Morris Saunders will be a presenter at a seminar entitled “Estate Planning and Administration: The Complete Guide” for the National Business Institute. Morris will be giving two presentations at Illinois Business and Industry Services located at 1100 East Warrenville Road, Suite 150 Naperville IL 60563. The first presentation titled “Transfers During Life and Inter-Vivos Trusts” will take place on September 26 from 2:30-3:30,  and the second presentation titled “Tax Consequences of Trusts”  will take place on September 26 from 3:30-4:30. To register, or for more information please click here.

Purchaser Collection of Pre-Closing Rent Deficiency

In the purchase and sale of real property which is leased to tenants, sellers and purchasers must pay particular attention to the allocation of rent collected both before and after the closing.  A typical purchase and sale agreement will include, among other things, language addressing the allocation of rent by the parties for the current period as well as the collection of delinquent rent after closing which is attributable to the seller’s period of ownership prior to closing.  In negotiating a contract, the parties will need to determine whether the purchaser is responsible for attempting to collect pre-closing delinquent rents and the rights of the seller to pursue tenants after closing for any such pre-closing delinquent rents.

Collection of pre-closing delinquent rent can be a complicated issue for purchasers and sellers to resolve.  On the one hand, the purchaser may be reluctant to allow the seller to undermine the financial condition of a tenant by pursuing lawsuits against a tenant that may be paying current rent to the new landlord.  On the other hand, a former owner does not have a full range of typical landlord remedies at its disposal to effectively induce tenants to pay delinquent rent as the former owner cannot assert an eviction action against a tenant and terminate the tenant’s right of occupancy.

The tension between purchasers and sellers with respect to pre-closing, delinquent rent is further complicated by a recently decided opinion issued by the Illinois Appellate Court in 1002 E. 87th Street LLC v. Midway Broadcasting Corporation (2018 IL.) App. 1st 171691, June 5, 2018).  In that case, the Court upheld a lower court ruling that Illinois law does not permit the purchaser of real estate to pursue claims against a tenant for pre-closing, unpaid rent under a lease assigned to the purchaser at closing.  The purchase and sale agreement between the purchaser and seller in that case contained standard provisions confirming that the “landlord” under the lease included any successors and assigns.  It also provided that all obligations and liabilities of the original landlord were binding on the purchaser, as successor landlord.  That would include any pre-closing landlord defaults that remained uncured.  Notwithstanding the successor landlord’s assumption of the lease, including, potential liability for pre-closing defaults of its predecessor, the Court ruled that the successor landlord did not have the right to recover pre-closing rent.  The Court specifically stated that the rule in Illinois is that rent in arrears is not assignable.

The lesson to be learned from the 1002 E. 87th Street case is that it is important to negotiate and set the expectations of the parties with respect to pre-closing delinquent rents at the time of contract.  Since a predecessor landlord may have little power other than initiating litigation (which is not desired by the successor landlord) against a tenant for delinquent rent and the successor landlord is unable to maintain an action for that delinquent rent, parties must give careful thought to the method of addressing the collection of pre-closing delinquent rent.  Fortunately, there are a number of different approaches that the parties may employ to coordinate and enhance the collection of pre-closing, delinquent rent.

For further information regarding the purchase and sale of commercial real estate as well as matters involving the rights of sellers, purchasers and tenants, please contact:

Jeffrey M. Galkin at:

jgalkin@lgattorneys.com or 312-368-0100.

Choice of Business Entity (Part 1)

Congratulations, you have decided to start a new business.  You are going to become an “entrepreneur”, a business owner.  You have put together your business plan, located potential business premises, talked with your advisors, and are ready to get started.

You have talked with an attorney and an accountant and they have advised you to form a “business entity”.  Now you have to decide which one is right for you.  So, what are your choices?  Following are just a few options:

Sole Proprietorship.  You could own and operate the business and not form a separate entity.  This is generally the “simplest” legal way of owning and operating a business.  Other than obtaining the required business licenses, all you need to do is to put an “open for business” sign up and you are ready to go.  The business is owned by only one individual and “dies” when the owner either stops doing business or dies.  The individual owner has unlimited liability for all obligations of the business.

Partnership.  If you have decided to go into business with other owners, you could form a partnership.  There are two kinds of partnerships:  general partnerships and limited partnerships.

In a general partnership, you and your partners will have unlimited liability for acts and obligations of the business, including those incurred by any of the partners in the business.  If you have no agreement, the partnership will be governed solely by the laws regarding partnerships in your state.  Without an agreement, if one partner dies or withdraws, the partnership terminates.

