TV production studio showing man talking to cameraAlthough our judicial system historically prefers live witness testimony over testimony of witnesses through a deposition, today’s technology allows even seasoned trial lawyers the ability to present witnesses through videotaped deposition testimony that can be even more effective than having the witness appear live.  I know because I just finished a 3-week trial where 75% of the witnesses we called in our case appeared by videotaped deposition. The defense also called approximately 75% of their witnesses by deposition, The result: after a half-day of deliberations the jury found the defendants negligent and awarded our clients $217.7 million.

Federal courts and most state courts have rules that govern the use of deposition testimony at trial.  The instances when parties may introduce deposition testimony are limited: Continue Reading Why Videotaped Deposition Testimony can be More Powerful than Live Witnesses

Young friends celebrating with sparklersWe covered firework laws several times in the past but it’s always a good reminder as we approach the Fourth of July weekend where fireworks are more than likely in your plans. Below are Texas’ top 10 firework laws you should consider before lighting the fuse. Remember though, laws may vary county to county.

And, don’t forget that any County Commissioners Court in Texas can issue a burn ban prohibiting burning of any kind – including fireworks anywhere in that county, whether within the incorporated city limits or not. Because sparklers burn at approximately 2000 degrees Fahrenheit, they count as fireworks / fire as well.

Continue Reading An Oldie but a Goodie: A Friendly Reminder About Firework Laws in Texas

judge hand with gavelFor nine years, Tilting the Scales has brought legal issues with a business slant –practical and conversation points. Many who we represent are entrepreneurs who prefer to avoid lawyers and, certainly, the courthouse. Few of our Tilting issues focus upon third party resolution of disputes.

This post discusses my arbitration that dodged the “Top 8 Pitfalls of Arbitration” discussed in Tilting’s January 2016 article and attorney insight on the steps of a trial.  Continue Reading Personal Insights into Arbitration and Trial

Bench in bluebell fieldA huge fan of the Hill Country, Skare D. Katz buys a large piece of undeveloped land from the Solable Family outside of Austin.  Skare D. plans to build a ranch for retirement. One Saturday while Skare D. is visiting the property to visualize his plans, a woman shows up and stands underneath a large oak tree, staring at the ground.  Skare D. approaches the woman and asks her for her name.  The woman responds, “Inka Solable.”  When Scare D. asks Inka what she’s doing there, Inka responds, “This is where my great-grandfather is buried.  I come pay my respects every Saturday.”  Dumbfounded, Skare D. responds, “Ma’am, I appreciate that, but I own this property now.  I don’t want you coming by every Saturday.”  Inka replies, “I have a right under the law to access this property when I want.  I’ll see you in Court!”  Is Inka right? Continue Reading The Grave Reality of a Cemetery on Your Property

Business people joining hands in circleBeginning as a part-time college job walking friends’ dogs, Cary Barker’s full time business now employs over 30 college students to walk neighborhood dogs and to deliver them for daily activities to and from his Barkingham Palace Doggie Day Care Center, LLC. Although not yet ready to seek investors and begin franchising, Cary wants to grow Barkingham Palace, protect its blind spots, get alternative perspectives from other’s experiences and expand his network of friends. Cary’s friend Bayh Lawz suggests that Cary should select a board of directors. Should he? Continue Reading Selecting an Advisory Board – Do’s & Don’ts

Crowdfunding money jar full of coinsSpurred by the frenzy of mid-century modern furniture of the 1950s and 1960s returning in popularity, a growing number of collectors are investing in and holding vintage furniture. Capitalizing on that craze, N. Stile Sune’s start-up Mothbalz Antiques cannot grow fast enough to meet demand. To buy more old warehouses and re-fit them into climate controlled spaces, N. Stile must raise over $2 million and is willing to give his investors an equity interest. Can N. Stile use crowdfunding or must he go the old fashioned route of a private placement memorandum (PPM)?

Due to Sune’s $2 million in capital needs (and more) crowdfunding is not a viable option.

Crowdfunding

The JOBS Act 2012 (Jumpstart Our Business Startups) was designed to encourage funding of U.S. small businesses and to ease various U.S. securities regulations affecting business investment. Enticingly entitled the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012,” Title III of the JOBS Act had visions of giving small individual investors access to early-stage investment and the enhanced ability to raise money beyond “friends and family,” through social media and from unknown investors like other sites such as Kickstarter.

