Legal Alerts

Social Networking Impersonation Now a Felony in Texas
by Matt Veech
February 1, 2010

The Texas legislature passed a new law effective September 1, 2009 that deals in part with impersonating another on a social networking website (Texas Penal Code Section 37.07-"Online Harassment"). This law makes it a felony to use the name or persona of another person to create a web page on or to post one or more messages on a commercial social networking site (1) without obtaining the other person's consent; and (2) with the intent to harm, defraud, intimidate, or threaten any person.

The law further provides that it is a misdemeanor for a person to send an electronic mail, instant message, text message or similar communication that references a name, domain address, phone number or other item of identifying information belonging to any person (1) without obtaining the other person's consent; (2) with the intent to cause a recipient of the communication to reasonably believe that the other person authorized or transmitted the communication; and (3) with the intent to harm or defraud any person.

This law could prove to be particularly helpful to employers who are presented with the issue of a disgruntled former employee posting or sending under the name of someone else disparaging statements about the employer's business, management, or other employees.

The law could also prove helpful to employers that are dealing with the task of effectively monitoring employee communications about company-related business on the various social-networking websites.

ADA Amendments Act Expand Scope of Protected Disabilities
by Chris Hanslik
January 20, 2010

In 2009, Congress drafted the Americans With Disabilities (ADA) Amendments Act to address the increasingly narrow definition of "disability" that courts, including the U.S. Supreme Court, have applied in interpreting the original act for more than a decade. The Amendments Act took effect on January 1, 2010 (a similar amendment to the Texas Commission on Human Rights Act took effect on September 1, 2009).

The ADA Act's original definition of "disability" was "a physical or mental impairment that substantially limits one or more major life activities." Subsequently, the Supreme Court held that courts must take into account the effects of mitigating measures such as medication, hearing aids and prosthetic devices when determining if an individual has a substantially limiting impairment protected by the ADA. In the event such mitigating measures ameliorated the condition the individual was not considered disabled under the act. The Supreme Court also narrowed what could be considered a "major life activity" to something that was of "central importance to most people's daily lives."

The ADA Amendments Act broadens the ADA's coverage by specifically disapproving the Supreme Court's interpretation of "disability." As amended, the new law requires the term to be "construed in favor of broad coverage of individuals ... to the maximum extent permitted by the terms of this Act." But Congress did not stop there. The amended act also states that an impairment that is episodic or in remission qualifies as a disability if it would substantially limit a major life activity when active. In fact, courts are not to consider mitigating measures as a factor when determining whether an impairment substantially limits a major life activity.

Finally, the ADA Amendments Act expands the definition of "major life activities" by including a non-exhaustive list for courts to consider, including: seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, reading, communicating and working. These amendments make it more likely that courts will find impairments qualify as a "disability" under the law.

Creating a Social Media Policy
by Chris Hanslik
December 28, 2009

In today's world of social media, every company with more than two employees should develop a social media policy. These policies serve several purposes, including, but not limited to: (1) educating your workforce on the various types of social media outlets; (2) determining how social media can be used to further your company's business interests; and (3) establishing guidelines for using social media consistent with your company's core values and/or code of conduct.

With this in mind, the best way to start is by not trying to recreate the wheel — several large institutions have social media policies in place that provide a good template for any company to draw from. You can find some of these policies at www.socialmediagovernance.com/policies.php

Armed with this information, you should form a small committee from different constituent groups within your company to evaluate the various policies. Establish a system to determine what portions of each policy will work for your company given the industry you serve as well as how your company operates. Part of the process should include interviewing your employees to determine which social media outlets they regularly use and how they think using social media can help or hurt the company's ability to accomplish its goals.

Obviously, before any policy is finalized you should make sure that the legal implications are addressed. For example, you want to make sure your employees avoid violating any advertising laws your company may be bound by, guard against employees making defamatory statements or infringing upon intellectual property rights of others, and address privacy concerns. The one legal issue all policies should cover is consequences for violating the policy. This will become an issue if an employee should be terminated because of their conduct on a social media outlet.

Finally, an important aspect of any policy is regularly evaluating whether it is still appropriate for your business. As fast as social media is evolving you will need to make sure your social media policy keeps up with the technology.

All Texas Entities to be Governed by the TBOC Effective January 1, 2010
by Forrest Gordon
December 11, 2009

On January 1, 2010, all entities organized in Texas prior to January 1, 2006 under statutes other than the Texas Business Organizations Code ("TBOC") will cease to be governed by the statutes under which they were formed and automatically, without any notice to or action required by the entity's owners and management, become governed by the TBOC.

What does this mean for pre-TBOC entities that have not taken any action to early adopt the TBOC?

Provided that the formation documents of the entity complied with the statute under which it was formed, no further action is required of the entity to bring it into compliance with the TBOC. Fortunately, the TBOC includes a list of synonymous terms so that any reference in an entity's governing documents to now obsolete terms such as "articles of incorporation" and "regulations" are treated as legally synonymous with their TBOC equivalents (which, for the above terms would be "certificate of formation" and "company agreement").

That being said, owners and management should be aware that all actions taken by their entity on or after January 1, 2010 will be governed by the TBOC, regardless of when that entity was formed. Additionally, the entity will be required to conform its articles of incorporation to the TBOC if and when it ever files an amendment to that document with the Texas Secretary of State.

Federal Regulators Release New Policy Statement on Commercial Real Estate Loan Work-Outs
by Bill Boyar & Tim Heinrich
November 6, 2009

On October 30, 2009, the Federal Reserve adopted a new policy statement on commercial real estate loan work-outs, replacing a prior policy statement from 1991. This new statement supports prudent commercial real estate loan work-outs. One of the most significant provisions of this statement is "renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance."

