Securities Lawyers

Funding Law - Guidelines For Business Plans

Saturday, September 4, 2010 by David Castor

Today I am preparing for a guest lecture at Purdue University's Discovery Park this week on developing business plans and my experience as an entrepreneur. I read a lot of business plans - about 100 per year, and I also help draft business plans and pro formas for business law clients and my own companies.

Here are some general guidelines to consider when developing a business plan:

1.    Write to the intended audience. Is the reader the leadership team or potential investors? If to investors, understand that they have little patience and severe ADD. The plan should be succinct and to the point. What does your company do? What pain are you solving in the market? How will you do that at a profit? Think proof of concept, proof of scale, proof of profit.

2.    Focus on math and metrics. What are your sources and uses? What are your fixed costs? What are your variable costs? What could influence these variables? Why are the revenue projections correct - they should never be “conservative”.  I hear this all the time, "Our projections are conservative" (note, the investor doesn't believe you). If you have done your research, you should know exactly what you expect your projections to be.

3.    Don’t lie, exaggerate or assume. Actually, exaggerations and undisclosed assumptions are lies – so simply, don’t lie. My mom taught me this when I was 3.

4.    Know your numbers, your market, and your projections inside out. There is no reason for guess work in a business plan. Ask why, when, who, what and how for every line item in the plan.

Investors like succinct detail. I often see plans that round start up expenses to the nearest thousand or ten thousand dollar - this tells me they are guessing and don't have their shop in order. Plans that have start up costs down to the dollar (or even cent) tell me that the team knows their numbers. Back in 2007, the first year of Alerding Castor Hewitt, my expense projections were $27 off of our year end actuals. This was not done through guess work - we painstakingly worked through every line item expense and received quotes for most of our start up costs, and we monitored our variable costs and kept them on budget.

See also:
Funding Law - Investor Impatience
Random Thoughts on Private Equity
Funding Law - Know Your Numbers
Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Funding Law - Presentations to Investors

Africa: One of the safest places to surf the Web.

Wednesday, September 1, 2010 by Chris Stephen

Your friendly neighborhood technology legal counsel here: I recently saw an article over at PC World that security firm AVG recently did a study of the safest countries in which to surf the Internet. Seven of the top ten are in Africa, with Sierra Leone rated the safest. The study is based on incidence of attack by a compiled list of virus and malware attacks. The study found that Sierra Leone's average incident rate was one attack in every 692 surfers. Niger also fared well with 1 in 442 rate.

Now, I'm not going to get into the details of the survey, and there are obvious flaws. Particularly since you have a significantly lower number of users logging-on in Africa when compared to the U.S. or Europe. However, the results do bode well for that continent. Result like these may well attract private equity firms who are interested in doing more in the cloud or with SaaS.

Way back in January, 2009, David Castor wrote a good post entitled "Now is the Time to Invest in Africa" (blog.alerdingcastor.com/blog/business/0/0/now-is-the-time-to-invest-in-africa). I can only imagine that findings like the ones from AVG are only going to continue to continue to fuel the investment potential there.

For those interested, the worst places to surf are Turkey, Russia, and Armenia. The U.S. ranked ninth.

Memo from Uncle Sam: Die Hard 4 wasn't all that impossible; let us help you

Monday, August 30, 2010 by Chris Stephen

Another post that doesn't quite fit neatly into Indiana Internet litigation or privacy law, but that intrigues me. BusinessWeek, passing along a Tim Greene article from NetworkWorld (found here: www.networkworld.com/nwlookup.jsp), is reporting that the U.S. military has issued an essay in which it urges its expertise in defense be put to use in protecting civilian networked infrastructure, such as power grids, financial institutions, etc. The essay from Foreign Affairs sets out the concept that our military networks are probed and scanned by outside sources millions of time a day by enemies looking for weakness and access. The Pentagon fears that the civilian cyberstructure could also be at risk from cyber-terrorism and that the U.S. military can help by using its tools to protect those necessary networks.

This concept imposes a sense of fear and foreboding in your friendly neighborhood technology legal counsel. On one hand, I can recognize the importance of protecting those networks. If Bruce Willis and Justin Long taught us nothing, it is that a "fire sale" can cripple this country (and big props to Kevin Smith for his part in that flick). Other than our Amish citizens, we, as a people, rely so heavily on our networks that we need to protect them. However, the idea of the government and military putting their hands into the inner workings of those civilian networks also scares the heck out of me. There are too many "technology deciding it knows what's best for us" movies for me to not worry about increased presence of government and military in our cyberworld.

