The Wall Street Journal Reports that many law firms have begun offering flat monthly fees to their business clients. Done correctly, these type of arranagements can be advantageous to the client and the firm. I have worked with several companies in this way for several years and prefer to charge flat fees for many different services including Iowa incorporations and LLC formation and franchise review services.

My philosophy is that most business clients would prefer to know how much something is going to cost them rather than be surprised by an hourly bill where the lawyer took much more time than the client expected.

What do you think?

The Wall Street Journal recently featured Rush on Business in The Journal Report on Franchising. Other Web sites featured included MyFranchiseLaw.com and Fox Rothchild’s Franchise Law Update. This blog was also featured in a Wall Street Journal article in March of 2009 as one of the blogs for prospective franchisees to read.

The Journal Report also has an interesting article on the increased demand for experience and cash from franchisees and how it is getting tougher for entrepreneurs to get in on franchises these days. One of the experts quoted explains that the margin for error in a down economy is less.  The article also discusses the fact that banks are turning down loans right and left so franchisors want candidates to look as attractive to banks as possible.

My recent experience has been that it’s true that many entrepreneurs, including prospective franchisees, are having a difficult time getting loans.  Consequently, if you are considering a franchise or other business opportunity it is increasingly important to have a significant portion of the start-up costs in cash and a excellent credit score. If you don’t have the cash to put into the deal, you may need to look to alternatives other than bank financing and those alternative can be difficult to find in Iowa.

In a historic vote last night, three Iowa Supreme Court justices were ousted as a result of a controversial decision made by the court last year in Varnum v. Brien.  The Iowa Supreme Court unanimously upheld that the statute defining marriage only as a union between a man and a woman violated the equal protection clause in the Iowa constitution.  Three of the Supreme Court justices were up for retention last night and all three lost.

So where does that leave our judiciary? As I said in my last post, I think this could have a substantial negative impact on our judiciary because of the influence of special interests (i.e. big money) on the independence of our judiciary.   More than ever, we will need courageous judges who are willing to make decisions that are not always going to be popular.  History is replete with occasions where the majority rule was not always right.  Judges should not be forced to take opinion polls before deciding a case.

As I have indicated before, our Iowa judiciary has a reputation for fairness.  I don’t expect that to change overnight.  I just hope Iowa voters haven’t cut off their nose to spite their face.

 

This is not a political blog but I feel compelled to write about the recent political effort by a special interest group to oust many of the judges on the November 2nd ballot including three Iowa Supreme Court Justices.  The special interest effort, in my view, is misguided.

I am proud to be a part of the excellent system of justice that exists in Iowa. Like all lawyers and the public, I do not agree with every decision issued by our judges.  However, it is my strong belief that our judges do their best to make our court system fair and impartial.  In fact, I have written in the past (long before the recent attack on our judiciary) about the national reputation Iowa courts have for fairness. For example, see this post from 2007.

Unfortunately the group trying to oust our judges would have you believe otherwise.  They want you to believe that a group of "activist" Supreme Court judges decided to ignore or rewrite our constitution because they unanimously decided in the Varnum case that non-religious, civil marriage should be a right available to everyone. This well-funded special interest group is upset with only that one decision.

Now, in writing this blog post I am not expressing my personal belief about the Varnum decision. My position on the decision is not important and like the CEO of Principal Financial Group wrote in a recent editorial (see link below), my concern is that our judiciary should not make rulings based on fear of public outcry over an unpopular decision or because of campaign contributions from special interest groups rather than the law.  How could anyone believe they would get a fair shake in a court system like that?

The special interest group argues these alleged"activist" judges took it upon themselves to ignore the will of the people. Anyone that knows the judges in question, knows this is simply not the case. In our judicial system, when one party in a case alleges a law is unconstitutional, it is the court’s duty to compare the law passed in the political process to the equal protection guaranteed to all in our Constitution.  Judges are not activists when they decide constitutional issues, rather, they are required to rule on the issues presented by the parties. They were doing their job. (What’s interesting to me is whether "new" judges would reach a different conclusion if not pressured by a special interest to do so – after all the Varnum decision was unanimous and decided by judges that were appointed by both Republican and Democratic governors).

