How to handle common neighbor-versus-neighbor disputes

One of the most common criticisms of lawyers is that they don’t give straight answers. They tend to use a lot of “ifs” and “buts,” describing alternative arguments they might make to reach different conclusions about seemingly simple matters. Some even make flippant comments, such as, “the law on a given day depends upon what a judge had for breakfast,” as if to suggest that it’s naïve to expect a reliable answer.

But William J. Maffucci, an attorney with Semanoff Ormsby Greenberg & Torchia, LLC, explains that there is at least one substantive area in which the rights of parties are relatively well defined: disputes among neighbors.

Smart Business spoke with Maffucci about some of the most common neighbor-versus-neighbor questions.

Do you agree that, in many fields of law, it’s hard to get straight answers?

Yes. Lawyers in some practice areas often don’t like to be pinned down to a position. That’s not necessarily a criticism of the lawyers. More often it’s a reflection of the complexity of the issues they must address and of the fact that the law in their practice areas is evolving so quickly. Intellectual property might be the best example, especially in recent years.

Why is it easier to get answers about neighbor-versus-neighbor disputes?

The law hasn’t evolved quickly in this area. The principles are not complicated, and the disputes rarely make it into the courts because the amounts at issue are usually too small to warrant the expense of litigation. This is particularly true with residential property, but the same principles apply to commercial property.

What are some examples?

Can an owner trim back branches of a neighbor’s tree that extend over the boundary?

Yes, the owner can trim them back to the boundary line.

If a neighbor builds an expensive improvement, intending to locate it correctly but accidentally positioning it so that it encroaches by a fraction of an inch over the border, does the owner of the adjoining land have the right to demand that the encroachment be removed?

Yes, an owner has an absolute right to demand the removal of that portion of a newly constructed improvement that encroaches on the owner’s land. This is true regardless of how small the encroachment is, regardless of whether the encroachment actually affects the way the owner uses the property, and regardless of the cost to the neighbor or relocating the encroachment.

Does the same rule apply below the surface?

Yes, title to land is said to extend vertically downward to the center of the earth. No matter how far down a neighbor digs to construct an improvement — such as a building support, an underground storage tank, or a well — it cannot extend past that vertical plane.

Can the owner of land object to the construction of a building or other structure that ruins a beautiful view that the owner and the owners’ predecessors-in-title had enjoyed for many decades or centuries?

No, not as a simple matter of common law. There is no time period beyond which the right to a particular view becomes vested. But there might be other bases to prevent the obstruction, such as a local zoning ordinance or the existence of a private development restriction previously agreed upon by the owners or by their predecessors in title.

Is it true that someone can acquire title to property just by using it long enough?

Believe it or not, the law does recognize a type of ‘squatter’s rights,’ under the doctrine formally known as ‘adverse possession.’ In Pennsylvania, the use must continue for 21 years. But the rights don’t arise just by using the property for that long. The claimant must also prove several other things. Some of them are that the possession must have been visible, adverse and hostile to the rights of the record owner, and continuous for the entire 21-year period. It’s hard to do, particularly when the record owner of the land can produce evidence that he or she gave the claimant permission to use the land, because in that case the possession wasn’t actually adverse at all.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Cyber security basics and legal considerations for a good program

Think of all the interlinked systems that businesses use to access and transmit data. Valuable and sensitive confidential information is funneled through these conduits. Without protection, it is vulnerable to theft.

“The most valuable information for cyber thieves is the personal information of individuals, because there is a ready market for that kind of information to be bought and sold,” says Edward G. Rice, Co-Chair of the Cyber Security Group at Sherrard, German & Kelly P.C. “In more recent years, as thieves have become more sophisticated, they’ve started looking at commercial data, including trade secrets. That data could be stolen and sold on the open black market.”

Smart Business spoke with Rice about cyber security and how to set up processes to protect electronic information.

Why do companies typically fall victim to cyber attacks?  