When compared to other forms of private placements, crowdfunding is not a feasible option for our friend N. Stile Sune and Mothbalz Antiques. As explained in Forbes, here are ten reasons why:

  1. Issuers are capped to raising $1 million in any 12-month period.
  2. Shares issued are subject to a one-year restricted period.
  3. Crowdfunding is capped over a 12-month period at amounts depending upon net worth / income.
  4. Crowdfunding must be done through a registered broker-dealer or registered “funding portal.”
  5. The disclosure document (PPM) must be filed with the SEC prior to first sale and N. Stile Sune would have to file audited financial statements.
  6. Unlike JOBS Act changes affecting accredited investors, crowdfunding does not allow advertising except in narrow exceptions.
  7. Annual reports and possibly more frequent reports must be filed with the SEC.
  8. Legal prospectus liability applies to disclosures.
  9. Extensive due diligence is required, including background checks on management and large stockholders.
Tilting the Scales in Your Favor

Beware. Crowdfunding is far from a start-up fund raising panacea. You can still be sued for fraud for an actual or perceived misrepresentation or omission. One of the best ways to legally protect yourself and your business is also one of the most effective means for garnering serious investor interest.  Disclose as much information as possible about your business, ensuring that if things begin to fall apart and investors threaten to sue for securities fraud or other issues, you can use your disclosure as a powerful defense – through the traditional Private Placement Memorandum – or PPM for short.

For more information on private equity funding, check out our Gray Reed attorneys David Earhart and Mark Wigder.

Confidential folder isolated on a white backgroundGrowth in the DFW metroplex is booming, and the City of Flourish is one of the driving forces. Unfortunately, the City has had a difficult time keeping up its infrastructure with the growing population.  Recently the City selected a bid from Slab Mixer Co., a concrete pipe manufacturer, for culverts for a project widening some of the City’s streets.  After the City and Slab signed their contract, a group of Flourish citizens, concerned with how the City’s spending might affect their taxes, requested a copy of the contract under the Texas Public Information Act (TPIA).  When the City notified Slab of the request, Slab asserted that some of the terms in the contract needed to be redacted because they would give Slab’s competitors an advantage in future contracts.  Does Slab have the right to do that?

Background on the Texas Public Information Act

The Texas Public Information Act provides the public with the right to access information the government collects, subject to approximately 60 exceptions.  Tex. Gov’t Code §§ 552.221, 552.101-.154.  One exception is “information that, if released, would give advantage to a competitor or bidder.”  Id. at § 552.104(a).  Historically, the Texas Attorney General’s Office, which is charged with interpreting the Act and maintaining its uniformity, has taken the position that this exception only protects the governmental body, and not a private party.  In other words, the AG believed the Act only allowed a governmental body to protect information that would place it at a disadvantage with other governmental bodies inside and outside of the State of Texas.

Do Private Parties Have a Right to Protect Their Bid Information? 

Yes.  In 2015 the Texas Supreme Court in The Boeing Company et al. v. Paxton held that “a private party may assert the exception to protect its competitively sensitive information.”  The Court found that the plain language of the exception was not limited to a governmental body’s right to protect that information.  It also noted that the governmental body had the right to defer to the private party to assert its competitive interests were at stake and request that the competitively sensitive information be withheld.  Thus, Boeing had standing to assert the exception, but would have to show that the information requested, “if released, would give advantage to a competitor or bidder.”

What about Citizens’ Right to Know How Much Their Government is Spending? 

Some have claimed the Texas Supreme Court’s decision in Boeing has given governmental bodies a carte blanche loophole to avoid turning over any information about their contracts.  According to these critics, the Court’s decision allows the governmental bodies to assert that disclosing that information would give an advantage to the successful bidder’s competitors in the future.

While it’s a superficially appealing position from a taxpayer’s perspective, it ignores another argument that the governmental bodies assert to protect disclosure of this information.  As mentioned above, the governmental bodies have asserted the exception protects disclosure of sensitive information that the body believes will give other governmental bodies an advantage.

