SaaS Business Law

I recently caught a glimpse of the logo for one of our SaaS Law clients, ExactTarget, while flipping through the television channels.  It was an episode of TLC’s “American Chopper” that first aired last Thursday for a bike built for Window World.  The bike was unveiled during the ceremonies surrounding the Indianapolis 500.  ExactTarget’s logo appeared briefly on the side of the pavilion and again on one of the race cars.

As cheesy as it might sound, I was excited to see one of our client’s logos on television, just as I am any time I see or read something positive about them in any form of media.  It’s like catching a familiar face in a crowded room.  It’s a part of our philosophy and culture at ACH:  our clients – be they in the areas of business law, entrepreneurial law, information technology law, SaaS law, internet law, or some other area – are more than just names on an accounting sheet; we think of them as partners, and we enjoy seeing their growth and success.  I look forward to that trend continuing, and to seeing many more of our client’s in the media.    

It’s not often that we at Alerding Castor Hewitt, LLP run into issues regarding the payment of commissions for our business law, SaaS law, and Indiana technology clients.  When the subject does arise, however, it usually occurs when an employee separates from employment and makes a wage claim for unpaid commissions.  The debate about whether the commissions are wages centers on whether the employee was entitled to the commission at the time of sale OR when the client pays for the product, service, etc.  Employers often want to argue that the latter applies, and for two obvious reasons:  (1) they want to avoid the penalties for unpaid wages, and (2) it can be economically difficult if not impossible to pay a commission if you don’t have the funds available because you are waiting on the client(s) to pay.

A recent decision by the Indiana Court of Appeals this week illustrates the issue.  On Wednesday, the Court issued its for-publication decision in Wells Fargo Insurance, Inc. v. Land, No. 48A02-0911-CV-1099.  The facts are fairly straight forward. Mr. Land sold crop insurance for Wells Fargo.  After Mr. Land separated from Well Fargo to start his own business, Wells Fargo sued Mr. Land for violating a covenant not to compete.  Mr. Land counterclaimed for unpaid commissions.  Wells Fargo argued that the unpaid commissions were not earned until after a farmer paid the insurance premium and relied on a written plan or policy to support its position.  In contrast, Mr. Land presented evidence – including deposition testimony from a manager – that he was never advised of this policy and was unaware that the policy existed.  Mr. Land won at the trial level and on appeal.

In addressing the issue on appeal, the Court of Appeals noted the general rule that a party is entitled to commissions right away on business that he/she has secured regardless of when payment is received by the employer.  The Court also noted that this general rule can be altered by written agreement or conduct of the parties.  Ultimately, the Court concluded that Wells Fargo’s policy did not alter the general rule because Mr. Land was neither aware of nor apprised of the policy on commissions.

Your friendly Indianapolis attorney and Partner In Success at Alerding Castor Hewitt, LLP here with another post, this time for both business entities and lawyers who find themselves in the trenches of business law, SaaS law, internet laws, and privacy litigation and probate litigation.  Partner and fellow blogger Dave Castor sort of beat me to the bunch by pointing out a great blog post by Michael P. Alerding (ACH’s Mike Alerding’s father) at Alerding & Co., LLC, which Dave re-posted below.  I encourage all of you to read it if you haven’t already.

Mr. Alerding’s blog is not only great for businesses; it’s good for lawyers, too.  We can debate all day long the chicken and the egg analogy about who is to blame for the “downward spiral” Mr. Alerding mentions.  I propose that a better use of our time would be to recognize the problem and all work collectively as lawyers and business people to resolve it.  Indeed, lawyers have a unique opportunity to help guide their clients to a resolution of issues, and they should feel that it is an obligation to work to get the client to do the “right thing.”  Not only that, we as lawyers should take pride in being able to assist with that process.     

