Business blockbusters from the Iowa Supreme Court

My last post discussed Summer Reads for Iowa Businesses.

Viewers may again watch arguments in front of the Iowa Supreme Court. In case you missed reading Iowa Supreme Court cases this summer, this post reviews some of the summer’s business cases from the Iowa Supreme Court.

Iowa Supreme Court decisions are readable and a few decisions arereleased each week. If you skip the criminal and divorce cases (which are fascinating but hopefully not necessary for your business), a few business cases might help you spot potential problems and help your business steer clear of potential legal situations.

This year not only were the Green Hornet and Green Lantern in theatres, we also saw State Office v. Polk County Court and State Office v. Linn County Court.

STATE COURT ADMINISTRATOR, vs. IOWA DISTRICT COURT FOR LINN COUNTY, DEPARTMENT OF PUBLIC SAFETY, DIVISION OF CRIMINAL INVESTIGATION, JUDICIAL BRANCH, STATE COURT ADMINISTRATOR and POLK COUNTY CLERK OF COURT, vs. IOWA DISTRICT COURT FOR POLK COUNTY,

In both cases individuals were charged with criminal offenses which were later dismissed. Though the charges were dropped, certain information remained on the Iowa Courts website. The individuals attempted to expunge their records, including those on the Iowa Court’s website. Read the cases to understand the epic battle between “public records” and “due process.”

At present, docket information remains available to the public regardless of the outcome of a criminal charge. Watch this for sequels by the court or the legislature . . .

ANNETT HOLDINGS, INC., vs. KUM & GO, L.C.,

An employee of a trucking company was allowed to receive cash from credit card transactions at a truck service station, purportedly for fuel purchases by other trucking company employees. The pattern of transactions was noticed by management. The employee was convicted of theft and ordered to pay $298,524.79 in restitution. The trucking company could not recover from the credit card transaction company because of a written agreement that company cards could be used for purchases and cash advances, that the trucking company was responsible for fraudulent use of the cards, and that the trucking company would hold the transaction company harmless for the acts of the trucking company employees. The trucking company had no such agreement with Kum and Go and sued, asserting Kum and Go was negligent in allowing the trucking company employee to receive the cash. The court determined that the trucking company’s recovery was barred due to the economic loss rule, which “. . . bars recovery in negligence when the plaintiff has suffered only economic loss.” Also discussed was the “contractual economic loss rule” which “bars tort claims for economic loss, on the theory that tort law should not supplant a consensual network of contracts.” For an alternate ending, read the dissent of two justices.

JOHN PAVONE and SIGNATURE MANAGEMENT GROUP, L.L.C., vs. GERALD M. KIRKE and WILD ROSE ENTERTAINMENT, L.L.C.,

In Pavone v. Kirke, the parties entered into an agreement in which Pavone and his company, Signature Management Group, LLC, would provide consulting services in obtaining gaming licenses and casino management services to defendants. In applications to the Iowa Racing and Gaming Commission (IRGC), it was stated that Signature Management Group would manage casinos for the defendants. Over time, the parties renegotiated their agreement and defendants hired an operations consultant. The relationship fell apart and disagreements ensued about management fees stated in the agreement versus those offered by the operations consultant. After the IRGC was informed of the breakdown in negotiations, it awarded a gaming license to defendants. Defendants then terminated their agreement with Signature Management Group and agreed to work with the operations consultant. Pavone sued, and a jury found the defendants breached the original agreement pertaining to the management agreement between the parties and a first look option and good faith negotiation obligation for future opportunities, and awarded $10 million to Pavone. The Iowa Supreme Court reviews many business issues and lends insight into what can go wrong in dealings.

MARK PEAK, vs. ELLIS ADAMS and RACHEL ADAMS,

If the parties weren’t real people, this would almost be a comedy.

Mark Peak broke his leg while helping Ellis and Rachel Adams move furniture with a U-Haul truck. During the process, Peak sustained substantial damage to his leg and incurred $50,000 in medical bills. In negotiating settlement with U-Haul, Peak’s attorney received a “Release of All Claims” to be signed in exchange for U-Haul’s $20,000 settlement. Mistakenly, the release named U-Haul, U-Haul’s insurance company andEllis Adams as parties discharged. The mistake was not caught by Peak’s attorney nor Peak and the release was signed. The Adams’ insurance company then refused to pay on the grounds that Ellis Adams had been discharged in the signed release.

