As I blog, tweet and post on Facebook or LinkedIn, my character count usually exceeds the tweet-able max on the first try. I’m forced to be succinct and that’s good.  For much of my career, I have been more like a Faulkner than a Hemingway in how I write and, if brevity is the soul of wit, I am a dullard.  Even so, beginning with my first business e-mail (remember Lotus Notes?), I have seen how foolish it is to forget basic rules of thoughtful and discreet communication in electronic correspondence.

In some instances, clumsiness with the tools is the issue.  For some reason, one of my co-workers chose to leave an intimate message on his mistress’s office voice mail and managed to broadcast distribution to absolutely everyone in the company from the CEO down.  Countless times I have gotten something that says “So and so wants to recall his recent message” and, to this day, I don’t know how that’s done.

Even as new technologies become second nature, old rules of good judgment still apply.  Some things don’t belong in business documents and the same things don’t belong in voice mails, e-mails, posts and tweets.

Just because it’s not in hard copy, don’t think it’s not discoverable.  “E-Discovery” is a term all business people should make familiar. An old rule of thumb applies now as much as ever:  If you would be embarrassed for your mother or a jury to know it, don’t say it – in a memo, in an e-mail, in a voice mail or online anywhere.  I emphasize anywhere to discourage careless statements about your work even on a personal page on Facebook or MySpace; your adversaries can find those too.

I’m hardly the first person to caution folks on this and, while the person before me should have been the last, others are bound to follow me.  Here are some rules that especially deserve repetition:

• If you question whether something should be in writing, it probably shouldn’t.  Phrases like “Delete this immediately”, “I don’t know if I should put this in writing” or “I don’t want to discuss this by e-mail” suggest that a meeting or a conversation is the better way to go.
• Some words get special attention in litigation and should be used very carefully: “mistake”, “serious trouble”, “big trouble”, “sensitive”, “confidential”, “stupid”, “unmanageable” and “irreparable” are just a few.  Realize that word searches will focus on these terms and use these words only if you are completely satisfied that they are essential to your communication.
• Consider the worst way your comments can be construed, especially with what you think is funny or witty, and expect your opponents to take it the worst way.  The other parties in lawsuits don’t share your sense of humor, especially if the joke seems to be at their expense.  Your work / their issue is serious to them and should be to you, so express yourself that way.
• Be careful with the slang, jargon or vocabulary of your office or industry.  As with humor, outsiders may take a dim view of how you use a word or phrase that to you is innocuous, but to them is offensive.  Example:  A stockbroker accused of misleading clients whose money he invested describes his compensation by saying, “We eat what we kill around here.” He meant he was paid on straight commission; that’s all he should have said.
• Temper your emotions before you send or post.  Especially if you are angry or upset, consider waiting to send your message or publish your post until you have “counted to ten” and reflected on whether you have said what you should in a way that’s appropriate.

I don’t like texting shortcuts in anything other than texts or tweets.  Some folks don’t understand the symbols and think they lack professionalism, but that’s a matter more of personal style than legal substance. I am also a stickler for good grammar, punctuation and spelling in what I send and receive.  Indeed, there are lots of good suggestions for appropriate communication in modern media including basic e-mail etiquette, drafting to avoid spam filters and how to encourage collaboration.

Each day that goes by, I hope to be an older dog learning a new trick.  When it comes to new media, lots of us have many tricks to learn.  In mastering these tools, let’s not forget our training in the proper ways to express ourselves.

For the record, I don’t see a “trial lawyer” as somehow distinct from a “litigator.”  Defining them differently seems important to some people. It’s as though “trial lawyers” see themselves as street fighters (or possibly artistes) and “litigators” just technicians. Maybe “litigators” think themselves more sophisticated than “trial lawyers.” In the article, I could hear these folks saying “I’m a trial lawyer” like Clint Eastwood, one of the guys in “Lonesome Dove” or Jeff Bridges in “True Grit.”

As sarcastic as I might be, I take their point seriously.  I have no reason to doubt that these people are what they say, I can believe that they are quite good at what they do, I know that litigation skills take years of practice and I am certain these people have worked hard to get where they are.  Indeed, like anyone else, when I think my livelihood is threatened, I get testy and I don’t fault them for voicing their concern.

I’m competitive; I enjoy a victory.  Shortly before I left my first position, I was sent to defend an insurance carrier in a coverage dispute with the sheriff’s department in a nearby rural county.  The managing partner said “Just make the record for appeal,” confident I would lose at trial. The chancellor ruled in our favor, the case was not appealed and I was extremely self-satisfied. It was a rush.

