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Part II, Communicating with Unpleasantness: Demand Letters

Demand letter.
Demand letter.

Demand letters are usually the start of unpleasant communications. Not the end.

What are Demand Letters for?

Usually, it is a demand on the other party take some corrective action or to stop doing something. It could be demanding payment because it is late. It could be demanding interest on top of the principal due to the lateness of the payment. Other times, if you are the customer and the service provider’s job remains undone, then you want specific performance. You are asking them to finish the job.

What about Cease and Desist Letters?

These letters are demanding that the other party stop doing something, such as Intellectual Property matters. Specifically, there is an infringing action that going on or about to happen and the owner of the IP wants the infringer informed of their rights. It could be an infringer’s use of an unauthorized copy of an image on their website and social media.

Sometimes the government uses cease and desist letters as a part of their enforcement powers. Agencies will indicate to the person that they are doing some type of illegal activity that should stop immediately. If not, and they ignore the notice of the letter, then they could face penalties, fines, or being charged with a crime.

Does it Need to be Drafted by an Attorney?

No. Attorneys don’t always draft them, but having them may help. You should consider the nature and context of the dispute. For instance, demanding a customer pay you $200.00 for kitchen supplies because the are past the due date might not be a good use of an attorney. However, if your client is not paying you $200,000.00 in consulting and construction fees and you have an obligation to continue working on the project, then are a lot of factors to take into consideration when making the demand.

Insurance Claims

Trejur will likely provide posts in the future that are more in-depth on this topic. However, for the discussion purposes of this post just know that for personal injury claims, the injured person usually starts the process by submitting a demand letter to the insurance companies. Further consider that negotiating and settling insurance claims may be aided by a lawyer’s counsel. The reason is there are certain structures and contents that go with the initial demand letter.

Examples include: describing the accident, medical treatments to treat the injured, and accompanying evidence and supplemental documents, such as police reports and medical bills. The initial demand letter is probably just the start; insurance companies tend to lowball their initial offer. A personal injury attorney’s knowledge and experience may assist in getting a higher settlement when communicating to the insurance companies.

What Goes into Demand Letters?

It depends. Every situation is unique. This includes drafting a demand letter for clients. Sometimes, short and sweet is perfect because the facts are simple, and the law is easy to understand. Other times, lengthy explanations are necessary. Such as when the legal rights and concepts are abstract. These include citing to the actual law, explaining case law, and providing some evidence to show the other side there is a provable case. At a minimum, a demand letter usually explains the situation, a view of the law that is favorable to the demanding party, and the demands. Money and/or taking an action (or stopping one) and deadlines to respond or comply.  Finally, consider lawyers communicate to other attorneys via these demand letters as well as laypeople, so they legal ethics applies.

I will say from an attorney’s perspective we, just as much as laypeople, enjoy creative demand letters. Demand letters don’t always have to be mean in tone. “Nastygrams” are not always effective. Consider many content providers realize that fans who are business owners flatter them through creative endeavors, but these actions may infringe on their copyright, trademark, and trade dress rights.

However, sometimes you do get a mean and unreasonable demand letter. The question then becomes how do you respond? Ridiculous cease and desist letters sometimes also open themselves to cheeky responses like this one.

Other than the Creative Way, How Should I Respond to One?

The opportunity to dare the writer of the demand letter to start a lawsuit by offering lollipops to the process server is not a frequent one. However, a lot of people feel that ignoring a demand letter is a reasonable response. It might not be, as sometimes silence may be viewed as an admission. The demanding party may just send another letter.

A strongly worded response letter may be able to dissuade the other side. Attorneys frequently engage in letter writing contests back-and-forth without even filing a claim because litigation can increase the costs dramatically. The hope is there is a resolution at some point, but a demand letter is not usually the end of the legal process. It starts a communication process.  So how you choose to respond sometimes requires a careful analysis of all factors:

  • What are the demands? What does it cost to comply with the demands?
  • Do you have any rights or claims?
  • What are the facts?  Are they verifiable?
  • How much would it cost to litigate? Take it through trial?
  • What are you willing to settle for?

