News (All) - Page 126 of 164 - Campolo, Middleton & McCormick, LLP

To-Do List After Forming Your Business

Posted: October 21st, 2015

By Marc Alessi

In last month’s blog article, I shared my enthusiasm for the “startup entrepreneurial ecosystem,” specifically here on Long Island, and offered tips for starting your own successful business. One of the most satisfying feelings in the world is making it official by forming an LLC or incorporating. But then what? To keep that excitement growing as you focus on building your business, it’s important to take steps early in the process to help your new venture start off strong.

Nellie Akalp, an Entrepreneur.com contributor and entrepreneur and CEO herself, recently published an article on Entrepreneur.com called “7 Actions to Take After Incorporating Your Business.” The article raises important topics to consider and delve into more deeply with the advice of your attorney and advisors.

7 Actions to Take After Incorporating Your Business

By Nellie Akalp

October 16, 2015

Much has been written about incorporating a new business, including advice on how to incorporate and what business structure to pick. However, I have found that new business owners can have just as many questions after incorporating or forming a limited liability company (LLC).

As you can imagine, there are some essential differences between running a corporation and running a sole proprietorship, and it’s important to get all your legal ducks in a row as early as possible.

If you have recently incorporated or formed an LLC, here are seven items to check off your list.

Get an Employer Identification Number (EIN) from the IRS.

A corporation or LLC is a separate entity and needs its own EIN from the IRS. This is true whether you plan on hiring any employees or not. The EIN, much like a Social Security Number for individuals, is how the IRS tracks your business’s activities. This should be one of your first steps after forming an LLC. Without an EIN, you won’t be able to open a bank account for your business or file your business’s tax returns.

Tip: If you already had an EIN for your business when it was operating as a sole proprietorship or partnership, you’ll need to get a new ID number for your corporation. You can’t transfer the number from one business entity to another.

Apply for your business licenses.

Forming a corporation or LLC forms the legal foundation for your business — it’s what turns your business into a legal entity. But you still need to get a business license in order to legally operate your business. Contact your local county office or city hall to find out what kinds of permits and licenses are necessary for your business type. Failure to do so can result in fines or you can even be forced to shut down your business altogether.

Meet with a tax adviser.

While this step isn’t mandatory, it’s a good idea. A brief meeting with a tax adviser can give you valuable insight into how you should file your taxes as a corporation or LLC. You can discuss whether you should elect S Corporation tax treatment from the IRS as well as what additional deductions are now available to you.

Open a business bank account.

After you have an EIN, you can open a bank account for your business. This allows you to accept checks and payments in your business’s name. In addition, you’re legally required to keep your personal and business finances separated once you incorporate or form an LLC. If you already had a business bank account for your sole proprietorship, you will need to close that account and open a new bank account under the new corporation.

At this point, it may also be a good idea to open a credit card for your business. This helps streamline your record keeping for business expenses, as well as helps start building credit history for your business.

File a Doing Business As (DBA).

Most businesses operate under several variations of their official company name. In order to legally do this, you need to file a DBA to notify the public that you’re operating under these names. For example, let’s say your official company name is “Example Company, Inc.” but you usually use a less formal name like “Example Company.” You’ll need to file a DBA for “Example Company.” One tip: Don’t file for a DBA until you have formed your corporation or LLC so the DBAs are under the corporation.

Protect your name with a trademark.

When you create a corporation or LLC, your name is protected in your state (or more specifically, no other business can file as a corporation or LLC in the same state). For some businesses, this is enough brand protection. Others choose to register a trademark for their company name in order to legally protect it in all 50 states.

Understand what you need to do to stay compliant.

One of the chief reasons to incorporate or form an LLC is to limit your personal liability. However, if you fail to keep your business in good standing, then you can lose this liability protection. Make sure you understand exactly what’s needed to keep your business compliant each year. Typically, this involves filing an annual report with your state each year, keeping up with your business federal and state taxes, and keeping your personal and business finances separate. Corporations will also need to hold an annual shareholder’s meeting.