It has been true throughout my career that most lawsuits are not tried.  I also believe there are fewer civil trials than there once were.  Since trial skills can only be refined in trials, maybe we do have fewer lawyers with the best trial skills.

Even so, I remind myself “whose wagon is in the ditch.”  The issues at stake are the client’s issues.  Litigation is time-consuming, litigation is expensive and litigation fractures relationships. Most business owners I meet want to move around if they can, through if they must, but in any event, past their problems.  Business persons are so busy, other priorities so urgent, and the financial and relational costs of litigation so high that they want a better way. They want something quicker, more private and less costly.

What’s more, litigation is uncertain; lawyers and doctors don’t (or shouldn’t) guarantee results.  Business people like control, but hand that over to the judge or jury.  At the end of trial, the winners may not be satisfied.  They get less than they wanted, it takes longer than expected and costs more than it should, plus they never should have had to sue or be sued in the first place.  A win just isn’t a win.

In many instances the answer is mediation.

For those who don’t know, mediation is a process in which adversaries meet with a neutral third-party. The mediator’s role is not to decide the outcome, but to create the environment for the parties to discuss their issues and reach an agreement that is mutually acceptable, complete and enforceable.  The mediator may be an attorney, but not always.  If the parties have counsel, their attorneys are there.

I have been the attorney with the client in mediations; indeed, I have been the “company” in mediations – the one empowered to settle the case.   I am trained as a mediator under the rules of the Tennessee Supreme Court.    I strongly believe in the merits of mediation, especially what’s called “collaborative mediation”, where the parties stay in the same room for most of the session.  Discussions may be tense, emotional and difficult.  That’s only natural; we are already in court or about to be.  Even so, agreement is usually reached – not necessarily an agreement that thrills everyone – but an alternative the parties can live with and move past.  For the pragmatic, mediation lets them plow to resolution and get on with other things.

I still get “trial lawyer” impulses.  I like to win. But as time has passed, success is what’s best for my client –maybe not my “win”. Winning, success and excellence aren’t the same thing.

Some years ago, while still in-house, I saw my name in a discussion thread where folks posted their grievances against my employer. One person asked if anyone knew someone in the company who would listen to their issues.  An anonymous response came from someone who could have met me only through mediation: “Try to speak with Ed Nanney; he’s tough but fair.”

I can live with that.

Some career paths take a predictable linear trajectory.  Mine isn’t one of those.  I have zigged and zagged in ways I couldn’t foresee as I started work.  I have gone from North Carolina to Tennessee to Canada and back to Tennessee.  I began in a defense-oriented civil trial practice then moved in-house as corporate counsel to a Fortune 500 company. I left the law department to serve as a risk management executive then as a national accounts relationship manager. I moved from a large corporation to the world of small business, pursuing self-employment as a retail franchise developer and ultimately as a solo practitioner focused on business owners.  I have taught some law in between.

As different as that is from what I expected, I see an evolution that serves me well in what I do today.  Though I can’t remember the date or the specific circumstances, I learned a lesson as corporate counsel that I remember every day in my practice now: “Remember whose wagon is in the ditch.”

In private practice trial work, particularly with a defense-oriented firm, we had to play the hand that was dealt.  Typically, the operative facts had already occurred and it was our job to learn those facts, interpret them and present them in the most favorable way we could.  Once I went in-house, much of that work was litigation-oriented and I was pleased at the chance to influence the operative facts by advising decision makers on things they could do that would make a case more “winnable” if the issue went to court.

Somewhere along the line came the epiphany:  My best advice for the best legal outcome was not what the decision maker wanted.  What was optimal for court was not optimal for business.   This wasn’t because the client wanted to do something illegal, immoral or unethical.  Instead, there was some other business consideration – usually the injury or impact to a valued relationship – that made my recommendation undesirable.  That was an important lesson for me to learn.  The lawyer’s “win” may not be the client’s best result.

To reinforce this lesson, the point was driven home when I led the risk management division in the Canadian branch where pivotal underwriting and claim decisions were mine to make.  Another layer of complexity was added when I managed relationships with some of the company’s most demanding and complex national accounts and was called on to balance customer service and satisfaction with the operational and financial objectives of my employer.

Finally, and most poignantly, it was my wagon in the ditch when I established my franchise development business.  I knew better than ever how sleep is lost over meeting payroll, paying the rent, making a profit (and not), hitting targets, closing a business and all the while fighting to meet the needs of those I love.  Flying solo, I sweat these things still.

Whatever I may think, the best outcome is defined by the client because it’s the client’s wagon that’s in the ditch, the client who has the dog in the fight, the client who’s the fish in the barrel.  He (or she) is Theodore Roosevelt’s “Man in the Arena.”

