Commercial Litigation Commercial litigation is a broad topic that covers any legal issues that a business might run into, such as contract disputes, real estate problems, construction issues, business licensing, trade regulation, securities concerns, product liability, employment problems, environmental concerns, owner disputes, creditor and collections issues, and many more.
The topic is too broad to cover fully here. Instead, we'll concentrate on a few important topics and urge you to consult an experienced commercial litigator to handle your business's legal needs. The rules are based mostly on Illinois law.
The goal underlying commercial litigation is, of course, to avoid litigation. Let's look, then, at areas where past experience tells us that litigation is likely to arise. In these situations, waiting to consult an attorney after the dispute arises is not sound practice; you're better off getting an attorney involved on the front end, which can save you money in the long run.
Partnerships. Most business partnerships are launched with visions of great success. Possible disputes among the owners aren't even on the radar, often because the partners are long-time friends or relatives. Partnership disputes, however, are a common fact of business life, whether the actual business entity is a partnership, a limited liability company, or a corporation. In fact, there has been a huge growth in recent years in litigation between and among partners and owners.
The best and surest way to avoid partnership disputes is to define ownership rights up front. The partners or owners should create a written agreement that sets out the rights and duties of all the co-owners. It should address who has the responsibility for the day-to-day running of the business, it should list who contributed what to get the business started, and it should say who gets what if the business is dissolved.
Disputes that arise over dissolution of the business are troublesome, but the worst disputes are the ones that occur while the business is operating. They drain time, money, and effort away from more productive uses and, in may cases, they threaten the business's existence.
Creating a written document won't prevent all disputes from happening, but it can both reduce the chances that a dispute will occur and reduce the rancor once a dispute does arise. In many cases, it isn't the document itself that helps avoid disputes; it's the discussions that are necessary between the owners in order to develop the document that are particularly useful. Problems don't arise, in some cases, because their causes have already been addressed.
Contracts. Contractual disputes with customers or suppliers are another frequent source of business litigation. Businesses often simply use a standard contract without really understanding whether it meets their business needs. Disputes can be avoided if the contracts are reviewed ahead of time and any issues or potential problems are surfaced.
This can be especially true for those companies that are doing business in other countries. For example, which country's laws will apply? Who bears responsibility for goods lost in shipping? Where will disputes be resolved? Similar problems can also occur in purely local settings.
Those who sell goods or services online also face potentially thorny contractual issues. What constitutes an offer online? What constitutes an acceptance? Are electronic signatures valid?
Contractual disputes are expensive and unproductive. As with partnership disputes, they drain time, money, and effort away from the business. And, of course, they're bad for business because they alienate customers and suppliers. Talking to an experienced attorney ahead of time can help because he or she can raise potential problems that the business owners hadn't considered.
Business secrets. For many businesses, protecting their processes, methods, and customer lists can be extremely important. Disputes can arise where a former employee goes to work for a competitor, which is not an uncommon occurrence.
If a business hires a salesman and provides him with a list of customers, can the salesman who quits to work for a competitor take the customers with him? If a business hires an executive, can the executive, after learning how the business operates, start her own company in competition with her former employer?
Businesses generally protect themselves by requiring key employees to sign restrictive covenants when they're hired in which the employee promises not to compete against the employer or divulge company secrets. Generally, employers have had more success in preventing an employee from starting a business in competition than they have with preventing a salesman from taking customers with him.
The likelihood of an employee starting up a new business to compete against her former employer depends, in part, upon the industry. A former employee would have a far easier time starting up a new dentist's office than, say, an airline. Generally, restrictive covenants that prevent an employee from starting up a business in competition with the former employer have been upheld where the restrictions are reasonable as to time and geography. The restrictive covenant must also be legitimately designed to prevent the former employee from taking customers and not for some other reason, such as spite.
Reasonable time is usually no more than two or three years, depending upon the industry. Reasonable geography is usually determined by the employer's customer base. Thus, a restrictive covenant preventing a new dentist from opening up a new office anywhere in the world forever would be unreasonable as to both time and geography. A restrictive covenant, however, preventing a new dentist from opening up an office for two years within the area where the employer's customers live would probably be upheld.
The rules in Illinois for former salesmen who want to take customers with them are less settled. Taking trade secrets to a competitor can always be forbidden by restrictive covenant, but taking customers cannot be. Generally, employees can be restricted from taking customers who have long-standing relationship with the employer, although "long-standing" is subject to different interpretations. In some cases, it has meant customers that existed prior to the salesman's arrival; in others, it has meant only those customers that have provided the employer with repeat business over a long period of time.
Employers have argued that even those customers that the salesman built relationships with should be subject to protection because the relationship was developed on the employer's time and that is what the employer paid the salesman to do, but that argument has not had much success. Employers, therefore, can protect customers with whom they have long-standing relationships, but the salesman is generally free to call on any other customer once he goes to work for the competitor.
Environment. Environmental law includes not only state and federal laws protecting the air, water, and ground, but local land use regulations, such as building codes and zoning ordinances. Unless the business owner fully understands his responsibilities, disputes can arise with environmental regulators.
The most common restrictions imposed by government are: (1) zoning restrictions on the use of the property, (2) environmental hazards, including what materials can be stored on the real property, and (3) public easements and rights of way, such as roads and sidewalks and allowing utility lines to be installed.
Construcion. In construction situations, disputes between the business owner and the contractor are fairly common. As with partnership agreements, the critical piece for avoiding disputes is a well-drafted construction contract. It should clearly define the contractor's scope of work, as well as the responsibilities, liabilities, and warranties of both the contractor and the owner.