The primary focus of an examiner's review of a commercial loan is directed towards the borrower's ability and willingness to repay the loan, including any support by willing and able guarantors. As such, loans to sound borrowers that are renewed or restructured in accordance with prudent underwriting standards should not be adversely classified or criticized unless well-defined weaknesses exist that jeopardize repayment of the loan.

The policy statement includes a number of examples of commercial real estate loan work-outs, providing illustrations of prudent loan work-outs that would not be subject to adverse loan classification.

Click here for a full copy of the policy statement.

Texas Recognizes New Entity: Series Limited Liability Company
by Stephen Johnson
October 30, 2009

As of September 1, 2009, Texas recognizes a new entity called a "series limited liability company." This is a special form of limited liability company (LLC), originally permitted in Delaware, that allows owners to compartmentalize or isolate certain assets and related liabilities within the same limited liability company.

Here's how it works: Instead of forming a parent limited liability company as a holding company with subsidiary LLC's, or forming several sister LLC's, one can now form a limited liability company with designated series or cells. Each series or cell would own distinct assets and incur liabilities separate from other series within the LLC. As long as certain formalities are followed, the assets of each series are protected from the liabilities of any other series within the series LLC. In other words, the liabilities of a series are enforceable only against assets within that series and not against the LLC generally. This reduces the costs and administrative burdens of maintaining several separate LLC entities.

When Selling Private Securities — No Limit on Number of Accredited Investors
by Steve Kesten
October 27, 2009

A client recently called concerned that, in connection with his efforts to raise money for working capital through the sale of units of membership interest in a Texas limited liability company, his company could only sell to 35 investors.  To make matters worse, there were already 10 owners of the company holding membership units, so he could only sell to 25 more investors.  I quickly dispelled him of his concerns. 

There is a common misunderstanding that when selling private securities, an issuer is limited to selling to 35 investors.  It is true that in order to maintain certain exemptions from having to register the sale of securities with the Securities and Exchange Commission, there is a limit in the number of investors to whom an issuer can sell, but such limitations only relate to unaccredited investors.  Alternatively, there is no limit on the number of accredited investors to whom an issuer can sell securities provided the other applicable requirements are met relative to the exemption from registration that an issuer is pursuing. 

So what is an accredited investor?  Generally speaking, an accredited investor is a natural person, entity or institution that has a level of sophistication, net worth and experience in financial matters that the SEC believes does not require the same level of protection relative to the sale of securities than does someone without such traits.  The list of qualifications of accredited investors can be found in Rule 501 of Regulation D, which is a regulation that was promulgated under the Securities Act of 1933.

Bourgeois Recaps Recent Changes to Delaware Limited Liability Company Laws
by Gus Bourgeois
October 12, 2009

Gus Bourgeois recently gave an in-house presentation to BoyarMiller's Business Group regarding recent changes to Delaware's limited liability company laws as discussed in The Wave of the Future and Advising Your Clients About What to Expect, written by Peter J. Walsh, Jr. and Dominick T. Gattuso published in the ABA Business Law Today.  Highlights include reviews of Spellman v. Katz, C.A. No. 1838 (Del. Ch. Feb. 6, 2009) which cites parol evidence of members' contrary intent as to dissolution of company inadmissible when language in Operating Agreement is clear and unambiguous; and Fish Venture, LLC v. Segal, C.A. No. 30l7-CC (Del. Ch. May 7, 2008) which cites fiduciary duties may be limited or excluded by clear and unambiguous language in Operating Agreement.  For more information download the complete article at http://tiny.cc/ICgmX.

Court Broadens Geographic Scope of Agreement
by Chris Hanslik
September 15, 2009

In Vaughn v. Intrepid Directional Drilling Specialists, Ltd. a Texas court of appeals considered whether an employee violated a covenant not to compete by arranging for his own newly-formed company to provide services on a project outside the geographic zone covered by the covenant. The covenant stated that the employee could not interfere "directly or indirectly, in any manner with any relationship between [the employer and] customers within the Restricted Territory." In upholding the injunction against the employee, the court ruled the provision could reasonably be interpreted to prohibit the employee from serving a customer located in the restricted territory even if the work in question was outside the protected territory.

This ruling provides employers with an advantage when trying to enforce non-compete clauses against former employees by expanding the geographic scope beyond the written terms of the agreement.

Supreme Court Finds Implied Promise Sufficient
by Chris Hanslik
September 9, 2009

In Mann Frankfort v. Fielding, the Texas Supreme Court has held that an employer does not have to make an express promise to provide confidential information for a covenant not to compete to be enforceable. The Court held that if the nature of the employment for which an employee is hired will reasonably require the employer to provide confidential information to the employee to accomplish their job duties, then the employer has impliedly promised to provide confidential information making the covenant enforceable as long as the other requirements of the Covenant Not to Compete Act are satisfied.

This ruling strongly favors employers seeking to enforce non-compete clauses against former employees.

Trade Secret Protection
by Chris Hanslik
September 2, 2009

Companies with trade secrets should adopt a policy prohibiting and/or limiting the copying, disclosure, or dissemination of the confidential information. Recommended steps to protect the trade secrets are:

• Mark your trade secret information as "confidential" or a similar label. Provide access to trade secret information only to people within the company who reasonably "need to know".
• Ensure all employees or third-parties (such as consultants, independent contractors, clients or potential clients, or financial institutions) with access to trade secrets sign a non-disclosure agreement. Adopt as many security measures as possible (i.e. cameras, fences, use of visitor badges, "restricted area" signs . . .), including computer security precautions.
• Make an inventory of your trade secrets and document any measures taken to protect its confidentiality (including location, security measures, and persons with access).

Going through this exercise will help a company accurately assess whether it truly has a trade secret that is capable of being protected in the event litigation arises in the future.