Hey Tech Startups! Ever Think About Basing Your Business In Estonia?

Estonia Tech Startup Deal
Is Estonia the right jurisdiction to register your online startup or business? They sure hope so.

Estonian officials want a few good netizens! The Baltic nation is offering official “e-Stonian” status — and a “dot es (.es)” domain — to foreigners willing to part with £ 40 (US $63). Criminals need not apply.

Why Do Estonian Officials Want Online Businesses To “Set Up Legal Shop” In Estonia?

Is Estonia’s push for e-migrants a Borg assimilation campaign? Will “all your everything” belong to Estonia if you take them up on their e-migration offer?

According to experts, all e-migrants are safe in e-Stonia. The country just wants to attract tech investors. And, these days, who doesn’t. Estonia’s just taking it one step further and advertising.

E-Stonia: It’s Worth A Look. No, Really.

Truth be told, Estonia’s offer may be downright attractive to many businesses. A digital-friendly nation, Estonian policies are decidedly 21st century. For example:

  • Estonia’s No-Prying Policy. “By law, the state may not ask for any piece of information more than once, people have the right to know what data are held on them and all government databases must be compatible, a system known as the X-road.”
  • Digital Taxes. Estonia has an e-tax system that “takes less than an hour to file, and refunds are paid within 48 hours.”
  • Wired Woodlands. That’s right, accessing WIFI in Estonia’s vast forests is not a problem.
  • E-Everything. Estonians are so proud of their technological prowess that they sometimes refer to their nation as e-Stonia. Everything is “e” in Estonia. e-elections, e-taxes, e-police (maybe I was wrong about the borg thing!?), e-healthcare, e-banking, and e-school.

(Besides, Estonians seem pretty chill.)

What you get as a business with Estonia e-migrant status:

  • Estonia Bank Account
  • Ability To Sign Documents Under That Country’s Laws
  • Ability to Launch and Manage Estonian-Based Businesses From Abroad
  • Ability to Encrypt Files

What You Won’t Get With An Estonian E-Migrant Card:

  • Full Legal Residency
  • Permanent Right of Entry
  • Full Citizenship

Think Estonian e-migrant status may be beneficial for your startup? Get in touch with Kelly / Warner to explore your options.

Startup Operating Agreements: Everything You Need To Know In 5 Minutes

A startup operating agreement is an intrical part of your startup's master plan.
A startup operating agreement is an integral part of your startup’s master plan.
Image credit: nexusplexus / 123RF Stock Photo

You’ve got a startup, and you’re looking to make it legit. If you’re serious about doing things the right way, the first thing to do is get an operating agreement. The free startup operating agreements you find online are sometimes inaccurate or don’t do a great job of protecting entrepreneurs’ interests. If you do use a free startup operating agreement, you may find yourself beholden to archaic default business operation laws. So, the best thing to do – and no, I’m not just saying this because I’m a startup business lawyer (well, maybe a little) – is to find a startup business lawyer who can draft a rock-solid operating agreement that protects your interests as far as the law allows.

What should be in a startup operating agreement? Let’s break it down.

What is the purpose of an operating agreement?

Startup operating agreements are meant to protect the people creating the business. That could be just you or a group of people entering into a partnership. If done correctly, an operating agreement decreases participants’ personal liability and in many circumstances can mitigate a lot of legal red tape.

Also, technically speaking, if you don’t have an operating agreement, you don’t have a legal LLC. Without an official document delineating your business as an entity separate from yourself, all liability falls onto your shoulders. That new condo you just bought? With an operating agreement, you could find yourself kissing it goodbye.

Once an operating agreement is signed by all parties it is the guiding doc of the company and binds signatories to its terms.

Another reason to have an operating agreement: If you don’t have one, when conflicts arise, the state “default rules” take effect – and state rules are often very unfriendly.

What types of issues are usually addressed in a Startup Operating Agreement?

The typical operating agreements outlines understandings and procedures related to finances, business procedures, operating structures and ownership percentages, Ownership percentages, Voting rights, Individual responsibilities, Powers and duties, Profit distribution, Loss distribution, Meeting schedule, Dissolutionshment plans, Buyout stipulations and Buy-sell rules.

I don’t need a startup operating agreement. Me and my partners are thicker than thieves and can work through anything without an official document?

Do not let yourself fall into the, “but me and my business partners are BFFs” trap. So many people do, and so many people get screwed. It doesn’t matter if you are starting a business with your grandmother; make sure you have an operating agreement in place. It will save you all sorts of headaches in the future.

How long is a typical operating agreement and how much would it cost me to have a lawyer draft one?

A startup operating agreement can be anywhere between 1 and 1,000 pages. The length depends on the size of your business, the plan and your industry.

Do any states require startups to have an operating agreement?

The federal government and every state government strongly urge every startup to have an operating agreement, but only two states require one – New York and Missouri.

Do you have any parting advice about operating agreements for online startup companies?

The Small Business Administration strongly suggests keeping operating agreement confidential.

The Small Business Administration strongly advises to keep operating agreements confidential. Why? Because they can contain a whole lot of personal information. Now, of course every entity a party to the agreement should understand its parameters, but it’s not something to go shouting off at the mouth about at say, a Scientology recruitment seminar or amongst strangers.


For a more detailed overview of startup operating agreements, head to the Small Business Administration’s website, SBA.gov – US Small Business Administration. If you need an attorney to draft a startup operating agreement, get in touch with Kelly Warner Law today.

