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Wisconsin Business Law Blog

Providing in-depth discussions, thought, creative, and innovative insights on Business Law innovative insights

Wisconsin Residential Weatherization Program Eliminated

Posted in Real Estate, Uncategorized

A recent Wisconsin law change in Wisconsin has a big impact for those interested in investment property in Wisconsin. As part of the Wisconsin biannual budget signed into law in September 2017, the State of Wisconsin has discontinued its “rental weatherization” program. This program required either a Seller or Buyer of residential real estate to ensure that the property met certain energy efficiency standards such as the installation of storm windows and proper insulation on hot water pipes. Typically, the party responsible for bringing the property into compliance with the weatherization code in a real estate transaction is negotiated in the property sales contract.

To ensure that the weatherization standards were met, on each transfer of real estate, the party responsible for bringing the property up to code was required to have a document recorded with the deed transferring the real estate. If the Seller was responsible, they would have to obtain and record what is called a “Certificate of Compliance”. A Certificate of Compliance required the Seller to hire an inspector to determine whether the property was up to code, and if it was not, incur the cost of bringing the property up to code in order for the inspector to issue the Certificate.   If the Buyer was responsible, they were required to execute a “Stipulation Agreement” in order for the Register of Deeds to accept the deed transferring the property to the Buyer. A Stipulation Agreement required the Buyer to obtain a Certificate of Compliance within one year of purchasing the property. This program has now been eliminated so neither party is responsible for doing so.

Though in many situations taking steps to improve energy efficiency may still be more cost-effective for residential real estate investors, this change gives property owners more flexibility in determining what improvements are necessary and when they should be made. This change may encourage more investment in residential real estate in the state.

Though this eliminates one consideration for those interested in investment properties, there are many other legal considerations you may not be aware of when entering the process of purchasing investment properties. If you are looking to begin  investing in residential real estate  or looking to expand your current portfolio, contact the attorneys at Schober Schober & Mitchell, S.C. We will be happy to help.

Corporation vs. LLC: Which Should You Choose?

Posted in Business Formation, Buying, Owning and Selling a Business, Operating a Business, Tax

If you’ve decided to create a startup business, one of the many decisions you face is the choice of what type of limited liability entity to form. In Wisconsin, the most typical choices are either the Limited Liability Company (“LLC”) or corporation. I frequently have people ask me whether I can help them set up an LLC for their business, and who often think, for whatever reason, that the LLC is their only option. My first response is always, “Is there a specific reason why you want to be an LLC?” and go on to explain that while there are some specific exceptions to this rule, a corporation is almost always the best type of limited liability entity for a startup small business compared to the LLC.

Why the Corporation is a Better Option

More Developed Law. In Wisconsin, the LLC has only been around since 1991, while the corporation has been around since 1848. Why is this relevant? There’s almost 160 years of law on corporations in Wisconsin, while there’s only 26 years of law on the LLC. This means there’s more settled law on issues with corporations and much more uncertainty within the law of LLCs. Where there are legal issues coming up in relation to your business, wouldn’t you rather have more certainty from years of developed corporate law than venture into the relatively undeveloped realm of LLC law?

Tax Considerations. Some argue that the LLC is preferable because it offers pass-through taxation to its members, meaning all income and loss the business has in a given year is spread according to the members’ equity stake in the business. You can easily elect for S-Corp status with the IRS to avoid the dreaded “double taxation” of C-Corporations and still get the same pass-through tax treatment given to LLCs. Corporations that elect S-Corporation treatment do have specific guidelines in regard to the number of owners, and the types of owners, but generally, those are irrelevant to most startups and small businesses. Since electing S-Corporation status allows for the same pass-through tax treatment for corporations, this puts the LLC and the Corporation on a level playing field.

Another huge tax benefit of the S-Corporation election is that, as an owner of the business, you only pay self-employment tax on the income that is attributable to the fair market value of your services provided to the business. If you are an LLC without a S-Corp election, you are taxed under Subchapter K of the Internal Revenue Code, and then must pay self-employment tax on all income allocated to you, no matter whether that income is attributable to your services as employee or not. For most small startup businesses, the owner also provides services as if she were an employee of the business, meaning that the employee/owner has to pay a self-employment tax on any income allocated to that individual in addition to income tax. In 2017, the self-employment tax is 15.3%.