Forming an LLC or corporation is the important first step to formalizing your new business. Best wishes on your new venture, and don’t forget to follow up with your other legal obligations. They’re simple steps and will keep your business legal and protected for years to come.

http://www.entrepreneur.com/article/251730

Making the First Offer in Negotiations: Should You or Shouldn’t You?

Posted: October 21st, 2015

By: Joe Campolo, Esq. email

Tags: negotiation

Conventional wisdom cautions that deal makers who make the first offer in a negotiation run the risk of showing their cards too soon, leaving their position and goals open to exploitation. Proponents of the wait-it-out approach believe that hearing from the other side first gives you important clues about your adversary’s position that you can use to steer the negotiation your way. However, recent research suggests that the “anchoring effect” of the first number presented in a negotiation can play a major role in the direction the negotiation takes and can therefore give you a major advantage. As explained in a recent article by Katie Shonk of the Harvard Law School Program on Negotiation, there’s no one-size-fits-all approach to deciding whether to throw out the first number. Rather, in deciding whether to offer it up or wait it out, you should consider your own knowledge of the “zone of possible agreement” (“ZOPA,” which is the range of outcomes each side might agree to) and your assessment of your adversary’s knowledge of the ZOPA.

When to Make the First Offer in Negotiation

Knowledge of the anchoring effect can steer deal making in the right direction

By Katie Shonk

October 8, 2015

In deal making, a certain question often looms large: Should you or shouldn’t you make the first offer?

Traditionally, negotiation experts advised us to sit tight and wait for the other side to float the first number. This advice is grounded in the fact that the other party’s offer may shed light on his goals and alternatives and better equip you to meet them. Yet more recent negotiation research on the anchoring effect has added nuance to the conventional wisdom about when to make the first offer in negotiation.

When engaged in claiming value in negotiation, our perceptions of a particular offer’s value are significantly influenced by any relevant number, or anchor, that is introduced. Especially when ambiguity and uncertainty are high, the first offer that a party puts forth will have a strong anchoring effect on the negotiation that follows. Even when we know a particular anchor should not affect our judgment, we have difficulty resisting its influence.

In their classic demonstration of the anchoring effect from the 1970s, psychologists Amos Tversky and Daniel Kahneman asked study participants to estimate the percentage of African countries that belong to the United Nations. Each participant was given a random number, determined by the spin of a roulette wheel, as a starting point. They were then asked to guess whether the actual quantity fell above or below that random value and make their best estimate of that actual quantity. Despite the fact that the participants knew their starting point was completely arbitrary, it significantly affected their estimates. Even when the researchers paid participants for their accuracy, the anchoring effect continued to powerfully affect their judgments.

Even experts who have access to ample data can fall victim to the anchoring effect in negotiation and deal making. In one research study, professors Greg Northcraft (University of Illinois) and Margaret Neale (Stanford University) provided real-estate agents with a great deal of information about a house that was for sale. The agents also toured the house and were given data about comparable properties. The agents were given randomly chosen list prices—in essence, the seller’s first offer—for the house ranging from $119,000 to $149,000. The agents then were asked to name an appropriate list price for the house, estimate the house’s appraisal value, state how much a buyer should reasonably pay for the house, and name the lowest offer they would accept for the house if they were the seller.

The agents insisted that the random list price they were given did not influence their evaluations, yet their responses suggested that the anchoring effect came into play: Agents who were given a higher list price believed the house was worth more than did agents who were given a lower list price.

Research on the anchoring effect suggests that the party who makes the first offer in a negotiation can gain a powerful advantage by steering talks in her favor. But that doesn’t mean that it’s always wise to make the first offer, as the anchoring effect could work against you if you choose the wrong anchor. Instead, the decision of whether to “drop an anchor” should be based primarily on two factors: your knowledge of the zone of possible agreement, or ZOPA—the range of possible outcomes that each side will find acceptable—and your assessment of the other side’s knowledge of the ZOPA.

