Jerry Roche

Friday, 30 June 2006 09:24

Mission: Possible?

When an investor spent $50 million for a 12-building apartment complex in Orange County two months ago, he said the magic words: “Location, location, location.”

Those are just three of the reasons why Orange County commercial properties are so valued. Two others are proximity to major tourist attractions and the multitude of recreational amenities in most parts of the county.

With a population of 3 million seeking more property for residential and commercial development, serious buyers and renters must start changing the way they approach the real estate market.

“Orange County is still experiencing healthy job growth, and the availability of land continues to diminish,” says Wayne Lamb of CRESA Partners. “For instance, the Platinum Triangle in Anaheim is demolishing old industrial buildings and replacing them with high-density residential, shopping and office buildings.”

Smart Business talked with Lamb and Jeff Shepard, both partners at CRESA Partners, about the present and future of commercial real estate in Orange County.

Is the commercial real estate market in the O.C. a seller’s market?
Lamb:
There are definitely fewer properties on the market, and the most desirable spaces have a lot of competition. Rental rates are going up, and other concessions are going down. One of the things that landlords are realizing is that they don’t have to fund all of the tenant improvements required to move a tenant into a space so more and more tenants are having to self fund.

How does the market affect potential buyers or tenants?
Lamb:
It’s imperative that the real estate consultant prepares budgets in advance of commitments. Also, most tenants have to make quicker, more decisive decisions — but not foolish decisions. Rising costs for tenant improvements, utility costs and increasing rental/lease rates make the market very difficult to predict the ideal time to for a tenant to renew or relocate. Concessions are decreasing, and multiple companies are competing for the same space.

Shepard: Buyers or tenants have to get creative. The real estate adviser needs to provide strong leadership by helping tenants realize that not as many concessions will be granted, so they have to pick the most important ones and focus on them.

Is this tight market a cyclical phenomenon?
Shepard:
I have experienced several up-and-down cycles over my career. The primary driver for a tight market is job growth in relation to the amount of new space being built. If job growth remains robust, then the market will stay tight until landlords can complete enough new projects to ease demand. It typically takes a developer two years to deliver a new project to the market, so expect the next 18 months to remain tight.

How does the market affect the professional real estate agent?
Shepard:
The consultant has to be more focused on every single transaction every single day. The adviser has to over-communicate with every client and be willing to give a strong opinion as to when the right time to act on the transaction and when it’s time to stop negotiating.

Advisers need to be very creative in the strategies they employ to deliver favorable results.

Lamb: A strong professional will have a broad arsenal of strategies and tactics. Each transaction or circumstance is truly different, based on the clients’ needs. People’s leases expire when they expire, regardless of whether it’s a good or bad market, but the professional who truly is looking out for his or her client may want to recommend a short-term solution until the market softens.

Will the commercial real estate market in Orange County remain tight for some time?
Lamb:
Orange County is still experiencing healthy job growth, and the availability of land continues to diminish. The county is transitioning from suburban markets to urban markets. Virtually every submarket has experienced rising rates, skyrocketing land prices and decreasing vacancy — if you can even find land.

Shepard: I think tenants are in for another 18 months of escalating rents and decreasing concessions followed by a stabilizing period. But I don’t think we’ll see a dip in prices or availability any time in the foreseeable future.

WAYNE LAMB and JEFF SHEPARD are partners at CRESA Partners. Reach them at (949) 706-6600, mailto:wlamb@cresapartners.com and jshepard@cresapartners.com.

Wednesday, 17 May 2006 06:21

Hiring a professional

In Tampa, it’s a seller’s market. And if you’re a qualified middle- to upper-level manager who may be looking for a new job, you’re a seller. If you’re a company with an opening at that level, you’re a buyer. My, how times have changed.

“The problem in Tampa right now is that unemployment is down to 1.8 percent,” says Brent Short, managing director for Spherion Professional Services Group. “Two years ago, you could place an ad on Monster.com and get 300 resumes in the first six hours. Now you get six resumes in the first three days.

“What that means is that companies have to change what they’ve been doing to attract people and change what they need to do to get those people in the door. They can’t wait three weeks any more.”

Smart Business talked with Short about the current labor shortage along Florida’s Gulf Coast and how corporate managers can cope with it.

Why is there such a demand for skilled or knowledgeable employees, given the economy?
The economy here is beginning to pick up again. One, we are seeing expansion. Two, we’re seeing companies invest in technology, which is huge. Three, we’re seeing companies refill positions that have been left vacant for a while. And four, some companies are even expanding the number of people they have.

We are probably going to see brisk hiring until around Thanksgiving. Overall, we’re in a 10-year cycle where we’re good to go.

Given the statistics, can companies still be particular and demanding in their quest for qualified employees?
Maybe 50 percent of the unemployed are unemployed because they simply don’t want to work. But the other thing is that candidates may not be exactly what organizations are looking for.

