FRANKEN WINS - IT IS UNANIMOUS! Now, at last, Minnesota can get a Senator!

The Minnesota Supreme Court unanimously ruled that Franken received the most votes and won the election to be the next Senator of Minnesota. The Governor has stated that he will sign the election certificate as decided by the court, so Franken should be seated. For those of us that have watched this case with some interest, there was not much merit to Coleman's case. Arguing to the court that they should direct counties to count ballots in direct violation of Minnesota law is a real non-starter. That argument, and the problem that they had no evidence to support their allegations made this case almost absurd.

Had this been a normal civil case, the plaintiff would have likely been thrown out on a summary judgment. Minnesota should be proud that the system worked - it was slow but it worked. The system for challenging election results needs to be revised to allow a speeder process, but Minnesota was a shining example of how fair elections are in this country. This example is especially important when compared with the travesty we saw in Iran where there were several million more votes than voters

How Does the Court Interpret an Ambiguous Contract? The Art of Figuring Out What the Parties Intended. (Since they don't agree!)

When a contract is ambiguous - and to some extent all contracts are ambiguous or at least inconsistent - how does a court resolve a dispute? Sometimes a contract expresses inconsistent obligations, or - and I think more commonly - the issue is what the parties intended by the use of a particular term. But the ambiguity only rarely results in litigation. So what happens when the parties can't agree on the terms of the contract?

The law of contracts covers just such a situation. Contract interpretation is a question of law. That means that the court (judge) decides what the terms of the contract mean. Whether or not a party breached a contract is a question of fact - and that is the province of the fact finder: the jury - or the judge if there is a bench trial.I recently posted on this blog a comment about a case where the issue was what the parties meant by the term, "cohabit." The term "cohabit" does not in and of itself usually lead to confusion; in this case one party argued that "cohabit" meant that the parties living in the same residence must have a sexual relationship before the cohabit provision would apply.

Adams Drafting has a very interesting article about the use of experts when contract terms are ambiguous. Clearly an expert can not testify as to what the parties intended. But, an expert can testify as to the meaning of certain words or phrases. An expert can not testify as to whether a contract is ambiguous, but can testify as to the technical meaning of the language.

I think that Adams is correct. Some language is not ambiguous on its face. yet the parties could have very different interpretations of the contract: i.e. "cohabit."

Lying in Court and Greed Don't Pay!

The always entertaining Maxwell Kennerly has a post describing the results in two recent cases.In one, the jury clearly thought that the defendant was lying. In the second, the overreaching demand of the lawyer probably cost the plaintiff a lot of money.

Lawyers are charged with the duty to diligently pursue the interest of their clients. One thing a lawyer should never do is allow a client to lie. This is harder than you might think, since some clients have a tendency to shade the truth from the lawyer. In fact, they almost always bend the truth. Usually the lawyer will be able to work with the client and determine what really happened.

Many years ago I had a case where the client had a very consistent and compelling story about a business deal gone bad. The facts were fairly straight forward - I thought. When the trial started the client, to my surprise, testified to a completely different story. After a year and a half of one story - supported by other evidence - he completely changed his story when testifying at trial. Had he not changed his story I would never have known that his original tale was less than truthful.

Clients need to understand that not everything they did, or said, or wrote, will help their case. This is almost universally the case in any business litigation. Every case has problems. The challenge is to use the weak points in every case to show that your client is telling the truth - and should be believed.

Another problem for the lawyer is what to do with the client that has unrealistic expectations. The Plaintiff client believes (or hopes) that they are entitled to damages that are completely unsupported by the evidence. Arguing for excessive damages can have a real negative impact on the judge or jury listening to the case. Greed does not pay! Especially when the judge or jury perceives that the demand is not reasonably related to the actions.

The problem is that once in a while a jury awards a party clearly excessive damages. The award then becomes well publicized. (i.e. the McDonald coffee case.) These rare cases can change the expectations of a client. I recently tried a case - representing the defendant - where the plaintiff's claims were very questionable. The Plaintiff's counsel told me he wanted to throw the dice and try the case. His facts were weak, but the chance of succeeding was driving the plaintiff to try a case that otherwise would have settled.
 

How to Buy a Business - Ignore Problems at Your Peril!

Over the years I have been involved in several business purchases and sales. None have been really large, but the lesson of the small purchase is readily applicable to the large purchase.

When I was acting in-house counsel for a company, another company was interesting is purchasing a division. The division had a good cash flow - but it also had some interesting legal issues and claims that I was working to resolve. This was to be an asset sale. The buyer dutifully reviewed all the financial data, looked at the representations and warranties and agreed to purchase the business. What I found interesting is that the buyer never asked for permission to talk to me, or any other attorney representing the seller to find out what kind of legal problems were common, or recurring, and what was out there that could eventually create a problem for the on-going business. Even though this was an asset purchase, the buyer might want to know what issues were being created by past practices, or the way the business was managed. In an asset sale you usually - but not always - continue on with the same employees. It seems prudent to ask what issues those employees are creating that result in the requirement for a lawyer to get involved. Sometimes claims happen for no good reason or in spite of good management. However, many times claims are caused by questionable decisions by some level of management.