When it seems likely that the other party is better informed about the parameters of the ZOPA than you are, you will have trouble putting the anchoring effect to use. In the typical job negotiation, for example, the interviewer knows more about the possible salary range than the job candidate does. Before dropping an anchor in such situations, you should arm yourself with as much information as you can.

By contrast, when both sides have a strong sense of the ZOPA, the anchoring effect will be difficult to deploy. Take the case of a long-standing relationship between a supplier and customer with open books. Because each side is already aware of the other side’s profit margins, negotiators will be more resistant to being anchored.

What about when neither side knows much about the ZOPA? In this case, you risk being either too concessionary or too demanding. Dropping the first anchor can lead to dissatisfaction when you find yourself closing the deal in such situations.

Finally, when you know more about the ZOPA than the other party does, as when you are offering or selling an asset (such as a job, a house, or a car) about which you know a great deal, you should take advantage of your superior knowledge and the anchoring effect, and make an aggressive first offer with confidence.

http://www.pon.harvard.edu/daily/negotiation-skills-daily/when-to-make-the-first-offer-in-negotiation/

Attorney Spotlight: Marc Alessi

Posted: October 21st, 2015

Turning his neighbors’ overgrown yards into lucrative landscaping accounts at age 13, CMM attorney Marc Alessi probably wouldn’t have been surprised back then to learn that in 2015, he would be honored as an Innovator of the Year by Innovate Long Island. Marc’s lifelong passion for entrepreneurship earned him an honor in the Biotech category for his work with SynchroPet, a biomedical device company he launched that has licensed three patents from Brookhaven National Lab for a new way to build P.E.T. (positron emission tomography) devices for both small animal and human medical imaging. The inaugural Innovator Awards breakfast, which celebrated Long Island’s “best and brightest ideas,” was held on October 21 at Crest Hollow Country Club in Woodbury.

Of counsel to CMM, Marc focuses his practice on corporate law and real estate, assisting small to mid- sized companies and the entrepreneurs that run them. His advice to clients stems from his own experience navigating Long Island’s entrepreneurial ecosystem: he has helped launch and finance a number of early stage companies across a variety of industries, including biotechnology, IT, construction, and real estate. Marc is a founding member of the Hamptons Angel Network and a member of the Long Island Angel Network, previously serving as the executive director and a board member. He also helped establish Accelerate Long Island, of which SynchroPet is a portfolio company. Now Chairman and Founding CEO of SynchroPet, Marc raised the angel round of funding and built the team that is bringing the company’s first devices to the marketplace.

Marc’s enthusiasm for entrepreneurship has informed the variety of roles he has played throughout his career. His history of public service began when he worked for the Civil Service Employees Association early in his career. At CSEA, he says, “I learned that worker rights and the health of a business were not mutually exclusive. That incentivizing workers is good for business. This is a startup enterprise mentality!”

From there, Marc worked as the Downstate Director of Intergovernmental Affairs at the New York State Comptroller’s Office, where he assisted gubernatorial candidates. Eventually, Marc was inspired to run for office himself. He was first elected to the New York State Assembly in 2005 and served three terms representing the First Assembly District, which included the Towns of Brookhaven, Riverhead, Southold, and Shelter Island. Marc naturally gravitated toward policy areas that would help create an incentive for investments in startup enterprises in New York State. He met with venture capitalists, angel investors, and tech transfer personnel at the state’s top research facilities for advice on what policies at the state level would promote and reward entrepreneurship.

Marc eventually left the political arena to devote his time and experience to helping startups get off the ground and succeed long-term. Marc says these interactions are the most rewarding part of his work as an attorney.

While the Innovator of the Year award recipient has a long list of achievements, he traces his success back to his early years, when the budding teenage landscaper eventually found himself running an 18-employee painting franchise at age 19 while a full-time college student. That drive has only gotten stronger over the years. Marc says, “I find it very gratifying to now have the experience to take an idea and help make it a product and build a business around it. To have the power to take something from all talk to all action and build wealth from it – it’s an empowering place to be.”