Of course, I am one of those people who believe that words mean something.  But I agree with the implications of Mr. Alerding’s post that the world is getting a little “overly-lawyered” with its legalese.  For instance, if you can say something in 10 words, why use 45 to say the same thing?  Do you have to flex your ego or demonstrate your academic prowess, or are you trying bill that extra time to demonstrate your worth to the client or partners?  Likewise, a deal or agreement should remain a deal or agreement.  So, as lawyers, if we tell another lawyer that we are going to look into something, or make a concession, why do we feel that we aren’t bound if we didn’t put it in writing?  Why do some of us feel like we can play games (like “gotcha”) with an opposing party or competitor?  Why do we as lawyers avoid doing the “right thing” and focus so much on “winning” an argument, or fall back on the excuse “well, I have to be a zealous advocate”?     

All that the one-upmanship mentality or reneging on oral promises does is add to an aura of mistrust in a world that, in the modern age of technology, isn’t that big.  Lawyers, i.e., folks engaged in the business and practice of law, can take away a lot from Mr. Adlerding’s message in our practice and in our counseling of our clients.

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with an issue for those of you who, from time to time, might find yourselves embroiled in collections litigation over business law, SaaS law, or technology law matters.  How often have you seen a debtor issue a check for payment and include on the memo line words to the effect of “as full satisfaction of claim,” “final payment in full of debt,” or some similar words despite the fact that the debtor owes you more than the face amount of the check?  How many of you would go ahead and cash the check, or worse yet not even notice the memo line because you routinely cash every check you receive or utilize an automated system to process checks?

The questions I pose are more than mere hypotheticals.  The savvy debtor, or more likely the debtor relying on the advice of savvy counsel, realizes that by including such words on the memo line of a check he or she could create a potential issue regarding an accord and satisfaction of the debt he or she owes to you if you have to file suit to collect on the debt.  If nothing else, the debtor knows that you will either have to negotiate with them or spend money litigating the issue.  Either way, when it’s all said and done, you will likely lose money collecting on the debt.

The applicable Indiana statute here is Indiana Code § 26-1-3.1-311.  I encourage you to read the provision for yourself; however, in a nutshell, it gives the debtor who utilizes the memo line a possible “out” on the debt.  For instance, the debt can be considered as discharged if you knew that the check was tendered in full satisfaction of the debt and either (a) before tender of the check did not send a conspicuous statement to the debtor that communications regarding disputed debts or instruments tendered as full satisfaction must be sent to a designated person, office or place, or (b) did not tender repayment to the debtor within 90 days.  Those of you who take the time to read the statute might also notice that, technically speaking, the debtor is required to prove that he or she tendered the payment in good faith as full satisfaction and prove that the amount “was unliquidated or subject to a bona fide dispute.”  In practice, however, it has been our experience at ACH that courts either do not enforce the technical requirements or, more often, are reluctant to resolve them because they see the issue as a factual dispute (a case of “he/she says v. what you say”) that requires a trial to resolve.          

So what should you do when faced with this scenario?  The best solution harkens back to the old saw about an ounce of prevention being worth a pound of cure:  we at ACH recommend that you implement some process or system to monitor payment checks and, if you find that a debtor is trying to slip by on what they owe you by utilizing the memo line as I’ve described, do NOT cash the check.  Instead, notify the debtor immediately of the dispute and non-conforming payment.  While the risk is that you might lose out on a payment from a debtor who intends to stop paying you anyway, the benefit of such a practice is that you do not give the debtor a potential defense argument that results in greater collection costs and could result in you being unable to collect on the full debt owed to you. 

        War at its best is barbarism.

Every attempt to make war easy and safe will result in humiliation and disaster.

                                    --William Tecumseh Sherman

Though he said these words nearly a century and a half ago, General Sherman’s comments apply equally well to litigation, including the world of business law, technology law, SaaS law, and probate law.  Litigation is a serious business, not something to be undertaken lightly.  And it is often expensive – regardless of who has so-called “right” on their side because, just as in warfare, both sides often express to being on the “right” side.