Class Action Lawsuits: Overview and Marketing Cases

marketing class action lawsuits
Marketing Class Action Lawsuits – History, Summary and Case Studies

Class Action Lawsuits Part I: History

History of Class Action Litigation

Class action litigation dates all the way back to medieval England. Thanks to treacherous roads and equine-powered vehicles, it was difficult for Kings, Queens and henchmen to travel from one village to village dispensing justice. As such, dealing with legal conflicts en masse became the norm.

But things eventually improved in jolly old England. Roads became less death-trapy; horse-and-buggy technology blew up; travel became safer and smoother. The improvements affected politics, culture and justice, not the least of which was a shift from group to individual litigation. By 1850, the UK Parliament had enacted several statutes which lessened the effectiveness of group litigation. But at around the same time in the United States, group litigation lived on, albeit oddly, thanks to Supreme Court Justice, Joseph Story.

Class Action Law in the United States

Equity Rule 48 is the modern-day legal seed of class action litigation in the United States. Back in the day, though, 48 was largely ineffective because it didn’t allow “suits to bind similarly situated absent parties.”

Over time, Equity Rule 48 effectively became Equity Rule 38.

In 1966, class action litigation underwent another major change in the United States. The opt-out process became standard and Equity Rule 38 became Rule 23 of the Federal Rules of Civil Procedure.

Today, Class action laws in the U.S. are defined in Rule 23 of the Federal Rules of Civil Procedure and Title 28, section 1332(d) of the annotated United States Code.

For several decades, the 1966 standard remained the status quo for class action litigation. Things changed in the 1990s, however, when the Supreme Court of the United States made clear their preference for bilateral arbitration over class action litigation. Capitalizing on SCOTUS’ sentiments, in 1999, a national arbitration advocacy association launched a campaign encouraging businesses to include “collective action waivers” — which force consumers and partners to waive class action rights — in all contracts.

Class Actions as an Alternative to Government Finance Regulation

America loves capitalism. Some folks dig it so much they criticize even the smallest government intervention in financial markets. Back in 1941, two such well-known, free marketing believers  — Harry Kalven, Jr. and Maurice Rosenfeld — promoted the idea that class action litigation could replace “direct government regulation” in the market.  It never worked out to the extent the pair hoped.

Class Action Lawsuits Part II: The Anatomy of A Class Action Claim

We’ve discussed the history of class action law, from its beginnings in Medieval England to its current form under U.S. statutes. Now let’s look at the administrative aspects and legal elements of a class action lawsuit.

Jurisdiction and Class Action Lawsuits

In terms of jurisdictional variations, most state class action provisions look a lot like federal ones; but, inter-state differences do exist. For example: California allows for four different types of class actions; Virginia doesn’t allow for any class action suits; New York limits the types of cases that can be brought via the class action process.

Federal Class Action Eligibility

Class actions can be filed in federal court if the prevailing issue is a matter of federal law. As always, federal district courts have jurisdiction over any civil action where the ask amount exceeds $75,000. As such, with regards to class action law, a case can be presented in federal court if the ask amount exceeds 75K and a member of the class is from a different state or country than the defendant.

State Class Action Eligibility

Class actions can also be brought under state law. Common wisdom says federal courts are more favorable to defendants, while plaintiffs tend to fare better in state courts. As such, defendants often try to get class action cases moved to federal court.

The Class Action Fairness Act of 2005

In 2005, federal officials passed the Class Action Fairness Act (U.S.C. Sections 1332(d), 1453 and 1711-1715). A statute meant to modernize class action litigation, the law increased federal jurisdiction over class and mass action lawsuits. It also directed courts to better scrutinize the efficacy of settlements.

Like most federal statutes, The Class Action Fairness Act had its supporters and detractors. The “yay” vote appreciates the reduction of “forum shopping” that the bill makes possible. The “nay” group thinks the Class Action Fairness Act does not bring balance, but instead makes it harder to bring class action lawsuits — and therefore benefits large corporations over average citizens.

The Basic Timeline of a Class Action Lawsuit

You may be thinking: how does a class action lawsuit actually play out? Here’s a rough timeline for a typical class action case:

  1. Finding and Filing a Case: Sometimes a plaintiff approaches a law firm about a potential class action lawsuit. Other times, a law firm approaches a potential client about being a named/lead plaintiff on a case.
  2. Certification: Once the case is filed, it needs to be certified as a class action lawsuit. Specifically, the parameters of the class need to be drawn, and a judge must determine if the case qualifies for group litigation. Discovery may be necessary during the class certification process.
  3. Let the Objections Begin: Once the class is certified, the defendants can voice their objections. Common arguments during this stage include:
    • Objection to the validity and feasibility of a class action to resolve the particular legal conflict at hand;
    • The appropriateness of the named plaintiff as a representative of the group;
    • The preparedness of the law firm representing the plaintiffs; and
    • The soundness of using class action litigation to rectify the legal questions at hand.
  4. Hear Ye, Hear Ye: Once objections have been made, dealt with, and the class is certified, it’s time for broadcasts. After all, you can’t very well have a class action lawsuit without a sizable class of potentially damaged class members. The first announcement announces the class and usually gives instructions on how potential members can opt out. Why would anybody want to opt out? In most cases, because an individual wants to pursue his or her own legal action against the defendant(s). If the named plaintiff, defendants and attorneys can hammer out a settlement before the case is heard by a judge or jury, a settlement notice must also be published to the public.
  5. Kumbaya Achieved: If a settlement is immediately proposed, accepted and approved, then the class action is essentially over and the parties execute their portion of the settlement agreement. In these instances, the class members can collect whatever reward at his point. If a settlement is not proposed, accepted and approved, the case may go to trial – which could take years. Eventually, a decision will be made, and the resulting orders will be carried out as prescribed by the outcome of the case.

