Houston Business Litigation Attorneys Blog

Remedies For Shareholder Oppression

2013-06-12T15:32:02Z

Majority shareholders often have incredible power in a corporation. A person with a significant share of a corporation's stock can control the election of directors, which means they also have power over the bylaws, oversight of the corporation and who is elected as officers.

What does this mean for minority shareholders? If the majority shareholders are unscrupulous, they may create an oppressive environment for minority shareholders by squeezing out the minority shareholders, reducing dividends or refusing to declare dividends, preventing minority shareholders from taking an active role in the board of directors or corporation, reducing business profits or otherwise preventing minority shareholders from exercising their rights.

]]> When minority shareholder oppression occurs, minority shareholders can bring majority shareholders to court. There are multiple remedies for shareholder oppression, including:

Buyouts: In some situations, a minority shareholder can ask the court to require majority shareholders to buy the minority shareholder's stock at fair market value.
Derivative lawsuits: If a minority shareholder can show that a majority shareholder breached his or her fiduciary duty to the corporation, the minority shareholder can ask the board to take action against the majority shareholder. If the board does not act, the minority shareholder may bring a derivative lawsuit on behalf of the corporation.
Dissolution: In the most extreme cases involving close corporations, a minority shareholder can ask the court to dissolve the business if he or she can show that the board of directors or majority shareholders have acted illegally, fraudulently or oppressively.

To learn more about remedies for Texas shareholder oppression, please visit our pages on minority shareholder oppression.

Texas Uniform Trade Secrets Act: What It Means For Your Business

2013-06-07T14:29:25Z

In early May, Texas Governor Rick Perry signed the Texas Uniform Trade Secrets Act into law. The Act will apply to any misappropriation that occurs on or after September 1, 2013. It offers Texas businesses greater trade secret protection, including additional legal remedies for trade secret misappropriation.

The Act changes Texas trade secret law in several ways:

Plaintiff businesses may now recover attorney's fees and exemplary damages in cases involving malicious or willful misappropriation.
"Trade secret" is more broadly defined to include suppliers, financial information and client lists (including prospective client lists).
Companies can now request injunctive relief for threatened misappropriation of trade secrets, not just actual misappropriation.
Texas courts can protect a company's trade secrets by sealing court records, holding chamber hearings and limiting disclosure of trade secrets to attorneys and expert witnesses.

]]> Texas is the 47^th state to enact the Uniform Trade Secrets Act (UTSA). While some Texas courts have cited the UTSA in past decisions, businesses could not predict how courts would classify trade secrets. The UTSA offers clarity and, hopefully, consistency regarding the definition of "trade secrets."

Noncompete Litigation And The Texas UTSA

Unlike the model UTSA, the Texas UTSA includes financial data and list of potential customers and suppliers in its definition of "trade secrets." This means that employers will have greater protection in noncompete litigation involving competitor solicitation of clients and suppliers.

Source: Texas Uniform Trade Secrets Act, S.B. No. 953, 2013

Business start-ups: Being the next Tumblr

2013-05-30T13:47:09Z

In 2007, David Karp founded Tumblr from his mother's apartment. Today, 77 million posts went up on the site in 12 different languages. More than 100 million people use the site. Perhaps that is what makes it so appealing to Yahoo Inc., which just purchased Tumblr for $1.1 billion. Not only will Karp get a nice paycheck, he will also stay on as chief executive of his company.

How can you be so successful with your business? Here are some business planning tips compiled by the small business journal Small Business Trends:

Research your product. Tumblr was effective because it hit the market at the right time, when social media sharing was becoming bigger than ever. You do not need to be on the cusp of a change, but your product does need to be something people want to buy.

Advertise. Many business owners see the cost of advertising and fail to make effective advertising a part of their early financial plans. That is the wrong decision. Instead, invest in marketing, and especially social media marketing. Consider giving away free products, asking a local celebrity to support your company or casually leaking news to build suspense about your start-up.