Many businesses do not have lawyers on staff, and never consult with a lawyer, which is an issue by its' self. In that case there is no one to answers the critical questions. But many business have at least a lawyer that they consult on occasion, or retain to help solve problems. When a buyer only looks at financial performance, it is missing a big part of the picture.

When representing a purchaser, why not ask for permission to talk to the business lawyers to find out what issues and problems they see - especially those that have a potential to recur. It seems to me that it would be a good idea to discover that a manager had taken actions that resulted in a lawsuit - or some other claim. Then you can meet with the manager to get the story - after the lawyer has given the buyer his analysis of the issue or claim.

In house lawyers have a unique view of the company. If they have been there awhile they usually know how to get things done, and who is a good manager and who is not. They will see the problems, take calls from the field and get involved in many areas of a company in a problem solving capacity. The lawyer will know which managers will charge ahead without regard to the lawyers comments, cautions or suggestions. Then the lawyer needs to solve the problems created. While lawyers are not alway good business people, many times that are, and their thoughts can be very helpful to a buyer of a business. As a lawyer I would require a written waiver from the seller, and written directions setting forth those areas and issues I can discuss with the potential buyer.

I realize that this puts the lawyer in a tough position, but if I am representing the buyer, this is an interview I want have. If a Seller does not want to grant access and full disclosure by the lawyers as it relates to the selling business, that alone would raise a lot of questions for me. If you are the buyer - it's your money and you might want to understand what you are buying.
 

Supreme Court Finds Judicial Bias by 5 to 4 Vote! The Strange Case of Caperton v. A.T. Massey Coal Co., Inc.

In a very unusual case, the Supreme court held that due process requires a judge that received a substantial campaign contribution (in this case $3 million) from a litigant, to recuse himself. In the present case, the judge in question voted to overruled a significant $50 million judgment against his contributor.

The troubling thing is that the Supreme Court's decision was 5 to 4 vote. It seems fairly obvious that someone making a campaign contribution of that magnitude should not be a party to an action in front of the judge that received the contribution. It doesn't pass the smell test. The Minority had their own take on the facts.  However, the argument that we might see more challenges the judges hearing cases is hardly a good argument to allow Judge Benjamin to sit on this case. 

The facts of this case are fairly straight forward:

In October 1998, Hugh Caperton filed suit against A.T. Massey Coal Co., Inc. (Massey) for tortious interference, fraudulent misrepresentation, and fraudulent concealment. A state trial court in West Virginia rendered judgment against Massey and found it liable for $50 million in damages.

The Supreme Court of Appeals of West Virginia granted review. However, prior to hearing, Mr. Caperton motioned for Justice Brent Benjamin to recuse himself. He argued that since Massey's C.E.O. had donated $3 million to Justice Benjamin's campaign to win a seat on the Supreme Court of Appeals, Justice Benjamin's participation would present a "constitutionally unacceptable appearance of impropriety." The motion was denied.

The WV Supreme Court of Appeals , in a 3-2 decision with Justice Benjamin voting in the majority, reversed the trial court and ordered it to dismiss the case. The denied another motion asking that Justice Benjamin to recuse himself. Thanks to law.com and OYEZ for the statement of the facts.

Judge Sotomayor is reported to have stated in a speech that,"We would never condone private gifts to judges about to decide a case implicating the gift-givers' interests, [but] our system of election financing permits extensive private, including corporate, financing of candidates' campaigns, raising again and again the question what the difference is between contributions and bribes."

So why did the more conservative members of the high court have trouble with this decision? How can we have "Justice for All" when one party is making large contributions to the judge? As a simple matter of justice, the non-contributing party should not be at a disadvantage. Without the vote of Justice Benjamin, the trial court decision would have be upheld. The $3 million contribution was inexpensive compared to saving $50 million owed pursuant to the judgment.

 

When a Corporation or LLC Does Not Protect the Owner (Shareholder) From Personal Liability!

I always enjoy reading the blog posts of Max Kennerly. His latest post concerns the misconception of some people that if they create an LLC (or corporation) to conduct their personal business, they are somehow exempt from personal liability. If it were only this easy, everyone would do it and we wouldn't need insurance.

I want to expand on the ideas presented by Max. Creating a corporate or LLC does create a limitation of liability for the owners for contracts entered into in the name of the company. The owners are usually agents of the company, and can enter into contracts on behalf of the company. (But not always.) Unless there is some agreement limiting authority, officers of any LLC can enter into contracts for the company. Sometimes owners claim that one owner didn't have the authority, but that is an issue between them, not the party that relied on the contract.


This concept is very different than trying to pierce the corporate veil and impose liability on the owners. The first problem is that piercing the corporate veil (of limited liability) is hard to do. If you succeed, great, but the case is much more complicated. On the other hand, naming an owner as the agent of the corporation, for the owners wrongful acts is a perfectly legitimate claim. An agent is liable for their own wrongful actions, even if they act in the name of the company. I've also seen people try to create trusts to try to avoid liability. That doesn't work either.

