Indiana Continuing Legal Education Forum – ICLEF

This upcoming May is going to be busy here at ICLEF as we are offering a wide variety of Live CLE Seminars. Click any seminars below for additional information or to register. If you want to see what CLE seminars are near you, Click Here to search our Video Replay CLE Seminars. Once there you can choose a location and/or legal topics, as well as a date, all on the left side of this search/info page. You can also, Click Here to see our On Demand CLE Seminars which are available online Anytime, Anywhere!

• Planning & Zoning, 6 CLE / 1 E - This program is no longer available as a Live In-Person Seminar. However, you can still view the Video Replay, the Online/On Demand Video or purchase the Publication of this Seminar by Clicking Here.

• Portability Aspects of The American Taxpayer Relief Act of 2012, 3 CLE - This program is no longer available as a Live In-Person Seminar. However, you can still view the Video Replay, the Online/On Demand Video or purchase the Publication of this Seminar by, Clicking Here.

• The New Parenting Time Guidelines, 3 CLE - This program is no longer available as a Live In-Person Seminar. However, you can still view the Video Replay, the Online/On Demand Video or purchase the Publication of this Seminar by, Clicking Here.

• Indiana Inheritance Tax Update, Including Coverage of Indiana HEA 1001, 3 CLE - This program is no longer available as a Live In-Person Seminar. However, you can still view the Video Replay, the Online/On Demand Video or purchase the Publication of this Seminar by, Clicking Here.

• How to be Seriously Ethical & an Effective Lawyer, 6 CLE / 6 E - This program is no longer available as a Live In-Person Seminar. However, you can still view the Video Replay, the Online/On Demand Video or purchase the Publication of this Seminar by, Clicking Here. (Coming Soon)

• The TOP TEN Things In-House Counsel Should Know to Avoid Litigation, 1 CLE – May 21, Live In-Person & Live Individual Webcast Available, ICLEF Conference Facility, Indianapolis

• Health care Reform: The ACA, New HIPAA Rules and More, 6 CLE / 1 E - May 22, Live In-Person & Live Group & Individual Webcasts Available, Indianapolis, Lafayette & Mishawaka

ICLEF • Indiana Continuing Legal Education Forum, Indianapolis, IN

By Jill Starbuck, Pellegrino & Associates

For many investors, buying stocks seems like a science of its own. So many elements have to be considered when deciding which stocks to invest in. Some of the common elements that investors consider include a company’s earnings and dividends, the type of products offered, the state of the current market, and the price-to-book ratio. For instance, is a new product or an essential one the best investment? Is there a recession or is the market rising? Does a long-term or a short-term investment make sense? After deciding which stocks to purchase, the investor’s task is not over. Investors should analyze how the market is doing to view which products and services are consistently thriving. Based on the results, investors should re-evaluate their investments occasionally to see if they’d still purchase a particular stock after some time has lapsed. In other words, does the investment still make sense years after the initial purchase?

One important element that investors may not realize is the state of a company’s patent portfolio. Companies with large patent portfolios tend to thrive better in the market than their competitors. Patents give companies the ability to stop competitors from selling similar inventions in the market. They also give companies the ability to price products higher than their competitors, positioning them favorably in the market. Furthermore, patents protect them in the event of a lawsuit and can arm them when necessary to stop others from infringing on their products. Patents are also important for start-up companies that are looking for investors to fund their ideas. Since start-up companies are new to the market, investors like to know what they paying for. Therefore, it is ideal for start-up companies to invest in patent valuations so they can provide some indication to investors of what a patent is worth.

While understanding the size of a patent portfolio is important, it is also important for investors to analyze those portfolios to gain insight on individual patents. For instance, are the patents close to expiring? If so, this can put pressure on a company’s market stance. The life of a patent doesn’t last forever, which means that a company will have to compensate when a patent is close to expiration. How will the company make up for the expiration? Does the company have new inventions in place to make up for the expiration? For instance, Pfizer and Lilly stocks plummeted when patents expired for Lipitor, Zyprexa, and other drugs. This left the door wide open for generic counterparts to take the place of those drugs at a lower price. While Pfizer and Lilly have rebounded, they’ve had to compensate in other ways – like cost cutting. They still had to pay a price. Investors must take such instances into consideration to protect their investments.