Many companies have not created a data security plan because there is no legal requirement compelling them to abide by certain standards of protection, or they do not think it is important. In other cases, the plans companies do put in place may be deficient for any number of reasons: not enough money spent, not the right expertise, not properly tested for vulnerabilities, etc. Some companies think they are safe if they just put up a firewall and install antivirus software. There is nothing further from truth.

Additionally, data security breaches are often about who a company lets in. For example, in the Target Corp. credit card data breach from a couple of years ago, data thieves hacked into Target’s systems indirectly, through the computer systems of one of its HVAC vendors. That allowed the hackers to steal data, which cost the company millions of dollars and ultimately resulted in the resignation of its CEO.

What are the core aspects of cyber security?

Among the fundamental aspects of cyber security is risk analysis. This involves understanding what types of data a company has and the risk the company faces if that data gets breached. A fundamental first step is to take inventory of all data, the systems that house and permit access to it, and test these lines for vulnerabilities. A common method is to engage an outside specialist to do a penetration test. If weaknesses are discovered, they can be patched.

What should companies understand about the legal components of cyber security?

Most states have data breach laws that apply to all businesses, not just to banks, hospitals and insurance companies. For example, if a company that collects and stores data on individuals has that data stolen, the  company would be required to provide notice to all those individuals whose data was breached and offer them credit report monitoring services, both of which are significant financial obligations.

Further, if an individual or group of individuals affected by the breach can show real harm or damages, those individuals can seek recovery from the company.

The reputational risks to the company also are significant. A data breach can create a sense of insecurity with existing and potential customers, and also cause a company to lose contracts if clients worry that their data is at risk.

Why should companies involve legal counsel when constructing or improving a cyber security program?

Lawyers know the rules and obligations companies must adhere to and typically have a good network of professionals who, together, can assemble a comprehensive cyber protection program.

Companies need to understand all of the risks they face, and legal counsel can convey that. After the program is built, lawyers can monitor changes in the law and be ready to advise the company if and when an issue arises. Of significance, working with a lawyer from the outset of a problem provides the company with the added benefit of attorney/client privilege.

Talk with a lawyer about the requirements, from both a legal and business standpoint, to protect your business, and its sensitive and confidential information. Build a plan for a cyber security program, test it and have contingencies. The worst time for a company to find out that it is unprepared for a breach is after it happens.

Insights Legal Affairs is brought to you by Sherrard, German & Kelly, P.C.

Investors may have recovery options when investments go wrong

When an investment or portfolio goes shockingly wrong, fear and embarrassment often will cause investors to wait much longer than they should before confronting their stockbrokers, says Hugh D. Berkson, a Principal at McCarthy, Lebit, Crystal & Liffman.

“When brokerage customers enter into an investment, they do so with feelings of optimism and hope,” Berkson says. “If the investment’s value later plummets, the customer’s natural tendency is to accept a trusted broker’s recommendation to stay the course and to believe the broker’s assurances that things will eventually turn around.”

Certainly, there are instances where patience does pay off and investments do recover. But that’s not always the case.

“An investor’s inquiry into possible misconduct or malpractice by his or her broker often starts with a simple question: What happened to my money?” Berkson says. “The typical response from the broker is to advise continued patience or to blame a loss on ‘market conditions,’ but eventually, the investor justifiably becomes suspicious. At that point, it’s a good idea to have someone else look at your portfolio.”

Smart Business spoke with Berkson about the options available to investors when an investment doesn’t work out.

How do you know if your broker has acted inappropriately?
Investment brokers aren’t required to be infallible or even very good, but they all have an obligation to select and recommend investments that are suitable for each particular investor. Brokers also must take many factors into consideration as they craft an investment plan, including the investor’s age, investment objective, risk tolerance, income and tax status.

If your broker recommends a suitable investment that just doesn’t work out, there’s no liability. Your loss is simply part of the risk you take when you make an investment. But you might not know whether your loss was caused by your broker’s misconduct unless you meet with a qualified investment lawyer.