For example, the Boeing case points out that the Attorney General ruled the exception protected disclosure of information concerning the Texas Governor’s marketing meetings with businesses in other states because the State is competing with other states to recruit those businesses to relocate. The release of that information would give other states the advantage to approach those businesses with competing or better incentives.

Proposed Legislation

Companion bills (HB 792 and SB 407) have been filed in the Texas House and Senate to address the Texas Supreme Court’s decision in Boeing.  If enacted, the legislation would make clear that the exception only allows a governmental body to protect information that it believes would harm its competitive interests.  It would also apply an “exception to the exception” that would require governmental bodies to disclose that competitive information after the body awards the contract.  HB 792 was recently referred to committee. SB 407 was referred to committee, where it was discussed but not voted upon yet.

Tilting the Scales in Your Favor

That depends on how your business has been affected by the competitive bidding process.  If you have won bids in the past, and your proposals contain proprietary information that gives you a competitive advantage, you should ask the governmental body to redact that information if anyone requests it under the TPIA.  On the other hand, if your business has consistently lost out in the bidding process, you may want to press the Legislature to pass HB 792 and SB 407 this session so that you can see your competitor’s proposals and try to figure out how you can match, or beat, them in the future.

 

US Customs and Border ProtectionLast week Emma Grant’s line cook and 25 other undocumented employees at her bar-b-que restaurant Emma Grant’s Bar-B-Que were working the lunch shift when it was raided by Immigration and Customs Enforcement personnel, apparently at least in partial response to a recent executive order. Can the President of the United States do that? Can this be a problem for Emma Grant and her bar-b-que restaurant?

Executive Orders

Recognized since George Washington as being authorized by Article II, Section 1 of the Constitution that provides “the executive power shall be vested in a President of the United States of America,” there have been more than 13,000 issued, in one form or another, since 1789. Notable executive orders were Abraham Lincoln’s Emancipation Proclamation and Franklin Roosevelt’s mandatory registration of aliens from World War II enemy countries. FDR also holds the record, by far, of the most Executive Orders at 3,721; next closest is Woodrow Wilson at 1,803. To date, President Donald Trump has issued twelve executive orders. Suggested as undoing many of President Barack Obama’s policies, here’s a list and short summary of each. The Federal Register details the executive orders transcripts, numbers and disposition tables from Herbert Hoover to date.

The Legal Reality

But what about Emma’s exposure? Yes, as the employer of the undocumented workers, Emma Grant could have liability. Employers must verify the identity and employment authorization of each person hired after Nov. 6, 1986 and complete and retain Form I-9. Failure to do so can result in civil fines ($539 for each at the first offense and up to $21,563 for each after multiple offenses), criminal penalties (when there is a pattern or practice of violations), and debarment from government contracts.

Tilting the Scales in Your Favor

Get a completed I-9 for each employee. Undertake reasonable and diligent investigation, if appropriate. For key employees, consider undertaking steps to secure their legal residency in the United States.

Love LetterOn Valentine’s Day, Zack takes Kelly, his high school sweetheart who goes to a different college, to the Max for a romantic dinner.  At the end of the meal Zack says, “Kelly, I want us to promise each other that after college we’ll both move back to Bayside and get married.  Will you marry me?”  Kelly responds, “Oh Zack, that’s wonderful!  I love you so much and I promise.”  Delighted, Zack puts the engagement ring on Kelly’s finger and says, “That’s great Kelly!  Now there’s one more thing – I spent every dime I made working last summer on this ring.  Will you promise me that if we don’t get married after college you’ll return this ring?”  Kelly writes on her napkin “I promise to return my engagement ring if we don’t get married after college,” signs her name and gives it to Zack.


Two years later, Kelly decides to take make a surprise visit to Zack’s school one weekend.  When she arrives she finds Zack at a party kissing another woman.  “You two-timing slime ball!  We’re through and never getting married,” Kelly tells him.  Zack asks for the ring back and Kelly refuses.  Three months later Zack sues Kelly for the ring.  He still has Kelly’s napkin from Valentine’s Day.  Does he have a good case even though he’s a pig? 

Written Promises Around Engagements Are Enforceable

We covered this topic many years ago under a different fact scenario and the law has not changed since then.  Zack is entitled to the ring. Kelly promised in writing to return the ring if they did not get married after college.  Importantly, Kelly’s written promise was not conditioned on who broke off the engagement or why it was broken off.  Thus, Zack gets the ring although his actions caused Kelly to call off the engagement.