You may or may not agree with the decision in Varnum. But, for me, that’s not the issue. The issue for me is the notion that an entire Supreme Court and lower court judges should be removed solely because a special interest group disagrees with their decision. This is exactly what could happen if this well-funded special interest group is successful. Do you want a judiciary that is for sale? Do you want a judiciary that must cower in fear because political groups may be unhappy with their next decision? Do you want a judiciary that makes no attempt to be fair and impartial?

I encourage you to do some research on the issue if you have questions. Some items to read include:

Finally, I hope you will turn your ballot over and vote ‘Yes’ to retain the judges in our election on November 2nd. The survey from Iowa lawyers demonstrates these judges are well qualified to continue in their current positions and they deserve our support.

*The views expressed in this blog post are my own and are not intended to speak for or represent the views of the other lawyers in Brick Gentry, P.C.

 

I recently attended the ABA’s Forum on Franchising this past week in cloudy San Diego. (Yes, that’s correct, cloudy).  One of the more interesting sessions involved the Most Frequently Litigated Substantive Provisions in Franchise and Dealership Agreements by franchisee lawyer John Holland and franchisor lawyer Jonathan Solish.  Numerous litigation topics were covered including choice of law provisions, integration clauses, performance requirements, territory issues, termination for cause, renewal and transfer issues and non-compete provision.  But an interesting part of the discussion came from one of the franchisee lawyers in the audience that said he has been having success, at times, negotiating the personal guarantee provisions of a franchise agreement.

In almost every franchise agreement, the franchisor will ask the prospective franchisee to personally guarantee the obligations set forth in the agreement including royalty payments. Most franchisees hardly seem to bat an eye at these personal guarantees figuring there is no way the franchisor will concede on that provision. But at least according to one practitioner, making the request is worth the shot.  Granted, a franchisor may not give in every time but it is certainly possible in certain instances.  Examples of when a franchise might concede on the guarantee include where you already have an established business entity, perhaps if you want become a multi-unit franchisor or maybe you dealing with a start-up franchisor.

It is important to know that most franchise agreements are negotiable in some way. It’s sometimes tough to get concessions on the language but that should not prevent you from trying.  

 

The Business Record reported this week on a federal court lawsuit recently filed by local fitness franchise Farrell’s Extreme Bodyshaping, Inc. against Kosama, another fitness franchise headquartered in the Des Moines area. Both franchises specialize in a 10-week body "transformation". Farrell’s is the established franchise in the area marketplace while Kosama is the upstart. Both appear to be having some success at developing franchise locations in several states.

Farrell’s alleges that Kosama used key words and metatags associated with Farrell’s to drive Internet traffic from Farrell’s to the Kosama Web sites. The Business Record article rightly focuses on the trademark infringement issues which are the heart of the federal lawsuit. However, in this blogpost, I’d rather discuss some issues to consider as it relates to investigating a prospective franchisor. (The considerations below are general in nature and do not relate specifically to either Farrell’s or Kosama or their pending lawsuit).

  • In my franchise agreement reviews for franchisees I always point to the trademark indemnification provisions as a point to negotiate. My goal is to always obtain trademark indemnification (including attorney’s fees) for a franchisee. This means I want the franchisor to contractually obligate themselves to stand by their name and protect the franchisee from lawsuits involving trademarks. A federal court lawsuit is an expensive proposition. Therefore, as a franchisee you definitely don’t want to end up in court defending the marks of the franchisor at your own expense. After all, if the franchisor can’t stand by their name, what are they really selling?
  • Always check the litigation history of the franchisor. That includes not only a review of the FDD but also a Google search and perhaps even a check of the various court Web sites. I also recommend that you directly ask the franchisor about whether any recent litigation is pending that is not included in the franchise disclosure document (FDD). The FDD is often not updated in time to reflect new llitigation.  So prospective franchisees may not become aware of a new lawsuit just by reading the latest FDD. You really need to ask to make sure you have the latest information. 
  • Always ask the franchisor about the competition. I think you find out a lot about a franchisor when they talk about their competition. Do they have a healthy respect for the competition? What’s their tone when they talk about the competition? What are the franchisor’s strategies to compete? How does the franchisor differentiate itself from the competition? What does the competition do that is better than the prospective franchisor? By engaging the franchisor about the competition, you can learn a great deal about the franchisor. Do they really have a legitimate plan to compete?    
  • Look closely at the franchise system, including intellectual property. Study the franchisor’s system. Is the intellectual property independently developed or does it closely resemble other systems? Do patent, trademark or copyright infringement issues exist?
  • Examine the financial strength of the franchisor. Is the franchisor financially sound? If llitigation or other contingencies strike, will your franchisor be able to withstand the potential expense?