That lawyer can help determine whether the investments were suitable, whether the broker had a hidden financial incentive for selling them or whether the broker was simply stealing. The good news is that your broker and his or her brokerage firm can be made to compensate you for some or all of your losses if you’ve been a victim of these types of behaviors.

What are some common acts of wrongdoing by brokers?
The most common, by far, is the recommendation of unsuitable investments or investment strategies. Brokers also sometimes misrepresent or fail to disclose important facts. They may sell unauthorized investments, trade excessively to increase their commissions, trade without their customer’s authorization or fail to adequately diversify a customer’s holdings.

And very occasionally, brokers engage in Ponzi schemes and other types of fraud or theft. Of late, many brokers also are selling high-commission investments they claim to be very safe, but actually are complex, risky and illiquid products in which the customer can lose every penny invested.

What can an injured investor do to recover?
Brokerage firms are primarily regulated by the Financial Industry Regulatory Authority (FINRA). Stockbrokers can be held accountable for their wrongdoing through FINRA arbitration.

Obviously, a favorable result can’t be guaranteed, but FINRA arbitration makes it possible for brokerage customers to recover some or all of their money. The advantages of going through arbitration are that the case is private, so your name is not made public.

It’s also faster and cheaper than court and there are no costly and time-consuming depositions, except under rare circumstances. If your case doesn’t settle, it will be decided by a panel of three arbitrators. However, as in the court system, most cases are resolved through settlement, in which case a hearing is avoided. The decision about whether to accept a monetary settlement or go to a hearing always belongs to the client, though lawyers will advise the clients on the pros and cons of each option.

If you have lost money at the hands of a bad broker, you shouldn’t be embarrassed. Talk to a lawyer. You do have options to attempt to recover what was lost.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman

Protecting your reputation without using non-disparagement clauses

Businesses understandably care about their reputations, as negative publicity can drive away customer traffic. Many businesses have attempted to forestall negative feedback by putting non-disparagement clauses — also known as gag clauses — in their form contracts.

“However, a new federal law prohibits the use of non-disparagement clauses in certain form contracts entered into by consumers,” says Julia Richie Sammin, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Sammin about non-disparagement clauses, the newly enacted Consumer Review Fairness Act of 2016 (CRFA), and the consequences of violations of the new law.

What is a non-disparagement clause?

Non-disparagement clauses prohibit customers from sharing their opinion of a seller’s goods or services, for instance by forbidding a customer from leaving reviews on websites such as Yelp, Angie’s List and TripAdvisor.

But this attempt to avoid negative publicity can backfire when a business sues a customer to enforce the contract provision, particularly where the review reflects the customer’s honest assessment of a business’s goods or services.

What is CRFA?

On Dec. 14, 2016, President Obama signed into law CRFA, a bill that received bipartisan support. Under CRFA, a provision in a ‘form contract,’ defined as a contract with standardized terms where the consumer does not have a meaningful opportunity to negotiate the terms and conditions, would be void from the inception of the contract if the provision:

  • Prohibits or restricts a consumer from making a statement assessing the seller’s goods or services,
  • Imposes a penalty or fee on a consumer for making such a statement, or
  • Claims ownership of the intellectual property in such a statement made by a consumer.

CRFA will not invalidate the entire contract, just the offending provision. It also does not preempt state law — if a state law regarding non-disparagement clauses is even more protective of the consumer than CRFA, that state law will remain in effect.

CRFA is very broad, even encompassing contractual provisions restricting false and defamatory comments. However, CRFA does not prohibit a business from bringing a civil action for breach of confidentiality, defamation, slander or libel, or from removing reviews from its own site that are defamatory, harassing, obscene, false or misleading, or unrelated to the goods or services offered by the business. A business just cannot attempt to restrict the consumer’s speech before such speech is made. Moreover, CRFA does not apply to employment or independent contractor agreements.

CRFA applies to non-disparagement clauses in effect on or after 90 days from the enactment of the new law, i.e. March 14, 2017, so businesses should act quickly to remove any non-disparagement clauses from their form contracts.