I’m encouraging companies to be a little more open-minded in their hiring practices. Sometimes it’s worth it to try and fit a square peg into a round hole, if maybe the edges are worn off a little. For instance, if you’re looking for a senior accountant and a prospect has done great staff-level work, you might be able to mold that person — if you invest in training.

Is temp-to-perm a viable alternative, even for jobs in middle and upper management?
I tell companies that if they’re looking for temp-to-perm hires, they’re only looking at 2 percent of the workforce. So I’m extremely cautious with temp-to-perm recommendations.

One company was having a hard time finding the ‘perfect person’ for its opening, so I was asked to find a temp to fill the shoes while the company continued to look for a permanent replacement. That temp is about to go permanent now. That’s a great thing, and I love it when it works out.

But none of this is easy. Unemployment is so low that there are more and more counter-offers coming from original employers that can throw a wrench into our plans. It’s almost getting to be a bidding war on good employees in this market.

How long can a company expect to take to find a viable candidate for a middle- to upper-level opening?
A three-round interview process just won’t work here in the Tampa area.

Finding a qualified employee on any level can take a long time, depending on the company’s HR process. In some cases, longer, drawn-out processes — whether they’re HR-driven or driven by the hiring manager — have started to muddy the waters. Why? Because the demand for qualified people is so high that some companies will actually offer a good candidate a job during the interview. Those are the companies that are successful in their hiring.

I think that companies should expect the placement firm to do the job you’re paying them for. The placement firm should be sending you qualified people to interview — and if they’re not, you should find another firm.

If unemployment levels in Tampa are so low, where are you finding candidates to place?
First of all, bringing people in from other geographical areas might be a great idea, but most companies here are not offering relocation packages. And if they are, the packages are not substantial enough to get the people to move here.

We are also not seeing people job hop. So we are actively sourcing individuals who are currently employed at other organizations.

We also emphasize on training up. Even though we don’t provide training at the degreed level, we do test to evaluate a candidate’s skills and find out where he or she would fit. What we’re seeing is a lot of candidates take the tests, then go out and get training on their own so they fit in better places. They come back, they retake the test.

A large part of our mission is to uncover all the things that could be obstacles to getting a job and help the candidates overcome those obstacles.

BRENT SHORT is managing director for Spherion Professional Services Group. Reach him at (813) 864-1111 or brentshort@spherion.com.

Monday, 01 May 2006 07:41

Setting up a captive

Because of trends in the insurance market, many domestic businesses — faced with exposure to risks such as mold, earthquake, construction defect and professional liability — have been left with a dilemma: pay outrageous premiums for limited coverage or find another way to buy insurance.

Captive insurance as an alternative risk management strategy is being used by many large corporations. Most small or medium size companies, unfortunately, don’t know enough about captives. Some smaller companies — as long as they’re profitable — can also benefit from establishing a captive.

The “single parent” captive is the most efficient and cost effective. It generally underwrites risks of companies related to the parent. There’s also “rent-a-captive,” which provides access to captive facilities without the user needing to fund its own captive. And pooling captives insures liability exposures of its group members, all of which must be engaged in similar business activities.

“Captives can provide a self-insurance portion of coverage, thereby lowering premiums but maintaining coverage,” says Glenn Gelman, managing director of Glenn M. Gelman & Associates. “Captives can also provide insurance where coverage does not exist at all.”

Smart Business asked Gelman more about captive insurance.

Define a captive insurance company.

A captive is a limited-purpose insurance company formed to insure risks, primarily of its owner. Like a traditional insurance company, a captive collects premiums, pays losses and earns investment income. But unlike a traditional company, principal beneficiaries are the original insured.

So you’re saying that a captive insurance company is the same as self-insurance?

No. Captives can be established so that they provide supplemental insurance, allowing you to have larger deductibles and exclusions but lower total premiums. You’re not giving up any coverage, but part of the risk may be self-insured.

The beauty is that, if there are not any claims, you keep the premiums. If you use the system really well, you benefit in two ways: you’ve got a tax deduction, and the money is yours.

What type of company should consider forming its own captive insurance company?

A captive is a business and economic solution to the problems inherent in purchasing insurance in certain markets and certain circumstances. It should only be formed when economics justify it. Generally, it should be utilized by exceptionally profitable businesses with significant risk-management needs.

What are the benefits?

You have total control — underwriting, rates, claims, forms — and you’re not paying commissions to any agents. You also have access to the reinsurance market.

What’s reinsurance?

Insurance companies spread out the risk, like banking institutions. For instance, if you borrow $10 million from your bank, the bank will spread out the loan and the risk associated with repayment to other participating banks. The same thing happens with insurance: individual companies don’t want all the risk, so they ‘participate’ it out. With a captive, you are an insurance company, so you have access to the reinsurance — or wholesale insurance — market, which operates on a lower cost structure than a direct insurer.