I guess, the reality is that I have no answer to this issue, but I thought it was interesting. Like many of the questions we see arising in the cyberlaw realm, the answer to military intrusion in your civilian networks is "how much are you willing to give up in order to be safe?"

Alerding Castor Hewitt on Corporate Blogging for Dummies

Monday, August 30, 2010 by Janet Monroe

Alerding Castor Hewitt, LLP is a law firm that does a substantial amount of legal work with clients in SaaS law and as technology legal counsel. So much so that we were asked to contribute to Corporate Blogging for Dummies, a best practices book that our friends Douglas Karr and Chantelle Flannery were approached to write.

As a law firm that utilizes blogging to reach our current and potential clients, the Alerding Castor Hewitt, LLP website was featured as an example within these pages. Partner David Castor contributed to the sections regarding legal services and our firm's blogging site. Using Compendium's blogware, we have been participating in blogging for over two years and have been able to connect with private equity investors and constituents in the realm of business law, including software litigation and SaaS legal consulting.

Check out Corporate Blogging for Dummies for more information on how you can use this SaaS tool to help grow your own business. Blogging is an effective way to help build a relationship with your audience. This book will show you how.

Repost: Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards

Sunday, August 29, 2010 by Chris Stephen

I don't often blanket repost other blogs that I see, however, in this instance, I think it is appropriate. Venkat, writing for Professor Goldman's blog, writes an excellent analysis of the recent ruling in the In re: Easysaver Rewards Litigation (S.D. Cal. August 13, 2010). This is a very interesting case in that it covers several different, more traditional causes of action and analysis. I'm interested to see what ramification this case is going to have on SaaS law and privacy litigation. Here you go:

"Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards

[Post by Venkat]

In re: Easysaver Rewards Litigation (S.D. Cal.) (Aug. 13, 2010)

Plaintiffs brought a class action lawsuit against Provide-Commerce (which operated Pro.Flowers.com). The lawsuit alleged that effecting transactions on the Proflowers website resulted in plaintiffs being unwittingly enrolled in a rewards program and being charged credit card fees. The court denied the motion to dismiss brought by defendants.

Background: Provide operated ProFlowers.com. At the time of completion of transactions on ProFlowers, consumers were offered a chance to enroll in a "rewards program" which was operated for Provide by Encore Marketing. Plaintiffs alleged that they were "unwittingly" enrolled in the program:

Plaintiffs allege that Provide leads customers to believe they will receive a complimentary $15.00 gift code to use on their next flower order as a thank you gift. After Plaintiffs completed the purchase of flowers on Provide's website by providing their personal and payment information, 'a window popped up that thanked Plaintiffs and Class Members for their order and offered a gift code for $15.00 off their next purchase at ProFlowers. The window also contained a link for Plaintiffs and Class Members to click on to claim the gift code.' Plaintiffs contend the pop-up window is part of an intentionally misleading and deceptive scheme, jointly orchestrated by Provide and EMI.

The named plaintiffs all testified to slightly different experiences. Some closed the pop-up window and did not provide any personal information, others responded to the pop-up by clicking on "I accept" and entering their personal information. Ultimately, plaintiffs were unable to have the charges relating to the EasySaver program reversed, and brought a variety of claims against both Provide and Encore.

Discussion:

Breach of Contract Claims:

Provide first argued that the privacy policy is not "an actionable contract" but was instead a "general statement . . . of policy." The court doesn't treat this as a colorable argument, citing to the alleged user experience and plaintiffs' reliance on the privacy policy and terms of use, which popped up every step of the way. (But see In re JetBlue, discussed in Professor Goldman's post here: "When Does a Privacy Policy Breach Support a Breach of Contract Claim? In re JetBlue.")

Provide also argued that the applicable privacy policy allowed it to transfer information to third parties, but the court holds that there is a disputed factual issue as to whether Provide agreed to only transfer the information with consumers' "informed consent or authorization," and would not share the information "beyond that which was necessary to complete the flower order."

Finally, Provide argued that the "EasySaver Rewards Policy" was not supported by an exchange of consideration, since it only came up after the flower transaction was complete. The court rejects this argument as well, finding that the rewards program was "part and parcel of the underlying flower purchase."

Provide also tried to disclaim liability for Encore's actions by arguing that it was not responsible for anything Encore did. The court cites to language in the description of the rewards program that indicates the program was jointly operated (the program was described as "our" program and Encore was described as Provide's "partner").