What are the consequences of violating CRFA?

A violation of CRFA is considered a violation of the Federal Trade Commission (FTC) Act’s prohibition against unfair or deceptive trade practices, which can result in a civil penalty of up to $40,000 per violation, among other outcomes. If the violation is ongoing, each day that the conduct continues is treated as a separate violation. The FTC Act, however, does not allow a private right of action, so a consumer could not sue a business directly for a violation of CRFA.

How can a business protect its reputation without using non-disparagement clauses?

CRFA instructs the FTC to begin providing non-binding best practices to assist businesses in compliance with CRFA within 60 days after the passage of the new law. In the meantime, businesses can proactively encourage happy customers to leave public reviews and unhappy customers to contact the business privately. Businesses can also ask review websites to remove reviews that are false or misleading, harassing, obscene, etc. Finally, businesses can still sue for defamation, breach of confidentiality, and other claims that are allowed under CRFA.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Minimize project disputes through patient, thorough planning

The progress and success of a construction project is often defined by time well spent in the early planning and preparation process. Too often, however, developers, contractors and design professionals rush to start a project and do not spend the time needed in these critical phases.

“Thorough scope discussions and extensive contract negotiations will often yield a better understanding for the parties and their respective roles and responsibilities,” says Edward B. Gentilcore, Shareholder and Director of Sherrard, German & Kelly, P.C. and Chair of its Construction Services Group. “Patience in planning and preparation is the key to later success.”

Smart Business spoke with Gentilcore about the planning and contracting process, and what should be defined before starting actual project construction.

What needs to be determined during the planning and contracting process?

First and foremost, the project requirements and scope of the project need to be defined. Specifying Contractor and Owner Performance Expectations (aka SCOPE) are fundamental to establishing what is to be accomplished.

It should also be determined who will take the lead on developing the execution plan for project aspects such as design, construction and engineering. The parties involved should identify and create contractual silos of responsibility to help avoid disagreements and disputes.

What aspects of construction contracts are most susceptible to legal challenges?

Many legal challenges are often based on scope and site disputes. Scope disputes arise where the parties have not adequately allocated responsibilities. Site disputes emerge where site conditions are unexpected, the desired site is not available or access to the site is delayed. There can also be material and supply delays that impact the progress of project, and lack of coordination of performance responsibilities that causes delays and claims.

Untimely payments are another source of disputes. Sometimes these can be attributed to financial insolvency issues, but other times they have to do with one party believing performance expectations have not been met, so payment is withheld.
In the event of any disputes, regardless of their origin, parties need to be mindful of notice provisions with regard to changes, claims and payments. This is why the contract does not belong in the drawer. It should serve as a reference point that defines responsibilities and expectations.

How should companies respond to disputes?

If disputes occur, look at the contract first and determine what relief there is to claim, the obligations of providing notice, and whether those notice provisions have been fulfilled. If proper and timely notice isn’t provided, a party must then justify why it didn’t give notice. In these situations, the needed focus is not on the impact, but rather contention over why contractual obligations to provide notice were not met.

What can construction project participants do to mitigate claims?

Hopefully, when a party realizes it needs to make a claim, information about the claim has been accumulated in the form of notes, emails, photos, etc.

Counsel should be alerted and engaged early with an issue because they can help ensure contractual nuances are followed, notices are met and a sound information collection process is undertaken. To the extent that there could be a formal claim, communications over information collection can be made privileged if counsel is involved.

When transitioning into a dispute phase, there is the belief that parties can mitigate costs by not contacting counsel. That is counterintuitive. If the dispute escalates to an arbitration or court proceeding, costs are going to be much more significant and not likely accounted for in initial budget projections. That is why engaging counsel’s assistance sooner may reap benefits of earlier resolution of project conflict.

The best dispute resolution occurs at the earliest stages of a project. Defining more precisely the roles and responsibilities of each party in the process reduces the likelihood of uncertainty and of conflict. So patient and proper planning should always precede actual project performance.

