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Marketing entrepreneurs’ greatest strengths are their creativity and vision. It is this vision that drives many to take the leap to start their own agency/consultancy or join a start-up venture to market an exciting new product. Unfortunately, most marketers are not well-versed in the intricate legal issues involved with starting a business. This can lead to a variety of problems, especially as the venture begins to become successful.  A common misconception is that good legal advice is often too expensive for the early stages of a business venture. This is not the case – provided the right counsel is selected. To ensure the success of any new venture, marketers should take steps to avoid the following common pitfalls:

  1. Delaying discussion of legal issues until past the start-up phase. It’s all too common (and tempting) to ignore legal issues involved with starting a business. The instinct is to wait until your company receives additional funding or has a problem to hire an attorney. But having legal counsel during the start-up is essential to preventing large and costly problems that could ultimately derail your business.
  2. Initial business formation. Entrepreneurs are often not aware of the different tax filing categories. LLC, S-corporation and C-corporation are the most common, but there are others. Each has a different structure and design, with different tax consequences. As the company founder, you should sit down with an attorney to determine which structure is best for your business. Failure to do so may result in higher taxes and expose you to additional liabilities. Choosing the correct structure can result in significant savings, a more robust investment platform and a more secure future.
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In the midst of the Great Depression, Congress enacted two laws to shore up practices that were considered to have led in part to the Market Crash of 1929: the Securities Act of 1933 (“1933 Act”), which governs initial securities offerings; and the Securities and Exchange Act of 1934 (“1934 Act”), which governs all subsequent trading. The 1933 Act permits both state and federal courts to hear claims brought under that Act, and bars defendants from removing such claims to federal court. The 1934 Act, however, grants federal court exclusive jurisdiction to hear claims brought under that Act.

In 1995, Congress passed the Private Securities Litigation Reform Act (“Reform Act”) to curb apparent abuses of plaintiff’s use of the class action vehicle in litigation involving nationally traded securities. The Reform Act included substantive reforms in both state and federal court, and procedural reforms only in federal court. The Reform Act fell prey to the law of unintended consequences, and, following its passage, plaintiffs began circumventing the obstacles imposed by the Reform Act by filing securities class actions in state court. To prevent the run-around of the Reform Act, Congress responded in 1998 with the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). In relevant part, SLUSA provided an exception to the 1933 Act’s general rule that state and federal courts exercise concurrent jurisdiction over claims brought under that Act. Following the passage of SLUSA, a split developed between state and federal courts as to whether SLUSA deprived state courts of subject matter jurisdiction over cases involving “covered class actions” (actions in which damage are sought on behalf of 50 of more people) asserting only 1933 Act claims.

On March 20, 2018, in Cyan v. Beaver County Employees Retirement Fund, No. 15-1439, the Supreme Court resolved the split and issued a unanimous opinion authored by Justice Kagan. The Cyan case arose out of the purchase of shares of stock in Cyan, a telecommunications company, by three pension funds and one individual in an initial public offering. After the stock declined in value, the plaintiffs brought a damages class action in California Superior Court against Cyan. The allegations stemmed from material misstatements contained Cyan’s offering documents. The plaintiffs alleged that Cyan violated the 1933 Act, but did not allege any violations of California state law claims. Cyan moved to dismiss the case alleging that SLUSA stripped state courts of subject matter jurisdiction over class actions arising solely under the 1933 Act. The California Superior Court denied the dismissal, and the state appellate courts denied review of that ruling. The Supreme Court granted certiorari to resolve the split among state and federal courts. The Supreme Court also addressed a related removal question raised by the federal government as amicus curiae.

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Ned Parent, a member of STSW’s Business Litigation Group, published an article in the September 2017 issue of the Maryland State Bar Association’s “Bar Bulletin” publication.  Mr. Parent’s article discussed the “undue influence” standard used in Caveat proceedings (the formal term used for proceedings challenging the validity of a Will).  Specifically, the article discussed the challenges in successfully proving undue influence in such proceedings, and suggested possible solutions to address those challenges.  A link to this article may be found here:

http://www.msba.org/Bar_Bulletin/2017/10_-_October/Estate_and_Trust__Fighting_the_Ticking_Clock__Undue_Influence_in_Caveat_Proceedings.aspx

Mr. Parent leads STSW’s fiduciary litigation practice, handling disputes related to estates, trusts, and guardianships.  If you have any questions about this article, or would like to discuss a potential matter related to an estates and trusts dispute, Mr. Parent may be reached at nparent@mdattorney.com or at (443) 909-7500.