The plot twists and turns as the district court finds that the release was unambiguous, but the Iowa Court of Appeals reverses because of the surrounding circumstances and the parties’ intent in signing. In the final act, the Iowa Supreme Court states “enforcement [of the release] is governed by principles of contract law” and “it is well settled that failure to read a contract before signing it will not invalidate the contract.” “In the construction written contracts . . . the intent of the parties must control . . . [as] determined by what the contract itself says.” The court declined “[t]o allow a party to avoid a signed release based on a unilateral mistake,” and affirmed the district court’s judgment pertaining to Ellis Adams; however, the court reversed the district court’s judgment pertaining to Rachel Adams as she was unnamed in both the U-Haul rental agreement and the release signed by Peak.

After this chilling read . . .  you won’t sign without reading again.

Check back frequently for additional installments from the Iowa Supreme Court, and remember, light reading now may save you a trip to the litigator later.

-Christine Branstad

 

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Summer Reads For Businesses in Iowa

Summer Reading for business leaders often includes motivational books. Classics include:
Good to Great – Jim Collins

Getting to Yes – Roger Fisher and William Ury

How to Win Friends and Influence People – Dale Carnegie

If you read my blog, you are likely a family member or recognize the need to “brush up” on the law before your business is in trouble. With so many topics of interest for savvy business people to cover, I have developed my list of “Summer Reads for real Businesses in Iowa.”

Summer Reads for Businesses in Iowa:

Cyber Law: A Legal Arsenal for Online Business – Brett J. Trout

Cyber Law offers a guide to online business, including navigating pitfalls Cyber Law effectively translates “online geek” to “everyday business owner.” Unlike, the rest of my list, this book is actually fun to read.

The Human Resources Manual of a large organization or state agency.

You can get one from a business associate or buy an up to date version. As you read the manual, ask yourself why each provision is in the manual and if your business (no matter how small) may use some of those ideas.

Your own Human Resources manual.

Each business owner should be the expert in the business’s human resources manual. If you don’t understand it, talk with your lawyer about re-writing it. No business owner ever won a case by saying “I did not understand my own manual.”

The “standard” contracts used by your business.

If you don’t understand it, talk with your lawyer about re-writing it. No business owner ever won a case by saying “I did not understand my own contract.”

The actual regulations of your industry (and then the website that explains the regulations that you just read).

For this I recommend an iPad, Kindle or reader. State and federal regulations are free to the public and published in the Code of Federal Regulations (“CFR”). The US Government site provides a keyword search.

Some agencies provide websites with quick explanations of their regulations as well as FAQ pages. Additionally, many agencies publish updates on their websites, of which a complete listing is available here.

Iowa also publishes administrative regulations in the Iowa Administrative Code, available from the Iowa General Assembly’s website. Familiarizing oneself with these resources can not only consume numerous hours of free time, but also allow a quick answer to be found when issues do arise.

Iowa Supreme Court cases (just the business cases).

The Iowa Supreme Court regularly releases opinions which touch on business, as does the Iowa Court of Appeals. The Iowa Supreme Court and Iowa Court of Appeal opinions are well reasoned, concise, and usually enjoyable to read. More often than not I find my weekly review of recent opinions has bearing on a client’s matter or a personal interest. My next blog will be about recent Iowa Cases.

The Iowa UCC.

Iowa has adopted the Uniform Commercial Code (“UCC”), which governs myriad aspects of business, from creation of a contract (see Article 1) to sales of goods (see Article 2) to transactions involving security interests (see Article 9). The UCC is no light afternoon read. An entire law school course may only cover one Article of the UCC; though this should not dissuade you from reading it. Knowing the actual language of the law will help any business leader to ask the right questions when the next contract is negotiated.

Anything your tax advisor tells you to read.

Finally, a bit of a reminder that professionals are here to help you. Often, articles or other materials that are “suggested” for reading could end up saving a business (and any professionals employed by that business) time. Whether it is keeping receipts or ensuring a document is signed and notarized, advice from professionals is meant to aid a business. My advice is to take some time and read up on a topic which affects your business. Not only will you be more knowledgeable, you may just head off a “situation” before it arises, or prevent one from growing exponentially.

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The Gift That Keeps on Giving…Until Expirationby

This week, I spoke to merchants from the Historic East Village and answered questions about gift cards. Gift cards, or gift certificates, are subject to state and federal restrictions – some overlapping, some conflicting and some confusing.