Insights Legal Affairs is brought to you by Sherrard, German & Kelly, P.C.

Navigating divorce by using a business mindset

Divorce, like a business dissolution, is a process to terminate a relationship and divide assets, liabilities and wealth, says Kaitlyn D. Arthurs, an Attorney at McCarthy, Lebit, Crystal & Liffman. Unfortunately, this process can be complicated by emotion.

“Divorce is a high-conflict situation that involves sadness, anger and grief,” Arthurs says. “However, when a person approaches it with a business mindset, he or she can lessen the emotion in order to reach an end and minimize cost, both financially and emotionally.”

While there has been a shift away from litigation to numerous alternative dispute resolution processes, every case is unique. Clients should know their options and work with a practitioner who has a firm grasp on how those alternatives will coincide with different personalities and situations, and can then help determine the right approach.

Smart Business spoke with Arthurs about these processes and how bringing a business-minded approach to divorce can reduce some of the stress involved in reaching an end.

What are some important things to keep in mind when going through a divorce?
It’s important to recognize that a divorce is like a business breakup. The end goal is to ‘cut a deal’ to reach a resolution where both parties are satisfied and will, therefore, adhere to the terms. It is advantageous to both parties to be solution-driven to avoid getting lost in the weeds on the problems, which may or may not matter.

More importantly, a process provides the parties significant control over both the process and the outcome. The more involved the parties are in taking steps towards resolution, the better off the parties will be in the end.

What are some of the processes available?
Dissolution and divorce. In a divorce, a lawsuit is filed and, absent a settlement, the court will decide all issues. Litigation provides the ability to issue subpoenas to obtain information, to secure restraining orders, and/or to obtain a “divorce” if the other party refuses to engage.

However, litigation makes sensitive family matters public record, which can be problematic.

A dissolution allows the parties to reach a resolution prior to submitting the final agreement to the court. The parties may use one of many alternative dispute resolution processes, which include the following:

■  Cooperative Divorce: Through counsel, the parties utilize principled and facilitated negotiations to come to a settlement, which can involve meetings, phone discussions, sending proposals or shuttled diplomacy.

■  Collaborative Divorce: The parties and counsel agree in writing to work together in a series of ‘four-way’ planned meetings (which can involve joint evaluators/experts) to resolve the case. If there is an impasse, the parties must hire new counsel to pursue other processes, including litigation. This rule keeps the parties engaged to the collaborative process, while promoting an environment of confidentiality.

■  Mediation: The parties jointly hire a mediator to facilitate discussions to lead them to an agreeable solution. A mediator cannot provide legal advice, but will place the parties in the driver’s seat to problem-solve solutions, which can minimize cost.  Either party may retain counsel to consult on legal issues as they arise.

How does being proactive help minimize costs and preserve wealth?
Organized information is power. It’s important to establish a team (attorney, accountant, financial planner, etc.) that will be available to answer questions during the process.

Moreover, compiling documents to substantiate all assets, liabilities and income is a proactive way to prepare. Such information would include documents to demonstrate premarital, inherited, gifted or personal injury monies, which would remain a party’s separate property not subject to division.

Wealth can only be preserved when a party asserts and proves a claim with documents. Knowing how to transfer wealth during the marriage is also good preparation. Staying one step ahead of the other side will create an advantage. Time is money. The more information that can be provided in an organized fashion, the better an attorney can prepare and keep costs reasonable.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman

How to avoid common intellectual property missteps

The American legal system provides certain rights and protections for owners of intellectual property (IP). It is crucial that businesses avoid infringement of intellectual property rights.

“Businesses often inadvertently infringe the intellectual property rights of others because of inattention to internal operations, a lapse that comes with a significant price tag,” says Alexis Dillett Isztwan, member, Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Isztwan about the risks and consequences of infringing on intellectual property as well as how to avoid missteps.

What businesses are at risk?