]]> Do not ignore mobile marketing. When you build a website, make sure it has a mobile platform that can display on your customers' smart phones.

Take time to research into revenue models. If your product is overpriced -- or even underpriced -- it will fail. There are a myriad of options, from ad revenue to a cost-based model, to consider.

Build to sell. Do you have a product that larger businesses could use? If your goal is to be acquired by a larger company or corporation, research into their needs and build your products accordingly.

Choose a strong business name and brand. Your business name defines your brand. It is also sells your product. It is important to pick a name that customers will easily understand and remember.

Write a strong business plan. The better your business plan, the stronger your business.

Finally, if you are starting a business, it is vital to work with the right business professionals. You will run into unexpected legal issues at some point in your business start-up plan. Working with the right attorney now can ensure your business interests are protected down the line.

Source: Small Business Trends, "10 Tips for Making Your Startup a Success," Shawn Hessinger, May 27, 2013

How can you ensure your trade secrets are protected?

2013-05-23T20:50:16Z

Trade secrets are defined as concrete information that is not generally known or readily ascertainable by individuals or entities outside of a business. In order to be a trade secret, the information must provide economic value to a business or competitive advantage. Furthermore, the company must take reasonable efforts to keep the information secret. As long as trade secrets meet these criteria, they can be protected under state and federal law.

Let's dissect the criteria:

Not generally known or readily ascertainable: A trade secret must be something that is truly unknown to the public. If a business provides confidential information to someone outside of the organization without having him or her sign a confidentiality agreement, a court may find that it is not trade secret information. We have seen businesses put information on their websites and then incorrectly maintain that information is a trade secret.

]]> If, however, a business takes efforts to keep a trade secret confidential and another business obtains the trade secret through theft, bribery, espionage or fraud, then a court will generally rule that the trade secret was ascertained by improper means and is, thus, still a trade secret.

Economic value: In order to be a trade secret, the confidential information must have value to the business. It is considered economically valuable if it helps the business in the marketplace or in relation to other businesses.

Reasonable efforts to keep the information secret: A business must show it has taken steps to protect the trade secret information. It can do this by:

Identifying the trade secret information as confidential (putting "confidential" on all documents related to the trade secret)
Restricting access to the trade secrets both physically and electronically
Requiring those with access to the trade secrets to sign confidentiality agreements

This is only the tip of the iceberg in trade secret law. There are many other legal nuances that could make or break a trade secret protection case. Learn more by visiting our pages on intellectual property.

Source: Entrepreneur, "How to Protect Your Business's Trade Secrets," Chris Kelleher, May 1, 2005

Can employees discuss their jobs on social media sites?

2013-05-15T20:26:24Z

Even though social media has been prominent in our lives for more than a decade, businesses and courts are still grappling with what employees can and cannot say on social media regarding their employment. At issue is the First Amendment, the National Labor Relations Act (NLRA) the lack of privacy on social media websites and employers' social media policies.

Many lawsuits have arisen against companies that have fired employees over disparaging work comments made on Facebook, Twitter and Google +, comments that went against the companies' social media policies and employment agreements. Many of these lawsuits have established that an employee's online discussion regarding work dissatisfaction is protected activity under the NLRA and cannot be grounds for dismissal.

]]> The National Labor Relations Board, which investigates unfair labor practices by employers, has supported this view and has taken a strict stance on social media policies that could prevent employees from discussing discontent online. For example, the NLRB has struck down:

A Quicken Loans Inc. employment contract clause that told employees "not to publicly criticize, ridicule, disparage or defame the Company"
A Dish Network Corp. employee handbook which told employees not to have "negative electronic discussions" at work

In January 2013, the NLRB held that it is legal to vent on a personal social media account if you are "speaking on behalf of a group of employees" with the intent to improve job conditions.

Social media, it seems, is not a public forum but today's "water cooler." Not all social media policies, however, are considered restraints on "organizing activities" or employee's rights to discuss their employment. For example, policies that are very specific tend to have better results in than general policies.