Specifically, what are the tax benefits of a captive?

The benefits include lower insurance premiums that more accurately reflect the insured loss history. Captives can help achieve premium stabilization, risk financing and the transfer of wealth.

The tax benefits stem from immediately deducting insurance reserves and taking advantage of Internal Revenue Code 831(B), which exempts net premiums of $1.2 million from tax.

A regular corporation could deduct $1.2 million in premium paid to a captive, but the captive would not pay tax on the receipt of the premiums.

Are there any drawbacks or risks?

First, start-up costs run in the neighborhood of $100,000.

Second, you have to become a real insurance company. A licensed and qualified insurance manager must be retained to set it up and manage its affairs. There are usually monthly and annual costs associated with being an insurance company.

Third, you can’t just insure yourself, unless you have 12 subsidiaries, as required by the Internal Revenue Service.

Finally, if you’re a small company, you may have to become part of a pool of captives in order to yield the best tax benefits.

What happens if you disband it?

If you liquidate the captive, its shareholders should be eligible for capital gain treatment, which is generally a much lower rate of tax than ordinary income tax rates. Today, the federal spread, or difference, is 20 percent. Thus, if a company pays premiums of $1.2 million to a captive and saves 35 percent federal tax, or $420,000, the captive’s shareholders could pay a tax of $180,000 upon liquidation. There would be a tax savings of $240,000 for that one year. If the captive existed for 10 years and the tax law stays the same, the savings would be $2.4 million.

GLENN M. GELMAN, CPA-MST, is the managing director of Glenn M. Gelman & Associates. Reach him at (714) 667-2600 or www.aten-usa.com.

Tuesday, 28 March 2006 11:12

Guarding trade secrets

The term “trade secret” conjures up images of shadowy figures making clandestine deals in dark alleys as a clock somewhere in the background strokes midnight. But nowadays, stealing trade secrets is nothing of the sort. Trade secrets can be exposed and even passed around with one or two simple keystrokes on a home computer.

“You can’t be too careful about guarding trade secrets, particularly now with telecommuters and hackers having access to company computers, and cell phones that can take photos of your business. Just because you’re paranoid doesn’t mean someone’s not following you,” says Tom Newmeyer.

Smart Business asked Newmeyer, a founding partner of the law firm Newmeyer & Dillion LLP, to further expound on the topic.

What is a trade secret?

According to the Uniform Trade Secrets Act, it’s defined as, “...information, including a formula, pattern, compilation or program that (1) derives independent economic value — actual or potential — from not being generally know to the public or to others who could obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Most businesses think of customer lists as being something they want to protect.

Another example of a trade secret would be a formula such as the one for Coca-Cola. The Coca-Cola formula hasn’t ever been patented, but the company has kept it a secret for 100 years. Patents protect you, but once one runs out, everybody in the world can manufacture the product. Coke keeps its formula secret to protect its competitive advantage.

Why is it advisable for corporations to safeguard their trade secrets?

It all has to do with competition. You do not want somebody to take your trade secrets, your property, away from you and compete using that property.

Let’s assume that I’ve got a client list for all the department stores in my area. It’s not a protectable trade secret, because the information is public. But if I am an insurance agency and spend years compiling a list of customers who purchase a particular insurance product, when their policies renew and what their premiums are, that is a trade secret that I have to protect to maintain my competitive advantage with those customers.

How do you safeguard your secrets?

First, you have to implement procedures to keep that information protected. Have all your employees sign an acknowledgment that certain information is confidential and belongs to the employer and that they will not disclose that information to anyone.

Next, restrict access within the company. For instance, restrict computer-accessed information with passwords that are given only to employees who need to know that information — and change the passwords frequently. You should also have policies denying visitors access to certain areas in the company unless they’re chaperoned.

Unfortunately, as a result of today’s technology, you can’t be totally secure. A salesman may have his entire contact list on his cell phone. I don’t know a way that you can actually protect information on an employee’s cell phone.

How does taking steps to protect your trade secrets make your company more secure?

Let’s suppose a salesperson leaves the company and starts soliciting all those customers he serviced for you. If your customer list qualifies as a trade secret, under the law, you can get an injunction to keep that salesman from going after those customers. You would need to file a lawsuit and seek a preliminary injunction. Nine times out of ten, the case is over if you get the injunction, because the person who’s lost will not want to litigate whether they can contact the customers when the case is over. The case simply takes so long that all the value from the customer list to the competitor is gone.

Another problem is if you allow employees to access your computer from home. Someone can log into the computer, download all the contact info, print it out at home, and you’d never know about it. But if you have auditing software, like we recommend, you’ll know immediately what they’re up to. The software can be very valuable in getting an injunction, because it’s proof that someone’s violating the trade secrets.

What role does a law firm play in protecting trade secrets?