Just like warfare, there is an element of risk and chance in litigation.  Further, litigation can entail subterfuge and trying to pscyh out the opposing party.  Sometimes you can achieve victory by making your opponent think that Point A is your objective so that when he or she marshals all of their forces in defense around that position, you pop up over at Point B.  General Sherman employed this same tactic in his march to the sea, and it can be just as effective in litigation.

You might wonder why litigation seems to be much ado about nothing at times, why a large amount of energy, time and money is spent sweating over details.  The reason is that the minutiae should not be underestimated.  Those of us who are litigators in business law, technology law, SaaS law, and probate law don’t engage in these skirmishes simply because we want to or love to (though admittedly this might be true for some); we do it because in order to fully represent you our clients we HAVE to do so.  We know that the little details can make or break a case, and we know that those fights over the placement of a comma or definition of a word, though long and tedious, can help stave off those future battles or wars – or at least give you the advantage of the high ground from which to pounce on your opponent later on.

Just like warfare, fairness has nothing to do with it.  If you want to be involved in a lawsuit, you have to be willing to go the distance, and no matter how tiring you have to keep your eye on your objective.  It’s a marathon, not a sprint, and you have to be ready for the long haul.  If litigation were easy, you wouldn’t be in a lawsuit in the first place; you could sort out your differences over a couple of beers.  But sadly that’s often not the case.  It takes money, time, and even frustration to flesh out a resolution.  Someone, and probably both sides, will probably bleed before it is over.

At Alerding Castor Hewitt LLP, we are ready and willing to go that distance with you, but the process works best if you are prepared to make that journey and are prepared for the cost and risk.  If you stumble during a battle, get back up and remember that it’s warfare and that we will be there for you in those trenches.    

I am an Indianapolis Attorney here at Alerding Castor Hewitt LLP.  This is my first blog post – so bear with me.  As a brief introduction, my role at ACH is working on our litigation team, both at trial and on appeal if necessary, on issues related to business law, probate litigation, SaaS litigation, and other technology litigation – just to name a few of the areas.

One area often overlooked in the litigation process is the area of collections.  Some lawyers might look upon the collection process with disdain because it’s not as “sexy” as doing other things.  But at bottom, bringing a suit is all about collecting money.  After all, a judgment is just a piece of paper.  At ACH, we pride ourselves on being able to assist clients in the collection process; it’s a part of our commitment to being a Partner in Success and we represent a variety of clients in business litigation and technology litigation in this process.

We often encounter situations where we have an out-of-state defendant who has breached a contract by failing to pay for services.  In fact, it’s not that unusual in cases for our SaaS law and technology law clients for this to occur.  Many times such a defendant will fail to appear to defend itself in the suit and we wind up obtaining a default judgment for our clients.  The question is, what do you do next?  Do you undertake a proceeding supplemental in Indiana to try to collect on a judgment when the defendant is unlikely to show, or do you take your default judgment (i.e., piece of paper) to the defendant’s state and try to domesticate it (in other words, try to collect there)?

I recently witnessed a couple of examples of this very situation.  The answer boils down to a matter of cost-benefit analysis.  In my humble opinion, it’s probably worth the minimal time and effort to undertake a proceeding supplemental in Indiana.  Plus, you don’t have to immediately take on the added expense of hiring another lawyer in the defendant’s state to do the job for you.            

The reason for this is that you never know what will motivate someone to make good on a debt owed to you, or at least negotiate some sort of payment arrangement.  While it doesn’t happen in every case, it’s not unusual for a defendant to try to resolve a case after receiving notice of a proceeding supplemental.  This is even more likely once they receive notice of one of the later steps in that process, such as an order to show cause why the defendant should not be held in contempt for failing to appear or a body attachment warrant to arrest the defendant.  And if it doesn’t work out, you’ll still have your judgment that you can take to the other state.