A separate sub-class of plaintiffs brought contract claims against Encore. These plaintiffs argued that they did not "knowingly" consent to the rewards program, and even if they did, Encore breached the terms of the program by not providing the stated benefits. Encore argued that these plaintiffs could not have it both ways - either they enrolled in the program (in which case plaintiffs accepted the terms were clearly stated) or they didn't. The court finds that plaintiffs could plead in the alternative that they did not enter into an agreement, and even if they did, Encore breached the terms of the agreement.

Fraud Claims: Provide raised a variety of arguments against plaintiffs' fraud claims (failure to plead fraud with particularity, failure to allege causation). The court rejects these arguments, holding that whether plaintiffs read the privacy policy or had adequate notice is not something that was amenable to resolution at the motion to dismiss stage.

Conversion: Plaintiffs argued that defendants converted plaintiffs' "private payment information." With respect to plaintiffs' conversation claim, the court notes the historical trend away from limiting conversation claims to tangible property (citing to Kremen v. Cohen, among other cases). The court analogizes conversion of plaintiff's "Private Payment Information" to conversion of bank account information, and finds that plaintiffs adequately state a claim based on conversion of private payment information.

EFTA: The Electronic Funds Transfer Act prohibits, among other things, unauthorized billing. Provide argued that it was Encore and not Provide who engaged in the unauthorized billing. The court agrees and grants Provide's motion to dismiss as to the EFTA claim, finding that there is no liability under the statute for aiding and abetting an EFTA violation. With respect to Encore, the court denies the motion to dismiss. Among other things, the court rejects Encore's argument that the plaintiffs agreed to the membership charges by "entering [their] email address[es] and zip code[s] and clicking the green acceptance button."

___

Defendants will have another opportunity to show that plaintiffs' claims are without merit, but I think the court's resolution at the pleading stage is interesting. A more robust disclaimer and a non-leaky acknowledgment would have no doubt been useful here. (See professor Goldman's post on Scherillo v. Dun and Bradstreet for some good pointers.)

The case also illustrates the importance of the transaction flow and process (the user experience). Often lawyers provide advice, but implementation is left to the business or marketing folks. This case illustrates that in addition to the language of the terms, courts will look to the transaction process to poke holes in the contract formation argument.

Data breach claims alleging a breach of the applicable privacy policy have met with little success. (See, e.g., Ruiz v. Gap, discussed in this post: "9th Circuit Affirms Rejection of Data Breach Claims Against Gap.") Where there is out of pocket loss that is a result of a violation of the privacy policy, plaintiffs have a much easier time bringing claims for violation of the privacy policy. In this case, defendants didn't even raise the argument that plaintiffs had not suffered out of pocket loss or lacked standing - it was a nonstarter.

It was also interesting that defendants tried to rely (and have judicial notice taken of) the online terms, but the court refused to do so, in light of the changing content of the webpages. When defendants pushed this argument, the court predictably trotted out the "[i]nformation from the internet does not necessarily bear an indicia of reliability" argument."

FTC settles case with paid reviewer

Sunday, August 29, 2010 by Chris Stephen

Back in October, 2009, I posted about the new endorsement / testimonial rules set out by the Federal Trad Commission (blog.alerdingcastor.com/blog/alerding-castor/0/0/ftc-makes-changes-to-blog-law). There has been some development since that time, but mostly everyone is still watching and waiting. The FTC did threaten to pursue Ann Taylor back in April, but otherwise, it has been relatively silent.

That is, however, until now. On August 26, 2010, the FTC reached a settlement with Reverb Communications regarding positive reviews that it left on iTunes for its clients' apps (FTC No. 092-3199). This is an instance where the FTC investigated and pursued an online review source that failed to disclose its material relationship with the party it reviewed.

Reverb Communication reached a settlement with the FTC in which it agreed to remove all product review or endorsement that is currently viewable by the public. There is also a five (5) year evidence maintenance component, including producing all complaints. Finally, there is a requirement that Reverb and its owner deliver copies of the settlement order to all of its current and future employees, agents, and representatives.

I don't really know whether this can be classified as software litigation, privacy litigation, or any other hot-button issue, but as a technology legal counsel, I find this order and settlement to be extremely important. With this very public order, the FTC is making a shot across the bow of all businesses that engage in on-line review of products as part of their business plan. The public nature of the Reverb order is, to me, more telling than any of the language contained therein. Thus, if you blog and '/ or make endorsements as part of your business plan, you need to have your eyes on the lookout for areas where your material connection can be questioned. If those areas, exist, you are exposed to the sanctions and reach of 16 CF.R. 255.0. BE AWARE!