The bottom line is that the NLRB is cracking down on what it believes to be restrictive social media policies. Businesses with social media policies should review and, if necessary, revise them to ensure they comply with the NLRB's recommendations.

Source: Inside Counsel, "The risks and rewards of social media," Adele Nicholas, May 1, 2013

Starting a business in Texas: Business costs

2013-05-08T14:01:45Z

You are preparing to start a business in Texas and are considering startup expenses. Each business is unique, but there are certain expenses that every prospective business owner must consider, including the expense of registering your business, marketing and sales costs, administrative expenses and technology-based costs.

Legal expenses: Texas businesses need to register with the state. Formation and registration costs can range from $25 for a nonprofit organization to $750 for a Texas professional association and limited partnership. Depending on your business, you may face other legal costs, from intellectual property (copyrights and patents) expenses to occupational licenses.

]]> Marketing and sales expenses: Any business, if it wants to be successful, must put money into marketing and sales. Your first sales could even cost you money as you develop your process, pay for raw materials and consider shipping and insurance costs.

Administrative expenses: Think about what you need to operate your business efficiently. The bigger expenses are obvious - rent, parking permits, utilities - but the smaller expenses add up quickly. You may need paper, computers, desks, even paper clips and pencils. You may also need to connect with a website company and purchase Internet access, cell phones and other technology.

Staff: Even if you are going to run the business entirely on your own, you must consider insurance and other costs associated with a solo business. Larger businesses requiring employees will need to budget for the employees, including pay, health insurance, workers' comp insurance, etc.

The bottom line is that starting a business in Texas requires a lot of thought and financial planning. By considering all of the expenses your business may face early in its development, however, you lay the foundation for a successful future.

Learn how we can help you as you plan your business by visiting our business formation page.

Source: Small Business Trends, "Top Five Expenses A Startup Cannot Avoid," Boney Pandya, May 7, 2013

Intellectual property theft is a growing threat to businesses, country

2013-05-01T20:38:04Z

A recent opinion column by U.S. district attorneys Sarah Saldana (Northern District of Texas) and John Bales (Eastern District of Texas) published in The Dallas Morning News discussed the growing concern regarding intellectual property theft.

It is a concern to U.S. attorneys, who prosecute businesses and individuals for IP theft, but an even greater concern to businesses who face IP threats. As the U.S. attorneys note, "The threat of theft is real and growing." They explain that a wide range of important information can now be accessed through computer invasions, including:

Sales information
Customer lists
Research and development information
Product designs
Business methods

]]> Every year, these computer intrusions cost U.S. businesses billions of dollars. The theft of trade secrets can severely harm a business. Yet, some businesses are afraid to expose intellectual property theft because they are worried the exposure would create negative publicity and disrupt the business. Too many businesses wait too long before exposing theft, causing themselves further damage.

There are other options. Through intellectual property litigation, it is possible to hold businesses (or individuals) accountable for stealing your company’s trade secrets while effectively managing your company’s reputation. Learn more by visiting our pages on intellectual property.

Source: The Dallas Morning News, “Sarah Saldana and John M. Bales: Why intellectual property theft is everyone’s problem,” Apr. 25, 2013

SBE: Texas has best tax code for small businesses

2013-04-23T14:44:58Z

Texas offers the best tax system for small businesses, according to the Business Tax Index 2013from the Small Business and Entrepreneurship Council (SBE). According to the SBE's chief economist, "Taxes matter for business at the state and local level as well [as the federal level]. In the states, tax burdens vary widely, with competitiveness affected accordingly."

What makes Texas a good tax state for small businesses?

Individuals in Texas do not pay income taxes, capital gains taxes or dividend taxes.
There is no corporate income or capital gains tax, though corporations face a franchise tax.
There are low unemployment taxes, as well as low gas, diesel and wireless taxes.

]]> Considering starting a business in Texas?