In an LLC with no S-Corp election, no matter whether that allocated income is actually attributable to the services provided by the owner/employee, or whether that LLC level income is allocable to services provided by the employee owner and an employee non-owner, the owner pays all of the self-employment tax, AND income tax on top of that. For example, if an LLC had $100K of income that was allocated to the owner, the owner would pay the 15.3% self-employment tax as well as income tax on that amount, even if the owner only provided $50K worth of services as an employee of the LLC.

If the company had elected to be an S-Corporation, the employee/owner would only pay self-employment tax on the amount of income on the $50K attributable to her services as an employee/owner, and the remaining amount could be a tax-free “S-Corp” distribution that merely reduces the owner’s basis in corporation’s stock. This is a huge tax advantage, potentially saving thousands of dollars a year for S-Corp shareholders. Electing S-Corp is generally a good idea if your startup has employees or multiple owners, but you should always consult with a licensed CPA regarding whether this election would be beneficial to your particular business situation before doing so.

Investment Considerations. Finally, if you’re ever looking for equity investors like angel investors or venture capital groups, they generally prefer investing in corporations over LLCs. This is because, angels and VCs don’t want the extra income allocated to them for their share of profits from a pass-through tax structure at their higher tax rates, and prefer that their return on investment is paid through dividends (currently taxed at lower tax rates than ordinary income). When your business gets to the stage of looking for outside investment, depending on what your investors want, if you’ve elected S-Corp, you may want to revoke that S-Corp election to allow your investors to get the lower dividend rate, which is much easier than converting from an LLC to Corporation. Hopefully though, by that point in your business, you’re successful enough that the corporate level tax won’t be detrimental!

The Bottom Line

While there are situations where the LLC may be preferable for your particular business situation (which I’ll discuss in my next post), the corporate form is often still the better choice for most startups and small businesses . Choosing the type of entity now may seem like an insignificant decision now, but it may have a large impact on your business down the road. It’s best to consult with your legal professional to help you make the right choices when setting up a limited liability entity for your business. If you’re a startup that has already formed a limited liability entity or are thinking about starting a business and have questions about which type of entity to choose, email me at jmk@schoberlaw.com or call me at 262-569-8300 to set up an appointment to discuss your options.

Business Docket Coming to a Courthouse Near You!

Posted in Business Litigation, Buying, Owning and Selling a Business, News and Recent Decisions, Operating a Business

The attorneys at Schober Schober & Mitchell, S.C. are excited about the recent news that a Commercial Court Docket (“CCD”) will be coming to circuit courts in the Fox Valley, as well as in Southeastern Wisconsin– right here in Waukesha County! On February 16, 2017, the Supreme Court of Wisconsin voted 5 to 2 to adopt a pilot program that creates a separate commercial court docket in these judicial districts. This specialized commercial court will be solely responsible for resolving disputes pertaining to businesses brought in these judicial districts.

Depending on the type of dispute brought in these circuit courts, a case may automatically qualify for placement in the CCD. Cases qualifying for the CCD  will begin being assigned in these courts starting July 1, 2017. Some examples of the types of cases that qualify are those involving internal governance issues, business torts and restrictions in trade, merger and acquisition issues, securities, intellectual property, and franchise issues. Initially, the judges assigned to the CCD will be chosen by the Supreme Court. The Court has said that it will likely choose those judges with business law backgrounds, at least for the initial rotation during the three years of the pilot program.

