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Tilting the Scales

Business Issues with a Legal Slant

Concealed Carry Permits & Regulatory Reporting Requirements: Who Decides?

Posted in Legal Risk Management

Concealed Handgun Permit ApplicationHow do subjective decisions of government officials, when it comes to issuing any kind of permit, affect private citizens?

What are the risks of making any sort of “ownership database” publicly accessible?

Setting aside the emotional pros and cons of gun control, consider how the issuing of a concealed carry permit affects private citizens, or the potential risks involved in a publicly accessible gun ownership database.

California: No permit. No gun.

Carrying a loaded firearm in California public areas of incorporated and certain unincorporated areas without a concealed carry permit is illegal.

A concealed weapon permit applicant must:

  • Live in the city or county
  • Be of “good moral character”
  • Have “good cause” for the license

Five San Diego residents sued the county sheriff after their applications were rejected due to lack of a “good cause” for a concealed carry permit. A three-judge panel found the permitting process unconstitutional, but the process was ultimately upheld as constitutional when reheard by the full 9th Circuit panel.

Complaining of a near-total refusal of some counties to issue carry permits due to lack of “good cause,” the plaintiffs noted that permits are only granted for very rare and specific circumstances. For example, only 138 women within San Diego County’s 3.1 million population have a Concealed Carry Weapon.

This brings to question, what is “good cause?” Who decides? What is the objective criteria? Is there an appeal? Can the result of a subjective process effectively create a ban?

Hawaii: Gun owners, who has access to your data?

Owners of Hawaii firearms required to register with their county police departments will now be enrolled in the FBI “Rap Back” system, a criminal record monitoring service. New legislation allows county police departments in Hawaii to evaluate whether or not the firearm owner may continue to legally possess and own firearms after notification of the owner’s arrest for a criminal offense anywhere in the country. The law also authorizes the Hawaii Criminal Justice Data Center to access firearm registration data.

What should be the objective criteria for maintaining any database containing a list of private citizens? What are the practical implications of making such a list available to the public?

Tilting the Scales in Your Favor.

The regulatory legislation placed on gun owners is interesting to consider, when applied to less emotionally charged topics:

Would there be push back if American Airlines was required to report to law enforcement those who flew to Las Vegas more than every 30 days?

What about having to permit your cell phone with GPS service that could not be disabled?

If there is any conduct requiring a permit or license—health, barber, medical, law, pilot or otherwise—what is the risk to private citizens if the permitting authority has the subjective authority to assess “good cause” or “good moral character”? Are there other permits or regulatory authorizations that can be denied for failure of the applicant to satisfy a governmental official that there is “good cause” for the permit?

How to Avoid Getting Popped: Top 10 Texas Firework Laws

Posted in Around the Holidays

Sure, fireworks are fun, but it’s important to be cautious and careful. We covered firework laws in the 2008 and 2014, but a few things have changed. Below are Texas’ top 10 firework laws you need to be aware of before lighting the fuse. Remember though, laws may vary county to county.

Top 10 Texas Firework Laws

  1. New for 2016: The periods for selling fireworks were expanded by the Texas Legislature.  Fireworks can now be sold from June 24th through July 4th and December 20th through January 1st.  Each county commissioner’s court can also permit firework sales for Texas Independence Day (February 25th-March 2nd), San Jacinto Day (April 16th-21st) and Memorial Day (the Wednesday before Memorial Day through Memorial Day).  If the retail fireworks store is located within 100 miles of the Texas-Mexico border, the store can also sell from May 1-5 for Cinco de May—as long as the county commissioner’s court approved the sale.
  2. texas firework lawsIt’s illegal to sell or shoot fireworks within 100 feet of a place where flammable liquids, flammable compressed gasses or fireworks are sold or stored. …seems reasonable!
  3. Despite what you may have seen in the movies, it’s illegal to shoot fireworks from or towards a motor vehicle, including boats.
  4. It’s illegal to shoot fireworks from a public roadway, public property, park, lake or U.S. Corps of Engineer Property. …would hate to set a lake on fire…
  5. The minimum age to buy or sell fireworks is generally 16 years old. Though, it should probably be closer to 26 years old.
  6. It’s illegal to shoot fireworks within 600 feet of a church, hospital, day-care center or school. Personally, I wouldn’t feel great about going into surgery with a constant barrage of fireworks outside the building.
  7. It’s illegal to shoot fireworks within city limits and, in many cities, it’s also illegal to possess them. Selling, igniting or possessing fireworks within city limits can carry hefty fines approaching $2,000. Yet, country clubs keep getting away with it.
  8. In unincorporated areas where fireworks are legal, you may only shoot off fireworks if you own property there, or if you receive written permission from a property owner. A county “burn ban” outside incorporated areas often means a prohibition against shooting fireworks. So, no blowing up the neighbor’s mailbox…without their permission!
  9. If you start a fire by shooting fireworks and it’s found to be started intentionally, you may be charged for arson. If the fire is found to be accidental, you may be subject to a fine. In either case, you could be held civilly liable for damages.
  10. Beginning January 2, 2008, bottle rockets (a.k.a. pop rockets) were banned. You know you’re addicted to fireworks if you built up a reserve supply of bottle rockets prior to the ban.