By advising the client how to protect its specific information. One of the big mistakes that a lot of lawyers make is that they don’t tailor the language of “trade secret” to fit the particular customer. They make the definition of trade secret so broad that it almost doesn’t mean anything at all.

At Newmeyer & Dillion, we try to find out what truly is important to the client and tailor the agreement so it stands a better chance of being enforceable.

It’s more economical to use a pre-existing form. But when you do that and apply it to a special circumstance, you run the risk that it won’t give you the protection you want.

We recommend that our clients protect the confidentiality of their trade secrets with employee policies and written agreements. And the policies and agreements should be written by knowledgeable counsel.

TOM NEWMEYER is a founding partner of Newmeyer & Dillion LLP. Reach him at tom.newmeyer@ndlf.com or (949) 854-7000.

Monday, 23 February 2009 19:00

Heading debtors off at the pass

In these difficult economic times, more than ever companies seem to be defaulting on their financial responsibilities.

As a creditor, prejudgment remedies are options you have for maximizing the chances of recouping at least some of the money that is owed to you. These remedies are often used in instances where there is a danger that the debtor will not have the money or property by the time a final judgment is rendered. Because they indicate to the debtor that you are serious about collecting what is owed, in many instances, the dispute may be resolved quickly.

“Your primary benefits are pressure and priority,” says Leonard M. Shulman, managing partner, Shulman Hodges & Bastian LLP. “If you are a creditor and are concerned about being diluted by other claims, this is a way to put yourself ahead of others in the pecking order. Certain prejudgment remedies can freeze the debtor’s assets until there’s a judgment.”

Smart Business talked to Shulman about the procedures and rationale involved in pursuing prejudgment remedies.

What is the purpose of prejudgment remedies?

First, they put pressure on the account debtor to pay what is owed to the creditor.

Second, if the pressure is not motivating enough, then the remedy provides the client the ability to procure a lien on assets of the account debtor so that when the client ultimately receives a judgment, it will stand ahead in priority of other creditors.

What are the most commonly used prejudgment remedies?

The most commonly used prejudgment remedy is an attachment lien, whereby a lien is sought that attaches to both known personal and real property of the account debtor. An attachment lien is only as good as the knowledge you have as to where the assets exist. If you are a creditor, you should know where the debtor banks and you should have an idea of where other assets — like real estate and other tangible property — are located.

A prejudgment freeze or injunction is an option that prevents the debtor from transferring or otherwise converting assets. It is commonly used when the debtor has intentionally been involved in some wrongdoing.

The third possible remedy is a receiver, who handles disbursement of the debtor’s accounts receivable and may administer other assets for the benefit of the creditor. The receiver can also control the debtor’s real property to maintain and preserve its value and to collect rents.

All three tactics are very invasive because they impact the debtor’s cash flow and ability to transfer assets.

Is there a point to threatening a prejudgment remedy before actually using one?

You might want to threaten — but on the other hand you might not, because you may not want to tip off the account debtor. When a debtor becomes aware of prejudgment remedy intentions, it could move its assets or find a different way to manage cash.

What are the risks of using a prejudgment remedy?

The main risk is that your action may put the debtor out of business and you will never get all the money owed to you. But if the company is that fragile, it is unlikely that you will ever get paid anyway. Some of these remedies can be obtained without giving any notice whatsoever to the debtor. As a result, there are safeguards built into the process that allow a debtor to recover damages if the creditor does not proceed with care. So you have to have your ducks in order from a legal prospective to get what you’re asking for.

Of course, there are legal fees. Seeking a prejudgment remedy is not incredibly expensive, but the expense is not insignificant.

What are the procedural hurdles?

Prejudgment remedies work as well as the creditor’s knowledge of the account debtor’s assets. The better the knowledge, the better they work.

Prejudgment remedies are also very fast to implement. If you can demonstrate that there’s some nefarious conduct by the debtor (for example, secreting assets, moving accounts or converting collateral of creditors), then you can seek the remedy through the courts on extremely short notice — 24 to 48 hours. If you cannot show any questionable conduct, two to three weeks’ notice of the proposed action will be required. It really depends on the local rules, and it depends on the facts and exigencies of the case.

What is the key to procuring a prejudgment remedy?

The key is demonstrating to the court that you are likely to succeed on the merits of your collection action. To get a prejudgment remedy, you have to file a lawsuit to commence the action. The lawsuit must be based upon a contractual relationship with the debtor. Then you are asking through a motion to the court for the prejudgment remedy so that you can perfect an interest in some personal or real property prior to getting the judgment.

A prejudgment remedy is a provisional remedy. Immediately after final judgment, you then ask the court, again through a motion, to release the assets that you attached to satisfy the judgment.

LEONARD M. SHULMAN is the managing partner with Shulman Hodges & Bastian LLP. Reach him at (949) 340-3400 or lshulman@shbllp.com.

Monday, 23 February 2009 19:00

See the parked bulldozers?