In any business, a multitude of infringement risks exist in daily operations. Since infringement does not require that the infringer knew its activities were infringing, businesses must bear the burden of policing their own operations.

Where are the risks?

The most common risk is the unauthorized use of images, content or music. Businesses often look to the internet or social media as a flexible marketing platform for advertising and promotional campaigns that can be launched quickly and inexpensively. The downside is that employees often equate easy access on the internet to images and music with an unfettered right to use third-party works in advertisements or on company websites.

In reality, use of third-party images, music or content requires a license from the owner and typically a fee, regardless of the significance of the use. While employees may believe the IP owner will never discover the use, many technologies exist that enable IP owners to cast a broad search over the internet to identify unauthorized uses of their works.

Another risk arises with the use of software in excess of permitted use under the business’s license. Unless a license allows for enterprise-wide use, the business must limit its use to the numbers specifically permitted, whether those limitations are per user, per laptop or desktop, per server, or per location.

Employees often believe that a software license is carte blanche for use in the business and will copy a program to additional devices, laptops or desktops without the knowledge of the business owners. This misunderstanding of software rights puts a business at significant risk of infringement claims based on the unauthorized uses. While discovery may seem unlikely, all it takes is one disgruntled former employee to disclose the infringing uses to the software owner.

What are the consequences?

The stakes are high. Typically, once unauthorized use is detected, the IP owner will send a letter demanding payment of damages and immediate removal of the unauthorized use — the clear implication being that failure to comply will invite a lawsuit. Six-figure settlement demands are the norm with IP owners often arguing the infringer must pay three to five times the actual damages so that the settlement amount acts as a deterrent.

Even short of litigation, damages can quickly grow. When coupled with legal fees related to negotiating a settlement, damages may have a substantial financial impact on a business even before considering the resulting operational cost of purchasing the appropriate number of software licenses or replacing the promotional piece.

How can a business avoid missteps?

First, never respond to a demand letter without consulting counsel. If the IP owner took the time to send a letter, the matter will not be resolved with a brief call. More often than not, attempts by business owners to resolve an IP matter without counsel result in increased settlement amounts or a severely compromised negotiating position.

Second, businesses should implement internal processes that minimize the risk of unauthorized use of IP. The policies should state clearly what activities are permitted and by whom, and identify the point person to be contacted for inquiries and approvals.

Third, educate and train employees on avoiding potential infringements and knowing when to ask questions and seek approvals.

Finally, appoint an internal coordinator to oversee use of third-party IP and software in the business’s daily activities.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Building a better partnership by discussing the details day one

Optimism abounds in the early stages of a business partnership as the new company’s key players dream about success and all that comes with it, says Mark E. Krohn, Partner at Brouse McDowell. It’s during this time of great expectation and excitement that business partners should pause and talk about important issues such as capital needs, founder roles, other outside business interests and how disputes and stalemates will be handled.

“One of the things I see that early-stage partnerships don’t do very well is thoughtfully discuss expectations, define roles and responsibilities and have a clearly stated path to follow when the company hits a speed bump, needs cash or is faced with a key decision upon which the main decision- makers disagree,” Krohn says. “The worst time to discuss important or sensitive issues is when an event like that happens and battle lines are already drawn.”

Taking the time to create a detailed and understandable business plan and well thought out operating agreement can avoid a lot of these costly challenges and disputes between partners.

Smart Business spoke with Krohn about the steps business partners can take to be better prepared to operate their company and deal with conflict.

What are some important points that business partners need to address?

Business partners are often focused on the many opportunities that are out there for the new venture to go after. This is important, but it can distract them from the less exciting but no less important step of discussing the essential elements of the business. You need a detailed discussion of how things will work, the time and commitment that will be required to operate the business and what each partner will do and/or not do. It’s critical for each partner to talk about their role in the business so that everyone knows what is expected. More than a job description, it’s an opportunity to get clarity on which aspects of the business operation each partner will oversee, drive and forge to completion.