CAN’T Principle: The Four Pillars Of A Class Action Claim

When describing class action lawsuits, the acronym “CAN’T” is used to outline the necessary aspects of a class action lawsuit.

Commonality: In order for a class action lawsuit to move forward, the members of a given class must have the same legal issue with the same set of defendants. Moreover, the common issue must usurp any singular issues an individual class member may have with the defendant(s).

Adequacy: A certified class largely depends on the preparedness of the plaintiffs’ law firm. The courts won’t let just any attorney handle a class action case, as group litigation requires significant resources and knowledge of class action proceedings. Same goes for the other side.

Numerosity: Size matters in class action lawsuits. For a case to be green lit, the number of people in the class must be large enough that litigating each case separately would be unreasonable.

Typicality: Like any lawsuit, class action cases must use laws and arguments relevant to the issue(s) at hand.

Advantages of a Class Action Lawsuit

All legal remedies have their pros and cons. Part of effective lawyering is deciding which legal avenue best serves a given situation. So let’s take a quick look at the advantages of a class action lawsuit.

A class action lawsuit:

  1. Can increase efficiency of legal process;
  2. Can lower litigation costs;
  3. Can Eliminate redundant trials;
  4. The structure of a class action creates a worthwhile opportunity to hold a company accountable;
  5. Disallows early-filing plaintiffs from “raiding the fund” in “limited fund” cases;
  6. Can mitigate legal confusion, as there is less opportunity for “incompatible standards”.

Disadvantages of Class Action Lawsuits

We covered the good aspects of class action lawsuits; now let’s get to the bad side of class action litigation.

  1. In certain circumstances, class actions have the potential to harm class members with legitimate claims;
  2. Class actions have the potential to adversely affect interstate commerce;
  3. Have the potential to undermine the public’s respect for the judicial system;
  4. The notification system is often confusing and inefficient;
  5. If the stars are aligned, participants in competing cases can orchestrate collusive settlement discussions.

Class Action Lawsuits Part III: Marketing Class Action Lawsuit Briefs

SunRun Class Action Lawsuit

In January 2013, California resident Shawn Reed filed a lawsuit against SunRun, a solar panel company. Reed alleged deceptive marketing, citing inaccurate information conveyed to him by both the company’s marketing materials and a sales representative. Specifically, Reed “understood from SunRun that increases in electricity prices would result in the cost advantage of the SunRun system.”

Reed was skeptical of the claims and researched the issue. His findings did mesh with SunRun’s. Specifically, Reed concluded that while electricity rates were on the rise, they were increasing at the rate SunRun said.

But the discrepancy in electricity rates was the only problem Reed had with SunRun. He also took issue with the termination clause in the contract that said consumers could cancel without penalty if they move; yet, further down the contract, it says customers must pay the remainder of the lease if the contract is terminated. The contradiction bothered Reed because, in his opinion, it was “unnecessarily confusing to the average consumer” and “likely to deceive” customers. Firm in his convictions, Reed decided to launch a lawsuit.

In their defense, SunRun argued that the company was not “intentionally deceptive” – a requirement for a successful false advertising action.

Reed won the first round and a judge certified his proposed class: anyone who entered into a contract with SunRun before February 2012.

The case is currently ongoing. Reed v. SunRun Inc., Case No. BC498002, California Superior, County of Los Angeles

Kodak Class Action

Over the years, several printer companies have found themselves in the middle of class action lawsuits. Kodak is one such business.

To summarise the conflict, consumers realized that printing black and white documents used up a significant amount of color ink. The excess ink translated into extra costs for the consumer. As a result, affected parties launched a class action, with lead plaintiff, Daniela Apostol.

The process started in Sept 2011. The plaintiffs alleged violations of the Consumers Legal Remedies Act and unfair competition laws, in addition to false advertising and unjust enrichment. The lawsuit states: “Kodak represents that its 10B black inkjet print cartridges will yield approximately 425 pages, but Kodak does not advertise that to print 425 pages of black text and graphics, a significant and a substantial amount of colour will also be used…”

The proposed member class is anyone in the United States who owns a Kodak color inkjet printer and has printed black text or images using that printer between January 26, 2010 and September 23, 2011. At the time of this writing, a settlement or decision has yet to be rendered.

HP and Epson are facing similar lawsuits.

Webloyalty Class Action Case

The Webloyalty class action lawsuit deals with unauthorized credit card charges. Plaintiffs in the case allege deceptive Internet marketing and selling strategies.

The case began in 2006. Webloyalty was running a fee-based travel membership club called “Reservation Rewards” that supposedly conferred discounts on participants. The problem, according to plaintiffs, was that Webloyalty enrolled people without their knowledge. Additionally, according to reports, the company wouldn’t honor cancellation requests and unlawfully obtained consumers’ billing information.

A judge certified the class membership and ultimately the class won. The order allowed affected parties to recover up to 100% of unauthorized charges for enrollment in any Webloyalty membership programs. In addition, Webloyalty had to make significant changes to its disclosures and post-enrollment notifications. The court’s order went into effect on august 14, 2009.

Target Class Action

The Target screen-reader class action serves as a good reminder to ensure your e-commerce sites are properly accessible.

In 2006, Bruce Sexton, Jr. – a blind student at the University at California-Berkeley – in association with the National Federation of the Blind – filed a lawsuit against Target stores because the company’s corporate website used image maps and was, therefore, inaccessible to blind people, thus violating the American’s with Disabilities Act. In addition, the plaintiffs argued violations of California’s Unruh Civil Rights Act and the California Disabled Persons Act. The addition of the California-specific claims gave plaintiffs more wiggle room. If the case didn’t fly on the federal level, it had a shot on the state level.