A construction slowdown caused by tight financial markets has finally hit the Dallas area. Its main impact on real estate has been to swing the negotiating pendulum from landlords to tenants.

“Having worked for a national REIT (real estate investment trust) for the last seven years, I’m amazed at how little tenants know about lease negotiations, even when they have the upper hand,” says Brock Wilson, Senior Vice President in the Dallas office of Grubb & Ellis Co. “Without tenants, a building is only worth the ‘bricks and sticks’ it took to build it.”

Smart Business talked to Wilson about the current industrial real estate market, focusing on the desirable properties around DFW airport.

What is the current institutional real estate situation regarding the area around the Dallas-Fort Worth airport?

Two years ago, if you tried to buy an existing building or developable land, you quickly realized you were not alone. On multiple occasions with my previous employer, we sent unsolicited and solicited offers on various facilities, only to end up in a bidding war.

Most notably was the old Minyard’s Grocery Distribution Facility at 777Freeport Parkway in Coppell. Twenty-six initial offers were made on this 725,000-square-foot facility with 80 acres of additional land. If the property were on the market today, there might be four offers —from all cash buyers at a 25 percent discount from the 2006 price.

Many major developers also have space available in this submarket totaling 8 million square feet. That figure is just a reflection of the economic times. These properties are very well located, some just off of the North DFW airport runways, and will be excellent long-term assets for their owners and tenants.

What other local/regional trends are you seeing?

The biggest trend comes from the world of development. With the exception of a couple of developments that were already funded or under way prior to 2009, the dirt has stopped moving.

Last year, 20 million square feet of new development was posted, with approximately 17 million of it speculative. This year, around 10 percent of that figure should be posted. Virtually every development company has decreased its staff, and some have switched to nonindustrial projects. Others have closed their doors altogether. In the meantime, owners/developers may want to disregard their underwriting assumptions if a deal comes along and ask their lender for a mulligan rather than a bailout.

The second-largest trend is the increase in sublease space. For four consecutive quarters, the number has increased to approximately 8 million square feet citywide. With this trend, it is not surprising that the bulldozers are parked.

What should corporate real estate managers expect in the near future regarding institutional real estate availability and prices?

Both availability and pricing will continue to improve across all DFW submarkets through 2009. With the capital markets still upside-down, REITs and private real estate firms are trying to hold on to as much asset value as possible. What that means for the occupants is the leverage pendulum that swung away from tenants in 2006 is squarely in their favor now.

In this market, generally speaking, tenants who have leases expiring in 2009 and 2010 are in a great position to negotiate amore favorable lease. And even leases that do not expire until 2011 or even 2012 might be worth new concessions in exchange for a longer lease commitment.

The name of the game for the landlord is keeping the space full, and savvy landlords will do just that.

What tips can you offer corporate real estate managers about how to handle real estate decisions?

Forward-minded real estate managers will capitalize on current market conditions by seizing long-term opportunities. While corporate real estate departments continue to downsize, directors should keep their eye on the future.

It is understandable that the theory in this economy is that ‘less space is better,’ and cutting costs now is essential in order to survive. But 2009 will be the year to improve your position in the real estate market. Rather than just downsizing space, the focus in terms of warehouse/distribution space should be on testing the market to see if there are better opportunities, either with an existing landlord or with other property owners.

We will see many companies ‘trade up’ in this market, capitalizing on the increasing vacancy rate and moving to a newer, more functional facility for the same or, in some cases, less cost. We will also see many companies, especially those with hefty balance sheets, renegotiate their existing leases and lock in for a better price.

Much like your personal real estate, why pay 7.5 percent on a loan when you can pay 5 percent just by shopping around? You may find that the deal you have is best for you or your company in the end, but it never hurts to explore the options.

BROCK WILSON is Senior Vice President in the Dallas office of Grubb & Ellis Co. Reach him at (972) 450-3203 orbrock.wilson@grubb-ellis.com.

Monday, 26 January 2009 19:00

Unions on the rise?

If the Employee Free Choice Act (EFCA) becomes law, it would change the landscape of labor law as we know it. Some also say that it could hinder the ability of employers to remain competitive.

Generally speaking, the bill has been favored by Democrats and opposed by Republicans. On March 1, 2007, the U.S. House of Representatives passed the bill. On June 26, 2007, the highly contested legislation stalled in the U.S. Senate after failing to reach the 60 votes needed to cut off debate. But the November 2008 elections provided Democrats with a larger majority in the Senate. This year, should the bill get through the upper house during the 111th Congress, President Barack Obama has promised his support.

“The impact on employers would be great,” says Mike Stief, a partner with a specialty in labor and employment law at Jackson Lewis LLP. “If passed, EFCA will dictate a recently unionized employer’s ability to compete in the marketplace.”

Smart Business talked to Stief about how employers should cope with EFCA, should it pass.

What are the provisions of EFCA?