This is a welcome change to both the legal and business landscape here in Wisconsin, and will hopefully be here to stay. Twenty-Six other states in the U.S. have created some type of special commercial court docket in their states, and studies have shown that this has had a positive impact on communities as a whole within those states. Here are a few reasons why this addition should be celebrated by all Wisconsinites:

With at least the initial judges overseeing the CCDs having demonstrated business law backgrounds, parties will have greater confidence that resolutions of complex commercial disputes will  reflect an understanding of the realities of day to day business issues;

The CCD should attract more businesses—whether they be start-ups or established companies—to relocate and do more business in Wisconsin, because of increased confidence that disputes will be resolved more quickly, fairly, and at a lower cost. This creates jobs, greater tax revenue, and increased quality and quantity of services available to businesses and consumers alike;

Separating commercial issues from the civil docket should significantly speed up litigation time, giving businesses greater incentive to fully litigate complex issues. This creates consistency and reliability in the law for the entire business community, and also reduces costs for businesses that otherwise might be deterred from litigation for purely economic reasons; and

In states that have created commercial court dockets, there has been an increased level of capital investment by venture capital groups and angel investors into start-ups and other early-stage businesses—something Wisconsin desperately needs to help foster growth of the many entrepreneurs and startups seeking to grow in this state.

Have questions or comments about the new Commercial Court Docket and how it might impact you or your business? Contact one of the attorneys at Schober Schober & Mitchell, S.C.

Federal “Right to Yelp” Law Enacted

Posted in News and Recent Decisions, Operating a Business, Technology Related Topics

Effective March 14, 2017, consumers will have what is being called by some, a “Right to Yelp”. The Consumer Review Fairness Act of 2016 (“CRFA”) was enacted in December 2016, and prohibits businesses from inserting provisions into customer contracts that prohibit the customer from giving a derogatory online review about the business.

These provisions have been termed anti-derogatory provisions, and are used to give a business a contractually based legal right  to remove a negative consumer review that the business believes could damage its reputation. Typically these contractual provisions are buried in form contracts (defined by the CRFA as contracts where the customer had no opportunity to meaningfully negotiate the terms). Examples of these types of agreements are the terms of use of almost every business’ website, or even your Apple service agreement. The CRFA now prohibits businesses from using anti-derogatory provisions, and provides for penalties for businesses that do so.

What This Means for You

From the consumer standpoint, the CRFA encourages an organic and free-flowing information marketplace in regards to customer reviews, and allows the public as a whole to have the most accurate picture of a business’ services. In the “Google” age, consumers have come to rely upon the accuracy of reviews on sites and mobile phone apps like Yelp, YP, Facebook, and the Better Business Bureau. Consumers use these sites to determine which professional service to use, what restaurant at which to eat, and which products to buy. The CRFA ensures that these review sites are able show the full picture to consumers.

On the other hand, the CRFA limits a business’ legal options in protecting their business’ reputation. Businesses can now only remove reviews that are slanderous, libelous, or defamatory, and, for the most part, must go to court to do so. With the law prohibiting businesses from creating a contractual right to remove negative reviews, the business is forced to prove in court that the statement was actually defamatory, a much taller task than a breach of contract action.

How to Manage Negative Reviews

In light of the fact that many sites like Yelp and BBB are already flagging businesses using these anti-derogatory review provisions in their contracts, many businesses may have stopped using these provisions already. However, the question still persists: how do you get rid of the negative reviews without resorting to litigation?

Here are a few suggestions:

Many sites have options for you as a business owner to claim your business on their site so you can publicly respond to reviewers. In the event of a negative review, you have the opportunity to respond, clarify the situation, as well as take an opportunity to publicly show your commitment to customer service. This then puts it on the reviewer to give you a reasonable response. Hopefully this interaction will either diffuse the situation, lead the reviewer to remove his/her post, or result in the reviewer responding inappropriately, thereby ruining his/her credibility. Make sure you’ve claimed your business on these sites so you can do this!

If the negative review lingers, how can you make that review an anomaly? First, learn from it, and strive to prevent whatever caused the negative review. This should lead to a higher rating over time. Second, encourage (and that doesn’t mean bribe) your customers to leave you a review at the end of your customer relationship so you can gain a higher rating. One interesting method I’ve seen for those businesses interacting with customers electronically, is that the businesses ask their customers about their experience through electronic communication. This gives them the option to answer whether their experience was positive and negative. If it was negative, the business links the customer to a private feedback page where they can make their comment to you privately. If they select positive, link them to a page asking them to review you on whatever review site you suggest. Though it doesn’t stop the negative reviewers from then taking their frustrations to Yelp, or the like, you may reduce the risk of a negative review by allowing an unsatisfied customer to blow off some steam.