Of course there are many other issues to consider when buying a franchises.  Smart guys like The Franchise King will tell you it’s highly recommended that you seek legal advice from an attorney experienced with franchise matters if you are thinking about buying one.

One of the provisions in most franchise agreements is a provision that requires the selling franchisee to pay a transfer fee to the franchisor. This transfer fee is sometimes $10,000 or more. I have represented a number of prospective franchisees that are buying an existing franchise location. In almost every instance the seller expects the buyer to pay for this transfer fee. And in almost every instance, the buyer is surprised to learn that who pays for the transfer fee is negotiable. 

There is a strong argument the selling franchisee should pay the transfer fee. After all, the selling franchisee is legally obligated to pay for the transfer fee under the franchise agreement – not the buyer. But the reality is the seller will probably include it in their selling price anyway so a buyer should keep it in mind when determining what the business is worth.

If you’re a buyer just be aware the price is negotiable. Buying the a business right (whether a franchise or not) is the first key to success. Pay too much and you’re behind the eight ball from the start.

In drafting noncompete agreements, employers and their lawyers often drafting language that prohibits a former employee from soliciting the customers or clients of the employer. The problem is this language often does not go far enough to protect the former employer.

This scenario occurred in a recent case we handled for an employee. He was prohibited from soliciting the customers of the former employer. The question bolied down to whether the employee solicited a former customer by accepting employment with the former customer.

Although there were other factors bearing on the case, the court ruled that responding to an employment advertisement was not a solicitation that would prohibit the former employee from working with the former customer.

This same situation has occurred in circumstances where a former customer of an employer initiates contact with a former employee rather than the former employee initiating the sales contact with the customer. In those instances, if your noncompete agreement merely prohibits solicitation, your business will not likely receive the protection it desires and the employee may be permitted by a court to work with that customer.

The better approach is to indicate in your agreement that the former employee may not become employed by, work with, or accept business from the former customer in any way. Just like a coin there are two sides to worry about: 1) the former employee’s actions; and 2) the former customer’s actions. A prohibition against the employee’s solicitation only protects 1/2 of the coin.

I am really pleased to report that we have made significant progress on Brick Gentry’s legal Webinars. We hope to have them up and running within the next couple of months. My first Webinar will be on franchise due dligence. 

Keep a look out for our new Brick Gentry Web site developed by CreateWowMarketing. With any luck it will be up and running before the end of this coming week.

On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (“PPACA”), as amended by the Health Care and Education Reconciliation Act of 2010 into law. This new law changes the provision of healthcare in the United States more than any recent legislation. The impact and implementation of this new law will take place over the next several years. This blog post (prepared by my partner, Paul Drey of Brick Gentry, P.C.) highlights the significant changes resulting from this law, the implementation or effective date of the change, and the potential impact on your business. Please be aware that many of these changes call for rules and regulations to be created so as to fully implement the change. These rules and regulations are still being drafted in many cases, and only after their approval will one really understand the full impact of this new law. In the interim, we hope you find this blog post helpful as you prepare for these changes. (For full details and the specific impact on your business, please be sure to consult your business attorney, accountant or other advisor).

Reform that occurred immediately upon enactment:

  • Retroactive to January 1, 2010, a new tax credit would cover up to 50% of small businesses’ healthcare premium costs for up to two years; more specifically, the tax credit would apply to companies with fewer than 25 employees and average wages of no more than $50,000 (a recent report from Families USA and Small Business Majority, a business advocacy group, showed that 51,100 Iowa businesses would be eligible) [under the law, two half-time workers count as one full-time worker];
  • Grandfathered status of a current policy may allow for the addition or deletion of a new employee and any new dependents or changes resulting from a collective bargaining agreement only (however, most provisions apply to all policies, including grandfathered policies); and
  • Access to insurance for uninsured individuals with a pre-existing condition.