I follow a column in the ABA Journal called “The New Normal.”  A recent edition posed the question, “Do lawyers pursue ‘debating points’ or business solutions?”  For me, with a law license now 30 years old and having sat in pretty much all the seats around the business table, the answer is obvious.  If I am the lawyer for a business owner, my job is to help manage legal risks in ways that further the owner’s business objectives as capably, ethically and respectfully as I can. It’s as simple and as hard as that.

Many students were most comfortable in a “flash card” class, where their grade was determined by how much they had memorized and how much they could reproduce on demand.  I frustrated some when I took a different approach.  I was a bit notorious for take-home tests which, in time, were known not to cut the students any slack.  They were pushed to analyze, to think and to apply the course material to unfamiliar problems.

In particular, I remember the introductory courses in Legal Research & Writing in which I emphasized how important it is to identify the issues. I pushed my students to learn to ask the right questions, to frame the issues and problems well and be confident that, with the right issues in mind, they could use their research skills to find part, if not all, of what they needed to know.  Memorization has its place, but I especially appreciate someone who recognizes problems for what they are, has a grasp of their implications and an appreciation for nuance.  Maybe those skills can’t be taught, but those students who had them were the ones I would want working for me and serving my clients.

Business people are challenged equally to recognize the issues that emerge every day.  Those who grasp the issues soonest have a clear advantage over those who don’t.  They have an advantage when they can say, “I know what I don’t know.”  Further, those who are willing to say, “I know what I don’t know and I need help” are most likely to come out on top of their challenging situations.  Spotting issues is every bit as important for business owners as for students of the law.

Issues emerge in times of change.  When is change?  Always.  We are forever required to be aware of the dynamics in our day and respond as nimbly and wisely as we can.

For business owners, some issues don’t require lawyers – or seem that way.  As a business owner myself, I respect and recognize that the business owner “owns” the problem.  After all, their dreams, treasures and futures are at risk in these times – not mine.  Our role as attorneys is to define any legal risks associated with a change and help the client eliminate, avoid or reduce unnecessary or undesirable risk.

Here’s a quick rule of thumb:  If there is (1) a change in what you have, (2) a change in what you do or (3) a change in relationships, there may be a way your attorney can help.  For individuals, a change in what you have, a change in what you do or a change in relationships may mean it’s time to do a will, to execute health care directives or to update those documents you made in the past.

Business owners, perhaps you are facing one of these things:

• An imminent change in ownership
• Resignation, retirement, death or disability of key people
• Changes in relevant laws or regulations that you’ve heard about but don’t understand
• Legal actions by or against the business
• Changes in accounting practices
• Changes in the organizational structure of the business
• Changes in technology the company uses
• Changes in policies and procedures
• Moving from one place or facility to another
• Moving from one state to another (or internationally)
• Changes in the availability of capital

Confronting these challenges requires many skills and perhaps the talents and resources of many people.  I urge you to keep in mind that legal counsel can help deal with these problems by addressing these considerations:

• The choice of business entity for the enterprise
• Employment and agency relationships
• The use and management of independent contractors
• Clear, complete and current contracts and documentation
• Debtor-creditor relationships
• Real property / Landlord – tenant implications
• Consumer affairs
• New developments in state and federal regulation
• Tax issues

In a future post, I will elaborate on how important it is for the lawyer to recognize and respect that the client “owns” the issue.  I admire those business owners who vigilantly and valiantly tackle the issues they face; I affirm those struggling to manage change.  Asking the right questions is the first step toward optimal solutions. My genuine best wishes for your success.

The Eastern Section of the Tennessee Court of Appeals recently decided Wellmont Health System v. Qualls (a copy of the opinion is available on request). The case involved a dispute over the denial of health insurance benefits.  The opinion illustrates well how courts typically construe contracts.

Blue Cross Blue Shield of Tennessee denied Qualls’ claim for surgery he needed for diverticulitis.  Qualls argued the policy was ambiguous since it contained both a rider excluding coverage for diverticulitis and a separate provision that said pre-existing conditions would be covered after a 12-month waiting period.  The trial court ruled for Qualls, but the Court of Appeals reversed and concluded no benefits were due.

The case restates several fundamental principles used in interpreting contracts of all kinds.  Each of the following principles governs contract construction:

1. Courts should give effect to the intention and express language of the parties. A written contract is the record of the agreement between the parties, stating what each party promised to do. Courts approach a contract with that in mind — the agreement should say what the parties meant and thus should be enforceable as written.

1. The words used are given their usual, natural and ordinary meaning. If the language used is plain and clear, the contract is interpreted using the typical understanding and definition of those terms.

