The giant cell phone company, which is being acquired by Google Inc., allegedly destroyed computer files showing that it used Lemko's computer code. The engineer was fired in 2008, Bloomberg reports.

Lemko is asking for compensation for the loss of royalties as well as unspecified damages. The company alleges the engineer should have known or did know that she would be using her former company's trade secrets in creating the technology for Motorola.

Trade secrets are a major factor in making sure a business is successful and they can be illegally stolen through a variety of means. Trade shows can lead to leaked secrets, but employees tend to be a major source of this type of theft. A strongly worded and appropriately written employment contract can ensure that employees don't run off with important details or intellectual property that belongs to the company.

Intellectual property includes branding, trade secrets, and other developed ideas that a company relies on in order to thrive. An experienced Chicago business litigation attorney can help companies implement these secrets and protect them from outside businesses. From trademark registration to protecting those secrets along the way, this is one area of business that can't be taken lightly.

In this ultra-competitive market, companies must do all they can to protect what is theirs and what they have developed through their own hard work. Letting employees take this technology and carry it to competitors can have a crippling effect on a small business.

Continue reading "Motorola Sued By Lemko For Trade Secret Theft in Chicago" »

As we reported recently on our Chicago Business Lawyer Blog, Groupon, the online coupon phenom, is facing a class-action lawsuit regarding overtime pay. We used it as a cautionary tale about the need for tech startups in Chicago to invest in the kind of experienced legal help necessary to keep them out of legal trouble through the incubation and gestation period.

Now the New York Times is reporting on "red flags" raised during IPO negotiations. Finance is another critical area where contacting a Chicago business lawyer can pay huge dividends while keeping your rights protected.

The Times reports the suit and a number of other accounting and disclosure gaffes have been brought to the attention of the Securities and Exchange Commission, darkening the company's Initial Public Offering Prospects and raising questions about its credibility. When Goldman made the successful pitch as one of the underwriters of the IPO this summer, the company was being valued at $30 billion. Analysts now believe the company would be lucky to fetch an evaluation of more than $10 billion.

The IPO is also debuting as the company's triple digit growth has slowed.

Also at issue is the unearthed business history of Groupon's chairman Eric Lefkofsky, which the media describes as a lawsuit-prone entrepreneur who flipped a dot-com in 1999 that quickly went bankrupt on its new owners. He also reportedly took home $319 million of an investment round in January that fetched $950 million. Most of the rest was paid to employees and investors, which the Times cited as a red flag to other would-be investors.

Some of this is undoubtedly legitimate. But never forget that perception is often nine-tenths of reality. Once a company stumbles, it can be hard to get back up for all the piling on. Experienced legal advice and careful planning can often help a company avoid some major pitfalls and common errors.

Industry watchers are now questioning why Wall Street investment firms didn't catch the red flags earlier, or whether they may have turned a blind eye to problems in the quest for profit. "Underwriters are supposed to be gatekeepers, not just a sales and marketing agent," said Lynn E. Turner, a former chief accountant for the S.E.C.

The information Groupon filed with its prospectus is also now being called into question. According to that information, the company has $250 million in the bank and lost $102 million last year on revenue of nearly $1 billion. The need for additional cash, either through an IPO or otherwise, quickly becomes apparent. It has also left some scratching their heads at the $30 billion valuation. Especially when matched against $376 million in assets and $681 million in liabilities -- including nearly $400 million currently owed to vendors.

And despite spending nearly $500 million on advertising in the first six months of the year, the company's revenues are up only 13 percent in August, compared to 96 percent during the first six months of the year.

In its quiet period ahead of the IPO, the company has not commented publicly but its founder expressed optimism in a recent note to employees.

Continue reading "Groupon Tale Continues to Offer Caution to Small Business Startups in Chicago" »

A recent U.S. Supreme Court ruling in the case of communications giant AT&T in California found that companies are allowed to add clauses to contracts that require consumers to waive the right to take part in a class-action lawsuit.

Chicago Business Attorneys believe it would be prudent for Chicago businesses to include such a clause in contracts for consumers as protection against large and expensive multi-plaintiff lawsuits. A review of business contracts in light of this ruling would be advisable. Large-scale lawsuits can drain a company's funds and provide troublesome media coverage.