Here’s a list of fireworks shows in DFW this holiday weekend. Have a great (and safe) Independence Day!

Trial & Heirs: 5 Estate Planning Stumbling Blocks

Posted in Family Issues

Last Will and Testament with Fountain PenLast month, Prince died at the ripe young age of 57. He had no will, as reported by his only full sibling (a sister). She filed for probate of his estate in Minnesota, where he owned a home in Paisley Park. Under Minnesota law, a probate court there will determine who gets what.

Typically, an intestate estate (one without a will) in Minnesota would first go to his children, then to his parents, and then to any siblings. As Prince was twice divorced with no children, and his parents are deceased, his sister and five surviving half brothers and sisters are banking on splitting the estate. Various pundits estimate Prince’s net worth between $150 and $300 million. While some suggest he was very attentive to his business matters, other say he didn’t trust anyone and his financial affairs are in disarray. If this is the case, who will control and manage Prince’s brand, his record label and the thousands of unreleased songs?

Assuming no will exists, Prince’s sister asked the Minnesota probate judge to appoint her as a special administrator. In the probate court, all financial details and business relationships will become public record and all asset decisions and distributions require court approval and will be shared with the public.

Probate Issues and Concerns

The Heirs: There will almost certainly be a fight, even if it’s just among his siblings. Given the amount of money involved, it would not be a surprise if one or more individuals came forward claiming to be Prince’s child. If a claim turned out to be true, they would eliminate everyone else as a potential heir.

Asset Management: The expanse of his assets–a humongous song catalogue (both released and unreleased) and vast real estate and business holdings–would be daunting to manage, even without the worries of taxes and heirship challenges.

Privacy: Unlike the privacy granted in estate planning, every asset must be filed and every minor decision about management and distribution of the assets and payment of liabilities will likely to require approval by the probate court. It’s a lengthy process, and will likely take years.

Taxes

True to Ben Franklin’s adage, death and taxes are certain. Having not availed himself of the benefit of estate tax planning and legal counsel, the bite could be painful. If we assume an unplanned $350 million estate, it’s conceivable that estate taxes could be over $138 million. Even if the estate was a paltry $150 million, estate taxes could be roughly $58 million.

But wait! Who has that kind of cash lying around? For a farmer or rancher, the dilemma is called “land rich and cash poor.” To get the money to pay the estate taxes, something will need to be sold. If the assets are not readily marketable at full value, it’s possible that some will need to be sold at a fire sale discount to secure the necessary funds. Land sales are especially subject to this risk.

