This is great news for contractors, especially since, with a few exceptions, it was rarely–if ever–possible for a contractor to buy insurance covering the owner’s negligence. While insurers have often been willing to pay to settle claims so long as it was not completely clear that the owner was the only negligent party, they were not required to. Contractors now have the comfort of knowing that the law will not permit a contractor to agree to indemnify an owner against the consequences of the owner’s negligence. Owners, on the other hand, will need to rely on their own insurance to protect them in the event they are negligent.

Owners can still require contractors to indemnify and insure them in the following contexts, among others:
(1) owner-controlled or owner-sponsored consolidated insurance programs;
(2) breaches of contract or warranty that exist independently of an indemnity obligation;
(3) construction contracts pertaining to a single family house, townhouse, duplex, or a related land development, or a municipal public works project.
And, provisions in construction contracts that require the contractor to indemnify and defend the owner against claims for bodily injury or death of an employee of the contractor, its agents, or its subcontractors are still enforceable.

As with so many new laws, this law raises new questions. For instance, can the contract provide that it is governed by another state’s law, so that the new Texas rule doesn’t apply? And what about damages and liabilities caused by the negligence of someone who is not under the owner’s control? Would a court enforce such a contract? Such questions will be answered largely by court decisions over the next several years. In the meantime, we urge both owners and contractors to have a knowledgeable lawyer and insurance agent review their construction contracts with them, as the law in this area continues to develop.

Of course, this is not an exhaustive discussion of the law on these issues. For more information on this topic, please email Jeff Dickerson, the firm’s senior corporate lawyer, or call him at (512) 735-7801.

The Texas Legislature recognizes that our lives are increasingly lived digitally.  Smart phones, iPads, Facebook (and similar social media) are everywhere.  The Legislature has taken steps to protect our private lives from improper use and unauthorized access.  Lawmakers have passed laws addressing the improper access or interception of certain communications, and has imposed severe criminal and civil penalties for these offenses.

The intentional acquisition of someone else’s electronically stored communications without their consent may constitute a violation of Texas Penal Code if the person intentionally intercepts, accesses, procures, or uses the contents of another’s communication.  This offense is punishable by up to twenty years in prison and up to a $10,000 fine.  A violation of the Texas Penal Code also occurs when a person obtains, alters, or prevents access to a wire or electronic communication while the electronic communication is in electronic storage; by either intentionally obtaining access without authorization, or intentionally exceeding an authorization for access.  This offense carries punishment of up to 1 year in jail and a fine of up to $2,000.  If this offense is committed to obtain a benefit or to harm another, punishment ranges up to 2 years and a fine of up to $10,000.

In addition to the criminal consequences, any party to the intercepted or improperly obtained communication is entitled to statutory damages of $10,000 per occurrence (each email); all actual damages in excess of $10,000; punitive damages determined by the jury; attorney’s fees and costs.

For example, assume an employer suspects one of its employees is divulging confidential company business through the use of the employee’s private email, or on his Facebook page which has several hundred “friends.”  The employer knows the password to the employee’s company email address and with a little ingenuity, figures out the password for the employee’s private email or Facebook account.  The employer then accesses the information and prints out the employee’s private electronically stored communications.  The employer hands this electronically stored information over to the employer’s attorney for use against the employee.  Use of that electronically stored information against the employee could expose the employer to both criminal and civil liability.  The employee and his “friends” may each have a $10,000.00 claim.

It is important to consult a lawyer if you suspect an employee (spouse or competitor) may be acting to your detriment.  Doing your own detective work could put you at risk for civil and criminal liability.

After May 7, 2013, only the 03/08/13 will be accepted.

I-9 compliance is an area of increasing exposure for employers. U.S. Immigration and Customs Enforcement reached its highest number yet of companies audited for illegal immigrants on their payrolls this past fiscal year — continuing an enforcement trend that began in 2007. Audits of employer I-9 forms increased from 250 in 2007 to more than 3,000 in 2012. From fiscal years 2009 to 2012, the total amount of fines grew to nearly $13 million from $1 million.

The number of company managers arrested has increased commensurately to 238 last year, ICE reports.