A California court certified the class as “all blind internet users throughout the United States who have tried without success to access Target’s website.” The judge also certified a second class: blind Californians who have tried without success to access Target.com.

When the Target caught wind of the class action, it acted quickly to change its site. But it was too late. The case moved forward. In the end, the plaintiffs won.

Other cases like this have been tried before, with different results. For example, Southwest Airlines won a similar action because the court determined that the ADA applies only to physical spaces, not websites.

Payment Card Interchange Fee Merchant Discount Antitrust Litigation

A 2005 class action lawsuit examined the possibility of price fixing and other anti-competitive practices in the credit card industry. A complex case, it lasted over 7 years and is still ongoing. And it not wonder this class action is moving at a snail’s pace; Visa, Mastercard and most of the large credit-card issuing banks like JPMorgan Chase, BOA, CitiBank, Wells Fargo and Capital One are involved.

So what is the central issue of this seemingly never-ending case? The plaintiffs contend the defendants (credit card companies and other financial institutions) conspired to fix swipe fees for credit and other types of money cards. The plaintiffs argue that doing such hindered their ability to promote alternative payment methods (cash, checks, lower-cost cards).

After considerable litigation, attorneys for the two sides struck a deal: the card companies would reduce the swipe fee charges by 0.1% for 8 months. The reduction would translate to a $7.25 billion settlement if all class members accepted. In addition, the settlement draft gave vendors permission to pass the cost to consumers by charging a fee to buyers as a way to recoup swipe fees. Many of the larger retailers, like Target and Walmart, however, opted not to implement the consumer surcharges, fearing a PR backlash.

Though, after reviewing the settlement offer, the National Association of Convenience Stores and the National Retail Federation came out against the deal. One of the main complaints is that consumers, not the stores, end up paying the price under the proposed settlement.

Several larger retailers (Walgreens, Kroger and Safeway) reached a separate agreement with the defendants regarding this matter.

Lane v. Facebook Class Action

Perhaps one of the bigger class actions involving an online company, Lane v. Facebook deals with Internet privacy and social media advertising.

It all began in December 2007. Facebook unleashed Beacon – an advertising plugin deployed on all user accounts without any warning. A disaster from day one, Beacon broadcasted purchases to users’ contact lists. Unfortunately for X Lane, his purchase of an engagement ring was blasted to his girlfriend, who was on his contact list. Needless to say, Beacon effectively ruined the surprise. Many other people were similarly betrayed by Beacon, and within ten days of launching, Moveon.org had gathered over 50,000 signatures from Facebook users.

Within days, Facebook terminated Beacon, but the damage was done. In short order, Lane fronted a class action lawsuit against the social networking company. The certified class was “all Facebook users that had been affected by this service and used it without their knowledge between November and December 2007.”

In the end, the court sided with the class. The ruling, however, proved controversial because people felt Facebook wasn’t sufficiently punished. The social media monster was ordered to put $9.5 million towards a privacy and security research project – a project from which Facebook arguably benefited. The lawyers in the case were handsomely rewarded, but the users got zilch. Moreover, critics questioned the validity of letting Facebook have a seat on the board of the non-profit that was funded by the 9.5 million punishment.

Specifically, the plaintiffs alleged violations of the Electronic Communications Privacy Act, Video Privacy protection Act, California Consumer Legal Remedies Act, California Computer Crime Law and Computer Fraud and Abuse Act.

Swift v. Zynga

In 2009, an important online advertising class action lawsuit took form. Zynga, a developer of online games like Farmville, Mafia wars, YoVille! and ZyngaPoker, began to run ads on Facebook. Since many of their games use various types of virtual currency, oftentimes, Zynga ads would promote an offer to earn game currency.

But according to Rebecca Swift, an avid Zynga player, the gaming company was not playing fair when it came to their advertising. When Swift provided her cell phone number in response to an ad she saw on Facebook offering YoVille! cash, she was charged $9.99 without her knowledge or consent. In the same year, Swift also signed up for another Zynga-related offer for “risk-free Green Tea Purity Trial.” As Swift understood the deal, she would receive YoCash in exchange for participating in a risk-free trial. According to the ad, she could cancel in 15 days without penalty. So Swift gave her debit card information and agreed to a shipping and handling charge. After she received the Green Tea and pills, 10 days in, she sent an email asking to cancel her subscription.

But apparently her attempt to cancel the membership didn’t work. On July 4, Swift got a message that said she would be charged $79.95 for the package of teas and pills. The notification did not include contact information for someone she could talk to about her cancellation. On July 6th, Swift was billed $79.95, in addition to a foreign transaction fee. On July 20th, without warning, she was once again billed $79.95, for a total of 176.56.

Virtual currency is metered out in their games and offers run by partner Adknowledge.

In November 2009, a class action lawsuit launched against Zynga, Zynga’s partner Adknowledge and Facebook. Swift was the lead plaintiff. The suit alleged violations of the unfair competition law and consumer legal remedies act plus unjust enrichment. According to the claim, the defendants purposefully created and distributed “highly misleading ads.” When word of the lawsuit broke, the peanut gallery opined that Facebook and Zynga probably would enjoy immunity. Swift took notice of the criticisms and removed the two companies from the suit, but without prejudice, so, if need be, they could be re-added.

While Swift and company were busy planning their strategies, Zynga and Adknowledge separately tried to get the case dismissed on CDA Section 230 grounds, but the courts denied the requests, evoking the Roomates.com ruling. Ultimately the judges considering CDA applicability determined that Swift’s allegations could support the conclusion that Adknowledge was responsible for creating or developing the content at issue and Zynga further contributed to their development by specifying the design, layout, and format of the offers.