One, it does away with the secret ballot election process. Right now, employees vote in secret ballot elections to determine if they want a union. Under EFCA, once a majority of employees sign verifiable union authorization cards, then the union is recognized without that secret ballot election.

The second provision requires mandatory arbitration if a company and a new union do not reach an agreement on a contract within 120 days of negotiation and mediation. The final component of the act is the creation of increased penalties for employer violations.

Which of the provisions has the biggest impact on employers?

The one that’s getting all the publicity is doing away with the secret ballot election. Employees normally are subjected to peer pressure to sign union authorization cards, but under current law, they can change their minds and secretly vote against the union, if so inclined. Clearly, however, the arbitration clause has bigger potential impact on employers.

Under the current law, if a union represents a private sector company’s employees, the employer has the obligation to bargain in good faith. There’s no arbitration and no specific time lines to reach an agreement. Under EFCA, you would be forced to get a contract done in the 90 days or you go to nonbinding mediation with the Federal Mediation & Conciliation Service (FMCS). The problem is that virtually no first contracts are negotiated in 90 days, because every single word needs to be agreed upon by both parties. Then, if the FMCS is unable to mediate a solution within 30 days, you are forced into binding arbitration to set terms and conditions of employment. This third-party arbitrator, unfortunately, may not know anything about your business and the economic realities of the situation.

But isn’t EFCA good for employees?

There has never been a bill more mis-named in the history of the country. It should be called the Employee Forced Choice Act. Unions claim they need it because the current process is unfair [under NLRB provisions], yet unions won more than 60 percent of elections held last year.

In reality, this bill is bad for employees. If you have a union vote at a plant now, every eligible employee gets the opportunity to vote, and the majority wins. But if a union were going to organize under EFCA, it might focus on the 50-percent-plus-one of the employees who were most likely to unionize. That kind of approach would have the effect of disenfranchising the rest of the workers.

This bill has more to do with unions rebuilding their membership ranks than employee free choice. Union membership is down to 7.5 percent of the private sector work force. If EFCA becomes law, the only groups that benefit are the unions.

Should EFCA become law this year, what can employers do?

Your hands are not tied. But you cannot be reactive to union organizing. Rather, you must be proactive and rethink your whole approach to employee relations, attempting to work one on one with employees rather than being forced to work through a third party — a union. To create an issue-free work environment is to take away that union threat.

Many employers think that they’re planting a seed if they discuss the topic of unions with employees. On the contrary, you need to proactively discuss the issue of unions with your people, if EFCA passes.

Finally, conduct a vulnerability assessment. Find out what issues your employees might have, and clean them up before any type of union actually starts. You can conduct the assessment internally or hire consultants or lawyers to help you.

There’s a lot you can do, but if you wait to address some of these issues until a push for unionization begins, it will be too late.

MIKE STIEF is a partner with a specialty in labor and employment law with Jackson Lewis LLP. Reach him at (412) 232-0138 or stiefm@jacksonlewis.com.

Monday, 26 January 2009 19:00

Looking for concessions?

Since economic conditions dictatenegotiating power in the real estatemarket, there’s every reason to believe that prospective tenants hold theupper hand in these recessionary times. InDallas, that’s only partially true.

“Despite what is said in the newspapersand in the brokerage community, there arestill transactions being done,” says KathyPermenter, Managing Director of AgencyLeasing for Grubb & Ellis Company’s Dallas office. “We’re still seeing growthfrom corporate managers who are re-evaluating ways to make their business workmore efficiently.”

Permenter told Smart Business how corporate management can parlay the existingmarket into more attractive leases.

How are market pressures affecting commercial properties?

Here in Dallas, landlords are not panickyby any means. The number of prospectivetenants serving construction for our DARTrail line is growing. The number of businesses serving the medical community isstill growing. So it’s not all doom andgloom in the local real estate market.

Of course, there’s a big question aboutfinancial stability — as much on the tenants’ end as the landlords’. It’s important foryou, as a tenant, to make sure the landlordis financially stable. Is the building beingmaintained? Will the landlord have enoughmoney to pay for improvements? Can he orshe take care of security and maintenancecosts, as well as improvements and brokerfees? The list goes on and on. All those factors affect you, the tenant, even though youthink you might be insulated.

On the other hand, it’s also important tolet your landlord know what kind of afinancial situation you are in. If you arebeing squeezed, you might have some flexibility with other buildings owned by yourlandlord, in terms of the length of the leaseand tenant improvement allowances.

Are landlords doing more to attract tenantsthan they would in a stable economy?

Yes. However, they are being very carefulto find not just tenants, but good tenants.

Who would have known that some of thesewell-established businesses going intobankruptcy were financially unstable?

Landlords also are looking for a differenttype of security, depending on the amountof tenant improvement dollars allocated.There are more requests for letters of creditand personal guarantees — even from suchupscale businesses as our downtown lawfirms. Leasing their space to quality tenantshas become very important to landlords.