There are many things that make Texas appealing to small business owners, including its tax code, licensing regulations, zoning regulations, health and safety regulations, hiring regulations and other business-friendly regulations.

Like in any state, however, understanding the regulations and making sure you comply with state and federal laws can be challenging when done without the help of an experienced business attorney. If you are considering starting a business in Texas, a lawyer can help you choose which entity is best for your business, ensure that your business is properly registered/incorporated and review other employment and business laws with you.

Source: Small Business Trends, "Texas Tops List of Best Small Business Tax Systems, California at Bottom," Joshua Sophy, Apr. 22, 2013

Visit our page on business formation and planning.

Macy's breach of contact case against Martha Stewart, J.C. Penney

2013-04-16T14:01:31Z

In January 2012, Macy's Inc. sued Martha Stewart Living Omnimedia Inc. over what it believed to be a breach of contract. Three months later, it also sued Texas-based J.C. Penney Co. Now, it appears that settlement talks have been unsuccessful. J.C. Penney has asked the court to dismiss Macy's claim.

Macy's Inc. claims that Martha Stewart Living breached its contract with Macy's by allowing J.C. Penney to sell certain bedding and cookware items. J.C. Penney had planned on opening mini-stores to sell those Martha Stewart items; Macy's asked for a court injunction to prevent J.C. Penney from selling the goods. Martha Stewart Living fought back, alleging that Macy's breached the contract by stocking and pricing products to favor brands other than Martha Stewart.

]]> Last week, however, Martha Stewart Living pulled back from plans to partner with J.C. Penney. "There's not going to be a Martha Stewart store at J.C. Penney anymore," an attorney for the company said, but it is unclear that the court -- or Macy's -- will dismiss the claims.

Breach of contract disputes are often very contentious and can last years as parties argue that they were wronged. Unfortunately, even the clearest contracts can be misinterpreted and may not capture the entire agreement of the parties. This is true even if a contract clearly specifies that the entire agreement lies within the "four corners" of the document.

The hidden complexities of contract disputes make them difficult to settle. Due to their inability to come to a settlement on their own, a judge ordered Martha Stewart, Macy's and J.C. Penney to go through mediation. Through business mediation, the parties meet with a neutral third-party mediator who evaluates both sides and helps the companies come to an agreement. If mediation is unsuccessful, the court will make a decision for the parties.

Source: Bloomberg.com, "Martha Stewart Lawyers Says No Store at Penney 'Anymore,'" Chris Dolmetsch, Apr. 11, 2013

Involved in a business dispute involving a contract? Visit our webpage on breach of contract.

Tesla Motors Inc.: Allow us to sell directly to consumers

2013-04-11T19:00:50Z

Tesla Motors Inc. is making headlines this week as the company pushes for a bill to allow it to sell cars directly to consumers. In Texas, unlike other states, new car companies must usually sell cars through auto dealers. As Tesla does not have a relationship with a dealer, it feels its sales are stymied by Texas laws.

If successful, House Bill 3351 would give manufacturers of both battery-powered and electric vehicles the right to sell to consumers. The Texas Automobile Dealers Association is fighting the law, stating, "We don't see any business reason or law reasons that this product should receive a special exception from the law that applies to everyone else."

]]> Tesla Motors Inc. Chief Executive Elon Musk counters, "Is Texas a free enterprise state or not?"

Texas has long been known as a "bastion of free enterprise," a place where small businesses can thrive without much government interference. Yet, businesses can be blocked by federal and state laws. In this case, Musk believes the bill will fail but wanted to "give this our best shot."

Is your business facing a legal hurdle in Texas? Does that hurdle prevent your success as a business? An experienced business law attorney can help you understand your options.

Source: Fox Business, "Tesla CEO pushes Texas to allow direct-to-consumer car sales," Corrie MacLaggan, Apr. 10, 2013

Yahoo's purchase of Summly could give rise to new business tactic

2013-04-02T21:01:57Z

When a business goes about acquiring another company; another piece of property; or another asset, there are many steps that need to be followed to ensure the deal is compliant with local and federal laws. There are also complex negotiations that need to take place, which can collapse if both parties do not respect the intrinsic nature of these deals. In both regards, an experienced business law attorney can help a business get past these hurdles and enjoy a brighter future.