Tilting the Scales in Your Favor

Avoid these 5 Frequent Estate Planning Stumbling Blocks

  1. No will. Over 50% of Americans like Prince do not have a will and do not expect to die anytime soon. Whether you have a lot or a little, start with a will, particularly if you have kids or are divorced. If you don’t have a will, the laws of your state will determine who receives your assets after you die, how they are divvied up and by whom.
  2. Failure to set up a trust.  Do you want everyone to know how much money you had and who got it? Planning in advance avoids the public airing of your laundry. Consider a living trust. A living trust details who is entitled to your assets and how they’ll receive it, but it’s not part of the probate court inventory that is generally filed, and it can offer some tax benefits.
  3. Failure to Implement the Estate Plan. As a trial lawyer, I cannot count the number of times that a well-intended couple completes their estate planning process and pays the lawyer, but doesn’t supply the funding of the related trusts and business entities or change the beneficiaries on the insurance policies and retirement plans, saving it all for “later”. Only, “later” doesn’t come before death. Good plan. Good idea. But, it’s as if it never happened, because it didn’t.
  4. Neglecting to update estate plans. Life changes. Children are born and pass into majority. Divorces affect estate plans as do new spouses. The needs of older children change. Grandchildren are born. Businesses are bought and sold. All of these are reasons to update your estate planning documents.
  5. Forgetting to plan for disability. Physical and mental needs change as we get older. Power-of-attorney documents can protect you if you become incapacitated, or be subject to challenge if you wait too long to sign them. Properly drafted living wills and advance directives can give loved ones the authority to make medical and financial decisions when you can’t. Without them, your family and spouse may not have the legal right to speak or act on your behalf when you aren’t capable.

Estate Planning Expertise

Gray Reed experienced probate and estate lawyers Norm Lofgren, Greg Sampson and their protégé Jennifer Gurevitz are the experts here. I work with them to pick up the pieces when one or more of these estate planning stumbling blocks erupts into a full-fledged fight between heirs over an estate.

Related Articles

Last-Minute Wills….What Counts?

Where There’s a Will, Is There Always a Way?

Did My Employee Just Say That?!? Manage Risk with a Company Crisis Plan

Posted in Company Management

TV interviewJohnny Hotshot, the 11 year-old shortstop on the Dallas Rangers Little League team, suffered a horrific brain injury after a pitching machine at the Hitz-R-Us batting cage malfunctioned. Melanie Scoop, a reporter from one of the local news stations, showed up a couple of days later to cover Johnny’s injury. Melanie spoke to Scotty Van Winkle, the Hitz employee on duty when the accident happened. To Melanie’s surprise, Scotty told her that the pitching machines at Hitz have had similar malfunctions in the past. Should Hitz be concerned about its liability?

Employee’s Statements Can be Used Against You

An employee’s statements about events that occurred in the scope of the employee’s duties are admissible against the employer. That’s not a good thing for employers because employees tend to divulge too much information. For example, a father recently had to hold onto his son after the seatbelt on the roller coaster malfunctioned. After the father reported the issue to the ride operator, the ride operator allegedly told the father he knew the seat belt malfunctioned.

Have a Crisis Plan

Given the risk that an employee could make a “foot in mouth” statement after an accident, companies should develop a crisis communications plan and regularly train their employees on that plan. A crisis communications plan requires more than just “no comment” because, as we discussed in a post several years ago, that response fails to give your customers and employees confidence in your operations. Good crisis communications plans have designated spokespersons, prepared “holding statements” for when a crisis erupts, and notification and monitoring systems for internal and external communications.

Tilting the Scales in Your Favor

Reputation is everything. When a crisis happens it’s imperative that companies do all they can to maintain control over their reputation. Companies that plan ahead place themselves in the best position to do so when accidents happen.

Related Articles

The Benefit of Crisis Communication Plans

Crisis Response and Communications to the Press

The Top 3 Things Tom Brady Can Learn From Blue Bell Creameries: “Nothing is More Important To Us Than Maintaining Your Trust”

“Best Interests” of Investors and Employees

Posted in Fiduciary Duty

Close-up Of Person Hand Inserting Coin In Pink Piggybank On TableIma Knowitall, owner of All My Business Ideas (AMBI), just read the Wall Street Journal article on new Department of Labor (DOL) regulations and called her financial advisor, Phillip Coffers. Mindful of last fall’s Tilting the Scales post that suggested she might owe her employees a fiduciary duty as the trustee of AMBI’s 401(k), Ima asked Coffers if the new DOL ruling affected either Ima as an investor with Coffers in her own retirement savings or as the owner and administrator of the AMBI 401(k) plan.