One thing to remember is that the reviews posted by Reverb were not excessive or detailed, and could well have been completely true. "Amazing new game"; "ONE of the BEST"; "Really Cool Game", etc. Obviously, these were not voluminous diatribes expounding the virtues of their client. I almost wonder if the FTC would have scrutinized them as much if they had been more detailed, i.e. if it were more obvious they were paid, would the FTC care as much.

Another point to ponder is that the Reverb order does not go after any of the clients of the company who paid for these endorsements. But, the FTC has considered doing just that in the past. Thus, clients of businesses that are paid for building product and branding support need to be aware of these risks. You may wish to consult with your technology legal counsel to include language in your agreements that protect you against the ramifications of an FTC probe into your marketer. Or if you are a marketer, you may want to consider adding language to your agreements that detail what you will do or won't do with regard to this issue.

Here is a scenario that I can easily see playing out. Marketing Company X enters into an agreement with Client Y for, among other things, on-line marketing and endorsement. Marketing Company X doesn't comply with the FTC guidelines and gets an inquiry. Client Y also gets swept into the inquiry and the "scandal". Client Y then sues Marketing Company X for damages in lost profit, costs, and injury to reputation that it incurs as a result of the improper reviewing. And, I'm not sure that 47 USC 230 would give the Marketing Company X much protection. Thus, if you are Marketing Company X, I suggest that you make sure that such possibilities are clearly addressed in your upfront agreement.

The bottom line is that these laws are not new, but orders like the Reverb order are indicative of a new push by the government to regulate the Internet, and a wake-up call to the fact that the U.S. Government is watching the 'net. If you make your living through the online presence and word-of-mouth, you need to be aware and plan accordingly. Change your actions now to protect yourself down the road.

Business Law - Hire Good, Smart People To Ask Good Questions

Sunday, August 29, 2010 by David Castor

I was reminded today of something told to me by a friend last year:

Good people who are smart ask good questions

Bad people who are smart ask bad questions

Good people who are not smart ask bad questions

In business we are always looking for answers – but what we really want are good answers. Today the issue is never whether we have enough data (we arguably have too much), it is whether we can properly utilize that data to make better decisions. I see this especially in my Internet Law / SaaS law practice where an immense amount of data is available. Analytics and business intelligence tools can help – but they are still based on one critical factor:

It still takes good people who are smart to ask good questions before any data analysis tools can help develop good answers.

Think Enron and Madoff for examples of smart people who are "bad" and purposely misuse data to manipulate and misrepresent answers.

See also:

Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Keep the Good Ideas Coming but Stay Focused
Business Law - 10 Common Negotiation Mistakes
Funding Law - Presentations to Investors

~~~~~~

Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.

BUSINESS LAW – WHAT’S IN A NAME?

Thursday, August 26, 2010 by Scott Kreider

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with a history lesson and tie in to business law. Most of you have probably heard the term “gerrymander” and know that it refers to a process of dividing a territory into districts in order to give one political party an advantage over another by concentrating the voting strength of that party in as many districts as possible. Fewer of you probably know the origin of the term, and I imagine that even fewer know much about the man whose name spawned the term.

The term first originated in 1812 to describe a rather bizarre looking district boundary in Essex County, Massachusetts attributable to then-Governor of that state, Elbridge Gerry. Gerry had signed a bill passed by the state’s legislature to redraw districts that favored his party, the Democratic-Republicans, over the Federalists (whose influence was on the decline). Gerry would go on to be elected Vice President later that year and served under President James Madison; however, he died a couple of years later in office at the age of 70, thereby becoming the first Vice President who did not go on to become President.

Despite the notorious practice that has been associated with his name, Gerry was a Founding Father who made several contributions to the country: For example, he was a signer of both the Declaration of Independence and of the Articles of Confederation. He was also among the dissenting voices that refused to sign the Constitution because it did not contain a bill of rights. As those historians among you know, it was an agreement to create the Bill of Rights (the first ten amendments to the Constitution) that helped to secure ratification of the Constitution.

So how does this tie in to business law, and how does it relate to our business law, Saas law, entrepreneurial law, Indiana technology, and trademark clients? It illustrates how one false step can overshadow an individual’s contributions to our global community and then be forgotten to history. We at Alerding Castor Hewitt LLP know how important your name and reputation are to you; we feel the same way about our own name and reputation. It’s why we are committed to working with you at the planning stage of your business, in securing venture capital, and in helping you with your litigation needs so that you can secure and maintain that name and reputation, and the goodwill that goes with it, so that your name doesn’t get sullied and become the next “gerrymander.”

Business Law - How To Kick Out Jerks

Thursday, August 26, 2010 by David Castor

I work with a national angel investor group that invites members (investors) to join on two general rules:

1. You cannot be a jerk;
2. You have to invest in companies.

The President of this organization has removed a couple of members this year because they received rule #1 complaints from other members.

In my funding law practice I represent and/or work with several private equity firms, angel investor groups and private equity funds. Most funds and angel investor groups run into this jerk factor issue at some point in their life cycle.

What do you do when a member is being a jerk? For traditional angel investor groups the answer can be easier. Best practice is to get the member to join based on certain membership rules which they sign to. A common rule is that if 2 other members formally complain about the jerk's conduct the President can kick the jerk out. Make sure to address in the rules what you do with membership fees that were paid by the jerk.

For private equity funds the answer is harder. They are not paying membership fees - they are investing dollars into a fund that is making long term investments. Now you have securities law issues. You can add call provisions to the operating agreement (i.e., you can buy back their membership units on certain conditions), but then you have to address the call value. If you are merely giving money back, that can cause trouble as you are giving managers a lot of room to take out investors late in the fund's life for minimal dollars. Managers risk fiduciary breach claims. If you make the call value based on FMV - that will be difficult to determine 3 or 4 years into the funds life. You also may create an incentive for fund members to want to get kicked out so they can realize the FMV of their investment before the end of the fund's life.

Some funds address the jerk factor by essentially treating fund members as silent investors - they invest money but have little or no voting rights. Managers don't have an obligation to deal with them.

Best practice for private equity funds is to be very careful upfront about who you ask to take part. If the person is going to annoy you, the other members or the target companies' teams, you may not want them to take part no matter how much money they bring to the table.

Business Law - Consider Your Social Media Policy

Wednesday, August 25, 2010 by David Castor

I probably hate the word "policy" as much as any word in the English language, but I think company policies can be helpful - in both giving employees information on what is available to them and what conduct is expected of them.

In the last couple of years I have noticed a rise of social media policies in company employee handbooks. Most larger companies have Internet use policies stating that employees may not use company time or computers for personal Internet usage. The main goal here is to keep administrative staff off of Facebook during the day so they will focus on work. These new social media policies are reaching beyond company time and setting an expectation of personal conduct on social media tools.

There are several case opinions where employers were either found liable or were harmed for issues related to employees using Facebook, Twitter or another social media tool to express displeasure with the company, harass another employee, or divulge confidential information of the company. These were often done in off-hour periods on personal computers.