What happens when an owner enters into a contract in the name of the company, and then causes the company to breach the contract. Is the owner personally liable? (I am distinguishing this from the case where the owners tortiously injures someone.) Can the owner be personally liable for causing the LLC or corporation to breach its' obligations? Yes! The agent is, remember, liable for its own tortious acts. An agent is a third party - not a party to the contract. So the wrongful interference with the corporations obligations under a contract is tortious interference with the contract. So the agent owner can be personally liable for contracts as well as running people over with the corporate car.

This does not mean that every corporate or LLC owner is liable for every breach of contract of any company. The concept is limited to actions by the owner/agent that interfere with the companies performance in such a way as to show tortious interference. Most breach of contract actions are based on problems other than tortious interference. But the risk remains for the owner/agent, when they act wrongfully they can be personally responsible for the damages.


 

The Judge to Lose His Robes! We will See! A Case About What a Judge Should Never Do!

Several weeks ago I discussed the unfortunate situation where a judge accepted a large discount to the legal fees he owed for his divorce, and started referring cases to the lawyer that granted him the discount. A panel of the Minnesota Judicial Standards Board recommended that Judge Blakely be suspended for six months. I noted that it would be more appropriate to suspend him forever, since the actions of the attorney and the judge really fall within the scope of bribery as defined in Minnesota law. I also noted that the Lawyers Board should look at the lawyer.

I am encouraged to report that the full Judicial Standards Board is now recommending to the State Supreme Court that judge Blakely be removed from the bench. The Minnesota Supreme Court will have the final say, but I think that the recommendation is proper under the circumstances. For more detail see my earlier post and the MinnLawyer Blog.

For those that are interested, here is the Board's opinion.

Watch (Read) What You Sign! Interesting Matter Where the Landlord Becomes the Tenant. Trump gets Trumped!

Just a note on an interesting post by the Contracts Prof Blog. Apparently Trump became a tenant in his own building. Signed his own lease, except as the tenant instead as the landlord. The lease is, not surprisingly, very favorable to the landlord. Trump's organization is behind on their rent. Now they are getting evicted.

The lesson is clear. When you draft a contract that is beneficial to you as a party, when circumstances change don't just automatically sign the same contract a take on the obligations of the other party without fully understanding the terms.

I have found that it is unusual for parties to read their contracts until after there is a problem. Sometimes the contract is not what they thought. Thanks to the Contracts Prof for the report!

Sometimes the contract will come back to bite you.

More on Arbitration. Challenging an Arbitration Award.

There are generally only a limited number of ways to successfully challenge an arbitration award. One basis is a claim of fraud by the arbitrator. I've never seen a case where there was actual fraud on the part of the arbitrator, and this challenge is rarely used or successful, although they exist. Another is to challenge the demand for arbitration because one of the parties was not a party to the arbitration agreement. This challenge is weakening with recent rulings, where the courts found that persons intended to benefit from the contract are bound by the arbitration agreement even though they are not parties to the agreement. However, there are also ruling that a person must explicitly agree to the agreement to arbitrate.

I recently saw a case where an entirely new basis was used to overturn an arbitrators award. At least it was new to me. Violation of Public Policy. While this is a rare set of facts, and the result appears appropriate, the basis for overruling the arbitrator is certainly novel.The case involved the termination of a Nebraska state police officer that was found to be a member of a group affiliated with the Ku Klux Klan. The officer challenged his dismissal, and after a hearing, the arbitrator ordered the officer re-instated, finding the the state police did not have "just cause" to terminate the officer. The court disagreed, and overturned the arbitrators award on the grounds of public policy.

It is hard to argue that a police office belonging to the KKK, or any similar group, should be allowed to continue to function as a police officer.The court held that the public has a reasonable expectation that the laws are being enforced without discrimination. Just because a person has a constitutional right to belong to any group they want, this does not mean that the person has a right to be police officer. Belonging to a hate group, and performing the duties of a police officer are certainly inconsistent.

This is a good example of the court fashioning a defense against an arbitrator's award that did not exist previously, at least in Nebraska. I don't know if we will see more challenges to awards claiming a violation of public policy, but I will not be surprised if we do. This case is very unique and it is unlikely to be duplicated, but you never know.

When Miss California Breaches her Contract - Why Not Declare Her in Breach? Money Trumps (No Pun Intended) Everything!

The recent stories about Miss California have also highlighted another option for the innocent (non-breaching) party to a contract. I am not talking about Carrie Prejean's statements on gay marriage. I am talking about demonstrated breaches of her contract with the Miss USA organization. The Contracts Prof has listed a few, and he wrote an article for the LA Times. 

Donald Trump owns the Miss USA pageant, and apparently the franchise is not getting a lot of publicity - until now. When a party breaches a contract, the other party has options. And continuing on (waiving the breach) is one option.

Carrie Prejean has created a lot of publicity for the pageant; and as they say, all publicity is good publicity. The interest in the pageant will undoubtedly increase because of the controversy. So why would Trump want to eliminate the one party that is effectively publicizing the pageant? He wouldn't. So absent something that makes Prejean's continued participation impossible, the parties will ignore the breach of contract and hope the publicity continues.

Not every breach is a breach.