If the comment is actually personally derogatory or defamatory, there are options on most sites that allow you to flag the comment to the site administrator to get the review removed.

The business attorneys at Schober Schober & Mitchell, S.C. stay updated on new legal issues affecting Wisconsin businesses. To ensure your business is complying with this new law, or for any questions you may have, email me at jmk@schoberlaw.com.

How the Tom Brady Arbitration Decision Affects Your Business

Posted in Business Litigation, News and Recent Decisions, Operating a Business

For those of you who follow professional football, you are no doubt aware that Tom Brady, the 4-time Super Bowl winning Quarterback for the New England Patriots, recently came back from a suspension for (allegedly) deflating footballs. But why would I bring this up on our firm’s business law blog? Beside the implications for your fantasy football team, the reason is because Brady’s suspension was in large part a result of something called an arbitration clause in his contract.

Brady is represented by the NFL Player’s Association (the “NFLPA”), a union that advocates on behalf of players (who are employees) through a collective bargaining agreement with the National Football League (the “NFL”). In negotiating some provisions of NFL player contracts, the NFL and NFLPA have agreed to submit all disputes between the players (the employees) and the NFL (the employer), to what is called arbitration. Arbitration is a common way for private parties to resolve any disputes instead of going to court, and the decision to arbitrate is typically agreed upon between the parties in whatever contract governs the parties’ relationship.

To many, arbitration is a preferable method of dispute resolution for a few reasons:

The parties can specifically choose arbitrators to resolve their dispute that are knowledgeable in the particular area of dispute, and avoid the risk of drawing a circuit court or federal court judge without the background in that area;

Arbitration is not necessarily subject to the stringent rules of evidence found in trial court; and

Except in limited circumstances, the decision of the arbitrators is final and binding upon the parties, meaning protracted litigation and appeals are unlikely.

In Tom Brady’s case, he tried arguing that one of those limited circumstances should overturn the arbitration decision against him. United States Courts and Wisconsin Courts have a strong policy of deferring to arbitration decisions and only overturning them in circumstances where it is clear that the decision was corrupted, there was some evident bias, where there is evidence and meaningful procedural misconduct, or where the arbitrator exceeded his or her power at some point in the arbitration.

Brady’s arbitration was unusual because the arbitrator was Roger Goodell, the Commissioner of the NFL. Brady’s argument was that Goodell acted with evident bias, that there was procedural misconduct, and that Goodell exceeded his power as an arbitrator. After having the arbitration decision overturned in circuit court in 2015, in summer 2016, the 2nd Circuit Court of Appeals (in New York) finally ruled against Brady, deciding that the actions of Goodell were not egregious enough to upset the policy of deferring to arbitration decisions. Ultimately, Brady accepted the suspension, foregoing an opportunity to take the case to the United States Supreme Court.

 

Ok, But What Does This Have to Do With Your Business?

            The Brady case is another illustration that contractually opting for arbitration is preferable for those who prioritize cost-effectiveness in dispute resolution. The law that defers to arbitration in the United States doesn’t just apply to high-profile athletes and employers bringing in billions of dollars in revenue like the Tom Brady and the NFL. Because of this, the likelihood of an arbitration decision being overturned is low for all parties who opt for it to resolve their disputes.

For all businesses, when entering into contracts with third parties like vendors, employees or customers, both parties have incentive to minimize the risks involved in your relationship, many of which are uncertain and unforeseeable. You can even agree how costs will be allocated based upon which party is successful. Where a dispute arises, opting for a cost-effective and time sensitive solution to limit the litigation through arbitration may be a preferred option over going to state or federal court.

Not every contract calls for an arbitration clause, however. Because of US Courts’ policy to not upset arbitration decisions, opting for arbitration to resolve your disputes also means that you will have to live with the consequences of the decisions, even when it goes against you. Accordingly, arbitration should be opted to only in strategic situations, and contracts containing such clauses should be drafted by an attorney who has knowledge of the risks prevalent in your particular industry as well as local contract law. If you have any questions about how you can manage your business’ risks through arbitration clauses, contact one of the business attorneys at Schober Schober & Mitchell, S.C. We would be happy to help.

