Caveat Emptor - Buyer [Lessor] Beware in Gas Leases
Were you as a landowner short-changed on your oil and gas lease? Literally billions of dollars are pouring into Eastern Ohio pursuing leases in the Marcellus/Utica shale “plays”, as the big oil and gas companies call them. They openly term what is happening as a “land grab.”
A memo was recently found detailing how landmen approach landowners for oil and gas leases. The document was investigated by the Ohio Attorney General for allegations of unfair trade practices, but the memo could not be attributed to any particular company.
Did the landman try to befriend you? A landman represents the drilling company or land speculators, not the landowner. His job is to secure leases on as much acreage as possible before his competitors do so. A landman is not a professional regulated by any code of ethics or conduct.
Did the landman misrepresent:
- arbitrary deadlines?
- tax regulations and laws?
- “mandatory” pooling?
- actual contents of the lease documents?
- verbal promises not contained in the documents?
- leasing status of your neighbors?
- nature of competition for your business?
- his company will just go around you, or that they are pulling out of the area altogether?
- “this is the best offer you will/can get..”
Some landowners are fighting back against these unfair tactics and taking the companies to court. See KROPA v. CABOT OIL & GAS, 716 F. Supp. 2d 375 (overruling motion to dismiss complaint of fraudulent inducement to lease.)
Ohio Revised Code Chapter 4165 deals with “Deceptive Trade Practices” and remedies may include exemplary damages, attorney fees, and injunctions. Other legal theories may apply to your particular gas lease. Politics and big money are behind Big Oil, but hopefully the courts and the jury system may provide some measure of fairness.
Think Privacy: A Question of Trust
Many businesses treat data protection as an afterthought, or a reactive compliance requirement they will address when they start making enough profit after establishing a solid customer base or after they have a privacy incident. The irony of such thinking is that NOT addressing appropriate data privacy and security requirements can kill your business before it even starts. Data privacy and security are critical components of a trust-based relationship with customers. Just as doing quality work, doing it on time and on budget go to the foundation of building customer trust in its brand, a company’s commitment to responsibly collect, store, use and share personally identifiable information likewise establishes (or destroys) customer trust. It is no coincidence the best companies in America also have a solid reputation for data privacy, as regularly reported by the Ponemon Institute. Just recently, the Institute produced its “Best Practices in Data Protection Survey.”
The message is clear and hardly novel: Good privacy and good business go hand in hand. The best businesses understand and capitalize on this opportunity. That’s right; I said “capitalize.” Data privacy is an opportunity to set your company apart from your competition. While the reasons are countless, here are a few:
- Compliance. When you are compliant, you are in business. When you are not, you either are out of business, or will spend a lot of money and time (opportunity costs) in getting compliant so you can stay in business.
- Value Add (Part One). Privacy is not only a value add for your customers, it opens the door for companies to get more of their customers’ information. The more you know about your customers, the better services and products you can provide them.
- Value Add (Part Two). If doing so in accordance with appropriately implemented policies and procedures, including customer consent (obtained through a trust-based relationship), a company can exponentially improve the quality and amount of their customer data by also linking it with other data sets. Such authorized linking of data creates a more complete picture of a customer in a cost effective manner.
- Customer Loyalty. It’s Not a Matter of “If”, but “When.” When you have a security breach, a trust-based relationship grounded in knowledge of a company’s respect for their data privacy and security needs will increase a customer’s chances of staying with that company after a breach.
Non-Compete: The Real Story (in Ohio)
Is the Non-Compete Agreement I Signed Enforceable?
You have been working for your current employer for several years. As a requirement for employment, you signed a non-compete agreement that prohibits you from working for a competitor of your current employer, either with another company or on your own, for a certain period of time after you leave the employer. You are tired of working for someone else and want to start a business doing the same sort of work you are currently doing. Is the non-compete agreement that you signed enforceable? Continue reading
Copyright sale vs. Copyright license—what’s the difference and why does it matter?
With the advances in technology and availability for consumers to pick and choose which songs they would like to purchase in lieu of purchasing an entire album, it is imperative for musicians to know how they are going to get paid. Several musicians are taking it into their own hands and educating themselves as to what is the difference between a copyright license and a copyright sale when it applies to digital downloads and going after their own record labels for the discrepancy in royalty payments.
So then, what is the difference between a copyright license and a sale and why does it matter? A copyright license is a license to listen to the music, like renting your home, but you retain ownership, and therefore, the ownership rights. A sale is like selling your home; you transfer your ownership rights to the purchaser. As such, the royalty payment scale is different between licenses and sales. Artists can receive a 50% share on royalties from a license as opposed to only a 12-20% royalty rate from a sale. This can mean a huge difference in a payout for musicians.