English and Spanish versions of the form appear here http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=31b3ab0a43b5d010VgnVCM10000048f3d6a1RCRD&vgnextchannel=db029c7755cb9010VgnVCM10000045f3d6a1RCRD

A summary of state laws governing time off to go to the polls is available here. In Texas, generally speaking the law is that employees must be given time off to vote if polling places are not open for at least two hours outside of their normal work day.

One of the issues that arises when representing owners in the formation of a business entity that will be structured to have equal ownership interests or management rights is how the decision makers will resolve deadlocks over business decisions. A deadlock can be crippling to business operations and cause the business value to fall while the decision makers disagree over the direction in which the business will proceed. No one wants to address this issue, since the owners are excited about starting a new business and see nothing but prosperity in their future, but deciding how to resolve deadlocks at the outset will almost always make it easier to handle them down the road. Addressing deadlocks created by equal ownership interests and management rights at the entity formation stage is one of a number of best practices we recommend considering when forming a business.

Here are three possible approaches, and some of the pros and cons:

1. No Resolution – The owners may identify certain decisions that should not be made unless the owners are able to agree on them and that should not provide for a means of resolving a failure to agree. For these decisions, the result of a deadlock is that the proposed course of action will not occur. Typically, these are fundamental business decisions, such as the decision to sell the business, which will not frustrate the purpose of the business to such a degree as to make it inoperable should they fail to occur. The main advantage to this approach is that it forces the owners to work together to reach a solution if they want to make the decision. A disadvantage is that, unless the owners can agree, the decision cannot be made.

2. Establish an Exit Strategy or Wind up the Company – Another approach to resolving deadlocks is to require or allow the non-consenting owner to leave the business. Alternatively, the owners may want to require that the business be wound up. Some tools for allowing an owner to exit the company after a deadlock include buy/sell rights, put options and call options. A description of these tools and the issues presented in using them is a topic worthy of independent discussion and beyond the scope of this article. One advantage to using exit strategies to resolve deadlocks is that it allows the remaining owner to continue the business operations in the way he or she sees fit while providing the non-consenting owner with a means of exiting the business. One disadvantage to this approach is the potential for abuse by an owner using this approach as a basis for staking out a position and being unwilling to negotiate rather than trying to work towards a mutually agreeable solution.

3. Refer the Decision to a Third Party – A third approach to resolving deadlocks is to refer the decision to a third party decision maker such as a trusted business advisor or mediator. One advantage to this approach is that a decision will be made, whatever it may be. The primary disadvantage to this approach is that the person making the decision may not have a complete understanding of all of the considerations at play and has no stake in the outcome.

These three approaches are not meant to be an exhaustive list and, as you can probably see, there is no one “right” answer for resolving deadlocks. There are also a number of additional issues that must be addressed in making a decision as to how to resolve different types of deadlocks and in structuring the resolution mechanism, which are not discussed in this article and often will be unique to each particular client and business.

Our goal in advising clients on how to approach deadlock situations is to provide sufficient information to help our clients think through the available alternatives specific to their unique situation and to make an informed decision as to which approach or approaches will best serve their interests and risk tolerance given the circumstances. If you would like more information on this topic, please contact Allen Bertin, a lawyer in our firm’s corporate department.

Today we have online financial accounts, bill payments, insurance and medical records, and much more. We own extensive libraries and collections of electronic books, movies, music and photos. Tax returns, important documents and other written material live on hard drives in digital form, often in several places, using naming and filing conventions survivors might not be able to decipher.

However, probate and other legal procedures still focus on the tangible world. In the context of our “digital estates,” what can traditional executors and trustees do?

What happens to your online accounts, computer files and other “digital assets” when you die or become incapacitated? More importantly, what do you want to happen to them? Should your Facebook account disappear? Can a survivor access your email or other online accounts? How much of a digital mess will we leave for our survivors, both at home and at work?

In a certain sense, you need to map what you do in real‑world estate planning to the digital world. And you might find the digital world is almost a parallel world where your current plan, especially who you need to execute it, might need significant adjustment.