Fiduciaries You May Not Want

Posted: October 20th, 2015

By: Martin Glass, Esq. email

Tags: elder law, estate planning

In past articles I’ve spoken about how to appoint the proper fiduciaries (executors, trustees, guardians, etc.). But what about those people that you don’t want?

Most of my clients don’t realize that you can “dis-appoint” someone in your documents. You actually have the ability to add almost any language you want in your documents, whether it’s in your Will or in your trust. You can use strong language, such as that a specific person should not serve in any circumstances. Or you can use weaker language, writing that you encourage the court to consider your other nominees, and not to consider the person you feel is undesirable.

Why would someone want to do that? Sometimes it’s a fairly objective reason. If your cousin takes his shoes off because he needs to use his fingers and toes to add larger numbers, he’s probably not the guy to handle your estate or maintain a trust for your children.

In other words, a person may not have the right qualifications. Someone may appear to be a good candidate, such as having an accounting or financial background. But he or she may not have the wisdom, judgment, or temperament to serve properly. While some estates require transactional skills to deal with real estate or business assets, other estates require interpersonal skills to meet the needs of beneficiaries who are minors, are elderly, or have capacity issues.

A second reason is that the person may have disqualifications. These may not be a lack of skills, but more negative or undesirable traits like gambling, drug or alcohol abuse, a criminal record, or other things that may not be so well known. So, without explicitly disclosing the issue, you can simply say in your estate planning documents that this is a person you do not want to be considered, and keep the matter private.

A third reason, distinct from skills and/or negative traits, is more philosophical in nature. When you’re talking about a fiduciary such as a guardian or a trustee of a child’s trust, you want to make sure that he or she is on the same page as you about things such as child rearing, secondary education, religion, or even cultural traditions.

These are things that come up from time to time. You may feel a person’s philosophy is different from yours, and therefore you don’t want him or her to serve. You might love the person and want him or her involved, but serving in a role of authority is a different matter. Once you’re gone, you’re going to have to trust the person to follow your instructions. Just remember, simply because he’s your oldest son doesn’t necessarily make him the right choice.

Medicare Providers: Don’t Let Identity Theft Cost You Money!

Posted: October 20th, 2015

Tags: healthcare

Medicare providers face an alphabet soup of entities seeking to recover “overpayments” from them on behalf of Medicare. Commonly referred to as Recovery Audit Contractors (“RACs”), these entities include Zone Program Integrity Contractors (“ZPICs”), and they have an aggressive mandate to recover Medicare “overpayments” to providers.

We recently represented a physician from whom a RAC sought $850,000 in overpayments for services billed to Medicare. The liability arose because our client did not have any documentation to support the $850,000 in billed services. However, our client did not have the supporting documentation because she never performed or billed the services! It turns out that the client’s prior employer stole her Medicare provider “identity” and billed the services for himself.

Fortunately, CMS started a Victimized Provider Project a couple of years ago to address these situations. We performed our own investigation and confirmed that our client’s former employer pled guilty to conspiracy to commit healthcare fraud in federal court, and we obtained sufficient information from the court records to document this theft.

After formally submitting a request for assistance from the Victimized Provider Project, CMS investigated and agreed with our assertion that our client’s identity was stolen. Happily, CMS formally announced that it would not hold our client liable for the $850,000 in overpayments and would cease all collection efforts.

CMS recommends that providers take the following steps to prevent or spot identity theft:

Actively manage enrollment information with payors. Always keep reimbursement banking information current, and update payors when opening, closing, or moving practice locations.
Monitor Billing and Compliance Processes. Review OIG’s guidance at oig.hhs.gov/compliance/compliance-guidance/index.asp. Always be aware of billings in your name. Review entities to which you have reassigned billing privileges. Compare remittances with medical records.
Control Unique Medical Identifiers. Avoid giving your identifiers to prospective employers before performing due diligence. Train staff on appropriate use and distribution of your medical identifiers, including when not to distribute them. Control prescription pads.
Engage Patients. Encourage patients to request and review their medical bills and have patients report any irregularities they see.