Analyzing these factors sometimes helps clients make valuation decisions, especially for business owners. Sometimes it might be worth it to settle, other times not. The key is to understand the contents of the demand letter, and then the circumstances that surround it. It is the start of a communication process, not the end.

DISCLAIMER: This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained in this post without seeking the advice of  an attorney in their relevant jurisdiction.  Hew & Bordenave, LLLP expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Business Partners Should Talk About Breaking Up First

Handshake between business partners.

Talk about your business relationship, reduce it to a written agreement, sign it, then get to work with your partner.

When assisting business partners form their entities or when my litigation partner is consulting with me on a case I see the following scenario often:

A business partnership starts with a money person and an idea person. The idea person has a fantastic business plan and the money person has the cash. They think it is perfect. They rush to form a LLC or corporation, downloading an Operating Agreement or Bylaws from the Internet. It even might be worst, they do not even bother with a document. After that, they are running their business, but then several months into it they are fighting.

What do Business Partners Fight About?

Usually, they do not see eye-to-eye on major business decisions.  Decisions like:

  1. how much money should each person contribute;
  2. who has the authority to sign checks or what is the dollar limit each partner has for contract obligations;
  3. where should we locate our offices;
  4. when do we pay ourselves;
  5. what happens when one of us wants to leave; and
  6. so many other issues …

Business owners hate hearing this from their attorneys: slow down! They should be deliberative in their collaboration with their business partner. I sometimes remind people that getting a business partner is basically getting married. Also partnering with a friend is different than being a friend, you sometimes do not know their work ethic. This is why we urge business owners to get things in writing with their partners.

The goal when drafting Operating Agreements, Bylaws, and employment agreements* should be what are the processes that governs decision-making, what happens when there is disagreement, or if an owner wants to leave, etc. … Basically, preempt the fights by setting up contractual arrangements. *By the way, if an owner of a business wants to contribute work instead of capital, then the partners should consider an employment agreement. It is solely not just for contract law purposes, but for tax and accounting issues.

Business partners think that their idea will be a money-maker and that their partner is going to make it happen.  They fail to calculate that even in success that their business partner may have other ideas on the direction of the business.  There is nothing wrong with differences of opinion, but when decision-making is paralyzed it could stop the business from moving forward. Further, for its employees, vendors, and service-providers, knowledge of an ongoing dispute amongst the business owners can make them question the survivability of the business.

Protect your Business Relationship by Communicating

It is easy. Talk about it, come to an agreement, and then get it in writing before the business starts. Many people just want us attorneys to give them their documents or download their own forms for the Internet. They think it saves them time and money.  I’d contend that is the wrong way to look at it. The time and money spent on your governing documents is an investment in the relationship. They are a contractual foundation.

If not, you are just pushing disputes to a later date. Consider that when the money has been spent, you’ve worked countless days and nights, and now you are arguing.  Then you realize all you have for your contract rights is a poorly drafted document … or worst yet, you don’t have one at all.  So do yourself a favor, have the conversation now and plan for the future.  Communicating when you are on good terms with a partner is easier, then when you are fighting.

DISCLAIMER: This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained in the post without seeking the advice of  an attorney in the relevant jurisdiction.  Hew & Bordenave, LLLP expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Communicating With Your Business Partners

communicating in contracts

A New Year, A New Business, and A New Of Hope Of Communication

Aloha and Hau’oli Makahiki Hou!

I hope this finds you all well, and I thank you for visiting our legal blog or blawg. How has your first week of 2017? Ready to dive into new projects?  For those of you thinking this is the year or the time to start a business, well then today’s post and the couple of posts that will follow are for you. Specifically for those of you interested in starting a business, especially with business partners who will own the business with you. The overall theme of these posts is about communicating.  The source of this inspiration for the theme? My own partnership with Trejur launched last year my lecturing for a communications class at HPU, and I always get this question: Can my business partner do that?