Here are a few things you can do now:

1. Inventory digital assets. How many passwords and accounts do you really have? Which accounts are most important and must be attended to if you aren’t around? Have you collected this information, including passwords, in a way that someone can find and use them?

2. Determine what you want. Do you want your Facebook page to live on as a memorial page? Do you want blogs, websites or other Internet accounts to stay alive?

3. Understand the default terms. What happens to your e‑books, music and movies? Will your accounts automatically be frozen or deleted?

4. Have the hard conversations. Move beyond the financial realm to the question of what you want your legacy to be. You might have files that you want survivors to get and others that you don’t want them to know exist.

5. Choose the right person. The selection of fiduciaries in estate planning is a straightforward process, but a spouse or child might not be able to deal with technology issues. Consider identifying someone to provide assistance or even handle these matters.

6. Revisit your estate plan. Given your digital estate, does the plan still make sense and do you have the right fiduciaries? How will your Internet friends get notice of your death, and can key accounts be accessed quickly and easily? The collision of the real world and the digital world always results in surprising consequences. Are you taking steps to ensure that the right things happen?

To promote and support a strong board culture, boards should:

1. Agree on the role of the board and management to avoid miscommunication with respect to delegated authority and the board’s participation in decision-making.

2. Understand the value and the limits of constructive tension between the board and management.

3. Agree on valued behaviors that are consistent with a positive board environment, including:
• Respect for the expertise and viewpoints of other directors, advisors and management;
• Open discussion and debate;
• Consensus after engaging in full and informed discussion;
• Trust among directors and between directors and management;
• Protection of confidences; and
• Attention to time constraints and board member schedules.

4. Periodically evaluate board culture.
5. Remind directors of confidentiality obligations.

There is no “standard” non-compete agreement that can be used all the time regardless of the states involved.

As we recently observed with the Marsh decision in Texas, non-competes are regularly the subject of judicial interpretation since so much is dependent on “public policy”.

I have found at least one case that indicates that the parties’ Choice of Law provision with respect to a non-competition agreement in the purchase of a business may be enforceable even if the separate employment non-compete would be interpreted under local state law. In the case I’m mentioning, the parties chose Delaware as the law to be applied and the case was in Louisiana. The court used Delaware law with respect to the non-compete in the purchase agreement, but used Louisiana law to determine the enforceability of the employment non-compete.

Finally, there should always be a “blue pencil” or reformation provision in these agreements to allow for the potential myriad of enforcement interpretations. Without an appropriate provision, some courts have gone so far as to say that the entire non-compete is thrown out if specific statutory and/or judicial requirements are not met.

Purchase agreements with non-compete clauses are often treated differently than regular employment. The reason to have the clause is apparent; however, the treatment of non-compete clauses is frustratingly disparate.

A person does not buy a business from someone to allow them to compete against him. Some states have separate provisions for business purchases, and others without separate statutes have generally put some judicial gloss on their decisions regarding enforceability to recognize the legitimate interest in having a non-compete in such situations.

Code Section 6501(a) generally provides that an assessment of income tax may not be made more than three years after the taxpayer filed its tax return. However, under Code Section 6501(e)(1)(A), a six year period of limitations applies when a taxpayer omits from gross income an amount that is greater than 25% of the amount of gross income stated on the return. In 2010, while the IRS was litigating the limitations issue, it issued final regulations providing that an overstatement of basis that resulted in an understatement of income was an omission from gross income for purposes of the six year period for assessing tax.

The Supreme Court found that the language in Section 6501(e)(1)(A) was nearly identical to its predecessor statute which was addressed in its earlier decision in Colony, Inc. v. Commissioner, 357 U.S. 28 (1958). The Court in Colony held that the extended period of limitations applied to situations where specific income receipts have been left out in the computation of gross income and not where an item had been overstated. The Court declined to give deference to the treasury regulations issued by the IRS concluding that the regulations were inconsistent with its decision in Colony. The Court’s decision came in the context of a “Son of BOSS” tax shelter case where the taxpayer overstated his basis in a partnership interest, resulting in an understatement of income. The IRS failed to make a deficiency assessment within three years of the filing of the tax return, but issued a notice to the taxpayer before the six year statute of limitations had elapsed.