Once the company or asset is acquired, the assuming company will inevitably need to answer some questions about how their new entity will integrate into the organization. For example, will employees associated with the asset be retained? Will certain aspects of the assumed asset be cut? What about the trade secrets the company or asset possessed?

]]> If a recent tech acquisition is any indication of future trends in the industry, the answer is to buy the trade secret, keep the talent and dump the product.

Yahoo has made waves recently by shaking up their company, and part of this realignment is to take a more mobile-minded approach to their business. As such, they purchased a news-aggregating app called Summly for $30 million.

Part of the notoriety of the story is that Summly was invented by a 17-year-old from England; but the other part that makes the story interesting is what Yahoo did once they acquired Summly: they got rid of Summly. It is no longer available, nor will it ever. Instead, Yahoo brought the 17-year-old on board and will use the algorithm that made Summly tick to create something new just for Yahoo.

It is an interesting approach, one that could be adopted by many companies down the line. The acquisition could be used as a vessel to bring in young talent and to earn the exclusive right to use "the math" behind the purchased product, as opposed to using the product itself.

Source: NPR, "After Yahoo Acquires Summly, Is Buying Math The Next Tech Bubble?," Steve Mullis, March 26, 2013

To learn more, please visit our Houston business transaction page.

Board of Walt Disney Co. backs Iger, disagrees on position split

2013-03-27T16:14:48Z

A lot goes on behind the scenes of major corporations; and it does not matter how big or how successful one becomes. There are issues in the boardroom, with shareholders and with investors that have to be delicately and professionally handled to ensure that the company as a whole can succeed both in the short term and the long term.

When a shareholder agreement is made, there are a variety of concerns that need to be addressed. For example, what kinds of decisions can the shareholder make on their own; and what matters need to go to a larger vote? What if a potential buyer comes forward and wants to take over the company -- or just an individual shareholder's stake? What process needs to be followed in that scenario?

]]> There are also basic processes that need to be followed by all of the shareholders when an internal issue comes up. For example, look at the situation that recently came about with Walt Disney Co.

Ever since Michael Eisner left his post as the CEO of the company in 2004, Bob Iger has held the title. But Iger also holds the title of Chairman of the entire board. This has not caused much consternation (Iger was re-elected by the board recently); however, a plan to ensure that the chairman position and the CEO position are separate once Iger retires (reportedly in 2016) was not agreed to by the Walt Disney Co. board.

Some shareholders like the idea, as it could promote more balance at the top and prevent a dictator-like hold on the company. But there are more shareholders that oppose the idea; and this could be a point of contention as the years pass by.

Source: Carrier Management, "Disney Shareholders Reject CEO/Chair Split," Lisa Richwine, March 6, 2013

To learn more, please visit our Houston shareholder agreement page.

Goodbye, old friend: Time Warner spins off magazine products

2013-03-19T15:40:17Z

The death of print media has been a long and painful one, as the industry's obsolete offerings turn it into an unprofitable (and liable) asset. Newspapers have been struggling for years, as have many book stores. And now Time Warner appears to have signaled that the magazine industry's tombstone is not that far off.

Formerly a massive conglomerate (though still quite a profitable entity), Time Warner announced recently that the arm of their company responsible for iconic magazine titles such as Sports Illustrated, Time and Fortune -- called Time Inc. -- would be "spun off" into its own standalone company.

]]> The decision was only made after negotiations with Meredith Corporation to purchase Time Inc. fell through. Meredith, though interested, was not enticed enough by the prospects of those major magazine titles.