Part I, Communicating With Your Business Partners

So today’s post is on communicating with your business partners, the one following this post will be on communicating with third-parties outside of the business entity you form with said partners, such as clients, customers, vendors, suppliers, contractors, etc …, and finally, the last post shall be about communicating with the government and various agencies.

Where it All Begins: Communicating, Not the Paperwork

So many of you that know me or have followed me, know that I started out as a solo practice working with small and medium-sized business clients on contracts and compliance work, such as forming limited liability companies. Over the years, as my workload increased I took on other contract attorneys to assist with the workload. Along the way, I met my commercial litigation partner, Trejur P. Bordenave. Trejur and I worked well together, and a lot of it was based on effective communication. This is the foundation that led us to the partnership we have today. In fact, he and I spent a good portion of the early part of 2016 discussing the partnership before formally launching the partnership itself.

Why am I telling you this?

One of the biggest issues I see when clients come to me to form a LLC or a corporation is they just want the documents. Yes, as a business attorney, absolutely I can draft your Operating Agreements or Corporate Resolutions, file your Articles of Incorporation, and/or obtain your Federal Employment Identification Number, and so forth, but typically, when someone like Trejur is called up to represent someone the dispute stems from a breakdown in communication and trust, amongst the business partners. There is not necessarily anything wrong with the paperwork, but the business partners did something, not necessarily maliciously or with intent to deceive, but their expectations about how the business would work, how they would get paid, reimbursed, when that would happen were all at different levels.  Let me use two examples of how this can play out to illustrate.

Example Stories

So these following examples are fictional, but they are issues I have seen before in a wide-variety of starting businesses or in the midst of a business dispute. Again, the point here is to illustrate that good communication is the foundation of a good business relationship, which in turn drives the drafting of the legal documentation.

Example One: Majority Member and Unfair Distributions

Kai and Russell open a new restaurant business. They organize a LLC. The LLC Membership Interest (or Ownership Interest) is divided 60% for Kai and 40% for Russell that is because Kai has contributed more cash and equipment (valued at $60,000.00) into the LLC as his Initial Capital Contribution than Russell. Russell just agrees that he will bring some of his old recipes from a prior business with him and agrees to work for the LLC for the value of his Initial Capital Contribution because they are in a rush to open the restaurant they draw up a generic Operating Agreement that recognizes the 60/40 split and that everything from that, including voting, profit/loss allocation, distributions, etc . . . will be 60/40.

Five months later, after the restaurant has been up and running, Russell quits and wants to terminate the LLC. Why? Well, he feels that Kai treats him more as an employee because he feels he owns the majority of the LLC and that Russell needs to work off $40,000.00 or what Kai believes Russell’s fair share of the contribution should be. Further, due to the majority position Kai takes his cash distributions at the beginning of the month, and gives Russell his distributions at the end of the month and if there is not enough for budgeting purposes states the LLC will just owe him later.

Example Two: Discussing Officer Duties Prior to Incorporating

Lisa and Jessie want to start a solar design and installation business. They intend to incorporate a corporation, which shall issue 1000 shares, where Lisa would own 550 shares and Jessie would have 450 shares. Lisa would like to be President as she has more local connections and is the one who can bring in more clients whereas Jessie will likely do the grunt work. However, Jessie is concerned that Lisa is President and has more shares so as a minority shareholder she fees unprotected. Lisa and Jessie meet and discuss this issue.