Federal regulations are found primarily in the 2009 Credit Card Accountability Responsibility and Disclosure Act (“the Credit CARD Act”). This Act gives the Federal Reserve Board authority to govern business practices regarding credit cards, gift cards, pre-paid cards and the information consumers receive. The federal regulations are controlling unless a state enacts laws which provide greater protection for consumers.

“Can my business place expiration dates on gift certificates issued?” Yes. But federal regulations allow expiration dates as long as certain requirements are met. Requirements include:

  • allowing a purchasing consumer at least five years before expiration;
  • providing a toll free number or website where information about the card can be obtained;
  • providing information about replacing the card; and
  • informing of any fees charged against the balance and where information about the fees can be obtained.

In Iowa: Iowa law states that unredeemed gift card funds are considered abandoned after three years have lapsed since purchase or last use, compared with the five-year requirement in the federal regulations. The Federal Reserve Board chose to not preempt (overrule) state laws regarding abandonment of property which took effect before the federal five-year mandate. The board instead reserved the right to declare individual states’ laws preempted on a case-by-case basis. The board has not yet ruled on Iowa’s three-year abandonment law regarding unused gift cards, leaving open the possibility that a gift card issuer will have to turn over abandoned property to the state treasurer after three years, but honor gift cards for five.

“What are the reporting requirements after the three year period in Iowa?”

Iowa Code provides that a holder of presumed abandoned property is to file a report regarding the property with the state Treasurer. The code also provides that when filing the report, the property shall be paid or delivered to the treasurer.

“What if I give gift cards to a charity or an auction and receive no money for them?”

Federal regulations create exceptions for cards issued for ‘loyalty, award, or promotional purposes.’ For example, shorter expiration dates are allowed. Significantly, there must be a disclaimer on the face of the card or certificate stating it was issued for loyalty, award or promotional purposes to qualify for this exception.
If you are confused, the Federal Reserve Board has a guide to gift cards.

The Iowa Treasurer has a complete guide to reporting.

The Iowa Attorney General also has a guide.*
- Christine Branstad 

* Be careful. It appears that the Iowa Attorney General guide came out in 2007 and the most recent federal rules came out in 2010.

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Boring Blog

The UCC is only exciting when you are in a dispute. Read this boring blog and avoid the excitement.

Article 9 of the Iowa UCC (Iowa Code Section 554.9101 et seq.) governs the purchase and sale of goods and related secured interests. This blog will deal with protecting a business during an initial transaction. My next blog will deal with placing the public on notice of a security interest.

Bill’s Bakery Supplies is an equipment wholesaler.

Joe Smith is CEO (and sole employee) of Smith’s Confectionary Inc.

Smith purchases equipment from Bill’s. If Smith cannot pay, how can Bill’s recoup the unpaid balance?

Often, security agreements arise where an item is sold on account (six months same as cash) or a loan is received for the purchase of an item (bank loan for a car), and the purchaser is allowed to pay off the balance over a period of time. A seller may want to retain certain rights to the goods until paid in full.[1]

Smith pays 10 percent of the total price, signs the purchase agreement, and takes the equipment. Bill’s Bakery Supplies may be entitled to full payment on the account, but has it retained a security interest in the goods?

Likely no. In Iowa, an agreement to sell goods alone is not enough for a security interest to attach to the goods. Iowa Code Section 554.9203 provides that for a valid security agreement there must be:

(1) value given;

(2) a right in the collateral that the debtor can transfer to the secured party; and

(3) a signed security agreement with a description of the collateral or the collateral in  possession of the secured party.

This means Bill’s no longer has an interest in the goods sold and, essentially, has an unsecured open account.

If your business wishes to keep a secured interest after sale, create an agreement that:

(1)  specifies that a security interest is held by the seller;

(2)  is signed by the purchaser; and

(3)  includes a detailed description of the goods (e.g. serial number, make, and model).


[1] (Author’s Note: The UCC refers to a security agreement in this situation as a Purchase Money Security Interest, where the entity which gave the funds to the person to procure the good/s has a security interest in the goods as collateral.)

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Following Rules is Easier when you Write the Rulebook

My last blog was about dealing with “red tape” and following agency rules and regulations. Sometimes the most efficient way to deal with rules is to help write the rulebook.