Reform that occurs in 2010:

 

  • Insurers will be barred from excluding children 19 and under from coverage because of a pre-existing condition;
  • Group plans and individual plans must allow young adults to stay on their parents’ coverage until the age of 26 instead of 19 (through 2014 grandfathered group plans only need to cover dependents who do not have another source of coverage);
  • Lifetime coverage limits will be eliminated and annual limits will be restricted;
  • Insurance companies will be barred from dropping people when they get sick;
  • Group plans will not be able to discriminate in favor of highly compensated individuals within six months of enactment;
  • Temporary reinsurance for early retirees over age 55;
  • For businesses employing more than 50 workers, health coverage rescissions will be prohibited except for fraud or intentional misrepresentation;
  • Employers must provide nursing mothers a private space available during working hours for breast-feeding or expressing milk;
  • Grants may be available for small employers who provide wellness programs to their employees; and
  • Group and individual plans will need to cover specific preventive care services.

Reform that occurs in 2011:

  • Medicare beneficiaries will be able to get an annual free wellness visit and personalized prevention plan service;
  • New expanded tax requirements on business owners;
  • Small employers (with less than 100 workers) may adopt new “simple cafeteria plans”;
  • New health plans will be required to cover preventive services with little or no cost to patients;
  • Employers would be required to enroll employees in a new national long-term care program, unless the employee opts out; and
  • Employers will be required to disclose the value of health benefits on employees’ W-2 tax forms.

Reform that occurs in 2012:

  • Provision to insureds who are enrolling or re-enrolling in a health plan of a summary of benefits and an explanation of coverage that is no more than four pages long;
  • Annual submission of reports with information concerning health outcomes (HHS is still establishing the details of this submission);
  • Encouragement of “Accountable Care Organizations”; and
  • Incentive program to improve the quality outcomes of acute care hospitals.

Reform that occurs in 2013:

  • Pilot program on bundling of medical services to encourage doctors, hospitals, and other care providers to better coordinate patient healthcare;
  • Threshold for claiming un-reimbursed medical expenses on itemized tax returns will be raised to 10% of AGI from 7.5% of AGI;
  • Medicare payroll tax will be raised to 2.35% from 1.45% for individuals earning more than $200,000 and married couples with incomes over $250,000;
  • Annual contribution limit for the FSA goes from $5,000 to $2,500, with an annually indexed cap for future years;
  • Auto-enrollment of new workers for businesses of more than 200 workers into an employer-sponsored health plan (unclear as to the actual effective date for this requirement); and
  • Employers will need to provide notice to all employees of the state-based exchanges that will be available in 2014.

 

Reform that occurs in 2014:

  • State-based health insurance exchanges and Small Business Health Option Program (“SHOP”) exchanges for small businesses and individuals will open no later than January 1, 2014 (business with less than 100 workers would be eligible);
  • Most people will be required to have health insurance or pay a fine;
  • Health plans will no longer be able to exclude people from coverage due to pre-existing conditions;
  • Prohibitions on discrimination based on health status;
  • Expansion in wellness programs and incentives for businesses;
  • Free-choice voucher program for workers commences;
  • For businesses with waiting periods for coverage for new workers, the waiting period cannot exceed ninety days;
  • Employers with 50 or more workers who do not offer health coverage will face a fine of $2,000 per employee if any worker received subsidized insurance on the exchange. (The first thirty employees are not counted for purposes of the fine.); and
  • Employers with 50 or more workers who do offer health coverage and have at least one worker whom received subsidized insurance will pay the lesser of $3,000 for each of the workers receiving the subsidy or $2,000 for each worker total.

Reform that occurs in 2015:

  • Incentive programs promoting and rewarding quality of care rather than quantity of services.

Reform that occurs in 2016:

  • In general, an excise tax on high cost employer-provided plans will be imposed. The first $27,500 of a family plan and $10,200 for an individual plan will be exempt from the tax; and
  • Businesses with more than 100 workers may be allowed to purchase coverage through the state exchanges (SHOP).

Reform that occurs in 2018:

  • Proposed Cadillac tax goes into effect.
  • By 2019, PPACA is estimated to provide an additional 32 million Americans access to basic healthcare insurance. The expected cost is now estimated to be $938 billion, a number which many expect to be higher.

 

A big thanks to Paul for all his hard work on preparing the information contained in this post. If you have questions or would like additional information regarding the impact of healthcare reform on your business, please contact Paul Drey at paul.drey@brickgentrylaw.com or at 515-274-1450.