When the judges dismissed the motions to dismiss, legal watchers noted that the decisions marked a departure from accepted case law and could mean that websites are not as insulated from action as previously thought.

In the end, despite pulling all its “offer” based advertising in 2009, Zynga promptly reinstated the practice in 2010.

Litigation is still ongoing in the case.

Fraley, et al. v. Facebook, Inc., et al class action

Another class action lawsuit out of California, Fraley, et al. v. Facebook, Inc. is another Internet marketing law-related class action suit. The case dealt with the alleged “misappropriation” of Facebook users’ names and likeness in “sponsored story” advertisements. Plaintiffs first filed the case in March 2011 and Judge Lucy H. Koh presided.

Judge Koh eventually granted Facebook’s motion, but only in part; the plaintiffs were allowed to continue. Miraculously, however, in May 2012, right before the certification hearing and just after Facebook went public, the two parties reached a settlement in which 10 non-profits would get $10 million to establish a privacy and online advertising research project. Facebook also agreed that users could have more control over their appearances in advertisements.

Interestingly, Koh recused herself from the case one day before the settlement was scheduled to be heard and was replaced by Richard G. Seeborg. He ultimately denied settlement. Seeborg took issue with the “propriety of a settlement that provides no monetary relief directly to class members.” He also didn’t understand how the parties arrived at the $10M figure. Moreover, the “clear sailing” proposal that would allow plaintiff attorneys to collect $10M from court unopposed didn’t sit well with Seeborg.

Upon the judge’s rejection, lawyers went back to the drawing board. As the judge strongly suggested, they removed the “clear sailing” provision. In addition, lawyers beefed up the language involving minors’ ability to control their likeness in advertisements. By December 2012, the preliminary settlement was amended, approved, and the class membership defined as:

All persons in the United States who have or have had a Facebook account at any time and had their names, nicknames, pseudonyms, profile pictures, photographs, likenesses, or identities displayed in a Sponsored Story at any time on or before the date of entry of the Preliminary Approval Order.

Additionally, a Minor Subclass was defined as:

All persons in the Class who additionally have or have had a Facebook account at any time and had their names, nicknames, pseudonyms, profile pictures, photographs, likenesses, or identities displayed in a Sponsored Story, while under eighteen (18) years of age, or under any other applicable age of majority, at any time on or before the date of entry of the Preliminary Approval Order.

Recently, a proposed settlement called for a $20M fund. A fairness hearing related to the case was held in San Francisco on June 28, 2013. At the time of this writing, Seeborg is expected to approve the settlement soon.

Vroegh v. Eastman Kodak Company, et al Class Action

In 2004, Iconic camera brand, Eastman Kodak, got caught in a class action lawsuit. The size of the company’s flash memory drives and cards were at the heart of the legal conflict. Legally speaking, the company was charged with false advertising, unfair business practices, breach of contract, fraud and violations of the California Consumers Legal Remedy Act.”

One of the original defendants in the case settled separately and was dismissed from the case on March 15, 2005. At that point, Eastman Kodak became the first defendant. By 2006, all parties reached a settlement: class members would either get a 5% refund on their original purpose or get a 10% off coupon on other Eastman Kodak products.

Can A Business Enforce A Contract Defamation Clause In Customer Agreements?

contract defamation clausesIn 2010, Jen Palmer’s husband ordered her a “desk toy” from Klear Gear. It never arrived. Eventually, however, the Palmers got a refund. Nevertheless, they added a negative review to Klear Gear’s Ripoffreport page after not being able to connect with a customer service representative from the company.

After venting their feelings online, presumably the Palmers got back to their lives. Then, out of the blue, two years post-incident, the couple received an official letter in the mail. It was from Klear Gear, and the company was demanding that the Palmers pay $3,500 for violating a non-disparagement clause in the customer contract.

WHA!?!?! Yeah, that’s what the Palmers said, too. But sure enough, Klear Gear’s “buyer’s contract” prohibits customers from trashing the company “to ensure fair and honest public feedback and to prevent the publishing of libelous content in any form.”

A Customer Contract That Forbids Online Defamation

The agreement asserts that Klear Gear has “sole discretion” to determine what violates its defamation clause. Under the contract, consumers are given 72 hours to remove the material. If it remains, the negative reviewer is billed $3,500 for “legal and court fees until such complete costs are determined in litigation.” The letter goes on to state that if the bill is not paid in 30 days it would be passed on to a collection agency.

Are The Palmers In Trouble? Can A Company Legally Include A Defamation Clause In A Contract?

According to reports, the Palmers are in a pinch; both the $3,500 fine Klear Gear ask and the $2,000 Ripoffreport fee to remove bad reviews are beyond their bank account. So what’s a couple to do?

Actually, the Palmers are sitting pretty. Here’s why:

  1. The contract defamation clause on which Klear Gear is basing their claim was not a part of the agreement when Palmer made the purchase back in 2010. A business can’t retroactively enforce this provision.
  2. It is highly likely that a judge will deem the clause “unconscionable” and unenforceable.

Other Businesses Have Tried and Failed To Enforce Contract Defamation Clauses

This is not the first time a company has tried to stave off negative online press by way of a questionable contract . Last year, Medical Justice, a company specializing in doctor defamation protection, tried to institute a contract wherein patients relinquished all copyrights to their online reviews of a given doctor. The theory went that if a patient posted a negative review, then the doctor could simply claim copyright infringement and get the negative content removed via a DMCA take down request.

In the end, judges laughed Medical Justice’s contract out of court and the company no longer offers it.

RipOffReport Lawyer

Are you stuck in the middle of a Ripoffreport defamation battle? Do you need to speak with a Ripoffreport defamation lawyer? If so, contact Kelly Warner Law. We’ve handled a multitude of Ripoffreport defamation cases – for both claimants and defendants – and have a deep understanding of how the platform responds to issues of defamation.