In a limited partnership, there must be at least one general partner who manages the affairs of the partnership and who will be liable for all the acts and obligations of the partnership.  The “limited partners” may not participate in the management of the partnership and are treated as investors.  They will not generally be liable for the acts and obligations of the partnership.  The partnership must file a Certificate of Limited Partnership in the state in which it wishes to organize.

In proprietorships and general partnerships, there can be serious legal consequences to the individual(s) who operate the business.  As pointed out, a sole proprietor, while “King” of the business, has unlimited liability for the obligations of the business.  General partners are entitled to their share of the business income, but also have unlimited liability.  Limited partners may not participate in management, but have limited liability.

So, what can a business owner do to limit his or her liability?

[To be continued, in Part 2, where we will discuss Corporations and LLCs, two of the more preferred ways of operating a business in order to minimize personal liability].

If you are starting a business and have any questions, please contact:

Morris R. Saunders at:

312-368-0100 or msaunders@lgattorneys.com.

Are Your Business E-Mail Messages Legally Compliant?

Overview:

You may have heard of The Can-Spam Act (“Can-Spam”), but if your business engages in email marketing, you must understand the requirements and put processes in place for compliance.  Can-Spam is a federal law that establishes requirements for all outbound commercial messages, regardless of whether they are B to B (business to business) or B to C (business to customer) messages.  The Act also provides recipients the right to have you discontinue your emails to them, which is referred to as an “opt-out” provision.   Finally, it instills high penalties for non-compliance.

Requirements:

The main requirements of Can-Spam are as follows:

  1. Header or subject line information must NOT be misleading.
  2. The subject line must be an accurate descriptor of the content of the message.
  3. Clear and Conspicuous identification that the message is an ad.
  4. Recipients must be provided your address.
  5. You must include an Opt-Out mechanism to avoid future messages.
  6. Opt-out requests must be honored promptly (i.e. within 10 business days).
  7. If you hire another company to handle your e-mail marketing, you are responsible for their compliance with Can-Spam.

Penalties for Non-Compliance:

Each separate email message that does not comply with Can-Spam may be the subject of up to $40,000 or more in penalties, and multiple people may be responsible for violations.  Therefore, both the company whose product or service is being advertised and the marketing company who originated the message may be legally responsible for violations.  In addition to the requirements of Can-Spam, commercial email messages must comply with other laws as well.  For example, if the content is deceptive or misleading information about a product, then the sender may be in violation of the FTC Act and/or other state laws regarding false and deceptive business practices.  Further, impersonation or the unauthorized use of the sender’s computer or system or other such acts are subject to criminal penalties.

Not all commercial messages require compliance with Can-Spam.  Only those messages whose primary purpose is commercial in nature.   For instance, emails to customers concerning their order, or other already agreed-to transaction with your company will avoid the necessity to comply with Can-Spam as they are viewed as relationship or transactional messages.  However, oftentimes a business will send a message that combines elements of transactional or relationship content with commercial content.  At that time, it is important to consult with an attorney for guidance as to whether such a message must comply with Can-Spam or if the message would not fall under the purview of Can-Spam.

If you have any further questions or wish to inquire about our fixed-fee advertising clearance services, please contact:

Natalie A. Remien at:

(312) 368-0100 or nremien@lgattorneys.com.

A Baseless Lawsuit Was Filed Against My Business. Can I Recover My Attorneys’ Fees?

Defending lawsuits is sometimes an unfortunate but necessary part of doing business. Whether the case was quickly dismissed by the court, or whether you won the case after a trial, you and your attorneys knew the case was unfounded from the beginning and yet you had to spend substantial time and money that you could have devoted to your business in order to successfully defeat the case.

Depending on the facts and circumstances and whether the suit was pending in state or federal court, your fees may be recoverable from other side as a sanction for filing a “frivolous” claim against you. However, absent a contract or statute providing otherwise, you will most likely be unable to recover your attorneys’ fees simply because you won your case.

Assuming the suit was filed in Illinois, sanctions may be available. Generally, to recover fees against a party or his or her attorney under either rule, it must be shown that the party and/or his attorney either: (1) failed to reasonably investigate the facts or the law before filing the offending complaint, (2) filed the complaint for the purpose of harassment, delay, or to increase the cost of litigation for the opposing party.  One principal difference between the federal rule and the Illinois rule is that under the federal rule, only an attorney can be monetarily sanctioned based on unwarranted legal contentions. Thus, if the complaint was filed in federal court, while both the attorney and client are responsible for ensuring that the facts contained in the complaints are accurate and complete, only the attorney may be sanctioned for a complaint based on a claim or argument that is not warranted by existing law.  By contrast, under certain circumstances, the Illinois rule permits the court to sanction both the party and his attorney—even if the complaint is found to have been legally (as opposed to factually) unwarranted.