Although the US Supreme Court has refused to address the issue, the 9th Circuit in a recent lawsuit by Eminem’s former Detroit-based producing partners, F.B.T. Productions, ruled that digital music is more like a license than a physical sale of music. Following that suit, Rob Zombie, the Estate of Rick James, and now Chuck D of Public Enemy filed class action lawsuits against Universal Music Group for miscalculating royalties owed to them and other artists for digital downloads, such as MP3s and ringtones. Should the courts rule in favor of the musicians, UMG and other labels would be forced to remit to the artists back royalty payments. According to a study by the Future Music Coalition, there could be $2.15 billion difference for music only downloaded off of iTunes.
So far it looks like the artists may have the upper hand because Judge Susan Illston allowed Zombie and James’s case to move forward, stating that there is a connection to protecting the public:
“The Court finds that plaintiffs have alleged more than just a breach of contract because the complaints allege that UMG engaged in a broad scheme to underpay numerous royalty participants, including formulating ‘an opaque and artificial method for accounting for and paying its royalty participants for income derived from such licenses,’ and engaging in a ‘sustained public relations effort designed to convince the public that it had employed ‘groundbreaking’ and ‘enlightened’ accounting practices that actually benefitted (rather than cheated) the Class.”
We’ll see what happens next, but it appears that once again the traditional methods of negotiating contracts in the music business need to be revised.
What Is “Consumer’s Use Tax” and Why Should I Care?
Use tax is an often overlooked and misunderstood tax that has been in effect in Ohio since 1936. Use tax works hand-in-hand with Ohio’s sales tax. When you purchase an item of tangible personal property, or a service that is subject to sales tax, in the state of Ohio, from a vendor that is also located in the state of Ohio (or has some other connection, or “nexus” with the state), then the seller is usually responsible for collecting and remitting sales tax on the transaction to the state. Sometimes, there are exceptions to the seller’s responsibility for collecting and remitting sales tax – for example, if the purchaser has a valid exemption certificate. If the seller has no “nexus” with the state, then the seller is not responsible for collecting and remitting sales tax to Ohio.
Enter consumer’s use tax. If the seller in the transaction has no nexus with Ohio, and therefore no responsibility for collecting and remitting sales tax to Ohio, but the purchaser is located in Ohio, and using the taxable item/service in Ohio, then the purchaser is subject to consumer’s use tax. The purchaser is responsible for remitting use tax to Ohio, in the same amount as the transaction’s sales tax equivalent would be.
With the increasing number of sales being made over the internet, the state is seeing what it projects to be a significant amount of tax revenue that is not being collected and remitted in the form of sales tax. Therefore, the state has determined that a consumer’s use tax should be its new focus. While this tax applies to individual consumers as well as companies, the state already collects use tax from individuals on the individual income tax return. Educating businesses as to their use tax responsibilities is the next big state initiative. As such, beginning October 1, 2011, Ohio has announced two new tax amnesty programs. The first is a Use Tax Amnesty program, which is aimed at helping businesses who might be unaware of, or behind in, meeting their use tax filing obligations. A business that has not previously registered with the state for use tax self-assessment might be able to take advantage of this amnesty without incurring penalties or interest on past due amounts. There is a payment plan available for companies that owe more than $1,000 in past due tax. Companies that do not qualify for the amnesty program may still qualify for the Voluntary Disclosure Program. The Use Tax Amnesty program is offered from October 1, 2011 until May 1, 2013. Once you have received a notice of assessment . . . it’s too late.
The second type of amnesty program is a General Tax Amnesty, which is applies to a broad number of taxes, applicable to entities and individuals. The types of taxes included in the General Tax Amnesty are (for entities): commercial activity (CAT), corporate franchise, sales, gross receipts or a natural gas company or a combined electric and gas company, motor fuel, cigarette or other tobacco products, intangible property, employer withholding; (for individuals): pass-thru entity, personal income, school district income, and estate. General Tax Amnesty forgives penalties and one-half of the interest for taxes due and payable up through May 1, 2011. There is no payment plan available under this program. This amnesty program is available from May 1 through June 15, 2012.
Cover Bands Don’t Change the World
Innovation is a hot topic in the business world, perhaps more so than ever due to Steve Jobs’ recent passing. A byproduct of our struggling economy has been that people are starting new and innovative businesses that may not otherwise have been started if they remained employed. Existing businesses also are thriving in ways they never imagined because they changed the game in their industry.