DWI – To Blow or Not to Blow?

Posted: October 20th, 2015

Tags: criminal defense

Lately, it seems not a weekend goes by without another news story about a DWI crash into a house, or tragically, a fatality. With such horrible trends continuing, law enforcement is sure to step up DWI prevention through checkpoints and aggressive policing.

As a DWI defense attorney, I am always asked: “If I am arrested, should I blow or refuse?” This seemingly simple question is actually rather complex. Many factors affect whether taking the chemical breath test is a good or bad idea. For example, there may have been an accident involving a fatality or serious injury; the driver may have a commercial driver’s license who drives for a living; the person may have a prior DWI and thus will face a felony DWI charge; the local District Attorney’s Office may have plea bargaining policies where no reduction is offered if a person refuses the test, or it may not offer reductions for readings above a certain level.

With all of these considerations in play, whether to take the test is in many cases a matter of opinion. Here, I will share my opinions, while acknowledging that others may disagree for perfectly valid reasons.

For any refusal, a driver will face immediate revocation of his driver’s license for at least one year. This is a civil sanction imposed by the DMV, and it applies regardless of whether a person is convicted or acquitted of the DWI charge in criminal court. For commercial drivers, the revocation period is a minimum of 18 months, even if the person was driving a personal vehicle. If a commercial driver is a repeat offender, meaning he has been convicted of any alcohol-related offense, or he has refused to take a chemical test before, he will be permanently disqualified from operating a commercial motor vehicle.

For DWI cases involving an accident with serious physical injury or death, it is usually better to refuse the test. The civil sanctions imposed by the DMV are minor compared to the potential criminal penalties attached to such cases.

For felony DWI cases, it is also usually better to refuse the test. The civil sanctions will normally not exceed the criminal sanctions against a driver’s license. Furthermore, the DMV refusal hearing may provide vital discovery prior to indictment that may result in obtaining a better plea offer. If the case goes to trial, it is harder for the prosecution to prove that a defendant’s blood alcohol content (“BAC”) was above .08 if the defendant refused to take the test.

For misdemeanor DWI cases, if the person needs to drive to earn a living, it is usually better to take the test. The civil sanctions against commercial drivers for refusing will result in longer suspension periods than the criminal sanctions imposed.

For misdemeanor DWI cases that don’t involve commercial drivers, it is usually preferable to refuse the test, unless the local District Attorney has plea policies in place that penalize those who refuse.

These recommendations are general rules of thumb and are subjective. Unfortunately, these decisions usually take place in the middle of the night and under stress. The best decision you can make is to stay off the road after drinking.

“Happy Birthday to You” Lyrics May not be Copyrighted

Posted: October 20th, 2015

Tags: intellectual property

Most people sing “Happy Birthday to You” without even thinking it might be protected by copyright. But since 1988, Warner/Chappell Music has been enforcing its alleged copyright in the song and has collected an estimated $2 million per year in royalties.

However, on September 22, 2015, after two years of litigation, a U.S. District Court judge declared that the copyright claimed in the lyrics to the song “Happy Birthday to You” is invalid.

The lawsuit was brought by several artists against Warner/Chappell Music challenging the copyright and seeking the return of the licensing fees that have been collected.

The origins of the song date back to 1893 when two sisters wrote a song called “Good Morning to All,” which had the same melody we know today as “Happy Birthday to You.” The sisters later assigned their rights to the Clayton F. Summy Company (“Summy Company”), which registered a copyright to two works entitled “Happy Birthday to You,” one of which purportedly secured the copyright in the “Happy Birthday to You” lyrics. Warner/Chappell Music later purchased the successor to Summy Company, and since then has claimed copyright for the use of the song and has entered into several licensing agreements with those who wished to use the song.

In the lawsuit, the parties did not dispute that the “Happy Birthday to You” melody had been borrowed from “Good Morning to All,” which was in the public domain, but they disagreed as to the status of the “Happy Birthday to You” lyrics, the origins of which are far less clear.