Does the ruling affect Ima as an investor? Yes. Because Coffers renders investment advice for a fee or other compensation, he is a fiduciary investment adviser and is subject to the new fiduciary standards of care under ERISA. Coffers will risk becoming personally liable for Ima’s losses resulting from recommendations given by the Coffers team—specifically, the investment losses plus related court costs and attorneys’ fees. Originally passed to require disclosure of hidden fees and allegedly under-performing investments promoted by financial advisers who persuaded customers to “rollover” their 401(k)’s into IRA’s, the new regulation moves the investment adviser’s standard of care from a “suitability” standard to a “best interests of the customer” or fiduciary duty standard.

What about Ima as administrator of the AMBI 401(k) plan? Yes, Ima continues to have at least the fiduciary responsibility to diligently monitor the company 401(k) expenses. Although not originally intended as such, it remains to be seen whether the new regulations might impose increased responsibilities on Ima similar to those of Coffers.

Tilting the Scales in Your Favor.

Whether it’s your broker acting in your best interests for your retirement investments or you as the company administrator acting in the best interest of your employees, both retirement investments represent, for most people, the second largest asset they own—their home being the largest. Every retirement account owner can expect to get new documents from their investment adviser asking them to sign agreements outlining your financial adviser’s disclosures to satisfy the new “Best Interest Contract Exemption” and the “Principled Transactions Exemptions.”

If you would like to learn more about the new DOL regulations, Jason Luter, a Gray Reed attorney and an ERISA adjunct professor at SMU teaching on qualified and non-qualified plans, and I are giving presentations on the new DOL regulations focused on this new directive to act in the “best interests of the clients”—a statutorily imposed fiduciary duty standard.

“What is, and What is Not, a Fiduciary Duty,” focuses on the DOL’s changes subjecting certified financial planners, financial advisers and brokers to an ERISA fiduciary duty standard. We discuss the differences between the DOL regulations, the self-imposed CFP “fiduciary duty” standard and “old-fashioned” common law fiduciary duty that will, almost certainly, impact many clients and client’s families of the financial advisers, including very dire penalties risked by unwitting directors / owners of closely held businesses, their trustees, executors and guardians. While all three may be called “fiduciary duty,” they are very different from each other. Confounded yet? Not surprising.

When the Company’s Joke Backfires

Posted in Company Management

april-fools-at-workHarvey Slapstick, CEO of Jokes-R-Us, decided an April Fool’s prank on his employees was just what the company needed to boost morale. So he hired two former soldiers to conduct a fake hostage situation at the company’s office. In an effort to ensure things wouldn’t get out of hand, Slapstick advised the police and 911 emergency system. When the hostage situation went down, Jimmy Wannabe, a weekend warrior, decided to play hero. Wannabe shot the “hostage takers”, but also injured Elizabeth Little, a Jokes-R-Us employee. When Little heard that Slapstick orchestrated the prank, she sued him and the company.

Liability for Office Pranks.

Previously, we’ve written about when a prank among friends goes too far. Many companies have gotten into the act in recent years and pulled their own April Fool’s prank on customers or employees. Some pranks go well, but some pranks come off poorly. If Slapstick knew, or had reason to know, that Wannabe might take the law into his own hands, Slapstick and Jokes-R-Us are likely liable. For example, if Slapstick knew that Wannabe carried a gun with him at the office, Slapstick and Jokes-R-Us are liable for creating a dangerous situation.

Tilting the Scales in Your Favor.

April Fool’s pranks can be lots of fun, but you have to think ahead. Is there any chance that people who aren’t in on the joke could be injured, or could injure someone else? If so, the prank’s probably not one you should move forward with. You should also run your proposed prank past some friends to see if they think it’s a good idea. Slapstick clearly didn’t think things through or seek advice.  In the end, the company will pay for the prank going wrong.

5 Reasons Why Incorporating Your Business is the Right Play

Posted in Company Management

Incorporating Your CompanyAgitated that the NBA is now prohibiting him from using Stickum during games (even though he’s been doing so for years), Dwight Howard wants to find a permissible product that he can use to grip the basketball.  Dwight thinks it could take the basketball world—not just the NBA—by storm.  Keeping all of this from the NBA, he convinces his teammate James Harden to go into business with him.  James wants to make sure that his agreement with Dwight on the business venture is air-tight and wonders if they should set up a corporation or limited liability company to protect themselves now and in the future.  Is James’ thinking an easy lay-up?