 There are many ways to write the rules.

1)      Write to your legislator.

2)      Participate on a board or commission.

3)      Join a trade association that lobbies on your behalf.

4)      Lobby for yourself.

5)      Hire a lobbyist.

U.S. citizens have a first amendment right to petition their government. Corporations also have first amendment rights.  Many businesses exercise that right through lobbying.

Lobbyists are paid advocates who educate and persuade legislators. Most people assume lobbyists simply push for or against proposed legislation, but lobbyists may help draft proposed legislation or suggest amendments. Often, the lobbyist’s job is simply to make a bill “fit.” For example, if a proposed bill would heavily regulate balloon sales, the clown lobby may seek an exception for non-helium balloon animals.

Lobbyists may also put together research that would otherwise go unnoticed by legislators who have to address legislation on myriad issues.

A skilled lobbyist will:

  • Have rapport with lawmakers and know who will serve a key role in specific legislation.
  • Be proactive by heading off contrary or obstructionist legislation.
  • Keep clients informed of upcoming legislation and the associated rules.  
  • Maintain contact with legislators or members of the executive branch with influence over government agencies.
  • Develop relationships with other lobbyists for collaborative efforts and negotiation.

If you help write the book, it is less likely they will “throw the book at you.”

- Christine Branstad

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New Administration—->New Rules

 

The Iowa state seal.Image via Wikipedia

Despite the refrain of pundits, new administrations are not “same old same old.” New leaders come in with new ideas, new agency leaders, and plans to “make a difference.”

The most direct effects are felt at the agency / administration / department level (I will just use “agency” for the remainder of the blog). If your company has someone dedicated to the regulatory process, that person will get to know the new guard and review changes. If, like most small businesses, that job falls on you, take steps to recognize upcoming changes.

1)    Check the agency website every week until June.

2)    Call and find out if the agency sends out a newsletter. Get on the list.

3)    Call the lobbyist for your business association and ask to be in on the lobbyist’s newsletter.

4)    Check your association website regularly.

If you are tech-savvy, get the appropriate RSS feeds. If you are not, ask a teenager to help you.

Most agencies want you to be in compliance and want things to move smoothly. Find a liaison who will help ensure that you have the appropriate information to be in compliance.

My next blog will focus on proactive steps you may take regarding the laws/rules before you become ensnarled in red tape.

- Christine Branstad

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Eminent Domain and Condemnation: Taking a Bone from a Dog

My property professor described ownership as “how a dog feels about his bone.”* Your ownership can be taken away by the government to discharge its functions, including: appropriating resources for military service, turning swaths of private property into streets, or even giving to another business (if it qualifies as a public use). This is the power of ‘eminent domain’ and it occurs at municipal, county, state, and federal levels.

There are many debates about that power and how it is used.

The relativity of ownership is a result of governmental limitation on its own sovereignty. The Fifth Amendment to the U.S. Constitution reads, “…nor shall private property be taken for public use, without just compensation.” The Fifth Amendment, therefore, limits the power to taking private property for public use. The exercise of this power is called condemnation. This blog only addresses condemnation for public use. Condemnation for public safety includes the act of declaring a building uninhabitable, a corollary use of eminent domain.

What does this mean to the average Iowa citizen or business owner? There you are, minding your business [of making widgets/developing software/cooking pork tenderloins]. You receive notice that the city is going to acquire your property to build [a park/a road/an electric substation/an area for a large business]. You are outraged. What can you do?

The taking of private property must be for “public purposes which are reasonable and necessary as an incident to the powers and duties conferred upon” the city or county in most cases. If the government’s justification is shaky, you may challenge the condemnation. An experienced property attorney will make sure that the condemning entity has legislative authority, that the proposed conversion of your property to public use is for a valid purpose, that no more property is taken than necessary, and that the effect of the taking does not diminish the value of your remaining property.

Then, you may seek just compensation, including a fair relocation benefit. In Iowa, the condemning authority must offer to buy the property for fair market value and must make a good faith effort to negotiate. While the purchase and closure or relocation of your business is a tremendous hassle, it can also be a financial boon to your business. In many cases, established businesses find they are given an unexpected opportunity to receive a publicly-financed relocation, a better location, a newer facility, and/or a cashout of a good lease rate. In the best cases, businesses expand, sometimes in conjunction with economic development incentives if they qualify. Some find that this alleviates questions about how to cash out and retire.