The plaintiffs argued that it was possible the lyrics were written by someone else, and further argued that even if written by the sisters, their common law rights were either lost due to general publication or abandonment or were never transferred to the Summy Company. Warner/Chappell Music, however, argued that the sisters wrote the lyrics around the same time they wrote the melody, and that they transferred their common law rights to the Summy Company, which then registered the copyright.

In addressing the claims of authorship and abandonment, the judge found that the evidence was inconclusive as to whether the sisters wrote the “Happy Birthday to You” lyrics. Further, the judge noted that even if the sisters were the authors, they never tried to obtain copyright protection or prevent others from using the lyrics.

On the issue of transfer, the judge examined several agreements between the sisters and the Summy Company, which showed that while they had transferred their rights to the melody, they never transferred the rights to the lyrics.

The question of the return of licensing fees was not addressed and will be presumably be set for another day. Warner/Chappell Music will likely challenge the ruling rather than face the potential of returning all the royalties it collected from a song that it never owned a valid copyright to and the loss of all future royalties.

Cleaning Up Contaminated Properties

Posted: October 20th, 2015

Owners and would-be developers of property that contains environmental contamination face some tough choices: leave the contamination in place and hope that there is no government enforcement action or third party damage claim, clean it up on your own, or clean it up with government oversight. For many years, the State of New York has had a program to encourage the latter course of action. The incentive for those who participate in the State’s Brownfield Cleanup Program (“BCP”) is threefold. First, at the end of the remediation, the applicant receives a Certificate of Completion, which indicates that the cleanup has been done to the satisfaction of the New York State Department of Environmental Conservation (“DEC”), thus opening the way to financing and redevelopment. Second, the law grants certain limited liability protections so that the owner will not be sued by the State or private parties. Third, tax credits are available for some of the cleanup expenses.

The BCP law was amended this past summer. The changes, which took effect on July 1, 2015, include new eligibility criteria, revised tax credits, and a streamlined program for lightly contaminated sites. To enter the program, the site must have contamination “at levels exceeding the soil cleanup objectives or other health-based or environmental standards, criteria or guidance adopted by DEC that are applicable based on the reasonably anticipated use of the property, in accordance with applicable regulations.” Essentially, this means that some environmental testing has to be done in advance of the application and the data must indicate that contamination levels exceed DEC standards, which are different for residential, commercial, and industrial use.

Applicants to the BCP are separated into two categories – Participants and Volunteers. A Participant is one who was an owner or operator of the site at the time of disposal of hazardous waste or the discharge of petroleum or who otherwise failed to take reasonable care to stop continuing releases or prevent further releases. Participants are responsible for the cleanup under various environmental statutes and the DEC can require them to remediate the contamination, even if it has traveled off-site. A Volunteer, on the other hand, is an applicant who is not liable for the contamination. This could be a contract vendee or, under some circumstances, a new owner of the property who was not involved with the property at the time of the discharge. Usually, Volunteers are not required to clean up contamination off-site, which greatly reduces the remediation costs. In addition, the new amendments to the BCP eliminate the Volunteer’s responsibility to reimburse the State for its oversight costs, another significant savings.

Those who successfully complete their cleanup obligations under the BCP within the applicable deadlines are eligible for tax credits. The types and amounts of the credits vary greatly depending on the location of the property and the work completed. On the other hand, there is now the option of entering the newly minted BCP-EZ program, which does not include tax credits but does provide a liability release after a successful cleanup. This program is intended for lightly contaminated sites and is supposed to include streamlined public notice and oversight procedures to allow for faster turnaround times. The DEC is currently drafting regulations and estimates that the BCP-EZ track will be available by the summer of 2016.

With some exceptions, sites that are already subject to environmental enforcement actions are not eligible for entry into the BCP. Thus, a property owner or buyer who is considering conducting a cleanup would have to apply for the program before notices of violation and other government enforcement actions preclude this option. The advantages of the voluntary cleanup are not only the tax credits, but also the eventual liability release and the cooperative, rather than punitive, framework for the remediation process.