It is important to note that not every meritless case is considered “frivolous” for purposes of recovering attorneys’ fees. The United States Supreme Court has held that an action or claim is frivolous if “it lacks an arguable basis either in law or in fact.” Similarly, the Seventh Circuit Court of Appeals has characterized a filing that is incoherent and lacks a legal basis as “frivolous.” Thus, “frivolous” does not necessarily mean “meritless,” but rather, a frivolous suit lacks a factual or legal basis, and as such, has very little chance of being won.  For this reason, it is recommended that a party wishing to seek sanctions do so at the end of the case, i.e., after the court makes a determination that the claim lacks legal and/or factual merit.

In addition, as the Seventh Circuit Court of Appeals recently determined, whether a case or claim is “frivolous” is not the end of the inquiry. A request for attorneys’ fees may nonetheless be denied where fees that were incurred were “self-inflicted” by, for example, pursuing one strategy over another, or briefing an appeal on the merits rather than filing a motion to dismiss for lack of jurisdiction.

Both the federal rule and the Illinois rule are discretionary and are strictly applied by the courts. As such, sanctions are infrequently granted. Regardless of how and when your litigation was resolved, you and your attorneys should evaluate whether it would be appropriate to seek sanctions, and if so, whether it would be worthwhile from a cost perspective.

If you have any questions regarding a litigation matter you find yourself involved in, please contact:

Katherine A. Grosh at:

(312) 368-0100 or kgrosh@lgattorneys.com


[1]  This article is the first of a three-part series: Part II will address the recovery of attorneys’ fees pursuant to various Illinois statutes, and Part III will address the recovery of attorneys’ fees pursuant to a contract where the dispute is resolved outside of the litigation context.

Keeping your Trade Secrets Safe: The Runaway Employee

How can a business protect its critical information when an employee goes to work for a competitor? Many employers simply assume that if it deems information “confidential,” the law automatically protects it when an employee leaves and goes to work for a competitor.  That’s not necessarily the case.  In order to protect its confidential information, such as intellectual property, information, systems, customer lists, pricing information and the like, an employer must take affirmative steps long before the rogue employee leaves to ensure that its information is protected.  Such information can be protected from disclosure both under Illinois common law and pursuant to the Illinois Trade Secrets Act (“ITSA”).

An employer’s trade secrets, such as its customer lists, are a protectable interest. An employer has a clear and ascertainable right in protecting its trade secrets. To show information is a trade secret under ITSA, an employer must meet two threshold requirements. First, it must show the information was sufficiently secret to provide the employer with a competitive advantage. Second, the employer must show that it took affirmative measures to stop others from acquiring or using the information. Examples of steps employers typically take to keep information confidential include keeping the information under lock and key, limiting computer access, requiring confidentiality agreements, and other employer efforts to advise employees that the information imparted to them must be kept secret. Establishing this second prong is where employers typically fall short.

Where employers have invested substantial time, money, and effort to obtain a secret advantage, the secret should be protected from an employee who obtains it through improper means. Although employees may take general knowledge or information with them that they developed during their employment, they may not take confidential information, including trade secrets. The taking does not have to be a physical taking by actually copying the names. A trade secret can be misappropriated by physical copying or by memorization. Using memorization to rebuild a trade secret does not transform the trade secret from confidential information into non-confidential information. A trade secret can also be obtained through reverse engineering

Whether and how an employer keeps information secret is one of the most important factors when determining whether information is a trade secret. When information is generally known or understood in an industry, even if it is unknown to the public at large, it does not constitute a trade secret. If a business fully discloses information throughout an industry through a catalog or other literature, it is not considered a trade secret. If the information can be readily duplicated without considerable time, effort, or expense, it is not considered a trade secret. If a customer list, for example, is generally available to all employees and the employees are not required to sign confidentiality agreements, the list is likely not considered a trade secret.