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Concern regarding “waste, fraud and abuse” in government spending is everywhere these days, it seems.  Even in 2017, it is a solidly bi-partisan concern.  A quick internet search reveals that think tanks from the progressive Center for American Progress to the libertarian Cato Institute have published on the topic, and politicians as ideologically diverse as Rep. Elijah Cummings (D-Md.) and Rep. Paul Gosar (R-Az.) host pages on the official House of Representatives domain, house.gov, addressing wasteful or fraudulent government spending.

It may be more accurate to call the issue “non-partisan” rather than “bi-partisan” – relatively apolitical groups like AARP have weighed in, as has nearly every federal executive agency, including the Office of Personal Management, the Government Accountability Office, and the Department of Health and Human Services (which oversees Medicare and Medicaid – more about those two programs in a future post).

Even the Pentagon, long the butt of many anecdotes about $30,000 toilet seats and the like, apocryphal or not, maintains a suite of online resources dedicated to informing and empowering the public regarding safeguards against waste fraud and abuse.  In fact, the Office of Inspector General for the Department of Defense provides definitions, drawn from several sources, that defense what each of these terms – waste, fraud, and abuse – is understood to mean:

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Omni Imaging, LLC (“Omni”), a Maryland limited liability company, filed its lawsuit against our clients, Blue Ridge X-Ray Co., Inc. (“Blue Ridge”) and Richard A. Wilson, in the U.S. District Court for the District of Maryland, on or about October 12, 2016, alleging breach of contract, tortious interference with contract and tortious interference with prospective business advantage.  Omni is an LLC in the business of selling and maintaining x-ray facilities and radiology products, accessories, supplies and services in Maryland, Virginia, Delaware, Pennsylvania and the District of Columbia.  Mr. Wilson was formerly employed by Omni prior to joining Blue Ridge X-Ray Co., Inc.  Blue Ridge is a North Carolina corporation and a national supplier of x-ray imaging equipment, service and supplies.  Omni sued our clients over a dispute concerning a non-compete agreement signed by Mr. Wilson prior to leaving his employ with Omni.  STSW was able to defend Blue Ridge and Mr. Wilson and reach a fair and reasonable settlement with the assistance of the Honorable Beth P. Gesner, U.S. Magistrate Judge for the U.S. District Court for the District of Maryland.

Omni hired Mr. Wilson in February 2010 to conduct sales and perform services on traditional and digital x-ray imaging equipment.  As a condition of his initial employment, Omni required that Mr. Wilson sign a non-compete agreement, as well as provide a list of accounts that Mr. Wilson could bring from Kane X-ray, his previous employer.  Mr. Wilson, under the encouragement of Omni and its president Bill Wills, compiled such a list and brought over several clients, with whom he had pre-existing longstanding personal relationships, from Kane X-ray to Omni.  Omni relied heavily on the business that Mr. Wilson brought with him, as the medical imaging industry is highly competitive.  And during the course of his employment with Omni, Mr. Wilson was dedicated to Omni’s business and maintained a strong work ethic.  While working for Omni, Mr. Wilson noticed that its main competitor had started providing biomedical services, which generated a significant profit.  Mr. Wilson thereafter began to research equipment sales and training programs pertaining to selling and servicing such equipment.  After conducting individualized research and independent training on his own time, Mr. Wilson approached Bill Wills with the idea of initiating sales and service of biomedical equipment through Omni.  As a precondition to receiving the training for implementing Mr. Wilson’s own idea, Bill Wills required that Mr. Wilson sign a second non-compete agreement.  On March 18, 2015, Mr. Wilson, without the benefit of independent counsel, signed the Employee Non-Compete Agreement.  That Agreement contained non-compete, non-solicitation, and confidentiality clauses.  The Non-Compete Agreement specified that it would “survive the termination” of Mr. Wilson’s employment.  In May of 2016, despite Mr. Wilson’s best efforts in his new sales region, Bill Wills informed Mr. Wilson that, unless he could meet a minimum threshold of $30,000.00 in quarterly sales, Omni would need either to reduce Mr. Wilson’s employment status to part-time, or to part ways with Mr. Wilson completely.  Out of concern for himself and his family’s well-being, and having grown increasingly dissatisfied with his experience working with Omni, Mr. Wilson initiated an interview with Bill Lee, president of Defendant Blue Ridge X-ray (“Blue Ridge”).  Blue Ridge hired Mr. Wilson, for a start in the month of July, 2016.