JOBS Act: More Startup Opportunities?

jobsIn 2012, President Obama signed the JOBS Act into law. Dubbed the Jumpstart Our Business Startups Act, the statute intended to ignite America’s small business sector by democratizing the way companies can market investment opportunities.

JOBS Act Perk For Startups: Allows Startups To Crowdsource Initial Stock Investments

Over the past several years, crowdsourcing has taken off, but many rules still stand in the way of being able to crowdfund everything. The JOBS Act, however, removes some of the obstacles. Most notably, Title III of the Act removes various registration and investment requirements thereby paving the way for startups to sell stocks over the Internet.

JOBS Act Perk For Startups: Increases The Shareholder Reporting Threshold

Not only does the JOBS Act permit the online sale of startup stocks, but it also extends the financial reporting start date, from two years from business conception to five.

Additionally, in past, companies had to register with the SEC when their assets reached $10 M, and they had 500 shareholders. Once this section of the JOBS Act goes into effect, the shareholder number will increase to 500 “unaccredited” shareholders or 2,000 total shareholders.

JOBS Act Perk For Startups: Redefines Emerging Growth Company

The Jumpstart Our Business Startups Act also redefines the “emerging growth companies” category. Under the new rules, companies that gross less than $1 billion in the most recent fiscal year qualify as emerging. So why is it beneficial to be categorized as an EGC? They are exempt from certain filing disclosure requirements. Score.

JOBS Act Perk for Startups: More Marketing Freedom

Another great thing about the JOBS Act is that it lifts certain solicitation regulations. Specifically, it removes the ban on “general solicitation. As such, that means startups can approach different types of investors – perhaps most alluringly, small-time investors – which betters one’s chances of getting funded.

Is There Anything That The JOBS Act Prohibits?

All in all, the JOBS Act received widespread support in the tech sector. And, if all goes according to plan, it should open the door for a lot more startups. However, if you are planning on trying to build an investment fund via crowdfunding, think again. Officials decided that is not allowed.

JOBS Act Lawyer

If you have a company, or an idea for a startup, and want to speak with an attorney about the new business formation possibilities presented by the JOBS Act, get in touch. Kelly Warner has many tech sector and online companies as clients, and we keep on top of the latest Internet laws. We like to think of ourselves as the ideal law firm for startups – why not see if you agree and give us a ring today to start the chat.

Congress Clearing The Way for Startup Stock Selling, Online

online stock selling for startups
The SEC is making moves that will allow startups to sell investment opportunities on the Internet.

In short order, startups will be able to sell stocks online to so-called “small-time” investors. Yep, crowdfunding for securities is finally (almost) here. So, let’s go over the SEC’s recent proposal and give an overview of what online stock selling will look like.

What Law Made It Possible For Startups To Sell Stocks Online?

In an effort to get the economy back on track after it careened off the rails in 2008, officials passed the JOBS Act in 2012. The bill is comprised of several sections relating to various commercial sectors. Title III addresses issues related to crowdfunding businesses. Specifically, it allows inchoate companies to directly solicit investments for their businesses online.  In the language of the law, the online securities provision “permits companies to offer and sell securities through crowdfunding.”

The JOBS Act gives the Securities and Exchange Commission authority over certain aspects of online stock selling, and earlier in the month the commission unanimously voted to release their online security selling rules proposal for public comment.

What Are The Commissioners Suggesting? Here’s the rundown:

  1. If you make less than $100,000 a year, than you can invest either $2,000 or 5% of your income – whichever is more.
  2. If you make more than $100,000 a year, you can invest either $100,000 or 10% of your income – whichever is less.
  3. Companies soliciting investors must provide a business plan, in addition to the names of officers, directors and people who own at least 20% of the company, to potential purchasers.
  4. Startups are allowed to raise $1 million without registering with the Securities and Exchange Commission.

The above provisions will go a long way in helping smaller startups, which traditionally would have difficulty getting an audience with venture and angel capitalists, get off the ground. Moreover, the measures unburden the SEC of time consuming, process stalling paperwork.

What Are The Drawbacks Of The Proposed New Startup Crowdsourcing Rules?

The One Thing You Won’t Be Able To Do With Online Securities

If you’re thinking of starting an investment fund by way of the new rules, think again. Raising money with the JOBS Act provisions for online securities is not allowed. Sorry.

Bottom line: no law is perfect. So while Casandras may speak some truth when they warn of the fraud potential, it’s important to look at the positive potential. We, the People, have proved our affinity for crowdsourcing models. So why not allow innovators to tap in to the fundraising model?  As SEC Chairman Mary Jo White explained, “There is a great deal of excitement in the marketplace” over crowdfunding. We want this market to thrive, in a safe manner for investors.”

Get In Touch With A Lawyer Who Knows A Whole Lot About Tech and Online Startups

Are you launching a startup? Do you want to explore the possibilities of marketing and selling investment stocks through crowdsourcing? If so, get in touch. Kelly Warner is a full service, well-regarded law firm that focuses on the needs and realities of online and tech sector businesses. Email us, Twitter us, Facebook us, Skype us (aaronklaw) – we’re always around and ready to talk.

Finance Firm Says SEC Is Slander Happy, So It’s Suing. So Can You.

business law
A financial firm sued the SEC over a field exam. The finance firm says that SEC harassed investors and slandered the firm during an investigation.

Arjent LLC, a boutique finance firm with domestic and international outposts, is suing the Securities and Exchange Commission for harassment, slander, concealment of an investigation and deprivation of the right to counsel. Furthermore, the financial group claims that the SEC is unfairly targeting small firms as a PR strategy.