By far the most litigation in this area is over whether an employer’s customer list is a confidential trade secret.  Whether customer lists constitute trade secrets largely depends on the facts of each case.  Customer lists and other customer information can be considered a protectable trade secret if the information has been developed by the employer over a number of years at great expense and kept under tight security. However, the same type of information is not protectable where it has not been treated as confidential and secret by the employer, was generally available to other employees and known by persons in the trade, could be easily duplicated by reference to telephone directories or industry publications, and where the customers on such lists did business with more than one company or otherwise changed businesses frequently so that their identities were known to the employer’s competitors.

Illinois courts have found that customer lists do not constitute protectable trade secrets where, for example: a) the particular industry was competitive and customers often dealt with multiple companies; b) the employer had failed to produce sufficient evidence to demonstrate that the customer list was subject to reasonable efforts to protect its secrecy; and c) sufficient efforts had not been taken to maintain the list’s secrecy. To be a protectable trade secret, the employer must demonstrate the information it seeks to protect was sufficiently secret to provide it with a competitive advantage. However, for steps to be deemed sufficient to protect a trade secret, extensive steps must be taken to protect both the electronic and hard copies of the purported trade secret.

For more information regarding the protection of a company’s confidential information, please contact:

Howard L. Teplinsky at:

(312) 368-0100 or hteplinsky@lgattorneys.com

Estate Tax Developments under the New Tax Act – What about Illinois residents?

Under the Tax Cuts and Jobs Act, the new federal estate tax system “exempts” from federal estate tax, all estates under $11.2 million for each decedent, meaning that a married couple could have an estate of $22.4 million and not incur any federal estate taxes. This higher amount means that most estates will not be subject to federal estate tax. These amounts will be subject to increase, based upon increases in the Consumer Price Index; however, the amount “sunsets” after 2026, and the amounts will be reduced by half.  The good news is that many estate plans can be drafted with little regard to federal estate taxes in some states. The bad news is that residents of Illinois are subject to a much lower threshold and may need to examine their estate plans in light of the Illinois thresholds.

Illinois taxes all estates in excess of $4 million AND, if not structured properly, both spouses may not be able to take advantage of the full amount. While federal law generally permits a surviving spouse to “use” any unused exemption amount of their deceased spouse, Illinois does not permit this. For federal tax purposes, if one spouse dies with a $6 million dollar taxable estate, then under some circumstances, the surviving spouse may use his or her own exemption of $11.2 million, plus the “unused” $5.2 million of the deceased spouse.

“Typical” estate planning has often maximized the federal exemption amount on the first spouse to die by putting that into a segregated trust while leaving everything else to the surviving spouse. If you have not looked at your estate planning documents, you should do so immediately. Under the “typical” plan, the surviving spouse is often only entitled to receive income from that segregated trust which holds the maximum federal exemption amount; principal distributions are based upon need. Thus, the surviving spouse may not be able to access principal of the decedent’s estate without establishing a need. And to make matters worse, if that trust holds more than $4 million dollars, then there will be liability for Illinois estate taxes upon the death of the first spouse.

If you have any questions about your estate plan or how federal and Illinois estate taxes affect your estate planning, please call or contact:

Morris Saunders at:

312-368-0100 or msaunders@lgattorneys.com.

 

New York Toy Fair Is Approaching. Are You Legally Prepared?

February 17, 2018 is fast approaching.  Anyone who is anyone in the toy industry will be at Javits Convention Center showcasing the latest and greatest in toy innovation.  All businesses in the toy industry are putting the final touches on their displays and their presentations.  Is a meeting with the company’s lawyer on the pre-show checklist?  If not, why not?

Consulting with the Company’s lawyer may save a company tens, even hundreds of thousands of dollars.  The following is a short discussion of some of the items that should be on every toy company’s “To-Do” list prior to attending Day One of the New York Toy Fair.

  1. Intellectual Property.

At the very least, the company should consider applying for a trademark registration for the name of the company and its products.  Unfortunately, the number one thing most companies forget or ignore until there is a legal battle ensuing is to properly protect the Company’s intellectual property, such as its name and the names of its products.  Trademarks for product names are fairly inexpensive to search and protect, and yet, may cost a company dearly if those names were to become the subject of a cease and desist letter and resulting federal court infringement litigation.  We defended a toy manufacturer in a trademark infringement lawsuit that allegedly infringed a competitor’s trademark.  After two years and in excess of $50,000 in legal fees (pretty inexpensive in trademark dispute litigation) the matter was resolved.  Consulting with counsel and filing the appropriate trademark applications could have avoided the huge waste of time and expense.