If you cannot agree with the government on a buyout amount, you may hire an attorney and an appraiser and duke it out in front of the county compensation commission. If you have been low-balled by the government, a good result from the commission can even get your fees and costs paid (if the award given is at least 110% of the final offer made by the condemning authority).

Even if you find that you are just a dog and your property is just another bone . . . get your bite in.

-          Christine Branstad

www.kreamerlaw.com

* He credited former law student Roxanne Conlin with that colloquial definition.

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Use Your Email ‘Draft’ Folder

It is better to write nothing than to be wrong.

As I started to post my blog today (at deadline), I checked a source and found an error.

This reminded me why I usually hold blog drafts a week before final edits. Quick work is often inaccurate.

Electronic media encourages hasty writing. Employer/employee communication may incorrectly reflect terms. Buyer/seller communication may misstate conditions. When one party fires off an email agreeing to an untenable term, that email is later labeled “Plaintiff’s Exhibit 1.”

If you are not positive that your words will help the situation (and reflect the truth), write nothing.

It is acceptable to write “I need to reflect on this matter. I will respond soon.”

www.kreamerlaw.com

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Practices that Supplement Contracts

How Many in a Baker’s Dozen?

Industry practices and specific relationships may create unwritten contractual terms that bind the parties. This blog has more legal analysis than usual, but read on. Really.

Iowa’s Uniform Commercial Code (UCC) governs transactions in goods. Iowa’s UCC section 554.1303 addresses three principles that may supplement or amend contracts:

* course of performance,
* course of dealing, and
* usage of trade.

Course of Performance: This addresses conduct between the parties in a current contract when:

(a) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(b) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. To better understand Course of Performance read ABC Metals & Recycling Co., Inc. v. Highland Computer Forms Inc. which is a case involving claims about amounts paid for paper. A contract provision provided the price for the paper was on a particular website. After the contract was formed, the website shut down, but the information became available on another website. The second site was used by both parties. The five year use of the second website became a determining Course of Performance.

Course of Dealing: Your prior dealings with a party may create a Course of Dealing, which is an understanding that becomes part of a future contract, even if not specifically stated. To better understand Course of Dealing read St. Ansgar Mills Inc. v. Streit which is a case involving a hog farmer who regularly ordered feed corn from the mill. The mill would either send order confirmations to Streit for signature, or hold the orders for Streit’s signature. Often, turnaround for signatures was a month or greater. The hog farmer called in two orders for future delivery of corn; the mill held the confirmations for a signature. When the farmer returned more than one month later, the price of corn had significantly dropped. The farmer refused to sign the order, stating that the written confirmation had not been delivered within a reasonable time. The Iowa Supreme Court considered prior orders showing Course of Dealing where significant time passed between oral purchase orders and delivery of written confirmations.

Usage of Trade: Some industries work with such similar goods that industry-wide standards and practices develop. To better understand Usage of Trade read C-Thru Container Corp. v. Midland Mfg. Co. which involves a contract between a manufacturer of bottles and a buyer. The manufacture asserted that the buyer did not order a sufficient amount. The buyer asserted that the manufacture did not provide samples to assure a suitable product. The Iowa Supreme Court found that the buyer was allowed to provide evidence of trade practice and could argue that the industry has a standard of providing samples prior to orders.

What does this mean for your business?

1) Know how other businesses handle similar contracts. (Especially if you are venturing into a new industry.)

2) If you want to deviate from a common business practice, get written agreement.

3) Define your business relationships in the same way that you define the actual terms of a contract, with attention to clarity.

www.kreamerlaw.com

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Avoid fighting even the little gorilla

In case you haven’t heard, YouTube won its case against Viacom, who sued for copyright infringement based on thousands of Viacom videos that were uploaded to YouTube.

Now that YouTube escaped liability for piracy, you may post ANYTHING you like on your website, right?

To put the answer in legal terms: no, no, No, NO.

The 1000-pound gorilla just defeated the 800-pound gorilla. (800-pound gorilla has vowed to appeal.)

Before drastically changing the content policy for your website, consult your Intellectual Property attorney. Copyright law is old but evolving. At this point it may be better to stay the course and heed trusted advice for your online business.

Now may be the wrong time to mess with the 800-pound gorilla who is looking for the fight it can win.

www.kreamerlaw.com

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