Enforcing Charitable Pledges: Well, You Said You Would Give Them Money. What Did You Expect?

An interesting piece at Wealthmanagement.com about how and why charities seek to enforce charitable pledges and what theories courts use to accommodate their claims. The first two paragraphs are key:

In August, it was widely reported in the media that Duke University had filed a claim against the estate of Aubrey McClendon, the former CEO of Chesapeake Energy Corp., for payment of nearly $10 million in outstanding charitable pledges, once again raising the question of whether and to what extent charitable pledges are legally enforceable.

States typically rely on one of three theories to find that a charitable pledge is enforceable.  A pledge may be enforceable as a bilateral contract, as when a donor pledges a sum of money in exchange for the charity’s naming a building after the donor.1 A second theory treats a charitable pledge as a unilateral contract.  A donor offers to make a gift in the future that’s accepted when the charity incurs a liability in reliance on the offer.2When the charity provides no consideration for a contract, a pledge may be enforceable under the doctrine of promissory estoppel, an equitable remedy applied when a charity would suffer damages if the pledge weren’t enforced.

The rest of the piece is worth a read, especially if you’re interested in how the law is developing or in why charities should care about those developments.

Quote for the (Business) Day

The headquarters of General Motors Corp. stands in Detroit, Michigan, U.S., on Monday, March 30, 2009. U.S. President Barack Obama's administration forced GM Chief Executive Officer Rick Wagoner to resign after concluding the Detroit-based automaker hadn't done enough to prove it can survive amid the worst U.S. auto market in 27 years. Photographer: Jeffrey Sauger/Bloomberg News

Professor, attorney, and author of Business Planning: Closely Held Enterprises, Dwight Drake has some useful advice for would-be entrepreneurs:

“When the entrepreneurial bug bites a group of charged-up business owners, they usually are focused on making the business succeed, maximizing revenues, and minimizing expenses. They have little interest in discussing potential breakups, the risks of the three big “Ds”— death, disability and divorce — and all the other issues that should be addressed in a well-structured buy-sell agreement. A good advisor will help the owners look at the big picture and consider the entire life cycle of the business.

“Business owners need to prepare early for the day when they will part company for whatever reason. At some point down the road, they are each going to want to or have to cash out their equity interest in the business. Somebody is going to leave the business, die, become disabled, or experience a messy divorce. Plus, the owners should acknowledge the simple reality that no matter how good they feel about one another going into the enterprise, tough business decisions may create friction along the way. Friction often leads to a buyout or, worse yet, a legal blowup.

“Potential separation issues are best addressed in a calm, planning-oriented atmosphere, not at the point of crisis. Preferably, the job should be done at the outset of the business when all parties are making important decisions to devote capital and energy to the business enterprise. Encouraging clients to collectively think about the key issues up front often will bring to the surface diverse expectations that may surprise everyone. It usually helps to have these expectations out in the open before irrevocable commitments are made to the venture. Too often, the parties plunge ahead with little regard for the consequences of their inevitable separation down the road.” (emphasis added)

Consider yourself warned. (It’s not a large leap to apply this advice to estate planning as well.)

Are Prenups are for Lovers?

This is another, in a series, of posts that feature articles I wrote for Wealth Manager and other magazines. I actually had a lot of fun writing this one, Broken Vows, Solid Contracts:

For many–if not most–love-struck couples, the words “prenuptial agreement” are anathema, a blanket so wet that it threatens to extinguish their burning love for one another. “Forget that!” they chorus. “We’re in the mood for love!” So, rather than engaging in an important financial discussion before they marry–when they are most likely to treat each other fairly–they wait until the end of their marriage, when they’re least likely to do so. . . .


Quote for the Day

“If you feel like your VC [venture capitalist] is a proctologist, run for the hills.”

Brad Feld and Jason Mendelson, Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist, Wiley 2103

Some Things I Learned Answering Questions on a Forum for Asking Legal Questions

Yikes_2016-03-07_0843So I sometimes forget that everybody’s smart, just on different subjects. For example, I don’t know much about physics. My teachers tried, but my head could only hold so much gravity and speed of light and such. Well, today I was online in an online forum where non-lawyers posed legal questions to attorneys. These were real life people experiencing real life problems that involved the law in some way or the other.