What if Kelly Didn’t Give Zack the Napkin?

Kelly probably gets to keep the ring because it was Zack’s fault that the engagement ended, even though Kelly called it off.  In the absence of an enforceable written agreement, Texas follows the conditional gift rule, which requires Kelly (the donee) to return the ring to Zack (the donor) if Kelly is at fault in terminating the engagement.  But, Texas courts allow the donee to keep the ring if the donee can prove that there was a justified reason for calling off the engagement.  Zack’s cheating should be enough, absent other facts.

Tilting the Scales in Your Favor

While some people might find the conditional gift rule offensive, other people may see it as a reasonable approach.  Regardless, it’s important to remember that if you have significant assets you are bringing into a new marriage, you may want to consult with an attorney about whether you should have a prenuptial agreement in place in case the marriage does not work out.

Riding her beloved Packers late-game win against the Dallas Cowboys, Allfer Funn, owner of Con Genial, is polishing her cheese head hat and dusting off her Super Bowl Squares Pool from last year in anticipation of the Big Game in a couple of weeks. Electing not to “Reinvigorate [Her] Super Bowl Office Betting Pool” as some have suggested, she does, however, decide to up the ante from $10 a square on her 10 x 10 grid to $20 a square. Just good clean office fun to build morale, right? It’s not illegal… or is it?

The Legal Reality?

Yes, it’s illegal in any number of ways. It’s illegal gambling in Texas. And, for Allfer, organizing the Pool is likely “bookmaking” – receiving more than 5 bets in a 24 hour period. Under the gaming laws of all 50 states, it’s a bet with a prize that is won or lost solely by chance. Because squares pools involve randomly assigned numbers, the contest is entirely based on chance and thus illegal unless (in a state other than Texas) it falls within a state-specific “recreational gaming exception.”

And there’s more.

Beyond Texas, the federal Professional and Amateur Sports Protection Act of 1992 also prohibits gambling, specifically on professional and amateur games. Should Allfer Funn or her employees elect to bet online there’s always the federal Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) which Tilting commented upon in 2011 that prohibits nearly all types of online gambling.

Notably, the UIGEA exempts most fantasy sports competitions, classifying them as games of skill rather than games of chance – except for the Super Bowl. A fantasy football competition is based upon a single game with a limited number of outcomes as well as a limited number of players/teams from which participants can choose, whereas the Super Bowl is viewed as a game of chance rather than a game of skill.

The Practical Reality?

As reported in a Houston KTRH NewsRadio 740 interview last year by Tilting’s own Cleve Clinton, “It’s illegal. Now, realistically and practically, is anybody going to do anything about it? No.”

In the same interview, Clinton told KTRH that Texas law has such a broad definition of gambling, that technically any betting pool violates state law.  Whether or not the state chooses to enforce that depends on a few factors.

“The first thing you really want to look at is how big of a pool are we talking about, the second thing is who’s running it, and the third, will someone (the organizer) profit by it,” says Clinton.

Allfer may want to reconsider and not increase the pool size from a total of $1,000 to $2,000.

Good Clean Fun?

Notwithstanding that gambling on the Super Bowl is illegal, Allfer Funn should be wary of potential retaliation and hostile work environment claims from employees either excluded from or uncomfortable with office gambling.  What happens if an employee snitches? The Texas Penal Code seems to offer “testimonial immunity.”

Tilting the Scales in Your Favor

While Texas does have strong laws against gambling, most low-stakes office pools should be all right, as long as they are run by an individual and not the company, and nobody takes a profit or fee off the top for organizing or running the pool.  “It risks becoming a problem when you get out of bounds on size or (scope),” says Clinton. It is best for Allfer Funn that she not manage the Super Bowl pool. And, she should check Con Genial’s employee manual to make sure that she is not stepping out of bounds of her own company policy. Finally, Allfer should be cognizant of the objection of any employee and respond accordingly. Go Packers!

Read more: Houston KTRH NewsRadio 740 Super Bowl Betting Pools May Be Illegal

Tilting the Scales articles: Internet Gambling in the U.S.March Madness Basketball GamblingWanna Bet? Betting About Baseball Returns to the News