1. If the language used is susceptible to more than one reasonable interpretation, the contract is deemed “ambiguous.” Additional inquiry is then required to decide which interpretation governs.  Courts may look to such things as the history of dealing between the parties, the customs of the trades or professions in which they operate and which of the parties controlled the preparation of the agreement.

1. If one party was primarily responsible for writing the contract, an ambiguity is construed most strictly against the drafting party and most favorably to the other. The party drafting the agreement is deemed to have the best opportunity to eliminate ambiguity and thus bears responsibility for vagueness when it happens. This is especially true of “adhesion contracts” –those documents in which the terms are essentially dictated by one party to the other. An insurance policy is a classic “adhesion” contract since most insureds are “stuck” with the carrier’s language.

Bad pun notwithstanding, a written agreement is the best chance to ensure both parties are “on the same page.”  Take care to be clear and complete in saying what you mean.  If you use form agreements, read them critically for dual interpretations or vagueness.  Counsel may be helpful to both parties in identifying and eliminating unnecessary ambiguities or drafting problems.

Failure to meet expectations in business costs us customers, suppliers, business partners and employees. It is the root of many lawsuits. At least one of the parties contends that the other did not do what was agreed or failed to uphold its end of the bargain.

This is an alleged “breach of contract” and avoiding this problem begins by clearly, concisely and completely documenting the agreement between the parties. We have many legal rules governing contracts, how they are interpreted and enforced.

An important starting point is to recognize what contracts must be in writing. While it may be wise to reduce as many agreements as you practically can to writing, every state has adopted its version of the “Statute of Frauds” enumerating those agreements that cannot be enforced unless they are written.

Tennessee’s version of the Statute of Frauds is primarily codified at T.C.A. §29-2-101 and contains a typical statement of the kinds of contracts that must be written, along with T.C.A. §47-2-201 governing sales of goods.

In general terms, the contracts that must be in writing include:

1. A contract for the sale of land or interests in real estate, including leases for more than one (1) year –  This obviously includes full transfers of ownership, but also includes life estates and remainder interests, easements, rights of way and such things as water or mineral rights;
2. An agreement which “is not to be performed” in less than one (1) year from the making of the agreement — This is typically construed to include only those contracts which cannot be performed in less than a year and does not include those contracts which may take longer than a year but could be completed in less than twelve months.
3. Contracts to obligate a third party for the debts of another – Debts for “co-signers” or guarantors must be written.
4. The “special promise” of an executor or administrator to pay a debt of the estate with their own funds – Like guarantors, executors or administrators of estates are not personally liable for the debts of the estates they represent absent a writing that says so.
5. Agreements made “upon consideration of marriage” – This refers to prenuptial agreements and not the agreement to wed.
6. Contracts for the sale of goods of at least $500 – Note that this applies to sales of goods, not services.

Talk to your attorney about which of your agreements must be written.

Respecting the Statute of Frauds is only the beginning of good documentation.  Perhaps the greater challenge comes in expressing an agreement clearly, concisely and completely. I will address these priorities and other contract principles in future posts.

I am convinced that the person best-suited to franchising might be called “two-faced” and I mean that in a distinctly positive way.

First, it is essential to remember that buying into a franchise is, in essence, a license to do business someone else’s way. In that regard, the franchisee must be enough of a follower to comply with the requirements and expectations imposed by the franchisor. When I choose to eat at a Subway in the Florida Keys, I expect the food, the service, the atmosphere, the menu and the entire experience to be at least as good as I have had in Chattanooga. Consistent (good) quality is the goal of all franchise systems resulting in shared success for franchisors and franchisees. Since the franchisor has a business model that is actually or perceived to be successful, the franchisee needs to replicate those things that have made the model that way. A franchisor has the right to expect compliance with its way of doing things and the franchisee should be willing to “play ball.”

That said, a compliant spirit is only part of what’s required. The second quality a franchisee needs almost seems contradictory — self-starting, disciplined entrepreneurism, the willingness to take responsibility for his or her own success. Subscribing to a good model does not guarantee a profitable business. As in any other business, execution governs results and ultimately depends on the energies, resources and overall fortitude of its owners – the franchisees.

As a franchisee, an area developer and a franchise attorney, I have met hundreds who invested like I did. Those with complaints sound a common theme – not getting their money’s worth for the royalties they pay. Sure, some franchisors breach their contracts, but I am convinced that too many franchisees start with unrealistic expectations. In many respects, I made that mistake. I thought I had a golden goose and I only needed a nest for the eggs. I am thankful for the advice of those who helped me bring more realism to my business, financial and marketing plans.