Another thing that companies tend to gloss over is the type of roles, amount of time and deliverables each of the key partners will be called upon to execute. I’m talking about what does success look like and over what period of time? Three months, six months, nine months, a year, two years, etc. Companies rarely sit down and say, ‘This is what the company is going to achieve, this is who is going to be in charge of leading it and these are the objective indicators we’re going to use to measure it at various intervals.’

You also want to have a good dispute resolution mechanism in place and have an independent third party who can quickly build consensus or make decisions when partners disagree. One option is to draft into your operating agreement a third-party neutral that all the partners like, know and trust in a personal, professional and business sense. When a dispute arises, I typically mandate that it be discussed with the third party in five to seven days. This person will act as a mediator and try to bring the partners to consensus. If consensus cannot be achieved, that person can make binding decisions after hearing all of the facts. This process avoids costly litigation, incredible delay and the other ancillary damage that a long, protracted partner battle can cause to the relationship of the partners, company morale and the business.

What’s the key to managing conflicts over money?

One of the most common things people fight about is money. Whether it’s distribution of profits, who is making what salary for what tasks or simply needing money to pay bills and determining where that money will come from, it’s a good idea to have provisions that specifically detail all of these things. If the company needs money, it has to come from somewhere. Whether that’s a bank, or if the company is not able to be financed, a partner, there needs to be a thorough agreement of what will happen in each instance, especially when one partner can contribute financially, but the other partner cannot. That way, no one feels as if they are being taken advantage of in a critical, time-sensitive decision, while still allowing the company to move on without an interruption of its business. This is probably the partner dispute I see the most and people often only think about it after the situation arises, which rarely leads to good decision-making.

Insights Legal Affairs is brought to you by Brouse McDowell

New uncertainties for Pittsburgh’s rebounding energy companies

“There is a gradual phased recovery in the energy industry surrounding Pittsburgh,” says Matt A. Jarrell, Chair of the Energy and Natural Resources Services Group at Sherrard, German & Kelly P.C. He is seeing a healthy demand response to the low prices and a bleeding away of the excess supply of natural gas that created a glut.

“That many energy companies in the region are in a position to capitalize on that recovery is largely attributable to the efforts and resourcefulness of those companies who have managed themselves creatively and with discipline through the recent downturn,” says LuAnn Datesh, a Director at Sherrard, German & Kelly P.C. “Those companies that have been smart and strategic in navigating the downturn give us ample reason for optimism.”

However, as the industry rebounds, businesses will encounter a wide range of complicated legal issues surrounding increased oil and gas production, midstream construction, new safety regulations, financing constraints and environmental compliance considerations.

Smart Business spoke with Jarrell and Datesh about Pittsburgh’s energy market and the legal obstacles that could impede growth if ignored.

What are the legal challenges companies might face through the anticipated rebound?

Uncertainty is the biggest concern. Companies and their investors are looking closely at the political bodies imposing environmental regulations and recent court decisions, and they are not quite sure how it will shake out. Uncertainty has made it difficult for operators and ancillary businesses to prepare and make capital and operational plans for the coming years.

Municipal and other land use regulations, as well as new pipeline safety and drilling regulations have fostered a level of unpredictability that did not previously exist. Many in the industry are also waiting to see how recent decisions of bankruptcy courts will affect the legal landscape.

How might new pipeline safety issues and the Sabine bankruptcy ruling factor in?

Production, gathering and midstream operators need to understand the new Pipeline and Hazardous Materials Safety Administration regulations, which, among other things, broaden the range of facilities that fall under the administration’s jurisdiction. Companies need to get ahead of these regulatory changes and consider how they will be interpreted and applied by regulators and, eventually, the courts.