They decide that through their Articles of Incorporation, Bylaws, and Resolutions that the corporation shall only have the offices of President, Secretary, and Treasurer and that Jessie shall be both Secretary and Treasurer. Further, that Lisa as President must submit a marketing budget for the next fiscal year to Jessie as Treasurer on the June 20th before Jessie will cut checks from the corporation’s expense account to where she will have sole authority to cut checks from. They also agree that all 1000 shares (unanimous consent) must vote in favor of declaring dividends before money is paid out as such.  Finally, both agree to sign Employee Agreements stipulating to what their compensation, benefits, work hours, etc . . . on top of their rights and obligations as shareholders of the corporation.  Both are satisfied with this arrangement and move forward to incorporate.

So What Happened? What Should You Consider for your Business Partnership?

In my first example, the business partners were in a rush, failed to communicate expectations, and felt that once they had the paperwork everything would resolve itself. But as trite as it may seem, they did not talk about their feelings and by signing an Operating Agreement that just split everything according the Ownership Interest percentage it did not really reflect on how they were going to do business with one another. In the my second example, discussing how Jessie felt about her worries and concerns allowed them to create a process, a mechanism of a check and accountability that they discussed and agreed to.

At this point, I’d like to put in your mind a lot of people think that once the file their Articles of Organization or they come up with the Bylaws these are set in stone. That is not necessarily the case, the owners of the business can always amend them if they are in agreement. Also consider if you and your partners are not sure what the final arrangement will look like, that is you are in an ongoing negotiations, but you have stipulated to some terms or have an inkling about where your arrangement is heading, you can always use a Memorandum of Understanding or Letter of Intent or whatever document applies to stipulate to what has already been discussed or agreed to, and agree to return to the matter at a later time to finalize. Communicate and trust each other, but keep a record of it.

Often times, people do not slow down to consider how they want to structure their decision making processes, their rights and duties to each other, to the business. Their feeling is that making money will resolve all that, but then the issues come up overtime like . . . Why do you get reimbursed for parking when I take the bus? I bring in all the clients and you do all the work, and marketing and networking is work. The recipes I brought with me are the value of the food company so I should get a majority interest. I’m the older brother so I dictate the operations just like the way our father and grandfather did it. And so on and so forth . . . if you thing your dispute is ridiculous with your business partners, I’m pretty sure there are ones even more crazy.

Sit Down and Discuss Expectations

What isn’t crazy is sitting down and discussing what you expect out of the business relationship and what you expect out of your business partners before forming the business entity and doing business. In many ways having a business partner is like getting married it is for better or worst, and business divorces are ugly affairs like regular divorces. Therefore, it is worth the time to sit-down and talk it out, and then if you are wondering can we arrange our business partnership according to what was discussed that’s when you can give me a call and we can work out . . .

What is the difference between a Member-Managed and Managed-Managed LLC? Can I contribute services in exchange for stock ownership? What are the differences in liabilities for a General Partner versus a Limited Partner? Can we have percentages of Ownership Interests that do not match Distributional Interests? What about having two-levels of Ownership Interests? Should we limit the powers and authority of the President?

Mahalo for reading this post. I hope you have a Happy and Fortuitous New Year! See you next time!

-RKH

DISCLAIMER: This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained in this post without seeking the advice of  an attorney in their relevant jurisdiction.  Hew & Bordenave, LLLP expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Old Posts: From Ryan K. Hew, Attorney at Law, LLLC

Formalities

From: “Let me provide the formalities.”

Hew and Bordenave

To: “Let us provides the formalities.”

From Old Solo to New Partnership

Hey everyone, thanks for visiting our Blawg. I am just letting you know that all the posts prior to January 1, 2017 are from my solo practice. They are from Ryan K. Hew, Attorney at Law, LLLC. In particular, the old: hawaiiesquire.com. I brought the posts to our new site because a lot of the legal information is helpful for business owners and truth be told I loved doing Draw the Law, Boilerplate Blurb, and all the other content. So please continue enjoying them, but I do hope you like the new content from Trejur and me. Mahalo!

-Ryan K. Hew

“Taxes Are the Price We Pay for a Civilized Society.”