It is something to consider. In my business law / SaaS law practice most of my clients' employees are active in social media worlds. The best way to reign in what they are saying about you in social media is to give them direction on what they can or cannot say. It also can give rise to a "for cause" dismissal if there is a clear violation of the policy.

Congrats to ExactTarget on acquisition

Tuesday, August 24, 2010 by Chris Stephen

Below is a nice little article by Tom Spalding at the Indianapolis Star detailing the ExactTarget acquisition of Australian-based mPath Global. We are always happy to see our clients grow and expand. I know that Scott Kreider recently blogged about the importance of our "Partners in Success" mantra. It is never truer than when our clients seize an opportunity to take their business to the next level. Congrats again to all of the folks over at ExactTarget.

"ExactTarget, the fast-growing e-mail marketing and interactive marketer whose headquarters are on Monument Circle, today said it acquired its Australian-based partner, its third buyout since fall 2009.

The company bought mPath Global in Sydney and Melbourne, which it had worked with since 2005, and renamed that operation ExactTarget Australia. mPath has 150 clients.

Chris Gartlan, chief executive and founder of mPath Global, will lead ExactTarget’s new Australian operation as managing director. All mPath employees have accepted positions with ExactTarget Australia.

No financial terms of the deal were disclosed. CEO Scott Dorsey did not say what prompted the purchase.

The acquisition of mPath Global is the third ExactTarget acquisition in the past year, following the March buyout of San Francisco-based Twitter platform CoTweet and the purchase in September 2009 of Keymail Marketing that allowed ExactTarget to create a new international division in London.

ExactTarget’s clients include Expedia.com, Fairfax Digital, Best Buy, CareerBuilder.com, Gannett Co. (parent of The Indianapolis Star), Tennis Australia, The Home Depot and Indianapolis-based WellPoint.

The company now employs 730; approximately 550 of those employees are in Indianapolis."

ALERDING CASTOR HEWITT LLP: OUR CLIENTS, OUR PARTNERS

Monday, August 23, 2010 by Scott Kreider

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.

Never underestimate your staff, but rather, allow them to envision and strive for excellence

Sunday, August 22, 2010 by Chris Stephen

The ACH litigation team had its first ever (as far as I'm aware) litigation retreat this weekend, and as I reminisce on our time, I am struck by the realization that to be a successful business, you have to allow your team to envision and strive for excellence with you. This weekend we had some great discussion and "vision-casting" on the areas of privacy litigation, Indiana probate litigation, business law, Internet litigation, banking law, SaaS litigation, and several other areas where we are already working and where we can work more, and throughout the discussions, I was struck again and again by how fantastic and forward-thinking everyone on our team is. The moral of the story to me is that you, as a business person, have surrounded yourself with excellent people. You need to listen to them and see where they can take your company. It doesn't matter what "position" they have in the company because everyone has ideas. Your goal as a manager should be to foster those ideas and push them to verbalize and realize those ideas. Otherwise, you will achieve nothing but stagnation. However, if you allow your team to envision with you, not only will you get some great ideas, but they will also own a piece of your business' future. They will have a stake in your game. Allow them to participate and purposefully embrace their ideas of the company and you can't avoid great results.

Minority and Women Owned Business Enterprises

Friday, August 20, 2010 by Janet Monroe

Something that women and/or minority business owners may want to consider is registration with the Indiana Department of Administration Minority and Women's Business Enterprises Division to become certified as a minority-owned or woman-owned business.

Established in order to give such businesses an equal opportunity to participate in the state purchasing process, the criteria considered for such certification include that the minority/woman member possess:

ownership of the business (at least 51%);
the requisite expertise in the industry;
management and control of the entity and its operations; and
U.S. citizenship.

It is an onerous application process, which includes on-site visits, interviews, and the submission of documentation to support the status of the business. However, it could be well worth registration to those who are qualifying entities, as each year the Governor's Commission on Minority and Women's Business Enterprises votes on contracting goals and sets the level of participation for minority- and women-owned firms on state contracts.

If you are a minority or woman owned business enterprise, you may want to consider certification to give you an edge on state contracts and perhaps other opportunities.

As an attorney with Alerding Castor Hewitt, LLP, an Indianapolis business law firm that provides legal counsel to companies of all sizes, my practice ranges from formations of young start up companies to assisting with licensing agreement negotiations for well-established corporations.

And, as a woman and a minority myself, I am more than willing to help guide clients through the process to achieve certifcation as a minority or woman owned business enterprise.

Funding Law - Is The Person Coachable?

Tuesday, August 17, 2010 by David Castor

I attended an angel investor group meeting today. This was an interesting group - only 10 or so people, each of very high net worth, looking for large investment opportunities. They remind me more of a private equity firm with the types of deals they are considering, but they invest individually - maintaining the typical angel investor dynamic.

One investor is a recently retired C-level executive of a fortune 100 company. He told me about his approach to investments - questions he works through in the following order:

1. Is the key person (people) coachable?
2. Are the finances and projections in order?
3. Do I believe in the market opportunity and the ability of the company to meet the opportunity?