As you can see, investors can learn a lot about the potential success of a company in the market based on its patent portfolio. Patent portfolios give tremendous insight into a company’s marketability, future potential, and ability to compete. With an increased focus on intellectual property, patents are becoming increasingly important to any successful business. Even big name companies like Google, Apple, and others have purchased large amounts of patents in the last few years to strengthen their portfolios and market position. Therefore, when investors analyze a company’s patent portfolio, they have a good grasp on where they stand with their investments.

ICLEF • Indiana Continuing Legal Education Forum, Indianapolis, IN

Another Everyday Scenario: Ethics in Business Representation

Welcome back to our Law Tips discussion on Ethics in Business Representation. Last week our Advanced Business Law ethics panel, Arend Abel, Geoff Grodner, Chuck Kidd and Pat Olmstead,  presented a situation where a lawyer could “…step on a legal land mine the lawyer placed years before.” That scenario involved Walter and Jennifer’s initial business setup. (Click here to review that discussion.) Now, let’s look at an additional scenario that addresses ethics and professional responsibility situations that a business lawyer may face in everyday practice. 

Scenario:

Walter and Jennifer have a falling-out. Walter has used his voting control to have the company pay him a large salary as President, and to pay Jennifer a much smaller salary. Together, the salaries eat up enough of the company’s revenue that there is little left for distributions to owners. The situation has become sufficiently acrimonious that Walter now wants Jennifer out of the company and he comes to you for help in accomplishing that goal. What issues must you consider, and can you help him push Jennifer out?

Issues to Consider:

Rule 1.13 again comes into play. (Noted in last week’s blog.) At a minimum, the clarification obligation under comment 10 arises, and you must make clear to Jennifer that you do not and cannot represent her.

In addition, your activities to help one officer against another officer may raise conflict of interest issues. See, e.g., Matter of Strutz, 652 N.E.2d 41 (Ind. 1995) (entering into business transactions with clients without making full disclosure, preparing complaint for president of corporate client to file against the client, and entering appearance for plaintiff in derivative action against client after being terminated from his position as general counsel to corporate client warranted 2-year suspension).

Also relevant is Matter of Shirley, 930 N.E.2d 1135 (Ind. 2010). In Shirley, an attorney received a 30-day suspension for his representation of a family-owned company and one of its officers. The lawyer helped the officer to wrest sole control of the corporation from the officer’s mother and six siblings. The lawyer then charged the company to defend it against subsequent suits by the siblings who were fired. The attorney belatedly agreed that his fees were unreasonable because he (1) did not obtain the consent of the necessary principals, and (2) the corporation paid for legal work that inured solely to his individual client’s benefit. The court found that a mitigating factor was Shirley’s repayment of fees to the corporation when the corporation sued Shirley.

Under the Rules of Professional Responsibility, another issue the lawyer faces is whether Walter’s desire to force Jennifer out has created a situation where Walter’s interest is adverse to the entity’s (assuming that the lawyer took appropriate steps to avoid the formation of a client or prospective client relationship with Jennifer). However, given the potential for claims for breach of fiduciary duty or corporate waste created by Walter’s salary decisions, the better course is probably for the lawyer to recommend that Walter retain his own counsel.

We are appreciative of the generous input by Mr. Abel, Mr. Grodner, Mr. Kidd and Mr. Olmstead. To gain further insights from their Ethics in Business Representation CLE presentation, along with the array of topics discussed in ICLEF’s Advanced Business Law On-Demand seminar, Click Here. This CLE is available online at your convenience.

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Thank you to our Law Tips Faculty Contributors:

• Charles M. Kidd, Deputy Executive Secretary, Indiana Supreme Court Disciplinary Commission, Indianapolis
• Geoffrey M. Grodner, Mallor Grodner LLP, Bloomington
• Arend J. Abel, Cohen & Malad, LLP, Indianapolis
• Patrick J. Olmstead, Jr., Center Grove Law Office, Greenwood

An Everyday Scenario: Ethics in Business Representation

“Lawyers concerned about the ethics of business enterprise representations often think that, despite their best planning, there is some ethical or malpractice monster waiting in the future to trap them without warning. Although occasionally true, the more common situation is one where the lawyer (figuratively) steps on a legal land mine the lawyer placed years before.”