Why Is An Investment Banking Business Suing the Securities and Exchange Commission?

In 2011, the Securities and Exchange Commission (SEC) launched a routine field investigation into Arjent LLC. According to the lawsuit, the financial firm’s CEO, Robert P. Depalo, complied with all requests. Regardless, the SEC continued to hound Arjent for additional information.

Perhaps not wanting to re-live another Enron Chewco embarrassment, field investigators seemed particularly interested in three financial entities listed as “outside business activities” for several Arjent employees – Brookville Fund Managers, Brookville Special Purpose Fund LLC and Pangaea Trading Partners LLC. But, according to the claim, “despite Mr. DePalo’s good faith cooperation with the Voluntary request, SEC staff remained unsatisfied and intensified its examination.”

Then SEC staffers began to contact investors, and according to the plaintiff, in the course of doing so, “slanderously insinuated to investors that Mr. DePalo illegally withdrew investor funds from Pangaea Trading Partners LLC.” The claimant also avers that the SEC “purposefully concealed the existence of a Formal Order of Investigation (“FOI”) while interviewing Mr. DePalo.”

Weary of the investigation and what he felt was misconduct on the part of SEC examiners, DePalo opted to file a finance defamation lawsuit.

Are Smaller Finance Businesses Being Targeted?

Artfully, DePalo’s team used the lawsuit to raise speculation about the SEC’s motives when it comes to exam targets. Using straightforward language, Arjent’s attorneys suggest that the SEC is purposefully targeting finance firms with less than 1,000 employees. A lack of in-house legal staff, claims Arjent, is the SEC’s sneaky impetus for stalking the small.

Arjent’s attorneys suggest that the SEC is purposefully targeting finance firms with less than 1,000 employees. A lack of in-house legal staff, claims Arjent, is the SEC’s sneaky impetus for stalking the small.

Why would the SEC rather investigate finance firms without in-house legal? Because the department thinks they’ll have a better chance at winning, which will help burnish the allusion of “effective regulation” into the public consciousness.

What’s Next in This Business Defamation Lawsuit?

Undoubtedly, an army of federal lawyers – and perhaps private consultants – will attack this case. And as is the case with most everything government-related, red tape will play a prominent role. Expect it to last a long, long time.

Get In Touch With A Lawyer That You Can Keep On Speed-Dial In Case of Emergency

Kelly Warner handles all manners of business defamation lawsuits – small or big. Our philosophy is simple: keep it under the radar and get ‘er done. Because the more time you spend litigating, the less energy you have for profit generating. Beyond that, public dirty laundry is usually not a good look. The ideal law firm is one that gets the job done, and doesn’t use your case for their own marketing gain.

Contact us today to begin the confidential conversation.

Bilateral Arbitration v. Class Action

court room scene to represent bilateral arbitration v. class action lawsuit conceptLawsuits don’t rectify every legal dispute. For example, bilateral arbitration is also a popular conflict resolution solution used by many companies. Trouble can arise, however, when one party wants to handle things in court while their opposition advocates for bilateral arbitration.

The lawsuit versus arbitration conflict was at the center of American Express Co. v. Italian Colors Restaurants. In brief, the Plaintiffs, Italian Colors Restaurants, et al, wanted a judge to nullify a provision in the American Express vendor contract which stipulates arbitration as the sole avenue of resolving a legal dispute.

A noteworthy lawsuit, American Express v. Italian Colors raises two pertinent legal questions:

  1. Can an arbitration agreement be tossed out by a judge in favor of a class action lawsuit? If so, under what circumstances?
  2. What constitutes “effective vindication” when it comes to dismantling an arbitration resolution contract?

The U.S. Supreme Court has weighed in on the above questions, and it looks like strict enforcement of class action waivers is the decided law of the land. In addition, it appears that the high court has a narrow definition of “effective vindication.”

American Express Co. v. Italian Colors Restaurants Class Action Lawsuit

American Express Co. v. Italian Colors Restaurants (AmEx v. ICR) was fundamentally an antitrust dispute. ICR, along with other merchants, believed that AmEx was using “its monopoly power to force them to accept the company’s charge cards at merchant fees at approximately 30% higher than…competing cards, in violation of federal antitrust laws.” As such, many merchants banned together and tried to file a class action against the credit card behemoth. Their only problem: the AmEx contract, which all the potential class members signed, specifically stipulates that any legal disputes are to be settled via bilateral arbitration instead of a class action lawsuit.

Their only problem: the AmEx contract, which all the potential class members signed, specifically stipulated that any legal disputes are to be settled via bilateral arbitration instead of a class action lawsuit.

Instead of giving up, however, the class attempted to file. Members asked the courts to kill the bilateral arbitration clause. In addition, they argued that bilateral arbitration creates “prohibitive costs” and unfairly “immunizes” American Express from the Sherman Antitrust Act. Additionally, the class argued that bilateral arbitration should be jettisoned as a viable option because, in this case, bilateral arbitration:

  • takes a long time
  • is costly
  • creates unfair statute of limitation problems for members of the proposed class
  • removes disincentive for corporate abuse

On the other hand, Amex argued that arbitration, as a method for settling disputes, is more cost effective for small businesses and “less subject to abuse by frivolous or vengeful lawsuits” than class action cases.

What is Effective Vindication?

The idea of “effective vindication” was central to this case. What is it? Effective vindication is a sometimes applied legal concept that allows courts to waive arbitration clauses under certain circumstances. Typically, bilateral arbitration provisions are sometimes waived when individual claims would be so small that nobody would bother going through the hassle. In other words, who is going to take the time and money to sue someone for $20? As such, the theory goes, the possibly guilty party unfairly benefits by dint of an unintended logistics loophole.