I boil down every private equity investment consideration into 3 categories - management team, market opportunity and capital structure. That is exactly what he did, but he put his priority to them. All 3 have to be there in order to have a shot for his investment, but if he is not satisfied with the first answer - the key manager's ability to take wise direction, grow, and get out of their own way - he will not move forward.

More companies fail due to management team issues than poor market planning and lack of capital combined. I would say that poor market planning and lack of capital are actually a sign of poor management. Yet with the amount of work I do in tech sectors I still see many businesses started by strong headed technicians who are seeking to advance their brain child off of other people's money without much care to the financial responsibility or solid to-market strategies necessary for a successful business. Stay away from these folks! They are tricky, but try to identify them early!

I could not agree more with this guy's approach. If the key person is not coachable, you have a pride issue that will lead to the company's failure. Great question to ask out of the gate.

Firm Joins Innovation Summit as a Sponsor

Wednesday, August 11, 2010 by Lainey Scheetz

FIRM JOINS INNOVATION SUMMIT AS SPONSOR

For the second year in a row, the firm committed to this year’s Innovation Summit as the Plenary Panel Sponsor.

This annual event brings together entrepreneurs, executives and policymakers for learning, dialogue and debate on the central challenge of today’s economy – turning today’s ideas into tomorrow’s business breakthroughs. The Summit includes keynote speakers, breakout sessions on a variety of innovation related topics, and dozens of trade and industry booths.

Innovation Summit will feature iconoclastic technology writer Nicholas Carr as the keynote speaker, author of the recently released book, The Shallows: What the Internet Is Doing to Our Brains. Agree or disagree with him, Carr makes us think – and that’s the first step towards innovation.

“There is no other event in the city that brings together this unique blend of people. The end result is sure to be an unprecedented amount of thought leadership in the innovation realm. Alerding Castor Hewitt, LLP could not be more excited to be a corporate partner,” comments David Castor, founding partner of Alerding Castor Hewitt, LLP.

Annual attendees include: Chief Executive Officers, CIO, CFO, CTO Executives, University Presidents, Association Leaders, Marketing Executives, Leading Educators and Scientists & Engineers.

Firm at a Glance:

Practice Areas: business counsel, licensing and technology legal counsel, software litigation

Headquarters: 47 S. Pennsylvania St., Suite 700

Founded: April 2007

Partners: Michael Alerding, David Castor, Brian Hewitt

Employees: 17, nine of them attorneys

Clients: 300, including Compendium Blogware, Iasta, First Merchants Bank, Indiana Bank and Trust, MainSource Bank

Business Law - Being A Deal Maker

Tuesday, August 10, 2010 by David Castor

One of my favorite aspects of building a business law / private equity firm is seeing clients set and reach business goals. Many clients face complicated issues that need careful legal analysis and creative planning. Unfortuantely, most attorneys focus on the problems with the complicated deals and have trouble finding creative ways to navigate the legal minefield. Alerding Castor Hewitt takes a unique approach on business law in that we consider ourselves "deal makers" rather than what most attorneys are - "deal breakers." We work hard at finding creative legal solutions to make business happen.

Today my colleague, Sam Schumutte, worked with California attorney on a client's complicated real estate business and private equity raise. He received one of the best compliments I have ever read. The CA attorney e-mailed the client, cc'ed me and Sam, and said:

Sam from David Castor's office and I just solved the real estate distribution puzzle. The solution is sort of complicated, but I will get you a write-up to explain what we can/should say... Sam is a rare attorney who knows securities law and who is an artful “deal maker” (unlike the great horde of “deal breaker” attorneys who will bring up problems without offering positive solutions.)

Sam's response was also encouraging:

Thank you for your very kind remarks and vote of confidence, it means a lot coming from you. I will always endeavor to find solutions to move forward, finding obstacles is far too easy – our clients deserve much more. Again, thank you and I look forward to many years of collaboration with you.

Those are the conversations that keep me excited about what we are doing.

Discoverability of social networking profiles in Federal court

Friday, August 6, 2010 by Chris Stephen

Gather 'round kids, this one is interesting. The decision actually came out in May, 2010, and I regret that I haven't had a chance to blog on it until now, but it is still a very interesting order that should have implications to privacy litigation, and litigation in general. In EEOC v. Simply Storage Management, LLC, Docket No. 09-CV-01223, the Southern District of Indiana was faced with the issue of discovery of social networking profiles of two individuals that claimed sexual harrassment by a supervisor. In its discovery, the Company requested "electronic copies of ********'s complete profile on Facebook and MySpace (including all updates, changes, or modifications to *******'s profile) and all status updates, message, wall comments, causes joined, groups joined, activity streams, blog entries, details, blurbs, comments, and applications (including, but not limited to "How well do you know me" and the "Naughty Application").. . . . " The EEOC went to the Court for guidance and the Court entered an order giving general guidelines, but determining that relevant portions of the social networking profiles were discoverable. Interestingly, the Court did not really address any privacy issues implicit in this request other than to reliance on two Canadian cases to establish that setting your profile to "private" is not a shield from discovery. The Court went on to provide the guidance that (1) any profiles, postings, or messages and applications are fair game; (2) third-party communications to the individuals must be produced if they place the claimants' own communications in context; (3) their photos and videos are fair game, but photos in which they are "tagged" are less likely relevant.