Here are five reasons why incorporating your business may be the right choice for you:

  1. Protecting Your Personal Assets: The debts of a corporation or limited liability company belong to the entity, and not to you personally (unless you personally guaranteed those debts).  Incorporating your business will typically protect your personal assets if your business can’t pay its bills—but you have to make sure you follow the appropriate corporate formalities.
  2. Potential Tax Advantages: Depending on what type of entity you set up, the income the entity earns may be taxed at a lower rate than your personal income tax.
  3. Bringing on Investors: You’ve got an opportunity to expand your business, but you don’t want to borrow money from a bank.  Having a corporation or limited liability company will let you bring investors into the mix—something you can’t do as a sole proprietor.
  4. Limiting the Potential for Litigation with other Founders: If you and a co-worker want to start a new business together, setting up a corporation will also mean that you’ll have a written company agreement that addresses issues such as the ownership split and how management decisions are made. This reduces the likelihood of the two of you being stuck in a “he said, he said” dispute later on about your agreement.
  5. Increase your Credibility: The public tends to feel more confident dealing with a corporation than with a sole proprietor. Being able to put “Inc.” at the end of your business’s name makes it look more professional and credible to potential customers.

Tilting the Scales in Your Favor.

When it comes to incorporating your business there’s no “one-size fits all” approach.  Whether incorporating is right for you depends on your individual circumstances, and you should consult with a lawyer and your tax advisor before making your decision.  If you do decide to incorporate, there are a few more issues to consider:

  • Insurance: Your homeowner’s policy may not cover your business, even if you only work out of your home.  Talk to your insurance agent and make sure you have the right policies for your needs.
  • Trusts: While incorporating will typically protect your personal assets from creditors of your business, you can add additional layers of protection with trusts to protect your most valuable personal assets.
  • Employee Issues: Regardless of whether you incorporate or not, if you have employees, you need an employee handbook that clearly sets forth company policies.  And, depending on the type of employee you hire—such as a sales person—you may want to consider having a non-competition agreement with your employee.  My partner Michael Kelsheimer offers a free “Employer Handbook” with easy to understand Texas-specific answers to frequent employment questions.
  • Contracts: If you have form customer contracts and you incorporate, they will need to be changed.  Get a contract checkup, because an attorney should also explain to you how the contract needs to be signed in order to protect you from being personally liable.

Moving Your Company to Texas or Just Across the Street? Top 5 Considerations

Posted in Legal Risk Management

Moving to TexasFleeing the California minimum wage increase, N. O. Smelz, owner of Smelz Carpet Cleaning calls his friend and fellow entrepreneur Billy Brazos to announce that he’s moving to Texas and to ask for any advice. Having just completed an end of year checkup on his own business, Brazos offers his top five tips for any company new to Texas, relocating within the state or that just hasn’t had a corporate checkup in a bit.

#1 Think About Your Company Entity

You have 3 options when moving your business:

  1. Continue – You can continue your company in the old state and register as a foreign entity doing business in the new state (undertake foreign qualification in the new state). However, there are a couple of things to note:
    1. Ongoing State Fees. If you keep both entities, you will pay duplicative annual report and/or franchise taxes, and sometimes complicated tax filings for the entity and its owners
    2. Delaware or Nevada. If you incorporated in Delaware or Nevada, you were probably foreign qualified in your current state. You can eliminate your current state and register as a foreign entity in your new state.
  2. Liquidate – You can liquidate your company in the old state and form a new entity in the new state.
    1. This may result in federal tax issues if you have a C corporation, but not likely if you have a limited liability company.
    2. For any company entity, there are state mandated formalities if you dissolve your business, depending upon the state, often at least requiring document preparation (dissolution papers), filing and paying any outstanding taxes and dissolution fees.
  3. Reorganization – You can undergo a reorganization, forming an entity in the new state and merging the old company into the new.
    1. This can be entirely tax-free for a C corporation.