We’re Headed to Overtime!

Posted in News and Recent Decisions, Operating a Business

Time is runningTime Clock out to plan for some big changes in overtime pay law. Last summer we wrote about a proposed “modernization” in the Department of Labor’s overtime pay rules. The rule has now gone through the required commentary period, and will now be effective December 1, 2016.

Currently, overtime law allows employers to be exempt from paying their salaried employees time and one-half for overtime worked if those employees are in “white-collar” positions and if the employee makes over a certain salary threshold. White-collar positions are defined as executive, administrative, or professional positions (and are defined more specifically by the Department of Labor). Right now, the salary threshold for the exemption is $23,660 per year or more. Starting December 1, 2016, however, the new salary threshold for the exemption will be $47,476 and above.

You may have heard the news that some states are suing to prevent the new rule from going into effect, and that the US House of Representatives just passed a bill to delay the effective date of the law for six months. But, if you were hoping that this would allow for a bit more time to plan for this new rule you are probably out of luck. Unless there is a stay on the new rule by the Supreme Court or if the president decides not to veto the Congress’ bill, both of which are unlikely, the new rule will take effect in just two months.

With that in mind, here are a few possible solutions to help ease the updated rule’s impact on your business:

  • Establish a policy (if you don’t already have one in place) requiring employees to track their time worked during the week and requiring approval before being allowed to work over forty hours in a week.
  • If you have employees who make more than the new salary threshold but don’t meet the “white-collar” position definitions, you could try transitioning the employee into a new role that makes them eligible for the exemption.
  • Lastly, if you have employees that are currently close to this new salary threshold and you know they often work more than 40 hours a week, depending on the situation, it may actually be more economical to give them a raise (or a bonus) to put them above the $47,476 threshold to be eligible for the exemption, and avoid paying 150% their salary for extra time worked.

This new rule change will have a large impact on many employers and employees across the country. With the effective date of December 1st quickly approaching, the business attorneys at Schober Schober & Mitchell S.C. will be happy to help you plan how to best comply with the new law.

Employment Law Update: Wisconsin Court Invalidates Non-Solicitation Agreement

Posted in Labor & Employment, News and Recent Decisions, Noncompete Agreements

In the spirit of Labor Day, I thought both employees and business owners in Wisconsin should know about a recent decision on restrictive covenants from the Wisconsin Court of Appeals. The case is important for you or your business because it affects whether certain employer-employee agreements are actually enforceable.

Many Wisconsin employer-employee relationships are governed by restrictive covenant agreements, which typically come in three forms:

  • A non-competition agreement (an agreement not to start a competing business or work for a competitor),
  • a non-solicitation agreement (an agreement not to hire, or help an employee poach the employer’s current employees or customers), or
  • a confidentiality agreement (an agreement to maintain the secrecy of an employer’s confidential information). We wrote on Confidentiality Agreements earlier this summer.

In many other states, these types of agreements are deemed to be illegal and unenforceable. Wisconsin, however, has a different stance, and by statute, allows employers to restrict an employee from competing against its business and protect its own business provided the agreement is “reasonably necessary for the protection of the employer.” What does that mean? Well, Wisconsin Courts have the ultimate power in deciding what is “reasonable” under the law.

 

The Wisconsin Court of Appeals Ruling

Most recently, the Wisconsin Court of Appeals ruled on the reasonableness of a non-solicitation agreement, in the case of Manitowoc Company v. Lanning. Lanning, the employee, was an experienced, well-connected engineer for Manitowoc Company, a company that manufacturers construction cranes and food service equipment. After working for Manitowoc Company in its construction crane division for almost 35 years, Lanning left to work for a competitor in the area. During his time with Manitowoc, he and Manitowoc Company had executed a non-solicitation agreement stating that Lanning would not “solicit, induce, or encourage any employee to terminate their employment with Manitowoc” or to take a new job with a competitor, customer or supplier. Manitowoc believed that Lanning was breaching this agreement by allegedly poaching some of their employees through his new employer, so they sued Lanning to enforce the agreement.