The case came down to a couple who sued the communications company because they were taxed some $30 for "free" phones as part of a two-year cell phone contract. They sued in California federal court, alleging false advertising and fraud.

It was lumped in with another case and became a class-action lawsuit, after which the court denied AT&T's motion to compel arbitration, which was part of the couple's contract. It found the clause unconscionable because it didn't allow class wide proceedings under prior California cases. An appellate court agreed. But recently, the country's high court disagreed and sent the case back with its opinion applied.

Businesses know that contracts and agreements are the essence of business law in Illinois. But whether this is done with a handshake, a one-page agreement or a 100-page document, it is critical that it is done right. It is the foundation of a business.

Because there are many types of documents that your business may need prepared, count on Chicago Business Lawyers. Some types of contracts that the firm can prepare and negotiate:

• Shareholder agreements concerning the formation, organization and control of corporations and other business entities;
• Mergers, acquisitions, alliances, joint ventures and exclusive licensing deals;
• Distribution, sales, supply, services, consulting and loan arrangements;
• Confidentiality, patent, trademark, trade secret, non-competition, software and outsourcing matters; and
• Real estate sale and lease agreements.

It's unfortunate, but inevitable that just about every business will end up pursuing legal action or being on the wrong end of a lawsuit. With decades of experience in this area of law, Chicago Business Lawyers are committed to handling litigation for small and large businesses.

Continue reading "AT&T Supreme Court Ruling Aids Chicago Businesses" »

In Silicon Valley, it's becoming increasingly common for large corporations to acquire smaller competitive businesses in order to shut them down and steal their engineers, The New York Times recently reported.

If your start-up is in a position to benefit from a larger competitor trying to purchase your company, Chicago Business Lawyers believe it is essential that agreements to retain the company's employees and executives be carefully handled. All areas of small business law in Illinois are important, but protecting a company and its employees is perhaps the most crucial. Without experienced attorneys handling the negotiations and paperwork, a potential windfall could be devastating.

Companies like Facebook, Google and Zynga are using their financial backing to buy start-ups at a rapid pace. The larger companies distribute stock to founders, employees and investors and then give the acquired employees a rich salary and more stock options.

Some believe the companies are paying too high a price, while others believe it does nothing but benefit software engineers who have stumbled upon a great idea. Top talent is thin and so these corporations are dangling perks and incentives, including big salaries, to lure them. Sometimes, the buyers keep the products going, but often, the newspaper reports, they dump the products and make the deals solely to get the talent.

This is often a win-win situation for young entrepreneurs and investors, who strike gold by getting large salaries and big bonuses. But it's important that these businesses take care of the employees who helped make the company successful enough to catch the eye of these large corporations.

Many companies find themselves involved in the area of mergers and acquisitions, which requires a team of attorneys experienced in this area of business law. It is critical that your business have lawyers striving to meet your company's long-term vision and plans.

Small businesses, without teams of attorneys on retainer like large companies, need a firm of experienced Chicago attorneys ready to represent and stand up to big business. We represent clients in many fields of business law, such as shareholder agreements, non-disclosure agreements or other types of contracts in order to protect what you've worked hard to create and develop.

Continue reading "Sales Contracts Critical when Selling or Acquiring a Business in Chicago" »

As a former journalist, one of my most persistent and consistent rituals is as leisurely reading of the Sunday newspaper (print version preferably) as circumstances permit. Over the years, I enjoy the Corner Office feature of the New York Times business section, where CEOs and similar types discuss their career and leadership experiences.

This past Sunday's column featured a particularly succint summary of how to run an organization effectively from Shivan S. Subramaniam, chairman and CEO of FM Global, an insurance company. His message resonates with my own experiences as a member of three different firms and a litigator handling commercial lawsuits. The bottom line is honing the message and priorities, communicating them and then trusting people to implement them, even if they do so in their own style.

Asked about early leadership lessons, Mr. Subramaniam noted:

One is that people don't necessarily do things the way you would do them. And if they don't follow precisely the way you think about something, that doesn't necessarily mean that they're wrong. That took some maturity to understand -- also, that not everybody will behave the way you behave.