Now let me be crystal clear: I don’t think these people are dumb. To repeat: we are all “smart,” just on different things. I happen to know a lot about the law, but boy am I at a loss about some other subjects (heck, even about some legal subjects). With that, here are a few things I learned while answering questions:

  1. Many, if not most people, don’t realize that estate taxes are no longer a concern for most of us. Did you know that you and your spouse must be worth almost $11 million before the tax man comes knocking? Yes, you may need to do some planning to make sure you take full advantage of that $11 million threshold, but still.
  2. Many people don’t realize that the First Amendment doesn’t protect them from employers, friends, parents, and the like from infringing on their free speech rights. No, the First Amendment protects us from the government infringing on our rights. And even then the right is not absolute.
  3. More than a few people confuse a living will with a plain old will, also known as a last will and testament. A living will is a document that tells your family and doctor whether you want life support and such should you become incapacity and unable to speak for yourself. A will or last will and testament is what you use to appoint guardians for your children and to give your property away when you die. You can read more here.
  4. A lot of people–especially people down on their luck financially–aren’t aware of the legal resources available to them that are free or at a reduced cost, nor are they aware of the state agencies that might be of help to them–child protective or family services, for example. For the record, in Wyoming you can go to the Wyoming State Bar to find free or reduced-rate legal services. In Utah, you should go here.  In Wyoming, you can find child and family services here.  In Utah, you’ll find them here.
  5. Finally, too many people are way too quick to pull the trigger; that is, they get angry and immediately shout “Medic!!!” I mean, “Lawyer!!!” To those I say, try to work out your problems by yourself and amicably first, especially if it’s family, then resort to the law. But the corollary to that is, if the proper response is legal, then hire an attorney. Trust me on that one.

Now where do I go to find out how fast the speed of light was back in the days of horse and buggy?

Quote for the Day

The bottom line today is that water continues to be an under appreciated and under-valued asset. But water prices will eventually start to rise more quickly – as a result of on-going population and demand growth, drought and increasing scarcity. More and more major urban areas are beginning to bump up against the challenges of true scarcity. And as water prices increase, we will gradually pay more attention and modify our behavior – toward improved conservation and more efficient use. As prices inexorably rise, we will eventually be forced to confront and solve these problems, and truly recognize water’s fundamental value. But we aren’t there yet.

Steve Maxwell, “Talk is Cheap, Water is Cheaper,” 2014 Water Market Review

Utah HB 251: What a Difference a Day Makes

scales-of-justice-glossy-mdWell, last we talked, Utah House Bill 251 had passed the House of Representatives and had just been assigned to the Senate Business and Labor Committee. It’s purpose was protect employees from overly onerous non-compete agreements. To that end, it allowed such agreements if (1) they protected only “trade secrets,” “proprietary information or processe[s],” or the employer’s “business relations” with customers and employees, and if (2) the agreements were only for a “reasonable time period or scope” or “within a reasonable market.” Courts have already kind of settled on two years as a reasonable time under current law.

The purpose of the proposed law was to allow ex-employees to immediately go out into the workforce and continue plying their trade, so long as they didn’t disclose trade secrets and proprietary information or steal existing clients from their former employers.

But don’t trouble yourself just yet over the wording just stated above. Apparently the Senate Business and Labor Committee has red pens and pencils in its chambers because the language of the bill has changed substantially. First the good news:

  1. “Post-employment restrictive covenants,” that is, non-compete agreements, can’t run longer than one year–so long “reasonable time period”; hello a concrete time limit–and
  2. The employer must provide adequate consideration for the agreement “aside from continued employment.”

I like those provisions, though I’d rather the one year be reduced even further, six months, for example.

Now the not-as-good news:

  1. The bill attempts to allow employers to prevent ex-employees from only directly competing with or working for a direct competitor of the employer. I like the sentiment, and it appears to be a good-faith effort to draw a line in the sand; however, that language and the language of the definition of “direct competitor” still places a lot of power in the hands of the old employer, who probably thinks anything that moves is a direct competitor. As I wrote in my previous post on this subject, the language of this bill and the language in a non-compete agreement means what the employer says it means until a court says otherwise. In other words, the threat of suit is always there, which is one reason I’m not a fan of non-competes.
  2. The bill attempts to define what “proprietary or confidential information” and dismisses employees in “common callings” from the class of employees who might have knowledge of such information. Again, the effort is there, but the language of the bill lets the worried employee down.

I’d have to say that on the whole, I like this bill better than the first, but that I’m still worried about the basic idea of giving essentially a complete stranger power over the life of another complete stranger for one year or two years or a reasonable time period. What do I mean by that? Well, these agreements often come into being at the time a person becomes an employee.  At that moment, the new employee doesn’t know much about the employer–they’re virtual strangers in other words. I find that disturbing.

My View: Utah House Bill 251 – Post-Employment Restrictions Amendments

Scales of JusticeYesterday, I clicked on the Deseret News and discovered a story of intense interest to me, a story about the Utah business community’s reaction to House Bill 251. I’m a businessperson. I work with businesses in my law practice. I’m about as pro-business as they come. And yet, I support this bill.

A little background–a disclosure, if you will: I have some clients who are currently burdened by non-compete agreements, clients who are very talented in their own right and who would like to start their own businesses. And they’re struggling with how to proceed because those non-compete agreements are worded vaguely enough and their former employer is feisty enough, that if they decide to do anything even close to what their former bosses’s company does, they are confident they’ll be sued for breach of contract.