Profits at Time Inc. have been in decline for a while now, as the fourth quarter of 2012 showed. A 7 percent decline in Time Inc. revenue (plummeting below $1 billion) was only made to look worse when compared to Time Warner's cable television earnings, which jumped 5 percent (to $3.67 billion). So this was a move that Time Warner needed to make to financially stabilize the company, allowing their fiscal reports to reflect the positive movement that the company's better products are showing.

There are a couple of other notes about this story. The first is that business negotiations can be very complicated. It can take a lot of work to get a deal done, and a lot of knowledge is needed to be sure that each party is getting a good deal.

The other factor here is that the chief executive of Time Inc. will leave the new "spin off" company once it is formed. She will likely receive a buy-out package. It is important for a company to have an experienced business attorney look over the buy-out contract to make sure everything is correct and the document is properly drafted.

Source: New York Times, "Time Warner Ends Talks With Meredith and Will Spin Off Time Inc. Into Separate Company," Amy Chozick, March 6, 2013

To learn more, please visit our Houston business restructuring page.

Failing startups can seek buyers online thanks to new platform

2013-03-12T01:55:33Z

Entrepreneurial efforts are far from the easiest thing in the world. It takes a lot of hard work to manage a startup; it takes a lot of skill to have a product or service that many people or organizations want; and it takes a lot of patience to see your new business through to greener pastures. Not every startup succeeds -- in fact, more often than not, they fail. It is the unfortunate truth. But, just because your entrepreneurial endeavor was not the smashing success you had hoped, it does not mean that its demise has to be painful and financially crippling.

Many small businesses can benefit from discussing their operations and the possible sale or dissolution of their company with an experienced attorney. It may not be the conclusion that you wanted for your company, but sometimes seeking an exit strategy that leaves you on stable financial footing is what's best. Plus, such a move could leave the option open for a new startup somewhere down the line.

]]> One entrepreneur came up with a unique idea that helps failing businesses connect with companies that are looking to acquire their services. In essence, he is an entrepreneur offering other entrepreneurs an exit strategy if their business is struggling. Though it may sound easy to just put your business up for sale and, poof, a buyer comes along, that is, expectedly, not the way it works.

This man's business is quite simple: it is a website that brings failing businesses and potential suitors together. The reason this idea is so unique and creative is that the initial contact between a failing business and the purchaser is so difficult to nail down. A failing startup probably does not have the greatest network of contacts; so this website does the hard work for them.

Source: Houston Chronicle, "So Many Startups Are Failing, A VC Created A Startup To Help Them Die A Better Death," Alyson Shontell, March 6, 2013

To learn more, please visit our Houston merger and acquisition page.

Major Dell shareholder may contest potential sale of company

2013-03-06T18:27:14Z

It does not take much, but a business or organization can very rapidly change. This can happen for a number of reasons: maybe market factors force a one-time giant of a certain industry to completely change their focus, or maybe a merger or takeover leads to a radical change in the way the new organization does business.

During these times, a shareholder can feel as though they are getting the short end of the stick. Documents may be drafted to try and buy out certain shareholders at a certain price, and other moves can be made to try and "squeeze out" certain shareholders.

]]> What shareholders need to realize is that they have rights, and if they feel that immoral or illegal business moves are underway that negatively affect them, then they should consult an attorney. There will be many documents, contracts and details to look through, and you will want an experienced legal representative on your side to uphold your rights.

That is what Southeastern Asset Management, a major shareholder in personal computer giant Dell Inc., is going through right now. Dell's CEO and founder, Michael Dell, is looking to purchase the company, taking it from a publically-traded organization to a private one. As a result, Southeastern would be bought out -- but Dell is offering under $14 per share, while Southeastern contends the value of the company is roughly $24 per share.

This is a typical strategy when a company tries to buy out a shareholder -- they undercut the value to save a few bucks. Southeastern is requesting that Dell release more information regarding the proposed sale so that the shareholder may get a better understanding of the deal -- and, maybe, contest it.

Source: Associated Press, "Rebel Dell shareholder demands more information," March 5, 2013

To learn more, please visit our Houston shareholder rights page.