#2 Don’t Forget About Your  Legal Documents

  1. Contracts with Customers and Vendors – Obviously, your choice of law is now likely to be Texas, not California. It is also likely that Texas law will treat other contract provisions differently. Get a contract checkup.
  2. Employee Handbook – Even if you didn’t get your employee handbook off the internet, many aspects of the employment relationship are different in Texas from California. My partner Michael Kelsheimer offers free “Employer Handbook” with easy to understand Texas-specific answers to frequent employment questions.

#3 Update Your Address Change with the Government – Federal, State & Local Agencies

  1. The IRS requires no document change, like your employer ID number (EIN), but you must complete Form 8822-Change of Address (Part II) and designate if only changing mailing address or also changing notifications for business income, excise, employment, and other tax matters.
  2. The Texas Secretary of State requires company registration to do business in Texas perhaps necessitating amending organization documents (Articles of Incorporation for a corporation or Articles of Organization for a limited liability company) and notification of any address change. If you elect to be organized in one state and registered to do business in another, you must maintain registered agents in each state and complete each state’s filing and reporting requirements. California, for example, imposes a franchise tax on every corporation or LLC that is registered to do business there.

#4 Change Your Address Online

  1. Marketing Materials – You’ll want to update your website, email marketing templates, email signature, business cards and social media.
  2. Online – Make sure to your physical address on your website, Google Places, Yelp, Bing Places, Yahoo Local, Google Places, Google Map Maker tool, Bing Places, Yahoo Local, Mapquest, Apple Maps, OpenStreetMap tool, and any other search engines you’ve registered your business with.
  3. Automatic Payments  Any website that auto-charges your business credit card will not accept charges when your address changes at your credit card company or bank.

#5 Tips for Company Owners

  1. Wills and Estates
  2. Texas Driver’s License – You’ll want to update local address within 30 days of your move.
  3. Voter Registration –Whether you move into the state or into another Texas County, you should notify the county voter registrar.
  4. Texas Concealed Handgun License – If you move, you can change your address online.
  5. Insurance – Have you updated your insurance lately?
  6. Safety deposit box  Have you inventoried/ updated safety deposit documents lately?
  7. Personal Move List – This article gives you a pretty good start on a list of other personal items to be addressed in a move.

Tilting the Scales in Your Favor.

Whether your company is moving to Texas or just moving across the street, check out, among other things, your company structure, your contracts with your customers and your vendors, your internet presence and the last time you told your current and prospective customers and vendors who you are, where you are and what you do.

Loving Thy Neighbor & the Defamatory Flyer

Posted in Defamation

defamation-flyerPete Kusdel was walking his dog through his neighborhood one morning when he saw papers strewn all over one of the streets—it looked like a recycling truck had lost its load!  Mad as heck and ready to call the local garbage company, he soon realized that each piece of paper had a picture of his neighbor, Sally McFly, on it. Pete picked up one of the pieces of paper and was shocked by what he read: “Sally McFly, 4001 Polka Drive. You’re no Christian! Leave my husband alone!” He picked up another piece of paper and it was exactly the same. Pete thought to himself, “Man, I can’t wait for my wife to share more details on the neighborhood gossip. This is the biggest scandal in years!” Sure enough, rumors began spreading that Cynthia Senhan made the flyers because she thought Sally was sleeping with her husband. Now, Sally is furious because the rumor is false. Does she have a good defamation claim against Cynthia?

Defamation Primer. 

We’ve written a number of articles on defamation over the years. Basically, defamation involves a false statement of fact about a person that is published to a third party and tends to injure the person’s reputation. Assuming Sally is telling the truth, it’s pretty obvious that Cynthia’s fliers are defamatory.

But does Sally really have a good lawsuit?  Maybe. The law divides defamatory statements into two groups: (1) statements that are defamatory per se; and (2) statements that are defamatory per quod. Defamatory per se statements are typically statements that unambiguously charge someone with committing a crime, being dishonest, engaging in fraud, rascality or general depravity.  All other statements are defamatory per quod.  Some courts have recognized that statements claiming a person engaged in an extramarital affair are defamatory per se.

What’s the effect of a defamatory per se statement?  The law presumes a plaintiff, such as Sally, suffered loss of reputation damages without proof of actual injury. If the defamatory statement is not per se, the plaintiff must present proof that the statement caused a loss of reputation, and how those damages are calculated, to recover.

