Articles Posted in Business Litigation

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Some of the most impressive technology start-ups have some sort of dubious story of origin. It now appears that Square, a credit card processing firm, may be no different.

The company has been hit with a business lawsuit alleging breach of fiduciary duty and patent infringement by a professor who had worked with the co-founders prior to the establishment of the firm.

In Robert E. Morely, Jr. v. Square Inc., the professor claims in the federal court filing that he was wrongly cut out of the business that developed into Square, despite having invented the technology that became the company’s bread-and-butter.
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A recent New York Times report indicated that small business contracts with federal agencies dipped 11 percent over the last fiscal year.

Still, the federal government continues to award hundreds of billions of dollars in private business contracts – some $460 billion by the end of last fiscal year. Plus, Congress just approved a $1.1 trillion spending bill for this fiscal year, and that’s going to include a large number small business contracts.

These jobs can be the critical lifeblood of a small operation. Small businesses received about 18 percent of all federal contracts.The downward trend means not only is the process for securing the contract growing more competitive, but maintaining this work requires companies to be thorough in all aspects of their operation.
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Many had hoped that by now, we’d be seeing more results from legislative efforts to help control the patent trolls.

These are the opportunistic shell firms that exist solely for the purpose of snapping up obscure patents and then targeting any and all potential violators with the prospect of costly litigation.

As we reported in a recent New York business litigation blog post, President Barack Obama signed off on the Leahy-Smith America Invents Act two years ago. In part, this law made it unlawful for businesses to file a single patent lawsuit against numerous defendants. Now, patent holders have to file individual lawsuits for each company or entity that has allegedly infringed.
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The New York Times recently profiled the owner of a tree-trimming business who was mulling the best way to expand: Either by opening up a second office in a nearby town or by establishing and selling franchises.

When it comes to the question of how to grow a business, you must of course consider the best strategic approach in terms of market, opportunity and finances. However, it’s also critically important to weigh all potential legal implications as well. An experienced small business attorney can help.

Franchise law in New York can be especially complex, overseen and enforced by the State Attorney General’s Office. This is not an agency with which you want to go toe-to-toe in a legal battle. Thankfully, most issues that arise can be identified and addressed prior to making the deal, assuming you’ve had an attorney conduct a thorough review.
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Non-compete agreements, a tool increasingly used by employers to protect their employee investments and trade secrets, are fast becoming the source of employment lawsuits in New York City and beyond, as workers cite stifling effects on entrepreneurship.

A recent analysis by The Wall Street Journal indicates that U.S. court decisions involving non-compete contracts have spiked by more than 60 percent since 2002, highlighting the rapid expansion of these agreements and the force with which workers are fighting back.

When it comes to these agreements, there is really no such thing as one-size-fits-all. The parameters are governed by state law, which can vary widely from region to region. For example, in California, such agreements are all but unenforceable, except in certain situations where the agreement is made alongside a business sale or a partnership dissolution. However, in Florida, non-compete agreements are broad and readily enforceable. Other states indicate that if part of the agreement is “overly broad,” then the entire agreement may be deemed invalid.
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Recently reiterating its stance that in some cases employment criminal background checks amount to racial discrimination, the Equal Employment Opportunity Commission advised it was filing suit against employers that had improperly applied the screens.This occurred while criminal background screening firm Sterling Infosystems Inc., headquartered in New York City’s financial district, boasted an annual growth rate of nearly 35 percent over the course of a decade. Sterling is tapped by companies ranging from Walt Disney to Wal-Mart, assisting businesses in determining whether workers or potential workers have violent backgrounds or histories that might include drug dealing or impaired driving.

Such practices aren’t inherently illegal, but as our employment law attorneys are well aware, they can sometimes lead to legal problems if firms aren’t careful.

Research conducted in 2012 by the Society for Human Resources Management revealed that 9 out of 10 employers conduct at least some form of criminal background checks – an exponential uptick in the last two decades.

Companies like Sterling boast that they keep the workplace safe. In some cases, firms have a legal duty to know who it is they are bringing aboard, particularly if the business model is geared toward children or other vulnerable populations. On the other hand, these background check companies don’t always get it right. And sometimes, even when they do, if the findings are found to be outside of the bounds of anti-discrimination laws, companies might find themselves footing the bill for costly lawsuits.

In cases where the background information was incorrect, denied workers are mostly going after the background check companies directly. However, the employer may also get wrapped up in that litigation because, as the EEOC advises, employers who rely heavily on those background checks in the hiring process, without verification or consideration to the individual worker/applicant, the nature of the crime or how long ago it occurred, may find themselves liable for discrimination.

Case-in-point was the recent EEOC lawsuit filed on behalf of a 14-year employee of a BMW manufacturing facility in South Carolina. In the course of a re-organization effort, the firm learned that the worker had a decades-old misdemeanor on his record. He was subsequently fired. The EEOC alleges this is discriminatory.

