Archive for category litigation

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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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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Mediation in Business

Cropped portion of Abraham Lincoln Photograph,...Image via Wikipedia

Most of my business clients see mediation as the thing you do when you are almost at the end of litigation.

Mediation can be a cost-savings tool if used early when a dispute is still minor.

Times to use mediation early:

1) You have a good business relationship that you would like to save

2) You suspect the other party “doesn’t get it”

3) The other party says you “don’t get it”

4) The best solution involves something other than just money

A mediator may help you find resolution while you can still afford it. You may use mediation to resolve issues with suppliers, contractors, employee and customers.

Find a great mediator the same way you find a great lawyer:

a) Ask trusted advisors

b) Research credentials

c) Interview more than one and make comparisons

Getting to the solution may be easier if you have someone who specializes in facilitating calm meaningful negotiation. As Abraham Lincoln said, “Discourage litigation. Persuade your neighbors to compromise whenever you can.”

www.kreamerlaw.com


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Avoid litigators – Don’t Destroy That Document

My posts deal with avoiding litigation. My last post addressed the benefit of putting business dealings in writing. Once you put something in writing, the next logical determination is how long to save that document.

Business owners regularly tell me they keep records for seven years because it is “the law.” The magicBlog seven-year rule may be a tax guideline, but it is a business and legal myth.

Prior to going Enron on your corporate records, take a look at the IRS’s Starting a Business and Keeping Records. The Record-keeping section addresses records for taxes. To address concern about potential lawsuits, work with your attorney to design a record retention plan. Be sure the plan covers paper records and electronic data. Once you have a record retention (and destruction) plan, integrate that plan into your business processes.

What if you don’t follow the plan?

Under Iowa law [Iowa Civil Jury Instructions contain a model instruction] if a jury concludes you intentionally destroyed or failed to produce evidence, it can assume that evidence would have been unfavorable to you. The jury may see the missing evidence as the :”smoking gun.” A saved receipt may nail your case down; a prematurely destroyed receipt may become a nail in the coffin. Well kept records may be more productive than winning lawsuits; they may convince opposing parties not to sue you in the first place.

How do you devise and regularly apply a sound plan to avoid problems?

In Iowa, most oral contracts have a five-year statute of limitations [section 614.1] to enforce a contract (or to be sued for a breach). Depending on your business, you may wish to retain supporting documents for five years after the contract ends.

In Iowa, most written contracts have a 10-year statute of limitations [section 614.1]. Does your record retention plan keep the contract for 10 years after performance of the contract ends? How long do you keep record of payments made or received? Should you keep emails about the contract?

Under Iowa law, as a designer, manufacturer, distributor or seller of a product, can you be sued 10 or 20 years after production and multiple re-sales if the product causes damage? What are the time limits or Statutes of Repose [614.1(2A)] for such claims? What if your product is a Web-based application? How long must you keep the records of product testing? Of use? Was your product sold with warnings or safety devices, or for a Web-based application, was a warning included with installation or initialization? Do you have records that show your product was altered?

Although the questions are complex, setting consistent policy will make later involvement in litigation less likely or, at least, less painful.

Record retention is important. Failure can subject you to legal presumptions that could end your business. Find out the factors that affect your particular business. Implement a record retention and destruction policy. Put it in writing. Stick to it.

Or wait until you have a problem. Then come see me.

www.kreamerlaw.com

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