In its Complaint, Omni alleged that Mr. Wilson solicited Omni’s customers and employees in breach of the non-compete, non-solicitation, confidentiality and non-disparagement clauses in the Non-Compete Agreement.  While disputing liability in this matter, we were able to secure a release of all claims and an agreement concerning the future interaction between our clients and any Omni customers.  If you want more information, please feel free to contact William Sinclair at (410) 385-9116 or Anna Schultz Kelly at (443) 909-7505.

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Businesses are obliged to ensure that their facilities comply with the Americans With Disabilities Act. But can anyone who believes he has found a violation somewhere sue to remedy it? The U.S. District Court for the District of Maryland recently considered what types of plaintiffs may initiate such litigation, and excluded out-of-state persons that merely “test” faraway properties for ADA compliance.

The plaintiff in Nanni v. Aberdeen Marketplace, Case 1:15-cv-02570-WMN (D. Md. May 4, 2016), was a Delaware resident with a disability who said that he traveled along Interstate 95 into Maryland to visit with family and friends and attend various events. He alleged that he had stopped at Aberdeen Marketplace up to four times to rest and take a bathroom break. During those visits, he contended, he encountered various barriers to accessing the stores and services, defects that he believed ran afoul of the ADA. Asserting an intention to patronize to the shopping center up to three times a year and also test the facility’s compliance with the ADA, Plaintiff sought declaratory and injunctive relief. Represented by Silverman|Thompson|Slutkin|White, Aberdeen Marketplace moved to dismiss the lawsuit.

First, a little background on “standing”: To be able to bring a lawsuit, a plaintiff has to demonstrate that he suffered an injury in fact – that is, an actual or imminent invasion of a legally protected interest that can be remedied by a judicial decision. When a plaintiff requests injunctive relief, he also has to show a “real and immediate threat” of being wronged in the future, a likelihood that is greater than a “mere possibility.” Applied in the context of Plaintiff’s lawsuit, he had to describe “specific concrete plans” to return to Aberdeen Marketplace and how he would be similarly injured during those future visits.

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Long a consistent and ardent judicial champion of the constitutional protections afforded citizens under the Fourth and Sixth Amendments, one cannot help but wonder how Justice Scalia would have viewed the showdown between Apple and the Department of Justice.
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The Court of Special Appeals of Maryland issued an opinion this week that serves as a reminder that a party’s simple failure to preserve evidence can sometimes snatch defeat from the jaws of victory. The case (and link) is Cumberland Insurance Group v. Delmarva Power.
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It’s no secret that the Court of Special Appeals has been increasingly overwhelmed with cases, nor is it a secret that the Court would like to see a lot of these cases resolved or otherwise cleaned up before having to spend time on them. Those concerns led to the creation of the Court’s ADR Division and accompanying procedures for steering the parties toward settlement or streamlining of the appellate process. After trying those out for a while, however, the Maryland Courts’ Standing Committee on Rules of Practice and Procedure identified some kinks, inefficiencies, and redundancies in the overall system, and proposed some related rules changes that were adopted by the Court of Appeals this month.
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In its 2009 decision in Shenker v. Laureate Educ., Inc., 411 Md. 317, the Court of Appeals of Maryland inserted a caveat in the premise that shareholder lawsuits against corporate directors must be pursued as a derivative action on behalf of the corporation itself. By declaring that a corporation’s impending sale gave rise to common-law duties by directors that could be enforced directly by shareholders, the high court outlined an exception that risked swallowing the rule. Last month, however, the Court of Special Appeals gave a more thorough explanation about when Shenker applies – and, as to be expected, it’s not as broad as disgruntled shareholders might hope.
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