Bilateral Arbitration v. Class Action: The Legal Arguments

The plaintiffs in the case argued that AmEx leveraged its “monopoly power” in the “premium and corporate” credit card markets to compel merchants to accept “ordinary” American Express credit cards at very high rates. The would-be class argued that the AmEx system is a clear-cut example of an unlawful “tying arraignment.”

What is a Tying Arraignment?

A tying arraignment is when a seller makes the buyer purchase one product in order to purchase a second product. It’s an arraignment that makes one product conditional on the other.

A district court first heard Italian Colors v. AmEx, and the ruling was in favor of Amex. Then, the Second Circuit Court of Appeals, convinced of the plaintiff’s “effective vindication” arguments, reversed the decision, ultimately reasoning that the matter of law at hand was a question for the courts, not arbitrators.

American Express made several arguments in their defense throughout this conflict:

  1. Arbitration costs less than class action lawsuits and, therefore, helps the national economy. Italian Colors and crew countered by arguing that the cost of individually arbitrating each of these cases is “financially irrational.”
  2. In a sly argument of logic, the defense reasoned that precedence and current statutes demand that court enforce arbitration agreements “unless congress itself” excludes a given term. And since, the defense argued, class action suits did exist when Congress passed the Federal Arbitration Act, then clearly Congress did intend to allow for class actions as an exemption to honoring arbitration agreements.
  3. To poke holes in the plaintiffs insistence that courts shouldn’t honor arbitration clauses when doing so would deny the affected parties “effective vindication,” Amex argued that the FAA does not intend to give de facto immunity to one party via arbitration.
  4. Amex argued that invalidating an agreement because it lacks a class arbitration clause is contradictory to the goals of the FAA.
  5.  Amex argued that prohibitive costs can only be calculated by looking at ‘”filing fees, arbitrators fees and other administrative fees imposed by the arbital forum that would not be required to sue in court.” As such, the plaintiffs did have enough of a claim to take action.
  6.  Amex ultimately contended that the effective vindication rule should apply when “substantive federal law” is violated, and this case merely deals with the process by which parties agreed to resolve disputes.

In the end, the Supreme Court of the United States ruled in favor of American Express in a 5-3 decision. So what does that ultimately mean, you ask? Bottom line: It exceptionally tough to dismantle a class action waiver in a contract.

Do you need assistance drafting a contract or other legal document? If yes, contact Kelly Warner Law today.

Arizona Benefit Corporations: A New Business Registration Category

Arizona Benefit Corporation Business Category
Arizona has a new type of business category — benefit corporation.

Is your startup equally interested in do-goodery and money? If yes, consider registering your company in Arizona, because Gov. Jan Brewer just signed Senate Bill 1238 into law. The legislation allows for a new business category in The Grand Canyon State – Benefit Corporations.

Arizona Benefit Corporations: Between Profit Corps. And Non-Profits

Arizona’s new business class is perfect for companies that want to be a positive force in their communities –social or environmental, big or small – while at the same time enjoying a healthy bottom line. In the simplest terms, the Arizona benefit corporation is a hybrid of a regular corporation and a charitable organization.

Tax Benefits Of An Arizona Benefits Corporation

Don’t, however, jump to conclusions and assume using the Arizona benefit corporation classification will save you money in taxes. In fact, on the face it won’t as the category is in the same tax bracket as a traditional corporation. That said, using the classification may put organizations in a favorable position for certain types of grants and endowments. So, what you may not save in taxes, you may gain via funding avenues traditionally slated for non-profits.

Other Characteristics of the Arizona Benefit Corporation

Other features of the Arizona benefit corporation business category:

  1. Companies that choose to register as a benefit corporation in Arizona must include an update on the group’s “public good initiatives” in their annual report.
  2. Arizona benefit corporations must consider how their operations impact the interests of customers, employees, community and investors. (In a traditional corporation, the investors’ interests are the primary concern.)

Arizona Is Pioneer Of This New Business Model

Arizona is one of the first states to adopt the benefit corporation business classification. B Lab, “a non-profit organization dedicated to using the power of business to solve social and environmental problems” is working nationally to promote the benefit corporation agenda. B Lab hopes that marrying the business world the charitable world will produce the greatest amount of good. They also believe the new benefit corporation business registration will help consumers to differentiate between good marketing and genuine good intentions.

Arizona Business Attorney For Startups & Established Businesses

If you want to learn more about the Arizona benefit corporation business registration, contact Kelly Warner Law. We handle business law, compliance, litigation and registration issues for startups and established businesses.

Business Liability for Employee Conduct – Negligent Employment

“Negligent employment” actions are based on conduct that may be more specifically described as negligent hiring, negligent supervision, and negligent retention. Courts and litigants often use these terms interchangeably. Technically, however, there is a difference among the three types of negligent employment, which is based on the length of employment.

In some jurisdictions, a claim of negligent hiring, supervision, or retention may not be cognizable in certain situations, requiring a plaintiff to assert an alternative cause of action. For example, Kansas law does not recognize a cause of action for negligent supervision, hiring, and training in the context of sexual harassment.

To establish a prima facie case in an action based on the negligent hiring, supervision, or retention of an employee for damages caused by an employee’s tortious act, the plaintiff must show that:

1. the employer had a duty to protect the plaintiff from harm resulting from its employment of the tortfeasor
2. the employer breached that duty and
3. the employer’s breach of duty was a proximate cause of the harm suffered by the plaintiff

Contact one of our experienced business litigation lawyers to help guide you through your questions concerning employee liability.