The Sabine bankruptcy ruling is a classic example of how one court decision can undermine what everyone in the industry understood to be fact — that certain types of pipeline agreements and dedications of midstream capacities ran with and were part of the land. The Sabine court’s holding that some commitments by producers of gas reserves to pipeline operators do not run with the land, and are therefore obligations subject to discharge in bankruptcy, carries significant implications. If the Sabine decision is followed more generally by other courts, it will affect how investors evaluate midstream opportunities, what collateral is acceptable to lenders, how operators finance and manage their assets, and how their creditors manage their own risks. Fundamentally, Sabine will change the dynamic between producers and midstream companies and will affect the structure and content of their agreements going forward.

What can companies in this industry do that could help them manage uncertainty?

Companies know their businesses better than anyone. But when they need legal help, they benefit most from a relationship with counsel who understand this industry — not just regulatory, land or pipeline issues, but how all the business facets in this industry landscape fit together.

A sense of partnership with the people who are providing a professional service can be valuable because counsel becomes invested in the whole of the relationship, not merely discrete problems. Companies appreciate dealing with counsel who understand the industry and its relationship to their goals.

As the energy industry recovers, there are new opportunities and challenges that companies will encounter. The best path to success is to work with counsel who are knowledgeable partners and who help to navigate uncertainties and anticipate new obstacles in practical and effective ways.

Insights Legal Affairs is brought to you by Sherrard, German & Kelly, P.C.

Succession planning helps companies survive dramatic change events

Succession planning is the process of preparing a company for a change in control. Unfortunately, most business owners do not have a succession plan in place and delay thinking about one until something happens that disrupts business continuity, a catastrophe or a sale opportunity arises.

“Most owners tend to put off succession planning,” says W. Chad Pociernicki, an attorney at Sherrard, German & Kelly, P.C. “However, it is a process that should always be on the agenda. Ownership and key personnel should regularly think about and devote time to planning what would happen during a change of control to maximize value and minimize the chance that owners end up dissatisfied, or leave an unplanned or undesirable legacy.”

Smart Business spoke with Pociernicki about succession planning, what is involved and how to get it done.

Why is it that so many companies do not have a succession plan?

Succession planning requires longer-term thinking, which is difficult in a world where there are always fires to put out and pressing shorter-term goals and challenges.

It is important to understand that succession planning is a process. Plans should be assembled over time and revisited annually or quarterly just the same as other routine business issues.

What are the core elements of a succession plan?

Fundamentally, succession planning is making sure there is a plan for business continuity so that transitions to new owners or management occur in a way that does not harm the business. This requires a plan to cultivate and keep key people and assets during a transition, maximize value and minimize risk.

Valuation is also important. Owners should understand the true market value of their business today, and on an ongoing basis, and have a good understanding of the potential market for their business.

What scenarios call for a change of leadership and how does succession planning differ for each?

There are three major events for which to plan. The one many do not like to think about is death or debilitating injury to an owner or key member of the business. In a situation in which an owner or key manager is actively involved in operations, it can be difficult and disruptive if that owner is suddenly absent. Remaining owners and managers, surviving spouses and family members, or whoever is trying to run the business may be unable to maintain operations in the absence of a plan. They are left trying to cobble together a succession plan, and that can cause the business to lose value.

Companies need good contingency plans that diversify responsibilities and address maintaining continuity. Sometimes insurance can also assist in the event of a catastrophe, adding cash to the business and easing the burden on other owners and partners suddenly faced with an unexpected change in control.

Anticipating even more orderly management succession is important, as well. Those who could run the business by stepping in to fill important roles in the event those currently in key positions are absent must be identified and incentivized to remain after a business transition to ensure continued effective management of the business.

Lastly, business owners that plan to sell their businesses need a plan that minimizes the tax effects and maximizes the value while maintaining business continuity until a sale is finalized.

Why should legal counsel be a part of a company’s succession planning process?

Legal counsel has experience handling all aspects of succession planning. They are an essential part of the succession planning team, which should also include key business advisers such as accountants and bankers. A lawyer can help coordinate efforts between team members while developing and implementing a process to create the succession plan, keeping the process moving along while offering expertise and documentation when needed. Having experienced legal counsel on the team will help owners stay on track so they can create the plan they need to secure their future.

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