But the bigger picture is to make very sure that everybody in the company has the same goal in mind. That was always the more important thing I learned over time. It matters less what people do or how they do it, but do we all agree on the same goals?

Over the years, that has led to us having very simple goals at our company. We call them "key result areas" or K.R.A.'s. We're multinational -- we've got 5,100 people, 1,800 of whom are engineers. We're very analytical. But we have three K.R.A.'s, nothing terribly fancy. And everybody focuses on them. One is on profitability. One is on retention of existing clients. And one is on attracting new clients. That's it.

You can talk to people in San Francisco, Sydney or Singapore, and they'll know what the three K.R.A.'s are. All of our incentive plans are designed around our K.R.A.'s, and every one of those K.R.A.'s is very transparent. Our employees know how we're doing. And, most importantly, they understand them, whether they're the most senior manager or a file clerk, so they know that, "If I do this, it helps this K.R.A. in this manner."

As a related point, Mr. Subramaniam commented on learning something from one of his imporant role models:

He's the one who really started to teach me about the importance of simplicity. Things like, "If you can't explain it to me in a couple of sentences -- what the idea or what the concept behind it is -- it's obviously something you don't know how to do. If you've got to write a whole page to describe something, that doesn't make a lot of sense."

In concluding, Mr. Subramaniam distilled and explained his management philosophy:

My philosophy of leadership is that four or five of us can come up with a much better decision than just I can alone. And if you follow that philosophy, you'll probably have a very good, talented management group around you. People can always perform a whole lot better than how you think they're going to perform. You need to really give them the opportunity to do that.

Ultimately, Mr. Subramaniam's remarks, which emphasize the importance of what's important and not being a micromanager, reminded me, oddly enough, of a similar dynamic in learning how to deal with commercial litigation.

One of my very first tasks as a new Chicago business lawyer was to advise a client with a small business on a busy street about his rights when a contractor installed a new driveway with some imperfections and variances from the specifications of construction contract. I found out that a court was unlikely to take action if there had been "substantial performance" of the agreement and something along the lines that "the law does not trifle with trivialities." So, I learned how to tell a client something that he or she did not want to hear, but was in his or her own best interest: "relax."

Ever since then, that has informed my approach to evaluating performance, whether in terms of an employee or other party to in a contract or business law dispute. Usually, if the important things have been covered, even if not quite perfectly or exactly how you would do it, then that's pretty good.

Jeremy A. Gibson is an experienced Chicago corporate lawyer, who handles the preparation, negotiation, interpretation and implementation of contracts and agreements for small and large businesses. In addition to the Loop, he is available to meet about business law matters in Deerfield, Oak Brook, Rosemont, Schaumburg and elsewhere.

There is another example of the importance of paying close attention to proprietary details when negotiating business deals. Last week brought the curious case of HP's former CEO Mark Hurd joining Oracle right after entering into a substantial severance agreement, leading HP to file suit immediately. It seemed very odd that Hurd's arrangement wouldn't have been structured so as to prevent Hurd from so quickly joining a potential competitor and possibly benefiting from HP's confidential information.

This week brings news of an apparent puzzling gap concerning trade name and trademark issues in a merger & acquisition transaction from 15 years ago involving a Chicago area funeral business. The essentials of the story involving Lloyd Mandel are as follows:

When he sold his funeral business in 1995, Lloyd Mandel Levayah Funerals, Mandel agreed to stay out of the Chicago-area funeral industry for 15 years. But on July 21, the day after that clause expired, Mandel opened a new shop, this time from a high-rise office building in Deerfield, operating as Lloyd Mandel Mitzvah Memorial Funerals. . . .

The new business has brought the ire of Service Corp. International, the company that paid him some "millions," as he estimates, for his old business.

So, Levayah, owned by Texas-based SCI, began buying weekly quarter-page ads next to the death notices. Billed as an open letter to clients, the ad describes the history of the business and warns customers that they are the original Lloyd Mandel funeral home -- not to be confused with the new venture by their namesake.

. . .

To Lloyd Mandel, there was only one thing to do: He had to reply. He bought a quarter-page ad in the Tribune, hoping Levayah would continue advertising on Wednesdays.