*I posted this to my Facebook yesterday for the Federal income tax return deadline, and forgot to put it to my blawg! To busy dealing with my taxes and clients’ transactional issues during this hectic tax period.  Anyway, a little less relevant today, but remember 2015 Hawaii income tax returns or requests for extension are due tomorrow (4/20/16), so still slightly relevant. Cheers and good luck to you! 

I hope your Monday, this final day for submitting your U.S. federal income tax returns (at least without an extension), is not that stressful, but I share this interesting quote with you by one of my favorite U.S. Supreme Court Justices from the past, Oliver Wendell Holmes, Jr. He was a great jurist and in his time was known as the I hope your Monday, this final day for submitting your U.S. federal income tax returns (at least without an extension), is not that stressful, but I share this interesting quote with you by one of my favorite U.S. Supreme Court Justices from the past, Oliver Wendell Holmes, Jr. He was a great jurist and in his time was known as the “Great Dissenter”. I selected this quote, as apparently this quote appears on the IRS building in Washington D.C. So with that, I wish good luck on your taxes, as I do empathize with all of you, especially fellow self-employed small business owners! Anyway, if you are interested, you can find a nice short biographical history for Justice Holmes here: http://www.pbs.org/wnet/supremecourt/capitalism/robes_holmes.html

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Can You Own a Monkey in Hawaii?

Happy Lunar New Year! It is the year of the Fire Monkey! Supposedly, fortune tellers say it is an ear of market volatility, so it is best to make contingency plans and not monkey around! However, enough punning, this post is about owning a monkey in Hawaii.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Further, no tax advice is given in this post, and you are urged to seek a tax attorney, accountant, and/or tax professional to help you with your tax and accounting needs. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Happy Lunar New Year!

I hope it shall be a prosperous one for you! To celebrate that this is the year of the Fire Monkey, I decided to do a fun post,  as I am born in the year of the monkey (I am sure you can now guess my age, haha). So for this post, I thought a fun question to answer is one that that comes up and now and then among pet-loving friends: “Can I own a monkey, here in Hawaii?”

The answer is: yes, but . . . 

Hawaii Department of Agriculture and Importation of Animals

As you probably could guess this is a regulated area. So it is not as easy as in you can fly in any monkey you want, then take it home, especially given that Hawaii laws are aimed at preserving nature and preventing invasive species.  Obviously, monkeys are non-native species to the island, so you are you going to have to import one and play by the rules. So none of that “see no evil, hear no evil, speak no evil” shenanigans with the government agents.

To begin with, the importation of non-domestic animals is under the jurisdiction of the Hawaii Department of Agriculture. See HRS 150A-6.2.  Some animals are banned outright, while others are allowable by permit. Monkey importation is allowable by permit but has an extra step. That step being bonding.

I had to use this image for this post. It is a monkey in a suit at a desk with paperwork. I know what people think of attorneys. Further, I think it was apt for this post. Lastly, I paid licensing fees for the image and had to make use of it (don't worry one post I will devote to licensing fees for you graphic designers, photographers, etc . . . but enjoy and laugh! I had to use this image for this post. It is a monkey in a suit at a desk with paperwork. I know what people think of attorneys. Further, I think it was apt for this post. Lastly, I paid licensing fees for the image and had to make use of it (don’t worry one post I will devote to licensing fees for you graphic designers, photographers, etc . . . however, enjoy and laugh!

 

Hawaii Administrative Rules Chapter 4-71 and Bonding

We turn to the Department of Agriculture’s Administrative Rules, in particular, Chapter 4-71, as the objective of these rules are to implement HRS Chapter 150A. See HAR 4-71-1.  So what do the specific rules say about monkeys?