This is a very interesting case because it highlights the battle that is going to rage for years to come between the American jurisprudence viewpoint of discovery and the interest in privacy of what you post on the 'Net. "How much is too much in terms of what I post on a social networking site?" v. "If someone is posting it for everyone (or at least select everyone) to see, why can't I use it to prosecute or defend my lawsuit?" I wish I had the answer, but I think as privacy litigation and cloud computing law continue to evolve, these questions are going to become more prevalent.

Overall, I think Magistrate Lynch took a very reasoned approach to this problem. The issues raised in this case involve emotional distress, and the two claimants at issue both indicated that they had additional mental health traumas, above and beyond what one might "normally" expect in this type of case. Thus, if the question is "could the information shed some light on some aspect of this litigation" (which is always the question in discovery), then I think the answer has to be "Yes, it could be relevant to address those issues." It would be akin to a man claiming to have back pain arguing that photos of him water-skiing after the event in question aren't relevant. The simple fact is that our mental health and where we are emotionally is often evident in what we put on our social networking sites (as an aside, I will say that this is more true for some than others. Some people just need to stop posting things; but I digress). The items posted that show these claimants mental states are relevant. Now, the question of how relevant is still to be answered. If I'm the EEOC at this trial, I'm arguing that nobody posts things like "Today I was assaulted." or "I'm really depressed today because my supervisor assaulted me". For the most part, we sterilize (or most of us do) what we put into the 'Net. Thus, your social network profile is not an accurate snapshot of your emotional well-being.

To me, the more interesting question raised here is what happens when cloud computing law meets American discovery rules in the head-on, no-holds barred, death match that is coming. Things will be in the Cloud and there will be some passing relevance to an issue and then the fight will be on. The question in those cases, which I think is a question in this case as well, but that was not addressed by Judge Lynch, is the logistics of it all. Getting information back out of the Cloud, particularly archival information requires the cooperation of third-party entities and can be very burdensome and costly. Discovery is not meant to burdensome or overly complicated. Thus, we are going to be faced with issues of logistics that will need to be addressed. On top of that you add those pesky privacy litigation issue.

Of course, to bring this post to an actual close, this type of order is why I love these emerging legal questions that are derived from the advent and advancement of technology. There are so many facets to these issues and they strike at the heart of what we have always considered to be the core principles of litigation. But so long as you have parties either wanting money or wanting to avoid paying money, you will have zealous advocates turning over every stone to find the nuggets that make their case a win. And as the legal world polices itself, you will have these debates and conflicts over what is best for the individual case and what is best for the system overall. I think Judge Lynch's order alludes to and addresses both of those overarching concerns.

What it Takes to be a Leader

Friday, August 6, 2010 by Janet Monroe

This morning I attended the Techpoint event: What it Takes to Lead a Successful Entrepreneurial Venture Today and was reminded of some fundamental leadership qualities that I see in many of the successful business owners we work with as a business, entrepreneurial and information technology law firm.

Speaking today were Daniel DeHayes, a Professor Emeritus of Business Administration with the Indiana University Kelley School of Business and Delphia Croft, the Managing Principal of Solution Revolution Consulting.

In the studies that they have conducted collectively, they have found certain characteristics to be present in the leaders of today's successful companies. While they found several, in this session DeHayes and Croft discussed the following four traits:

Sovereign: trust in yourself, your intuition and judgment
Warrior-like: commitment to a greater cause than yourself (though not mercenary)
Open: extreme self-awareness
Intentional: possessing an intense, pro-active focus (shunning habitual thinking)

Considering these traits, I would have to agree that to be successful you must have the confidence to trust in your own capabilities, the strength to execute (while retaining the ability to quickly adapt to the unforeseeable), the humbleness to know your own strengths and weaknesses, and the determination to achieve the goals you set forth.

Successful companies don't happen on a whim, but are backed by the blood, sweat and tears of driven individuals. If you are contemplating striking it out on your own, take a moment to reflect on the above traits and decide for yourself if you have what it takes to be a leader.

As an attorney of a business, entrepreneurial and information technology law firm, it is an honor to work with our clients - those individuals who possess the leadership characteristics to build successful entrepreneurial ventures.

INDIANAPOLIS LITIGATION—COMMISSIONS AND WAGES

Thursday, August 5, 2010 by Scott Kreider

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.

The case illustrates a good point for business law, SaaS law, and Indiana technology clients: trying to simply rely on a written policy, or worse yet, custom and practice, when sued on the issue of unpaid commissions is a tough row to hoe. You will have to contend with credibility issues, who said what, and who was advised about what. A better practice to consider would be a written agreement or signed acknowledgment by your employees that they have received the policy that commissions won’t be paid until after payment from the client is received, and that the employee agrees to be bound by the policy. Anything short of that could result in you having to face the same hurdle that Wells Fargo did.