Here’s the problem. They want to do kind of what they did at their previous employer, but using different tools and working with different clients. In other words, they don’t want to violate the non-competes.  Problem is the tool they want to use is a “hammer,” and one of the tools their former employer sells is, you guessed it, a “hammer,” albeit a different type of hammer that does different things than my clients’ “hammer.” (By now, you’ve probably guessed that I’ve changed the name of the tool for confidentiality reasons.) Nevertheless, per their non-competes, their former boss could come after them under a contract provision that says the following:

“Competitive Products” means any products or services [the former employer] sells or sold or that are competitive with products or services that [the former employer] sells or sold while [my clients] worked for [the former employer].

Do you see the problem? The employer could call virtually any product/hammer my clients use a “Competitive Product” under this definition. The contract then states:

 . . . for a period of two years after my employment with [the former employer] terminates, I will not (a) design, sell, develop, license, or solicit orders for or sales of Competitive Products, nor will I (b) affiliate with any business, whether as an employee, owner, officer, director, or agent, that performs any of the actions described in (a) for Competitive Products. (emphasis supplied)

You know that they say, or at least should say, “if the vagueness doesn’t kill you, the overbreadth will.” The Deseret News and others apparently think such language is fair. What’s good for business and all that. To wit:

[These agreements] keep employees from taking trade secrets or information about company strategies to competitors. They allow companies to invest in training employees without the worry that a competing company can take advantage of such largesse by luring a trained employee away.

Generally, these agreements include reasonable time limits, after which employees are free to work for whomever they wish. (emphasis supplied) (“In our opinion: Response to bill regulating business contracts suggests House leadership is at odds with business community,” Tuesday, March 1, 2016)

The law firm Michael Best agrees, saying

Non-compete agreements protect the goodwill of a company, which is something that a nonsolicitation and confidentiality agreement cannot entirely do. A company’s protectable interests do not just include its trade secrets and confidential information, but also its goodwill. Goodwill is often associated with the people who work for the company, and customers associate certain names and faces with a particular company. The purpose of non-compete agreements is to allow employers to invest in highly-trained employees and to have them work directly with the community and customers, serving as the face of the employer. Employers invest significant time, money and resources in doing so. Employers should be entitled to protect these investments by not allowing the employees who are associated with a company’s goodwill to leave and immediately work for a direct competitor. (What Utah Employers Should Know about House Bill 251, February 22, 2016)

As one who has, with his clients, looked down the barrel of a 2-year prohibition on future employment in the same industry, I suggest the Deseret News reconsider the term “reasonable time limits.” Hardly. Not when you’re prevented from working an an industry you love, an industry you’ve trained for most of your adult life–and not just at your immediate past employer’s. Riddle me this Batman: After that two-year hiatus, how sharp will that employee’s saw be?

What is a direct competitor by the way? Inquiring minds would like to know before they venture out, only to get swatted down by a rolled-up copy of their non-compete agreement. Until a judge says otherwise, a direct competitor is what the former employer says it is. And if the former employer is a bully? (What’s the saying? “Power corrupts; absolute power coupled with a non-compete corrupts absolutely.”)

As for the attorneys at Michael Best, employers are not the only ones investing significant time, money, and resources in training. So do the employees. Do employers think their employees came to them as blank slates? Heck no. By the time they arrive on an employer’s doorstep, employees have likely done years of schooling, including post-graduate work in many cases. They’ve probably worked for myriad other employers, gaining valuable skills, skills they’ve brought to their new employer’s table. And because they signed a non-compete–probably in a rush, possibly in glee at finally having a new job, likely without understanding fully the contract’s meaning, and surely not comprehending its consequences–an employer, generally a person they barely know, gets to control them for another two years–after they’ve left his or her employ.

You can bet the employer has thought this all through.

The problem, folks, is the playing field is uneven: The employer has the job, the salary, and the benefits. The potential employee needs a job, the money, and health insurance. The employer has thought the non-compete issue through many times. For the potential employee, it’s probably a problem of first impression. It’s car salesperson vs. car buyer. Price negotiation, finance terms, do you want the 2- or 5- year warranty on that doohickey vs. huh? In other words, unfair.

Hey, I get the impulse. I even understand that in some circumstances such agreements make a ton of sense. But not in all. In fact, I’d guess they make sense in very few cases. That said, I’ve just thought of a couple of potential compromises, so the Senate can vote yes on this puppy:

  • If an employer feels strongly enough about requiring employees to sign such agreements, then require the employer to split the cost with the potential employee of one hour with an attorney versed in such agreements.
  • In the alternative: Utah maintains offices throughout the state to deal with workforce issues. Require employers to send potential employees to consult with someone at the Department of Workforce Services about the consequences of signing such a contract–before they sign.
  • Finally, my least favorite, but better-than-nothing option: Require the employer thoroughly disclose the possible consequences of signing a non-compete–again, before the potential employee signs.

In short, if we’re going to allow these agreements in Utah, if we’re going to allow a virtual stranger to have control over an employee for two years after they’ve left a job, let’s give some protection to that employee. Do that so that if and when the employee actually does sign the non-compete, there truly has been a meeting of the minds.

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