On Sept. 1, the fourth Levayah ad appeared, and Mandel's ad appeared right below it. In his rebuttal ad, Mandel disputed the competitor's advertisement and denounced their use of his name.

So, after 15 years, the purchaser of the acquired business now faces the original seller competing in the same market for the same clients with a very similar name. There seems to be a real possibility for confusion in the marketplace and it would not be at all surprising if this winds up in litigation eventually.

This is a very puzzling outcome. Mr. Mandel says he is entitled to use his own name. And, depending upon the terms of the business sale agreement that may be the case. If the documents are silent on the use of his name, then he may be right. However, from a purchaser's perspective it would be unfortunate if in all the legalese and negotiations regarding the deal, this specific issue was not addressed. One would expect in the case of an acquisition of a business with a founder's name, such as Bob Evans or Jenny Craig for instance, that more often the not the transaction documents would provide for the founder to not engage in a competitive business using his or her name.

Nonetheless, this is not to second guess whoever handled the deal here. Concessions often are made in the interest of obtaining another important objective or reaching a closing. And, there may have been higher priorities than worrying about what would happen 15 years later. (That is a very long non-compete covenant; the purchasing team may have very happy to leave well enough alone.) Still, determining and negotiating permitted and restricted business activities can be deceptively tricky, so great care is warranted to prevent an unfortunate surprise.

Jeremy A. Gibson is a Chicago business lawyer very experienced in the trademark, non-competition and other proprietary aspects of buying and selling of businesses. We would be happy to review your merger & acquisition situation. We can assist business buyers or sellers throughout the area, including Arlington Heights, Buffalo Grove, Chicago, Deerfield, Des Plaines, Evanston, Glenview, Highland Park, Hinsdale, Lake Forest, Libertyville, Mount Prospect, Naperville, Northbrook, Oak Brook, Palatine, Rolling Meadows, Schaumburg, Skokie, Oak Brook, Oak Park, Vernon Hills, Waukegan, Wheeling and Wilmette.

The commentary that I've observed so far suggests that HP's lawsuit in California against its former CEO, Mark Hurd, for joining Oracle in a president position is weak at best. (For background, here's a good article.) However, even if so, if I'm HP, then I would still be pursuing this action. That's because I can't think of a better set of facts for trying to protect trade secrets and other confidential information or intellectual property.

Here's why:

• Hurd was terminated for conduct that goes to his judgment, handling of information and veracity. (He allegedly misrepresented or omitted information from his expense reports concerning his dealings with an attractive marketing consultant.)
• Hurd presumably had access until just a few weeks ago to HP's most sensitive information including that concerning the markets and businesses with which it competes or will compete with Oracle.
• Hurd's new position at Oracle seems very likely to involve the exact sames markets and businesses as those he oversaw at HP.
• Hurd received millions and millions of dollars in compensation at HP, including as part of a generous severance package, and doesn't need this particular position or role to make a living.

HP's case has its challenges. Hurd, surprisingly, apparently is not subject to a non-compete covenant or similar restriction. California law typically errs on the side of protecting an individual's right to work in this context. It has not been alleged that Hurd has actually breached any confidentiality obligation he owes HP. And, Oracle and its chairman, Larry Ellison, are known to be tough negotiators and no doubt anticipated such a fight when they brought in Hurd.

That said, it is difficult to imagine ever having a stronger set of circumstances to present to a court for arguing that, at least for six or 12 months, an individual cannot possibly fulfill his or her duties without disclosing or using his previous employer's protected information. My guess is that HP's litigation efforts probably will result in delaying in Hurd's work or effectiveness for Oracle for a limited period of time. For example, whether by virtue of caution, settlement or court order, Hurd likely will have to limit the commencement or scope of his work.

The Chicago business lawyers of Jeremy A. Gibson & Associates, PC frequently advise companies and employees on confidentiality, trade secret and covenant not to compete issues. We are available to meet at offices in Chicago, Deerfield, Rosemont, Schaumburg and Oak Brook and elsewhere in Illinois. Contact us to schedule a consulation.

This is to provide and discuss a few practice points collected at a recent, mid-August meeting sponsored by the Midwest Business Brokers and Intermediaries associaton ("MBBI").