What recent problems have crept into thecorporate leasing process?

The main problem has been that mostmanagers have been delaying importantdecisions like relocating and consolidating.For the most part, their decision has beento retain the status quo and wait out theeconomy.

Overall, the feeling in the market is thatperhaps there aren’t as many substantialcorporate relocations being planned forthe Dallas area, though there is much activity in regard to tours and getting leasesdone. In the two weeks before Christmas,our group had 21 tours — which is unheardof this time of year.

How are landlords/owners creating value intheir buildings?

Over the past few years, even emptyspaces have had tremendous value.Properties that weren’t leased were almostmore valuable, because the next purchaserwas placing fully leased value on thatempty space. Now, with lending tight andprojected to be tight well into 2009, theconservative value of lease propertiesbecomes the net operating income (NOI)that they can generate.

These days, smart landlords/owners arecreating value by making improvements upfront to attract tenants and get the spaceleased. At the end of the day, they have tohave the space leased to credit-worthy tenants, and the deals have to make sense.

Landlords also are willing to work withyou to consolidate offices, and they will bevery creative by offering free rent, a breakon multiple leases, and other concessionsto minimize double rent payments. Youmay be able to get a few months of reducedrent to compensate for moving costs.

How should prospective tenants approachtheir real estate decisions?

You probably should be taking thisopportunity to make your business modelmore efficient for your uses. This is a greattime to re-evaluate all of your leases anddetermine how your business will bestlook and work in the future.

The general feeling is that we’ll be coming out of this recession in late 2009, solandlords are not in a panic mode, but theyare very interested in making wise business decisions that can assist corporateAmerica with their strategic long-termgoals.

KATHY PERMENTER is Managing Director of Agency Leasing for Grubb & Ellis Company’s Dallas office. Reach her at (972) 450-3214or kathy.permenter@grubb-ellis.com.

Tuesday, 25 November 2008 19:00

Spoliation of evidence

Spoliation is the intentional or negligent withholding, hiding or destruction of relevant evidence in a legal proceeding.

“Corporate officers need to be cognizant of spoliation issues from the time they become aware of a potential claim,” says Irena Leigh Norton, a partner in the litigation department at Shulman Hodges & Bastian LLP. “Waiting until a suit is filed is often too late.”

Smart Business talked to Norton about the impact and consequences of evidence spoliation.

What types of evidence are most susceptible to spoliation claims?

Spoliation occurs when a company has lost or destroyed evidence that it knew — or should have known — to preserve for a lawsuit. Awareness of potential litigation imposes a duty on the manager or the corporate officers to preserve evidence that may relate to that lawsuit.

The evidence in question might include electronic records like e-mail, personnel files and physical objects. In the case of electronic evidence, specific federal laws address the preservation of backup materials and e-mail correspondence. Sometimes it’s not even enough to preserve an electronic copy of e-mail. In discovery, the opposing counsel may want to examine the computer hard drive — and if you have failed to preserve that, you may have created a potential spoliation issue.

What sanctions might be imposed by a court?

Generally, spoliation of evidence is something that is proven by way of a motion or declaration to the court. One party in the lawsuit requests a sanction be imposed on the party that cannot provide pertinent evidence.

The scope of that sanction depends on a determination of why the evidence is missing. Is it missing because it was accidentally destroyed through no fault of the defendant? Was it purposely destroyed? You will face a much higher level of sanction in the latter case.

Sanctions could be anything from having an evidentiary presumption imposed against your side or not being able to dispute certain issues all the way up to striking an answer and imposing a default judgment. Sometimes monetary sanctions are awarded, as well.

Can you cite an example of evidence spoliation?

In an employment case alleging sexual harassment, there may be an issue about whether certain communications between a manager and the plaintiff employee were preserved.

In one instance, the hard drive crashes and pertinent e-mails are unable to be resurrected. Nothing intentional was done. If that complainant tries to seek an evidentiary sanction, he or she will have a really hard case to make. In all likelihood, a court will not impose evidentiary sanctions.

In contrast, if the exchange of e-mail is deleted from the system by the manager, then there may be a presumption that it was done purposely. The jury will be informed as such, and the defendant will be barred from making certain evidentiary and testimony objections. Depending on the severity of the event, the defendant may have a liability finding against him or her. There is not an assumption of guilt, but it’s an issue that courts take testimony on, and there may be a full hearing with expert testimony on how the materials were deleted and why no backup is available.

For instance, if deleting information from a server is a four-step process that requires a supervisory password, then evidence suggests that a corporation or officer purposely ordered the information to be deleted, because it’s not something that could be done by accident.

A judge is not likely to impose sanctions for vagaries of electronics breaking down or for accidents. But there are likely sanctions for purposeful acts, and there may be substantial repercussions.

Are spoliation claims subject to separate causes of action?