The Court of Appeals ruled that the non-solicitation agreement was unenforceable because the agreement allowed Manitowoc to restrict not only its own interests in restricting competition, but also some of its non-competitive interests. The court found that the agreement applied to Lanning’s poaching of any employee of Manitowoc. This could have applied to a high level executive or key employee in the division Lanning worked (which alone, may have been an enforceable restriction) or even an entry level employee or maintenance worker for the Food Service Division, a division in which Lanning never worked. If enforceable, this would have allowed Manitowoc to restrict Lanning’s ability to encourage any employee to find new work even if the termination of that employee would have had little to no impact on Manitowoc’s ability to compete. The Court noted the agreement would have allowed Manitowoc to enforce the restriction on Lanning even if he encouraged a young family friend who worked for Manitowoc to quit his job to pursue graduate studies and take a job as a barista at Starbucks, and that that would be too broad.

Even though Manitowoc is entitled to prevent an employee from poaching employees that actually affected their competitive interests under Wis Stat. 103.465, if any potential application of the agreement is not reasonably necessary, the entire agreement is void. Essentially, if Manitowoc would have drafted their non-solicitation agreement more carefully to avoid this broad application, their agreement would have been enforceable against Lanning.

 

The Bottom Line

It’s important that these types of agreements are carefully drafted. As this case shows, even if the actions that a former employee are competitive, a poorly drafted provision will not effectively restrict competition of employees and risks making the entire agreement void. Identifying which employees will actually have an impact on an employer’s competitive interests and inserting language in the agreement that limits the restrictions to those individuals is absolutely essential to an effective and enforceable restrictive covenant.

Whether you are an employer or employee subject to a restrictive covenant agreement, or even an employer thinking about entering into these types of agreements with your employees, this case adds some additional complications to the law on restrictive covenants in Wisconsin. With an employee’s or business’ livelihood on the line with these types of agreements, it is well worth it to have your agreement reviewed or drafted by an attorney with experience in the area to ensure it is effective. One of our business attorneys at Schober Schober & Mitchell, S.C. would be happy to help.

Wisconsin Foreclosure Law Aimed to Prevent the Zombie Property Apocalypse

Posted in News and Recent Decisions, Other Legal Issues, Real Estate

I’ve never really gotten on the Zombie movie and TV show bandwagon. I think it’s because they’re just so far-fetched, that it’s difficult for me to buy into the premise. When it comes to the reality of the Zombie Property Apocalypse though, it’s a completely different story. You may have read or heard about “Zombie Properties” in the news, but might not know exactly what the term really means.

Zombie Properties are partially a result of the subprime mortgage crisis that contributed to the housing bubble burst in the late 2000s, as many homeowners and lenders across the state of Wisconsin found themselves in court involved in foreclosure actions. In Wisconsin, a lender must foreclose on a property by bringing a law suit, where it must prove that the borrower defaulted on its mortgage obligations in order to get a judgment for foreclosure. Upon that judgment, the borrower has a specified period of time to redeem the property. Often, however, upon receipt of the foreclosure notice, borrowers just abandon their homes and don’t fight the foreclosure action in court, making it easy for a lender to obtain the foreclosure judgment. Seemingly, this would also make it easy for lenders to sell the property to get their money back from the loan it gave to the borrower. But, sometimes lenders won’t sell the property even if they have a foreclosure judgment. Upon a property being abandoned, properties  sometimes become subject to break-ins and other crime, making them unmarketable for sale, and often are of so little value that the lender has little incentive to incur the costs to sell. The lender will then just leave the property abandoned and dormant, putting the property in a limbo where it is neither dead nor alive; hence the term “zombie property.”

Zombie Properties have a negative effect on the marketability of sellers of other neighborhood homes and also decrease the availability of housing for buyers. In an effort to curb the problem in the state, Wisconsin enacted Act 376 earlier this year. The Act seeks to combat the Zombie Property problem in Wisconsin by making the time period for all foreclosures quicker and by deterring lenders from letting abandoned properties sit unsold for too long.