In another case, the EEOC is taking Dollar General to task for reportedly denying two workers jobs on the basis of prior criminal backgrounds.

The reasoning of the EEOC is that minority populations are more likely to be arrested and imprisoned. Therefore, to block employment solely on one’s criminal history could be found to be racially discriminatory.

However, the issue poses significant quandaries for businesses, who also fear liability if they hire a potentially dangerous worker. Striking an appropriate balance is not a simple task.

We advise firms of all sizes to take a closer look at their criminal background check policies. Better yet, have an experienced business litigation attorney conduct a review for you to determine whether there are any areas of your current procedure that may leave your company vulnerable to litigation.

We know that the EEOC is aggressively approaching these types of cases. A proactive approach may be your firm’s best defense.
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In one case, hundreds of businesses were sued for attaching document scan technology to simple office computer systems. In another, thousands of hotels, retailers and coffee shops were warned of litigation for setting up customer Wi-Fi networks.Business litigation stemming from the actions of patent trolls has gotten to be a major problem in the U.S. More than a simple nuisance, these shell companies, which exist for the sole purpose of opportunistically snapping up patents and then using them to file lawsuits and collect royalties, have the potential to thwart business innovation and progress.

As such, the federal government is taking steps that could make it easier for those defending against such aggressive claims – which cost very little to the patent holder but can pose a major threat to honest businesses large and small.

These shell firms have become a particular problem within the technology industry just in the past 24 months, accounting for more than 50 percent of all the patent infringement suits that have been filed in the country. There were about 4,000 patent infringement lawsuits filed last year. That is an uptick of about 45 percent from 2011 and a roughly 30 percent increase from the number reported in 2010.

Back in 2011, the government attempted to make it tougher for patent trolls by signing off on the America Invents Act , which made it against the law for companies to file a single patent lawsuit with many defendants. So now, a patent holder has to file an individual lawsuit for each company it is alleging has infringed.

Unfortunately, this hasn’t stopped patent trolls. It’s simply created more lawsuits.

In a recent speech, President Obama called the claims “frivolous,” and issued an order to the Patent and Trademark Office, mandating that firms be very specific about what exactly the patent covers. When litigation is filed, he declared the patent holder needs to be very specific about how exactly that patent is being infringed. Overly-broad claims, the administration said, should be approached with greater scrutiny from the PTO, as many patent trolls take aim at business owners large and small for simply using everyday technology.

Still, some industries have expressed concern that this directive could be problematic in its own right. For example, one suggestion is for the patent office to expand a special review program just for patents related to computers. Large software companies have worried this might itself be stifling to innovation.

Pharmaceutical companies also have worried that some of the measures might hamper their ability to defend their patents.

However the federal government decides to approach it, some states have taken to enacting their own measures. For example, lawmakers in Vermont recently signed off on legislation to make it possible for patent troll victims to counter-sue. This is important because in most cases, the initial defendant can’t counter-sue because the patent firm doesn’t actually produce anything that could be interpreted as a violation of the original company’s patent.

Directives like this can go a long way in aiding businesses in fighting back.
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New York’s new business sector has exploded in recent years, with 2011 seeing an 86 percent increase in the number of start-ups as compared to 1991.Our Great Neck small business lawyers know that New York has always been a hub of innovation, so in many ways, this is no surprise.

The Center for an Urban Future reported that the Bronx in particular is leading the way, with the number of newly-incorporated businesses climbing from 1,159 back in 1991 to 4,690 in 2011 – an eye-popping 305 percent increase.

What we want to ensure is that these new firms are equipped to handle whatever legal obstacles come their way.

In analyzing date culled by the New York State Department of State, researchers learned that the rate of new businesses increased every year up until the housing crisis in 2007, at which time it dropped sharply (except in the Bronx, where it still rose 5 percent). But the numbers have begun to bounce back since then, and new business formation has jumped nearly 10 percent between 2009 and 2011.

While the Bronx has made great strides, it isn’t even the No. 1 job-generating borough. Manhattan holds 35 percent of all new businesses (it held 52 percent in 1991), while Brooklyn held 35 percent, Queens 25 percent, Bronx 7 percent and Staten Island 4 percent.

The tech industry is a big part of this, but many other models have thrived as well in recent years. At the very least, you will need an attorney to ensure all the paperwork is properly filed, that your are in good standing with the IRS and that you haven’t overlooked any potential legal liabilities.

In the long-term, you will need someone with whom you can trust with your firm’s most sensitive legal issues. You need to be confident of his or her legal experience and skill and also comfortable in confiding.