Under California and federal law, there is generally not a separate cause of action for spoliation of evidence.

If you are under criminal investigation, however, criminal liabilities may arise because the standards are different. Additionally, if your company does business in other states, there may be case law supporting a separate claim for spoliation or destruction of evidence in that jurisdiction.

What steps can a company take to discourage spoliation of evidence?

Every company should have policies and procedures in place regarding the preservation and destruction of its business records. High-level officers should be aware when potential claims arise and immediately take steps to preserve all potential evidence.

Instruct employees to maintain not only computer-based information but also physical devices — like computer hard drives — that would have potential relevance to a lawsuit. Even if you cannot foresee a lawsuit, as soon as you’re served, those steps must be taken.

Most importantly, take every precaution to assure that courts have access to all information — bad facts as well as good facts — so you have the best opportunity to represent your company’s interests.

IRENA LEIGH NORTON is a partner in the litigation department at Shulman Hodges & Bastian LLP. Reach her at inorton@shbllp.com or (949) 340-3400.

Sunday, 26 October 2008 20:00

Under the gun

If you and your fellow corporate managers cannot agree on critical elements of doing business or if an outsider thinks that mismanagement is limiting your ability to pay bills — look out. There may be a court-ordered receivership in your future.

“The receiver’s job is to literally operate the business,” says John Mark Jennings, a partner in the law firm of Shulman Hodges & Bastian LLP. “A receivership is an action brought against your company because it is being operated to the detriment of shareholders or creditors.”

After a receiver is appointed, maintaining the continuity of running the business may not necessarily be his or her first objective.

“If the right thing is to keep the business open, the receiver will do that,” Jennings says. “If a business cannot pay its debts and is a dying proposition, the receiver is more apt to wind down his operations, rather than spending his time attempting to resurrect the company.”

Smart Business talked to Jennings about how managers should react to possible receiverships.

How common are court-ordered receiver-ships?

They are becoming more common. With the current state of the economy, there is distrust in the marketplace. In the business world, when consumer confidence is down, so is the confidence in others being able to repay debts. That lack of confidence sometimes requires a neutral third party to help make decisions, to enforce existing agreements or to comply with the law.

Under what circumstances is a receivership a good thing?

Often, members of company management are divided into factions. Their personalities might not mesh, and their overall business judgment may be clouded by infighting. In that case, one of the parties can initiate litigation and ask the court to insert a receiver to oversee the business. That action establishes an internal decision-making mechanism to conduct business while owners or top-level managers iron out their disputes.

Very often, a creditor will ask the court to appoint a receiver over a company that owes it money. Even if no internal strife exists, the company may not be paying its debts as they become due. In that case, the receiver is charged with the task of making sure that money flows where it should.

Tactically, it may be beneficial to be the first person to request a receivership, because courts are often inclined to follow a party’s nomination for the receiver — assuming he or she has proper credentials.

What impact does a receiver have?

A receiver, certainly, costs money, and charges by the hour. If the company cannot withstand that cost coupled with pre-existing financial troubles, the receivership process can be disrupted.

There is also the chance that the receiver will be talking to top managers about the company’s future direction. Very often, one of the parties can lose what control he or she had, which can lead to a true intellectual/financial rift among company leaders.

The receiver’s job is to get past the acrimony and animosity and do what’s in the company’s best interests.

In some cases, managers may agree that they will never reach a decision or compromise. In that event, the receiver also can provide a dispute resolution process.

What are a manager’s obligations under a receivership?

The very threat of being placed in receivership is a mission-critical turning point. You have to immediately focus on the problem, because you could be approaching the last decision you ever make as a corporate leader.

If my company were threatened with a receivership, I would first turn to my in-house counsel or an experienced attorney. You never want to go into a receivership process without having someone protecting your rights and those of the company.

Once you have been sued and a receiver has been appointed, you face a very large uphill battle. At that point, there is a good chance the court will keep the receiver in place until either the litigation runs its course or some kind of settlement is reached.

Under a receivership, a temporary restraining order is generally issued. Your obligations are to (1) make sure that you do not interfere with the receiver’s operation in any way and (2) help the receiver make decisions that are right for the company.

Initially, you have to determine whether or not you are going to oppose a receiver-ship, but after one is appointed, do everything you can to make sure the receiver’s job is easy and that you are not interfering.

What are the penalties for interfering with a receiver’s actions?

The consequences for those who choose to interfere with a receiver’s duties are predictable. Early orders and injunctions restrain corporate officers from doing something negative against the receiver’s actions. They also give the court contempt power over violations of its orders. Contempt penalties include sanctions and fines, which eventually can develop into criminal contempt charges. Bottom line — never interfere with a receiver’s duties.

JOHN MARK JENNINGS is a partner with Shulman Hodges & Bastian LLP. Reach him at jjennings@shbllp.com or (949) 340-3400.