To the contrary, some businesses erect defense barriers and move into survival mode - failing to capitalize on opportunities. Every day, business owners wake up with the option to stay complacent or to innovate.
The following article, which originally appeared on Small Firm Innovation, highlights ideas on ways to innovate that are applicable to any type of business: http://www.smallfirminnovation.com/2011/08/cover-bands-dont-change-the-world/. How do you avoid being your industry’s next cover band?
Ditch the Paper
Technology has allowed businesses ‑ regardless of industry ‑ to improve their workforce mobility, effectiveness and bottom line. At this point in the game, there is no reason why business owners should not explore improving their company’s technology to enhance their competitive edge. New and innovative ways to use technology literally arise on a daily basis.
The challenge with new technology is to see through the clutter and implement the right system or product. While this may involve time and energy, the upside is huge.
We have adopted this mindset at Burton Law. Technology drives our efficiency and our ability to provide cost-effective services to our clients. Here is one example where technology resulted in a week of cutting-edge depositions that lacked one thing ‑ paper. This article originally appeared on Small Firm Innovation and was the LitigationWorld pick of the week on technolawyer.com: Ditch the Paper for Depositions.
Think Privacy: Get Strong
It is a long held principle that you cannot have good privacy without good security. One of the easiest things to do to protect your personal information is use strong passwords for any accounts in which you keep sensitive information. To understand the importance of this principle, you need look no further than the recent news stories about the “hacker” who allegedly illegally accessed the personal e-mail and social media accounts of numerous celebrities, including Mila Kunis and Christina Aguilera.
Did this guy use government grade hacking software or other expensive technical applications and years of experience to pull off this heist of personal information? No. He just guessed their passwords. How? According to the FBI, the “hacker” simply gleaned personal details from gossip magazines, websites and social media sites and then tried through nothing more than trial and error to come up with the correct passwords. Birth dates, names of loved ones, favorite foods or pets are data the hacker allegedly “mined” from publicly available resources. I use quotes with the term, “hacker” here, as he has only been charged to date. Secondly, and more importantly for our blog purposes, this was a self-described normal, “curious” guy with no technical or information security expertise.
Now, think about your password(s) and what those people close (and not so close) to you know about you. How hard would it be to figure out your password(s)?
If the answer to the question above makes you nervous, you can do something very simple to help protect your information in using strong passwords on any of your personal accounts and changing them regularly. Creating a password that to anyone but you looks like nonsense is one of the easiest and best protections you can put in place. Some web site sites even now mandate strong passwords and provide a “strength meter” rating of your password when you first create it.
While it is open to technical debate and interpretations, generally, a strong password is no less than eight (8) total characters in length, containing at least one (1) of each of the following:
- capital letter
- lowercase letter
- a non- letter/number character (i.e. #$@!/})
The password also should not contain a word found in the dictionary. Depending on the account, you may not be able to enter a non-letter/number character (amazingly, some banks still do not allow them). However, you can still make your passwords stronger by implementing the rest of these simple requirements and changing your password regularly.
Now you are probably saying, “Sure Scot, it is hard enough to remember the ones I have, how can I remember something that makes no sense.?” I will respond with an example of one, but by no means the only, way to come up with a strong password that makes sense to no one but you.
Take your favorite city, state (or country) and the last year you visited that city. Now just choose one character as your wild card for all passwords (#$!%). For example, San Francisco, California in 1999. Now, you have a strong password: SFCa1999!. Or, pick your favorite song and the first time you heard it. For example, “I left my heart in San Francisco” and 1999 can be used to create a strong password using the first letters of each word: IlmhiSF99!.
You can come up with so many better examples, I am sure. To someone else, this is a string of random letters. To you, this is a strong password that makes sense. And, unlike most habits, it will not even take you two weeks to get used to it. Try it. You will see. Now, whether you choose to keep it truly secret and never share it as so many people do, well, that’s a whole other kettle of fish.
- Scot Ganow
Think Privacy: Bake It In
As this is my first entry on what will be a regular “Think Privacy” blog, it is only appropriate that with the changing of seasons and the holidays forthcoming that it is a good time to remember one of the foundational principles of responsible information management—the importance of baking data privacy into every aspect of your business plan. As you plan for pumpkin pies, cupcakes, and possibly even a fruitcake, do not forget the importance of considering data privacy and security at every stage of your business planning cycle.