In the above synopsis our Advanced Business Law ethics panel, Geoffrey Grodner, Arend Abel, Charles Kidd, and Patrick Olmstead, Jr., set the stage for delving into ethics and professional responsibility situations that a business lawyer may face in everyday practice. Here on Law Tips they present you with a scenario and the possible issues. Make your own evaluation. What are the relevant professional responsibility considerations?  And how would you avoid potential pitfalls?

Scenario:
You represented Walter, an entrepreneur, about six months ago when he leased office space for a new business. At the time, he told you he was planning to develop a computer “role playing game.”  He shared with you that his plan was to come up with the concepts for the look, feel and user experience for the game, including characters, skills and abilities, levels, hazards and adversaries, and then to hire a programmer to write the code needed to implement those concepts. You listened politely, even encouragingly, but all you were hired to do at that time was negotiate a lease, and your engagement letter expressly stated as much.

Walter has now settled into his space and hired Jennifer to do computer programming. They have agreed that Walter will not pay her a salary, but that she will own a portion of the company, which they both believe will be highly profitable. Walter will retain voting control.  Walter asks you to form the company and set up the ownership as near to 50-50 as you can.

What ethical issues should you consider in this situation?
Examining this scenario, our panel presents the following issues to consider:
The key step that the attorney should take is to clarify who, specifically, the attorney does and does not represent. Absent some clarification, the attorney may be held to represent the entity under Ind. R. Prof. Con d. 1.13. See Jesse by Reinecke v. Danforth, 485 N.W.2d 63, 169 Wis.2d 229 (1992). In Jesse, the Wisconsin Supreme Court adopted a rule that a lawyer would be deemed to represent the entity “where (1) a person retains a lawyer for the purpose of organizing an entity and (2) the lawyer’s involvement with that person is directly related to that incorporation and (3) such entity is eventually incorporated, the entity rule applies retroactively such that the lawyer’s pre-incorporation involvement with the person is deemed to be representation of the entity, not the person.”  While Jesse did not address whether its “guideline” could be varied by the terms of the lawyer’s engagement, there is no apparent reason that it could not be. An attorney-client relationship is a consensual one, Douglas v. Monroe, 743 N.E.2d 1181, 1186 (Ind. Ct. App. 2001).

Due to the inevitable conflict among prospective constituents of an entity, when two or more persons come to a lawyer wanting to form a company, it may be advisable for the lawyer to individually represent one of them, and specifically advise the others that they may wish to seek independent counsel.

In fact, Comment 10 to Rule 1.13 provides that, where the lawyer does represent the entity, and conflicts among constituents arise “the lawyer should advise any constituent, whose interest the lawyer finds adverse to that of the organization of the conflict or potential conflict of interest, that the lawyer cannot represent such constituent, and that such person may wish to obtain independent representation.” Again, given the inherent legal conflict between co-owners, at the very least a clarification should be made and the co-owners should be given the opportunity to seek separate counsel.

Counsel should clarify who counsel represents at the earliest possible point, ideally before meeting with the two of them. Otherwise, the rule governing duties to prospective clients could become problematic. Rule 1.18(b) provides that a lawyer “shall not use or reveal information learned in the consultation” with a prospective client. In addition, Rule 1.18(b) provides that a lawyer who has learned information in a consultation with a prospective client “shall not represent a client with interests materially adverse to those of a prospective client in the same or a substantially related matter” absent an informed consent. A person can become a prospective client simply by “discuss[ing] with a lawyer the possibility of forming a client- lawyer relationship with respect to a matter.”

Thus, the lawyer should clarify who he represents before “learning” information from both constituents, at least if the lawyer wants to avoid the default rule of representing the entity.

Are there other ethical concerns in this scenario? How have you effectively handled these issues? Do you have questions? Feel free to leave comments at the bottom of this post.

You might want to take advantage of the thorough discussion of Ethical Concerns in Business Representation with attorneys from around the state through ICLEF’s On-Demand CLE programming. The recent Advanced Business Law seminar, covering several topics in this arena, is available at your convenience. You schedule the time and place, Click Here.