Do consider franchising – but approach the evaluation and planning process deliberately and carefully. Due diligence includes extensive discussions with the franchisor and other franchisees, a “Discovery Day” and to review the Franchise Disclosure Document with a franchise attorney. Franchise options can be very attractive, but review your options soberly.

Finally and most importantly, ask yourself if you are sufficiently “two-faced” to make this model successful on your own. I am interested to know your answer.

The most popular forms for small businesses are the C Corporation, the S (“Subchapter S”) Corporation and the Limited Liability Company (“LLC”).  (Partnerships are less popular than they once were for several reasons and are not addressed here.)

Choosing an entity should address these questions:

• Who will own the company and what will their roles be?
• How will the business be funded or additional capital raised?
• Who will make decisions and how?
• How will the entity be taxed?

Taxation often dominates an owner’s thinking.   As a separate legal entity, the traditional “C Corp” is taxed separately from its stockholders.  This means that the corporation pays taxes on its taxable income and its owners, the stockholders, pay tax on their dividends or distributions.  This “double taxation” often drives the election of an S Corp or LLC since the taxable income of these entities passes through the company to the stockholders or members. However, “double tax” may not be an issue if, for example, the company pays no dividend or operates at breakeven or a loss.

Governance and decision making in Limited Liability Companies are generally more flexible and informal than in corporations.  Ownership interests are expressed as percentages rather than a prescribed number of shares for which stock certificates are maintained and issued.  While sound business practice calls for a well-crafted operating agreement, an LLC has less specific statutory mandates for its governance than those imposed on corporations. LLCs typically involve more owner / member participation in decisions than by shareholders in corporations; in corporations, the most frequent decisions are made by management or the board of directors.

If fundraising will entail venture capital, the C Corporation is the optimal choice.  Venture capital firms often require “preferred stock” (a stock that has a superior claim to assets than common stock.) S Corps cannot have more than one class of stock; the value of an ownership interest in LLCs is less transparent to outside investors. Further, if the company wants to “go public”, a C Corp allows for an unlimited number of investors. An S Corp is limited to 100 shareholders and ownership in an LLC is usually unattractive to a large number of owners.

Corporations allow for the ready exchange of ownership interests, although stockholders in S Corps must be US citizens or residents. By comparison, the death, disability, resignation or expulsion of a member may trigger the dissolution of an LLC, i.e., the end of the company.  Finally, if a firm wishes to offer current or prospective employees the incentive of company ownership, employees most readily embrace stock options.

It is unlikely that one consideration will dictate the form of entity, but the decision is financial, strategic and tactical. Consult your trusted advisors – your attorneys, accountants, bankers and financial advisors – in choosing which path to take.

There are several reasons to incorporate, form a partnership or create a limited liability company (“LLC”), usually to answer the following questions:

• Who will own the company and what will their roles be?
• How will the business be funded or additional capital raised?
• Who will make decisions and how?
• Do owners want to protect their personal assets from exposure to business debts and liabilities?

My background in risk management makes the last of these questions immediately compelling — to limit one’s financial liability to the value of one’s ownership interest or financial investment in the enterprise. In a corporation, the risk of one’s loss is typically limited to the value of the shares one owns; in a limited liability company, the risk of loss is limited to the value of one’s ownership or membership interest, usually defined as the value of one’s “Capital Account.”   As a practical matter, lenders, suppliers or vendors may require personal guarantees in the early history of the enterprise, but it is impossible for a company to establish its own credit history without its own legal identity.  Also, while ample business insurance is always a good idea, many cases illustrate judgments against companies where policy limits were insufficient and company assets were lost.

The roles of owners, raising capital and making decisions also have special significance for owners and investors:

• Perhaps some owners will provide essential expertise, skills or “sweat equity”, while others have more money to put in the enterprise.  How to value and apportion what these parties own and how each will participate in governing the company are critically important considerations to iron out early on.
• Perhaps some owners intend not to participate actively in the daily operations of the company and will defer those responsibilities to owner-managers.  Defining the roles and responsibilities of the “active” and “passive” owners should be documented.
• Perhaps current ownership wants to facilitate outside investment, to provide employee incentives or to go public with the company in the future. These ambitions may dictate a corporation and “stock ownership” in particular, but compel a separate entity in any event.

A wise anonymous person once said that the greatest source of conflict is unmet expectations.  To establish a business as a separate legal entity protects assets, defines the roles and responsibilities interested parties have in its relationships, creates a platform to avert conflict and positions the company for flexible and orderly growth.

In short, whether “to be or not to be” a separate legal entity, I say “be.” We will discuss “what to be” in the next post.