For background, the membership of MBBI includes business brokers, M&A intermediaries, investment bankers, attorneys, accountants, banks, SBA lenders, valuation service providers, individual buyers, private equity groups and corporate buyers. Members may represent buyers or sellers of businesses with revenues ranging from a few hundred thousand dollars to over $100 Million. In addition to helping business owners confidentially sell or acquire companies, members have expertise in performing business valuations, raising capital and providing financing, legal, and accounting services related to the M&A transaction. More information is available at www.mbbi.org.

The meeting attendees including a number of prospective buyers looking to purchase small manufacturing businesses. The consensus seemed to be that even well-qualified buyers with adequate resources are finding it difficult to locate suitable businesses for sale. It may be that the recession has led to a larger pool of buyers who once were employees, but after layoffs and the like, now want to try to control their own fate by purchasing an existing business.

An informal survey of attendees indicated that even for relatively small deals, it remains most likely that the parties will enter into a "letter of intent" or "LOI" rather than proceeding to negotiate a definite agreement right away. An LOI is a short, preliminary agreement that usually sets out briefly the transaction scope, structure and pricing elements and establishes an exclusivity period. It is similar to a term sheet. It usually is helpful to confirm that the parties are on the same general page, before proceeding to incur the time and expense of due diligence and hasing out all the transaction details. Typically, care is exercised to address the degree to which an LOI is binding or non-binding.

Another key point mentioned was the concept of seller's or owner's discretionary income. Often valuation methods may include a consideration of price to earnings ratio or a multiple of net income. So, under such a method, the higher the income, the higher the purchase price expected. Buyers should be aware that net income for privately held businesses often is suppressed by non-essential expenses incurred at the choice or preference of the owner. For example, an owner may elect to take a higher level of salary, have family members or friends be compensated for services to the business or, with some reasonable business basis, channel vehicle, networking, subscription and other expenses through the operation. Accordingly, buyers should not be surprised when seller's take the position that such expenses should be added to the operating results of the business for valuation purposes.

Jeremy A. Gibson is a Chicago business lawyer with significant experience in the buying and selling of businesses. Please contact us to discuss your merger & acquisition issue or other concern. We are availabe to work with business buyer or sellers throughout the area, including Arlington Heights, Buffalo Grove, Chicago, Deerfield, Des Plaines, Evanston, Glenview, Highland Park, Hinsdale, Lake Forest, Libertyville, Mount Prospect, Naperville, Northbrook, Oak Brook, Palatine, Rolling Meadows, Schaumburg, Skokie, Oak Brook, Oak Park, Vernon Hills, Waukegan, Wheeling and Wilmette.

I'm not sure if it's just a coincidence, but lately I have had several consultations all of a sudden with pairs of individuals who were assessing leaving their current jobs either to start a new business in a related industry or move to a competitor or similar firm. They were smart to review their obligations and risks of legal action by their employers because of each of these clients had signed what is often referred to as a "non-compete" or a "non-competition agreement."

Technically, these kinds of contracts usually go by a variety of names, such as a "confidentiality and nonsolicitation agreement" or "proprietary information and inventions agreement" or some variation thereof. In fact, only a minority of proprietary agreements with employees actually say that competition is prohibited. Instead, the primary aims of such contracts is to (1) establish ownership of employee work product, (2) provide for no unauthorized disclosure or use of employer trade secrets or other confidential information, (3) prevent soliciting of established company clients for a similar new employer and (4) prohibit inducing other employees of the company from leaving. Often, such obligations will be effective for from six to 18 months from the last date of employment.

Now, as a practical matter, one or more of these types of obligations may well have the effect to limiting competition for some period of time. Generally, most states are reluctant to enforce an outright ban on employees joining a competitor in some capacity. After all, an individual generally should have an opportunity to make a living in the same industry that he or she has been working in. However, courts are very willing to allow a company to protect its intellectual property, including inventions and trade secrets, and customer relationships that it created substantially from scratch.

Accordingly, employees need to be careful and think through their potential risks and liabilities before they make a move. A complicating factor is that no-competes and other proprietary agreements tend to be very broadly worded and one-sided in favor of the employer. So, even the most innocuous new business or job arguably may inherently involve the use of IP developed in part at a previous employer or involve dealing with some of the same customers.