Shortened Redemption Periods

The first notable change under the new law is the reduction of redemption periods for owners of residential properties subject to foreclosure. In Wisconsin, when a lender wins a judgment of foreclosure against a borrower in default, the borrower has a chance to redeem the property by paying off the mortgage, executing a short sale, giving the lender a deed in lieu of foreclosure, or even filing for bankruptcy. Under the old law, if the lender opted to retain the ability to go after the borrower for any outstanding amount due on the mortgage, the borrower was given a year to redeem the property and to repay the deficiency. Also under the old law, if the lender opted to just have the ability to sell after the redemption period but waived its ability to go after the owner personally for the deficiency on the mortgage, the redemption period for the property was only 6 months. Under the new law, the redemption periods were reduced from 12 months to 6 and from 6 months to 3, for each respective situation. One caveat in the new law is that for this new 3 month redemption period, the owner of the property can extend the redemption period by a maximum of two months by showing that he or she has made a good faith effort to sell the property. The home owner can show a good faith effort by listing the property for sale with a real estate broker.  Though this reduction in redemption time affects all foreclosures on mortgages executed after April 27, 2016, the law reduces the likelihood of a home becoming a “Zombie Property” by reducing the amount of time that abandoned properties remain dormant.

 

Forced Sale of “Zombie Properties”

            The other notable change in the new Act is a rule that forces the hand of a lender to sell a property within a certain period of time if a court deems the property to be abandoned. Under the prior law, the Wisconsin Supreme Court had interpreted the statute as to require a lender to hold a sheriff’s sale of a property within a “reasonable” time after the expiration of the redemption period. In that ruling, the Wisconsin Supreme Court intended to curb the apparent Zombie Property Apocalypse by forcing lenders to sell abandoned properties after redemption periods expired. Despite the Court’s efforts to combat the problem, the Court’s ruling requiring a lender to sell an abandoned property within a “reasonable time period” was unclear.

The new law removes this lack of clarity by accomplishing two things: First, it requires that either the lender or the municipality where the property is located prove that the property is abandoned. Next, if a court rules that the property is abandoned, the lender must either sell the property or release the mortgage on the property within 12 months of the expiration of the property owner’s redemption period. If the lender does not do so after the expiration of the 12 month period, the municipality where the property is located or even the owner of the property can force the lender to sell the property at a sheriff’s sale. This change on forced sales of abandoned properties applies to foreclosure actions begun after April 27, 2016, without regard to whether the mortgage was executed prior to that date. By deterring lenders from sitting on abandoned properties for long periods of time, this change also reduces the likelihood that a property becomes a “Zombie Property.”

This new foreclosure process in Wisconsin is important to know for both lenders and all owners of real estate. For any questions on how this new law might affect you or your business, contact Schober Schober & Mitchell, S.C. at 262-569-8300 or email me at jmk@schoberlaw.com.

A Post Worth Sharing: How Wisconsin’s Digital Property Act Impacts Your Online Accounts

Posted in News and Recent Decisions, Other Legal Issues, Technology Related Topics

Social MediaIt’s incredible how much time we spend online. I recently read an article that the average person has close to 100 online accounts; whether it be social media accounts like Facebook, Twitter, or Instagram, other applications like Gmail and Amazon, online bank accounts, and yes, even the Pokemon Go app. Generally, posts, emails and other content contained on these accounts are considered to be a user’s “digital property.” Yet, what happens to these accounts when the user passes away or becomes disabled? Do they just disappear? Typically, website account providers require that users “sign” a user agreement upon creating an account, many of which are so long and dense most people don’t even take the time to read them. Often contained in these agreements is a provision that restricts access to the accounts to only the original user. In that case, if the user dies or becomes permanently disabled, the account may continue to exist and remain dormant without anyone having the ability to manage it. Because of the restriction to the original user, the account could not be accessed even if a loved one requested access from the website provider as a personal representative of the user’s estate or as the user’s power of attorney.

Wisconsin’s Digital Property Act

To address this problem, in mid-2016, Wisconsin passed the “Wisconsin Digital Property Act,” (codified in Wisconsin Statutes Chapter 711). The act empowers individuals to decide how their online accounts will be administered by their personal representative or power of attorney upon their death or disability.