Are Cynthia’s fliers protected “free speech” communications?  Highly doubtful. We’ve  written about free speech and defamation on a couple of occasions, but it’s worth revisiting.  If Sally sues Cynthia, the Texas Citizens Participation Act probably won’t protect her fliers because they were not a matter of public concern—that is, until Cynthia decided to make it known to the public. Had Sally been a public official, it might be a different story.

Tilting the Scales in Your Favor.

Remember the Golden Rule: if you don’t have something nice to say about someone, don’t say it. But if that doesn’t stop you, (we’ve talked about this before) you better have evidence to back up your statement if you’re going to accuse someone of engaging in reprehensible conduct. Otherwise, it’s probably best to not make the statement, especially in today’s age where everything posted online is forever memorialized. If you’re sued for defamation, one of the first things you should do is contact your homeowner’s insurance company because you probably have coverage for those statements.

Defamation: Internet Crisis Control

Posted in Defamation

Internet DefamationArriving at his warehouse last week Knott Faire, owner of Faire Carpet Cleaning, discovered yet another complaining critique posted on WELP: “Lots of hype, a mediocre cleaning and a hassle at the end. Don’t get tied up with Knott!” In over 75 previous reviews only 3 were slightly negative. Since the “hype” complaint, another dozen scathing complaints were logged. Believing that the negative reviews are from a competitor, not his customers, Knott called his trusty lawyer Icahn Ficksit for help. Icahn issued WELP a subpoena demanding production of identifying information and ISP (Internet Service Provider) addresses for the dozen offenders. Can Ficksit successfully subpoena the documents? What should Knott Faire do about his on-line reputation?

Ficksit may well not get the documents he wants. In Texas, probably not. Texas courts require a defamation plaintiff to submit sufficient evidence of a prima facie case on each essential element of the claim (see Cahill and Dendrite) to subpoena the documents sought. Just saying the postings are tortious or illegal is not enough. Texas businesses seeking personal details about website users must lay out actual facts to support the subpoena. For example, if the reviewer was a customer and the posted review was based on personal experience, defamation is not likely. If the statement is false and the reviewer was never a customer, then the review is not an opinion and may well be based on a false, defamatory statement.

Internet Crisis Control for Knott Faire?

Faire probably should focus more carefully on fixing his internet reputation. How can Knott Faire best get this done?

Be Proactive.  “Nip it in the bud.” Release your side of negative information first, by putting your most favorable spin on the facts. If it is reasonable, it will be believed.

Be Upfront.  Consider contacting and offering to meet with the online poster if the negative comments have already been posted. Be conciliatory.

Apologize if Necessary.  Consider ‘fessing up to your mistakes. A quick apology is less painful and less costly than years of litigation, and is likely to put you in a better light rather than appearing to be clueless and defiant.

Negotiate to Get the Post Down.  Consider the cost to get it down. Words are forgotten. Even newsprint fades. The permanence of the web creates a major branding challenge.

Own Your SEO (Search Engine Optimization).  Consider creating your own content and drive the bad stuff down in search engine rankings. Only your worst enemy will look for dirt on you past the first Google search page. See Reputation Repair below.

And, know that there are those who believe that any company that sues over online reviews someone makes is clearly a company not worth doing business with, since they might, potentially, sue you over any bad review you write online about them.

Tilting the Scales in Your Favor.

Our advice on this subject of almost two years ago is the same today. Consider undertaking internet reputation repair. Managing your internet reputation is not a new idea. In fact, Gray Reed regularly works with some of our clients on crisis communications and dealing with damaging or misinformation on the internet. There are also internet service providers and websites like Reputation Changer, Reputation Management Consultants, Integrity Defenders,and Online Reputation Management that promote their ability to clear negative search results arising from an internet search engine. And by the way, consumer-review websites—whether Yelp, Angie’s List, Google + Local, Yahoo Local Listings, or Amazon.com—are shielded from liability for defamation claims stemming from user comments under the Communications Decency Act of 1996.

Prior Tilting Articles.

Also check out: Defamation Law: The Basics