While every case has to be reviewed in light of the particular company, job, customers and non-disclosure agreement terms, here are a few basic questions to consider the likelihood of employer enforcement action:

• Have you been working on developing secret new products, services or methods?


• Did you have any work-related inventions?


• Are you a very senior level employee?


• Are any other employees going to the same place as you at about the same time?


• Are you going to a competitor?


• Will you be doing substantially the same function or work?


• Will you be calling upon or working with any of the same customers or suppliers?


• Does your new situation have the potential to result in lost business or opportunities for your employer?


• Does the company have any history of suing departing employees?

The more your answers to the above questions were "no," then the less likely it would seem a lawsuit would be expected. As always, this blog entry is for general informational purposes only; consult with an attorney before making any decision regarding this subject.

Jeremy A. Gibson is an experienced intellectual property attorney and has drafted numerous proprietary agreements and handled a variety of non-compete and similar enforcement situations in Chicago, Illinois and surrounding areas. Our Illinois business lawyers are available to meet with you in offices around the region, including Chicago, Deerfield, Naperville, Northbrook, Oakbrook, Rosemont, Schaumburg and Skokie. Just contact us anytime.

I was talking to a businessman the other day about an investment he was considering. He is looking at one of those self storage facilities. It seems like an attractive opportunity at the right price. It's fully leased with many longtime tenants for its almost 200 units. It appears to be a relatively simple and stable business model, with relatively few workers, utilities or expenses. The purchaser gets not only the operation but the real estate as well. This seems promising and no red flags jumped out.

However, even though I try to be very practical about risks and expenses, I encouraged him to be very thorough and consider zoning, geotechnical and environmental assessments. Why? Because when you're entering into a merger or acquisition or loan or similar transaction you have to worry about more than your own worries. You have to consider what the next investor, purchaser or lender is going to think or do. In other words, you don't want to get stuck with the hot potato or left standing when the music stops.

For example, I have had a long-time specialty in managing environmental risks and matters for mergers, acquisitions, divestitures and financings. It's clear that when the deal centers around factories, refineries, mines and the like no one is going to question doing extensive due diligence about the potential for chemical contamination to present material hidden or contingent liabilities. But, with less alarming properties and businesses there's often an understandable tendency to want to avoid the expense of environmental studies or tests. Still, if there's a decent chance that these issues will come up down the road anyway, then it is far better to bite the bullet and deal with it upfront, rather than have an issue be unearthed when you're now stuck with problem.

Once I was involved in litigation that arose when the purchaser of a sand and gravel pit later discovered that a previous owner had his trucks collect waste drums on their return trips and then bury them in a corner of the property. This eventually resulted in a multi-million dollar remediation. There's no guarantee that standard environmental investigations would have diagnosed this condition, but it would have been preferable to have made the attempt. And, this can apply to other aspects of a business that can present time bombs, including potential employment, product liability, regulatory compliance and contractual obligation risks.

So, if you are considering investing in new business or property, remember that it's important to worry about the concerns of the other guy, in addition to your own, to avoid getting stuck in the middle.

The Chicago business attorneys of Jeremy A. Gibson & Associates, P.C. are experienced in mergers & acquistions and other due diligence scenarios and are available to meet you in our Chicago, Deerfield and other satellite offices.

In my last post, I noted that businesses should pay attention to several contract drafting and negotiation practices that can protect them from significant, or even catastrophic, liability. Now, I want to focus in on a potentially important aspect of these issues: the relationship of indemnification and liability limitation provisions.

First, it is common to seek to prevent liability for certain types of indirect or remote types of damages, such as from business interruption, lost profits and government sanctions. Second, companies frequently try to cap their liability related to a contract either to the amount of their revenues or some other reasonable sounding level, such as $100,000 or $1 million. Third, there are many instances where businesses agree to indemnify and "hold harmless" the other party from all damages (including the incurrence of attorneys fees) arising from, on the broad side, their breach of the agreement or law, or, on the narrow side, their intentional misconduct or gross negligence.

In my experience, these tendencies often result in some unanswered contract questions: Is the indemnification obligation subject to the limitation on the types of damages? And, similarly, is the indemnification obligation subject to the cap on the total amount of damages? If not, then the entire effort to manage exposure or risk will be undermined - particularly if the indemnity is very broad.