One of the most important aspects of the new law is its provision allowing an individual to “opt-in” to have the law govern the individual’s digital property. The law creates a three tiered system for designating who may have access to the user’s digital property contained on the account. First, an individual can elect to use an “online tool.” An online tool is a setting established by a website or app provider like Facebook or Google that allows the user, right from their online account settings, to designate the person who they want to have access to their account in the event of their death of disability. Second, if the website does not have an “online tool”, an individual can designate who can access their account in an estate planning document such as a will or trust. If you opt-in to the law through either option, the website provider must grant your designated person access to the account to manage your digital property. Otherwise, the usually restrictive user agreement governs whether others can access your accounts to manage your digital property.

How the Act Affects You

I checked out Facebook’s online tool, one of the few sites that even has one. They call it a “Legacy Contact.” You can access it by going to Settings>Security>Legacy Contact. There is an option to designate someone to access your account, or alternatively, to have Facebook delete your account upon your death. For other sites that don’t offer such an option, the designation must be done in a will or trust.

The Wisconsin Digital Property Act is another example of the law adapting to our changing society.  Especially for people with many online accounts (Millennials, that’s you), this new law means it might be time to think about starting (or updating) your estate plan. If you have any questions about how to take advantage of the Wisconsin Digital Property Act, consult an attorney at Schober Schober & Mitchell, S.C. We’d be happy to help.

The Secret is Out: Congress Enacts Federal Trade Secret Law to Protect American Businesses

Posted in Business Litigation, Buying, Owning and Selling a Business, Labor & Employment, News and Recent Decisions, Noncompete Agreements, Operating a Business

top secretA long awaited Federal Law on trade secret misappropriation was signed into effect last month. The new law, titled the Federal Defend Trade Secrets Act, or “DTSA”, creates a Federal cause of action for businesses who own trade secrets against individuals who have misappropriated the business’ confidential information. The law creates a uniform definition of
trade secret; a definition that currently differs from state to state, and that has made litigation difficult for businesses with multi-state presences.

Many businesses’ livelihoods depend upon protection of trade secrets. Trade secrets include secret formulas, designs, ideas, and other forms of intellectual property that are the basis for the business’ competitive advantage in their particular market.  While other type of intellectual property like trademarks, patents, or copyrights require publicizing the particular information to mark it as the business’ own property, publicity of a trade secret risks hindering the business’ competitive advantage, giving the business incentive to keep that trade secret, a secret! A couple famous examples of trade secrets that are currently utilized by American companies are Coca-Cola’s formula for Coke, and Google’s search algorithm.

Of course, without protection of trade secret laws, businesses’ risk their trade secrets falling into the wrong hands. Necessarily, employees, independent contractors, and other individuals often become aware of trade secrets when becoming involved with a particular business. Because these individuals could exploit those trade secrets for their own gain, many states, including Wisconsin, have devised their own trade secret misappropriation laws to give businesses a right to recover damages from a person who gained access to the trade secret and then exploited it for his or her own benefit. However, with the increased nationalization (and indeed globalization) of the modern marketplace,  businesses should welcome a uniform definition of trade secret and a uniform forum in Federal Court for litigating trade-secret misappropriation. These changes in the DTSA ease the procedural and financial burdens that accompany state court trade secret litigation.

What this means for your business

One particularly important section in the DTSA is one affecting confidentiality agreements in business contracts, whether they be between the business and its employees, or between the business and independent contractors. The section requires that, as of May 16, 2016, in order for a business to have the full protection of the DTSA, any agreement regarding trade secrets must provide a specific notice to individuals signing those agreements of their rights and protections as whistleblowers in particular types of trade secret cases.

This recent development in trade secret law demonstrates the importance of keeping your business apprised and compliant with the latest changes to the legal landscape. Whether your business’ confidentiality agreements need review, updating, or need to be drafted in the first place, or if you have a former employee or contractor who you believe misappropriated your trade secrets, contact one of our business attorneys at Schober Schober & Mitchell, S.C. to discuss how we can help.