Another form of legal protection often overlooked is copyright for the toy’s design.   If the design meets the requirements of a sculptural work, such as a plush toy design, then copyright can be a powerful tool in locking out your competition from the use of designs that are “substantially similar”.  Prior to any trade show, toy companies must identify and protect its intellectual property, or risk the very goodwill of the company.  Intellectual property can give a company significant value.

  1. Privacy and Security.

Toy companies, like all companies, must take steps to protect the data of the company, minimize the risk of a breach, and put in place technological and legal measures designed to decrease liability in the event a breach does occur.  A comprehensive privacy program including but not limited to updated privacy notices, terms and conditions, internal policies, incident response plans and insurance coverage all geared toward reducing risk of legal liability is imperative if the company is to survive.  If the toys being showcased are “smart” or “connected” toys, privacy and security issues involving the Internet of Things will be at the forefront of manufacturers’, retailers’, and consumers’ minds.  Retailers seeking to avoid liability undoubtedly will have questions as to how the software works, what, if any, personally identifiable data is collected, how is it being stored, retained and destroyed.  Additionally, if a third party vendor will be used to provide software for a smart or connected toy, the company must seek counsel knowledgeable in privacy and security in order to reduce legal risk to the company that may result from the use of such software.

  1. Labeling / Advertising.

Federal law requires product packaging and certain advertisements for toys and games intended for use by children 12 years of age and under to display cautionary statements regarding choking and other hazards.  Safety related labeling and advertising for toys generally depends upon the category of toy and the age of the child for which the toy is intended.  It is imperative that toy companies be familiar with these laws and engage counsel who is familiar.

For more information, please contact:

Natalie A. Remien at:

(312) 368-0100 or nremien@lgattorneys.com.

Is Your Business BIPA Compliant?

In order to increase productivity and efficiency, businesses are increasingly using biometric data to identify employees, customers and other individuals.  For example, some employers use biometric data to identify their employees and track work hours for purposes of compensation.   Biometric information includes fingerprints, retina scans, facial scans, hand scans, or other identifiers that are biologically unique to a particular person.   While convenient, and seemingly secure, such biometric identification methods raise serious privacy concerns.  The Illinois Biometric Information Privacy Act, 740 ILCS 14, et seq. (“BIPA”), imposes many requirements concerning the collection, use, storage, and destruction of biometric information with which businesses, including employers, must comply, or risk liability.

Under BIPA, before an Illinois business collects, stores, or uses biometric identifiers, it must develop a written policy and make the policy available to the public.  The policy must include a retention schedule describing how long such data will be stored, and provide guidelines for its destruction when the reason for the original collection of the data no longer exists, such as when an employee resigns.  Additionally, Illinois businesses must describe and adhere to a destruction schedule for biometric information that it is no longer using.  If no schedule is provided, then BIPA requires that a business destroy such information within three years of the individual’s last interaction with the business.

In addition to the required written policy, Illinois businesses must obtain consent and a written release from an individual prior to collecting biometric information.  BIPA is currently one of the strictest state statutes regarding the collection, retention, storage and use of biometric information.  Before biometric information may be collected, all Illinois private entities must (1) inform the individual in writing that a biometric identifier is being collected or stored, (2) inform the individual in writing of the specific purpose and length of time for which the biometric identifier is being collected, stored and used, and (3) receive a written release executed by the individual assenting to the collection, storage and use of a biometric identifier.  Absent a court order or law enforcement directive, businesses may not share biometric information without express consent from the individual.

Illinois businesses that utilize biometric identifiers but do not comply with BIPA may face severe consequences. BIPA provides that individuals may bring an action against a business that negligently or intentionally violates a provision of BIPA.  If the claim is for negligence, the business may be liable for damages up to $1,000 per violation, and if the claim is for an intentional violation of BIPA, the business may be liable for damages up to $5,000 per violation.  Damages in either category may be higher if actual damages exceed these numbers.  An aggrieved party may also receive attorneys’ fees and costs, an injunction, and other relief.

Recently, privacy-related claims are on the rise as a result of BIPA.  Since mid-2017, over 25 lawsuits have been filed in Illinois alleging violations of BIPA.  The majority of the cases are class action lawsuits by employees claiming violations of BIPA relating to employee time clock technology that uses an employee’s fingerprint as a means of identification.  Time will only tell whether employers will spend the additional resources necessary to comply with BIPA, or choose to avoid the use of biometric identifiers and information altogether.

For more information regarding BIPA compliance and other privacy issues, please contact:

Natalie A. Remien at:

(312) 368-0100 or nremien@lgattorneys.com.

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