For example, if the indemnitor must hold harmless the indemnitee for any breach of the agreement, no matter the degree of maliciousness or culpability, then the breaching party not only faces unlimited exposure, but may have to pay the indemnitee's legal expenses as well. So, the indemnitor should try very hard to make sure that the remedy and damages limitations expressly apply to the indemnification. However, if there's a much narrower obligation, such as indemnification only for intentional misconduct, or personal injury, then it is more difficult to argue that a cap should apply.

So, it is essential to remember to think through limitation and indemnification mechanisms and make sure the relationship has been addressed. Otherwise, there may be a gaping hole in the efforts to make a contract armor-plated or bulletproof.

Our Chicago business lawyers have extremely deep experience with all types of contracts and agreements, including the risk management points discussed above. Contact us to speak to a Chicago contract lawyer about your particular needs. We are available for meetings in Chicago and Deerfield and many surrounding towns.

Recently, I consulted with a new client about some corporate matters. The client provides certain routine and specialized maintenance services to building owners and operators. In the course of discussing the business, I obtained a copy of the company's standard services agreement with customers. This form had been used with a number of customers for a long time without incident. But, it was a time bomb.

If you are a vendor or seller there are several basic protective steps you can take with contracts that literally can save your business. And, virtually all purchasers will find them acceptable most or all of the time because these measures are reasonable and done by the purchasers themselves when acting as a supplier. However, this client had not focused on this matter.

In short, every vendor or seller should make some effort to: (1) disclaim all warranties except those that are specifically provided; (2) limit aggregate liability to the amount of the purchase or some other reasonable amount; and (3) avoid liability for consequential or punitive damages. If this is not done, then the vendor or seller potentially faces unlimited or very high liability if something goes wrong and the purchaser's business is interrupted or suffers lost revenues or profits. For example, what if the maintenance client's personnel accidentally disconnected or damaged network wiring that caused lost data or brought down online sales? It's unlikely this client expects to have such high potential liability where it is getting paid a relatively small amount; but that can happen without the right contract provisions.

These are just some of the items in the fine print of contracts that can be easy to ignore or gloss over but actually can be critically important for when that one in a thousand or million event happens. So, take some care to make sure you have appropriate contract and agreement forms and have them reviewed every so often.

We have extremely deep experience with all types of contracts and agreements, including the risk management points discussed above. Contact us to speak to a Chicago contract attorney about your particular needs. We are available for meetings in Chicago and Deerfield and many surrounding towns.

Recently, there has been a lot of unwanted attention on the credit default swap market and its role in contributing to the economic meltdown and need for Wall Street bailouts. It is beyond our scope today to comment on whether one person's portfolio insurance or hedging is another's bet at a casino. However, I can say from personal experience that there is a sensible and useful role for insuring the unknowns involved with the purchase and sale of a business.

On several occasions, I have arranged so-called "representation and warranty" or environmental insurance policies in connection with mergers and acquisitions matters. These facilitated reaching the closing by providing assurances that certain risks would be capped and assets would be available if contingencies materialized. In other words, if it turned out that there were hidden problems with the acquired assets or problems that were worse than expected, such as accounting, product liability or regulatory compliance issues, then there would be a mechanism in place.

For example, when a family business that had numerous shareholders was being sold, both the buyers and sellers found the insurance option appealing. The sellers wanted to fund their retirements and estate plans and not have potential post-closing liabilities hanging over their heads for the typical one to three or more years that indemnifications remain in place. Likewise, the buyer, and its lender, preferred to seek a claim against one large, creditworthy institution rather several, dispersed individuals of uncertain wherewithal.

In another instance, the seller was a subsidiary of a foreign corporation and was liquidating its U.S. businesses and assets. The buyer also was a foreign company and was inexperienced with evaluating and assessing the potential liabilities of acquiring a manufacturing business. So, the buyer insisted upon procurement of an insurance policy to cover the risks that long-term cleanups of groundwater contamination would exceed the available estimates.