In exploring whether an attorney is a good match for you and your new company, consider the following questions:

  • Question the attorney’s experience within the industry. Areas of business including franchise agreements, intellectual property and service contracts often require a heightened level of knowledge.
  • Ask about references. While many lawyers value client confidentiality, a seasoned attorney should be able to give you at least one or two satisfied clients willing to vouch for the value of their services.
  • Learn whether there are any conflicts of interest that could be relevant, such as if the attorney is working with a former business partner or competitor.
  • Ask about typical communication policies. How long does he or she take to get back to clients? Does he or she prefer phone, e-mail or face-to-face correspondence? Make sure your lawyer’s communication style will mesh with your needs.

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Robyn Fenty is not the first businesswoman to encounter major losses and headaches as a result of shoddy work by accountants. She is, however, perhaps one of the most famous.Also known as Rihannna, the Barbadian pop star is suing her former accountants, alleging she lost tens of millions of dollars as a result of poor bookkeeping, an ongoing Internal Revenue Service audit and a failure to recommend she curb expenses during her most recent tour.

Our New York City business litigation lawyers understand that many entrepreneurs have a keen sense of the business world, but we rely on those professionals whom we hire to keep the books to do an accurate, thorough and overall competent job.

When that does not happen, and the company or enterprise loses money or assets as a result, the company may have cause to seek legal compensation. Having an attorney with experience in business litigation is crucial because these cases can become quite legally technical, and you need someone who is familiar with state law and regulatory guidelines governing accounting practices and standards.

In the State of New York, certified public accountants (or CPAs) must be licensed by the state, and the updated legislation governing their responsibilities is located in Article 149 of New York State’s Education Law. There is a state board that oversees public accountancy, and determines whether an applicant is of good moral character and has met all the other requirements in order to practice, including mandatory continued education.

In this case, the accountants’ licenses are not in question, but rather their competency. Fenty’s lawyers claim that the accountants drained her accounts of tens of millions of dollars in potential revenue over a five-year period, as she continued to work both national and international tours.

For example, her 2009 “Last Girl on Earth” tour reportedly incurred major net losses, despite the fact that these were sold out shows. It was later revealed that the accountants had paid themselves more than 20 percent of total revenues, while paying Fenty about 6 percent.

Her lawsuit contends that the accounting company’s uncommon practice of paying itself commissions on the tour as part of it’s income left the agency with no incentive to inform Fenty and her team that they needed to reign in expenses – namely, a $7 million home in L.A. It later turned out that the home had a number of structural defects that reportedly made it unlivable, and she has also taken the real estate company to court on that issue.

Additionally, the ongoing audit, Fenty’s lawyers indicate, has consumed her valuable time and resources in efforts to correct numerous errors.

At its core, the main issue in this lawsuit is a breach of contract. Fenty paid well for the competent accounting services for which she was promised. She’ll now have to prove she has a strong case that she did not get what she was paying for.
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Great Neck business litigation lawyers realize that commercial contracts are about more than simply one party keeping their word.As multiple New York business litigation lawsuits have illustrated, violations and breaches of contracts can be the downfall of a business. That’s why it’s so critical to have a business attorney reviewing the contract even before it’s signed, as well as immediately upon the first hint that there may be a violation or breach.

This is what happened in the case of New York City-based commercial printer, Color-Web Inc., which is suing a subsidiary of their bank, People’s United Financial Inc. The civil suit alleges breach of contract and fraud, and the company, which has been forced to close, is seeking about $14 million in damages.

Color-Web, which was a printing firm and a subsidiary of, said that People’s Capital back-tracked on its 2007 promise to provide financial backing in the amount of $4 million for funding of new technology for the firm. This technology included a custom-built printing press. This was an extremely expensive piece of equipment, and one that the company had been counting on to revolutionize its business.

With the promise of funding, the company put $200,000 down on the printing press and proceeded to re-work its entire business model around this new equipment, which was set to be delivered in late 2009.

But then the bank reportedly pulled its financing – in violation of their signed agreement. The equipment was never delivered, and Color-Web’s business began to plummet. Primarily, the company said that the changes it made in anticipation of the new machinery were not quickly reversible. Business suffered greatly as a result.

The lawsuit alleges that the bank did not base this decision on performance issues that Color-Web had, but rather on the economic downturn. However, Color-Web says that banks, as financial institutions, have to be held to higher standard with regard to contracts, especially considering that 1800postcards, the city’s largest commercial printing company, has continued to honor its financial obligations with the bank, despite the financial hits it’s taken since the economy tanked.

The bank’s decision, company owners say, was enough to put the business under and cause more than 100 employees to be out of work.

Making the situation worse, Color-Web had signed on for a 15-year lease contract with a landlord in New York. If the landlord doesn’t release the company from that contract, it could be out even more money. If that happens, attorneys say they plan to increase the amount being requested from the bank for damages.

This case is actually a counter-suit to the original claim, which was filed by the bank in order to recoup the $200,000 deposit. Color-Web has counter-sued, and the case is being heard in the New York State Supreme Court.
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