This is hardly a new concept, as making sure protecting personally identifiable information is included in company policies, procedures, contracts and employee training is pretty much “Privacy 101”. However, the landscape is ever-changing as evidenced in this year’s Federal Trade Commission enforcement action against Google and its social network application, Buzz. This settlement not only was the first to enforce for U.S.-European Union Safe Harbor Framework violations, but more substantially it was the first to mandate a company implement a comprehensive information privacy program (previously the focus was on security programs) and the first application of the FTC’s “privacy by design” philosophy described in its 2010 Privacy Report.
The FTC’s “privacy by design” approach calls on companies to build privacy protections into all aspects of their business, including research and development efforts with new products and services. Such protections include, but are not limited to:
- Privacy reviews for new products and services
- Implementation of procedures to enforce policy-based privacy practices
- Reasonable safeguards for consumer personally identifiable information
- Ensuring consumer choice as to how their information is used
- Accountability for privacy within the organization (someone has to “own it”)
So, as your thoughts turn to costumes, raking leaves, and getting that holiday shopping and guest list together, take a moment to consider how your company and products are using your customers’ personally identifiable information. Are you baking privacy in? Leaving it out of your recipe could spoil more than your holiday cheer.
- Scot Ganow
Should I Incorporate My Business?
Usually the answer I give most clients is “yes.” Incorporating your business has many advantages. “Incorporate” doesn’t mean just forming a corporation, but can also mean forming a limited liability company (LLC), limited partnership (LP), limited liability partnership (LLP), or any other legal entity.
The main reason that people incorporate their businesses is to protect their personal assets. Generally speaking, your personal assets are protected from the contractual debts of the incorporated business. What this means is that if the business owes another person or company money, say the business failed to pay a bill or defaulted on a loan, only the business is responsible for that debt.
Your personal liability is limited to your interest in the business. If a judgment is obtained against the business, the creditors can only go after the assets of the business to satisfy the judgment.
**A special note: a general partnership - what people normally consider when they think of a “partnership” - does NOT provide you with any protection of your personal assets. You and the other partners are completely responsible for all the liabilities of the partnership. Likewise, general partners in a limited partnership are also responsible for all of the liabilities of the limited partnership (limited partners DO have asset protection, however).**
There are two notable exceptions to this limited liability that you need to be aware of. First is if you personally guarantee the debt. An example is if a lender requires you to sign a business loan personally and promise to pay the loan if the business is unable to. For a new business with no real credit or financial history of its own, you may have no choice but to personally guarantee a loan or lease for a business.
The other exception is if the creditor is able to pierce the corporate veil and bypass the company to get to you directly. This happens if a judge or jury determine that either you are only using the business entity to defraud other people or that you and the business are so intertwined that it is impossible to separate the two. If you are using the business as a front to commit fraud, there isn’t much you can do to protect yourself.
To prevent the second instance, it is important that you take steps to create a separation between your personal life and the business. This means, at the very least, 1) having separate bank accounts for personal and business funds, 2) following proper accounting procedures, 3) making it clear when you do business with others that they are dealing with a company and not you as an individual person, and 4) performing all corporate formalities that are required under state law (corporate formalities are things such as holding regular meetings and keeping a book of minutes).
A limited liability company has another side of limited liability that you should be aware of. In the situation described above, the debt belonged to the company and so a creditor (also known as a “bottom-up creditor”) can’t go after your personal assets. Normally, an LLC is not responsible for the debts of the individual members. This means that a personal creditor of a member (a “top-down creditor”) can’t go after the assets of the LLC.
So if you default on your home mortgage the bank can’t try to take the business’s furniture. In also means that a top-down creditor can’t take over your interest in the company and make management decisions (if you have management or voting rights). The creditor CAN, however, use the judgment to step in and take any distributions you are otherwise entitled to by the LLC (your right to receive a distribution is considered a personal asset).
This is one of the advantages of LLCs over corporations. In a corporation, a judgment creditor may take your shares and exercise any voting rights attached to those share.
Now, if you are the only person involved in your business, you might wonder if having a separate entity will really protect your personal assets. After all, you are the business, right? You are the one who has to come up with the money each month to pay the bills and keep the lights on.
While this is true, the business entity will still afford you protection from the company’s debts. If you take the necessary steps to keep your business and personal life separate, you can maintain the protection of your personal assets. A creditor of the company can only satisfy the debt with the assets of the company.
If you are a single-member LLC though, you will not get the top-down protection that most LLCs get. If you default on your house mortgage, the bank can take your interest in the company (which is everything) and get a receiver to run the company until the mortgage debt is satisfied.