Insurance can be an excellent tool for helping close deals. But, it is important to understand that it is not a magic wand. Before a reputable insurer will take these risks from the shoulders of the parties, it will want to do thorough due diligence, which can be time consuming and require additional work by lawyers and other advisors. And, of course, the insurer will charge a substantial premium. Still, the comfort from having a solution in place from day one, can be well worth the effort and expense.

Jeremy A. Gibson & Associates, P.C. handles mergers and acquisitions matters such as the one discussed above. We are available to serve and meet with clients throughout the Chicago, Illinois area, including Arlington Heights, Buffalo Grove, Deerfield, Des Plaines, Evanston, Glenview, Highland Park, Hinsdale, Lake Forest, Libertyville, Mount Prospect, Naperville, Northbrook, Oak Brook, Palatine, Rolling Meadows, Schaumburg, Skokie, Oak Brook, Oak Park, Vernon Hills, Waukegan, Wheeling and Wilmette. Contact us anytime for a complimentary consultation with a Chicago corporate lawyer.

Life can seem so much simpler when you are a one-man or one-woman band, such as if you are a sole proprietor or owner of a business. There are no committees or meetings to deal with and you can do exactly what you want, how you want, when you want. However, there just are many times when can't or don't want to go it alone and two or more can do so much more together than apart. That's when you are talking about a "partner" relationship, whether your situation involves a true partnership (which is not so common anymore), corporation, limited liability company ("LLC") or a joint venture.

All of those different structures generally present the same sets of important planning and management issues, regardless of the legal form. And, in the vast majority of cases, it will make sense to discuss and prepare some form of relationship agreement, whatever the name. For a corporation, it will be a shareholder or stockholder agreement. For an LLC, it will be an operating agreement. For the latter situations, it will be a partnership or joint venture agreement (unless all issues are covered in the documents for any entities formed by the venture). Typically, the level of commitment is such, and the potential upside or stakes are such, that it is important not to leave arrangements unwritten or defer them until revenues or profits reach a certain level.

What might be so important that it can't wait? Here's just a short list of key topics to consider:

• Capital contributions and commitments. It is important for prospective shareholders, members or partners to have well-grounded plans for the level of investment expected of each at the outset and anticipated milestones.
• Distributions. If the common enterprise has some success and does generate profits, then an area of potential disagreement is whether to take money out or keep investing it. This will depend upon the financial and tax needs of each partner.
• Conflicts of interest. Often partners have outside business activities and interests that may well overlap and even potentially compete with the common venture. The expectations and priorities as to potential competing business opportunities and time demands should be fully explored.
• Management and control. Every business presents countless actions to take and decisions to make. Often partners have different roles and levels of participation. More often than not, some level of supermajority approval or partner consent is required for shareholder, board, officer, personnel, finance, business plan, acquisition, contract, real estate, litigation and other matters involving some threshold level of money or materiality.
• Sale or transfer of interests. Often the most essential partner matter is addressing what happens when the business seeks an additional new investor, a partner dies, a partner wants to sell his or her stake or a third party want to purchase the entire business. A host of common (and sometimes complex) techniques has developed for such situations, including "rights of first refusal" or first offer, "drag along," "tag along," "preemptive right" and "buy/sell" provisions.

I can speak from handling past partner arrangements, that it is very helpful to have worked through these issues early. For example, when a manufacturing joint venture was ended after years of collaboration, the partner agreements helped provide a much smoother separation. In fact, for that very reason, partner understandings should be viewed as serving much the same purpose as prenuptial agreements. After all, it is unlikely that any partnership will last forever.

We will cover some of the above points in more detail in the near future. In the meantime, the business attorneys of Jeremy A. Gibson & Associates, P.C. bring extensive experience and insights to such corporate matters as corporation shareholder or stockholder agreements, LLC operating agreements, partnership agreements and joint venture partnership agreements. They are available to serve and meet with clients throughout the Chicago, Illinois area, including Arlington Heights, Buffalo Grove, Deerfield, Des Plaines, Evanston, Glenview, Highland Park, Hinsdale, Lake Forest, Libertyville, Mount Prospect, Naperville, Northbrook, Oak Brook, Palatine, Rolling Meadows, Schaumburg, Skokie, Oak Brook, Oak Park, Vernon Hills, Waukegan, Wheeling and Wilmette. Contact us anytime for a complimentary consultation.