What if the owner of the contaminated site is a municipality? The 2015 amendments to the BCP have injected new funding into the Environmental Restoration Program (“ERP”). The ERP provides State subsidies for the investigation and cleanup of municipally owned brownfields. Upon request, the DEC can undertake the project on behalf of the local government. However, since funds are limited, it is advisable to act quickly.

The decision of whether to apply for and participate in the BCP depends on many variables. It should be made after consultation with qualified environmental remediation professionals, including specially trained environmental attorneys and accountants.

Court Rules Terminated Employee’s Stock Options Did Not Vest Upon Termination; Complaint Dismissed

Posted: October 20th, 2015

The Commercial Division in Monroe County, New York recently decided an interesting case, Kellman v. Document Security Systems, Inc. (Rosenbaum, J.), that dealt with a topic familiar to many employers: vesting of stock options to a terminated employee under an employment agreement.

Defendant Document Security Systems, Inc. (“DSS”) develops, licenses, manufactures and sells anti-counterfeiting technology and products. Co-Defendant Secuprint, Inc. (“Secuprint”) is a subsidiary of DSS which was created to acquire assets of another company, DPI of Rochester LLC (“DPI”), a printing company owned by Plaintiff, Matthew Kellman, and another individual. When DPI’s assets were acquired, Kellman was hired by DSS as Vice President of Sales. In that role, Kellman received a salary as well as a grant of stock options for 50,000 restricted shares in DSS pursuant to an employment agreement (the “Employment Agreement”). Pursuant to the Employment Agreement, the restricted shares “shall vest” in equal yearly installments over a five-year period as long as Kellman was still an employee of DSS on each anniversary date.

Kellman’s first 10,000 shares vested after his first anniversary. Kellman was subsequently terminated over performance issues before reaching the second vesting date. DSS, however, elected not to deem his termination “for cause” so as to allow him to collect severance payments. Interestingly, another provision of the Employment Agreement stated that, if Kellman was terminated “without good cause,” he would be entitled to, among other things, the immediate vesting of any unvested capital stock granted to him pursuant to an Incentive Plan (an agreement separate and apart from the Employment Agreement), “or otherwise.” DSS elected not to provide Kellman with the remaining 40,000 shares of restricted stock, claiming that the options had not vested pursuant to the Employment Agreement. Kellman then commenced this lawsuit alleging that Defendants breached the Employment Agreement and seeking damages equal to the value of the 40,000 shares. Kellman ultimately moved for summary judgment on his claims, and Defendants also cross-moved for summary judgment.

The Court, in deciding the summary judgment motions, noted that Defendants’ CFO mistakenly removed the restrictions at one point from the restricted shares to Kellman and even sought to have a new stock certificate issued to him for those remaining shares. However, upon realizing his mistake of removing the restrictions even though the restricted shares had not vested pursuant to the Employment Agreement, he later canceled the new certificate and had the shares canceled as well. Despite the CFO’s error, the Court interpreted the Employment Agreement to have clear and unambiguous terms with respect to the vesting schedule of the 50,000 shares, and the CFO’s error did not waive the terms of the Employment Agreement.

Furthermore, despite Kellman’s contention that the phrase “or otherwise” in the Employment Agreement encompassed the restricted stock and, as such, immediately vested upon termination, the Court disagreed. The Court noted that this provision did not apply to the restricted stock, which was subject to the clear and definite vesting schedule set forth elsewhere in the Employment Agreement. To hold otherwise would render the vesting schedule meaningless, according to the Court. Based upon the Court’s interpretation of the Employment Agreement, summary judgment was granted in favor of the Defendants and Kellman’s Complaint was dismissed.

This case provides an excellent example of the importance of having a clearly drafted employment agreement that defines the parties’ rights and obligations. Had this employment agreement been drafted with less clearly defined terms, the Court could have ruled against the employer and determined that Kellman was entitled to an additional 40,000 shares of stock in the company. It cannot be stressed enough how vital it is to consult with counsel to either draft or assist with preparing agreements such as employment agreements to avoid possible pitfalls.