If we go to HAR 4-71-6.5, we see that we would need a permit, but more specifically we see in Section (a)(3) that certain animals need the securing of a bond, as specified in 4-71-7.  Scurrying down to HAR 4-71-7(1) it indicates that an applicant (for the permit) shall secure the appropriate bond for:

Monkeys, apes, baboons, chimpanzees, gibbons, lemurs, pottos, wallabies, and any other animal that the board or chairperson may require to be bonded as a condition for importation or possession;

Bonding Procedure and Conditions for Bonding

So how do you get a bond, and are there specific requirements? Well, the Administrative Rules continue from 4-71-7 to 4-71-8, Bonding Procedure and 4-71-9, Conditions for Bonding.  In these two sections, you will see much of the specifics you would need to fulfill to get a bond, which would go with the permit, which would, in turn, allow you to own a monkey.

Of course, even if you meet these requirements, and successfully import and own a monkey, you have to realize you have to comply with all the bond conditions. Failure to do so would mean the Department could seize it, as given their power under HAR 4-7-10.  Interestingly enough, if your monkey were to escape it is your responsibility to recapture it, and you have a week to do so, or else the Department will use its resources to recapture. Additionally, they can sell, ship, donate, or destroy it.  See HAR 4-71-10.

So yes, you can own a monkey here in Hawaii, but it is not a process of monkey see, monkey do like with dogs or cats, but a Department of Agriculture procedure of permitting and bonding.

Mahalo for reading!

-RKH

 

Shopping Carts in Hawaii! What’s the Law?

 

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Today’s Post is Not About Sledgehammer Time: It’s Only Focused on the Shopping Cart Law

Hey all, I decided to jump on the bandwagon (may be the shopping cart?) and talk about shopping carts.  However, I am not going to get into whether Rep. Brower’s actions exposes him to civil or criminal liabilities or if they were right or wrong.  I think Civil Beat, attorney Marcus Landsberg, and the news outlet and social media has already beaten that cart into disrepair (yeah, I am going to keep trying to hammer away with the lame jokes and puns).

Anyway, what I would like to do is take a look at this matter from a business establishment perspective (those that put out the carts) and what the legislature has put forth as a law on point (looking at what is on the books.  It turns out that we have enacted a law specifically for shopping carts.  HRS § 633-16 discusses the unauthorized removal of shopping carts.  Further, as it is in Chapter 633, it puts this matter in small claims court.  

Breaking Down the Law

So looking at the law, as currently stated, it makes it a violation for a person to remove a shopping cart (including baskets and other devices) from the premises of business establishment (that owns the cart), if they are unauthorized.  The premises include the parking lot as well as the sidewalks adjacent to the business establishment’s premises.

The business establishment is the person who has the ability to bring a claim under this law if there is damage to the business or property.  The business may sue for damages and win an award equal to the replacement value of the cart (and keep in mind the average cost of a cart ranges from $100 – 250), basket, or device plus the cost of the suit.  The establishment can also sue to enjoin the unauthorized act.

So in order for a business to win in small claims court (under this law) the must nail down these elements: 

  1. they are the lawful owner of the cart, which has been identified;
  2. they gave notice, which means posting a conspicuous sign where the carts are stored that says the carts are not to be removed;
  3. that the cart was removed from the business location without proper authority; and
  4. the person accused of violating this law is in possession or had control of the cart.

Practicalities of the Law

In terms of policymaking it is understandable why the legislature gave such a legal action for business owners of these carts (as they are expensive).  However, in terms of reality is if these carts are being taken by people who are unable to pay the damages or the business cannot track them down its effectiveness as a law should be looked into.  In addition, how many shopping cart owners utilize this law for these purposes? All I know at this point though is that the bang of the gavel in your favor is a better sound than a squeaky cart on uneven pavement!

A Final Word

Although this post was focused on shopping carts, business owners for any type of legal action should always consider the cost of pursuing claims in court versus that of implementing practical solutions (where possible), or possibly a combination of legal and practical action, such as drafting contracts, policies, procedures, and other preventative measures.  Anyway, that’s it for this post.  Mahalo!