Izod IndyCar Series Turbogate: Interesting for Legal Dorks

May 3, 2012 · Filed Under Litigation · Comment 

Over recent weeks, Chevrolet, Honda and the Izod IndyCar Series have been embroiled in a grudge match of epic proportions…TURBOGATE!  Despite the contrived naming mechanism, this battle of wits has nothing to do with Richard Nixon or national politics. 

Lest I make it abundantly clear that I have no technical expertise whatsoever, I’ll describe the dispute as one of rules interpretation.  Chevrolet disagrees with a technical ruling made by the IndyCar Series in favor of Honda.  If you want a really good explanation of the technical details around the dispute, check out this story by Speed.com’s Marshall Pruett.

This process (not the dispute itself, but the way it is being handled) is interesting and widely applicable from a legal standpoint.  Here is how it works.

As engine manufacturers competing in the IndyCar Series, Chevrolet and Honda have no doubt signed many agreements and agreed to do many things with and for the Series and the teams competing in the Series.  Part of this agreement inevitably involves abiding by the IndyCar rulebook which contains private dispute resolution procedures.

These types of dispute resolution requirements are in tons of contracts.  Your credit card agreement and the terms you accept when you buy something from Amazon very likely require that you submit to private dispute resolution if you have a problem.

The purpose of this resolution procedure is to avoid court litigation.  Why?  Because litigation in court is really expensive, really laborious and very much public. 

Many private dispute resolution procedures take the shape of what we’ve seen happen with Turbogate thus far:

1.  A period of discussion/private mediation: Although there is no independent confirmation of this in the media, it appears that this may have occurred between the Long Beach Grand Prix and the time that the IndyCar Series officially approved the turbocharger change before the Brazil race.  

2.  First bite at the apple: Chevrolet, Honda and the IndyCar Series had a one-day hearing on this issue, with each one choosing a representative.   The result was confirmation of the Series’ prior ruling against Chevrolet.

 3. Second bite at the apple: Now, Chevrolet is going to a more formal arbitration.  A third party arbitration service is being used, and it’s likely that there are some more formal rules of evidence and procedure than in the first hearing. 

 4. Litigation: After the second appeal, if Chevrolet loses again it might resort to litigation in court.  This would be a tough row to hoe because courts respect arbitration rulings.  The only caveat here is that IndyCar must give Chevrolet “due process” in this matter.  This could mean two things.  First, that IndyCar must follow the dispute resolution procedure set forth in the rulebook to a T which appears to have been done.   Second, and more substantively, if Chevrolet could somehow prove that IndyCar’s initial decision was based on favoritism or otherwise was in bad faith, it might be able to get around a negative arbitration hearing.  Both are very tough arguments.

So there you have it…if you ever want to sue your credit card issuer or airline or change your turbocharger, you will benefit from understanding Turbogate.

Clint Costa teaching “Law School for Entrepreneurs” in May

May 3, 2012 · Filed Under Business Planning · 1 Comment 

Hi Everyone!

Just a note on some upcoming “Law School for Entrepreneurs” events:

On May 7, I’ll be presenting the 5-minute version (that’s right, 5-minute) at Ignite Chicago. Ignite Chicago is a high-energy evening of five minute presentations by people who have an idea – and the guts – to get onstage and share it with fellow creative folks. Each presentation is composed of 20 slides that automatically advance every 15 seconds. Presentations can range from how to build a resume to a history of the Samurai sword to a manifesto on boxes.

Sign up at: http://www.ignitechi.org/

On May 22, I’ll be teaching the full version of “Law School for Entrepreneurs.”

Sign up at: http://dabble.co/classes/law-school-for-entrepreneurs/s/4321-20120522

Looking forward to seeing you there!

Avoid Legal Risk When Using Unpaid Interns

Unpaid interns are a very tempting resource for boot-strappers.    A quick call to almost any university’s career services office or an ad on Craigslist will yield a plethora of interested applicants.  And, in today’s economic climate, those responding will probably be reasonably qualified. 

The ultimate goal is to use unpaid interns to help the enterprise drive revenue so that the unpaid interns become paid employees.  In the interim, using unpaid interns can open the business up to some serious legal risks. 

The US Department of Labor (as well as the Departments of Labor for every state) follow very strict rules when it comes to using unpaid interns.  The consequence of failing to follow these rules could be fines by governmental authorities or lawsuits by unhappy former interns.

When thinking about using unpaid interns for your business, consider the following:

  1. Educate: The primary idea behind unpaid internships is for interns to receive critical on-the-job education and experience.  Make it a priority to educate your interns.  If business is slow in a certain area, build in a case study that allows interns to explore all of the facets of the business.       
  2. Provide a good overall experience: This could mean a lot of things.  Maybe it’s a Friday night happy hour or maybe it’s some company swag.  You might help your interns by opening up your network or providing experiences outside of work.  Whatever you decide, boosting intern morale can be your ounce of prevention to avoid needing a pound of cure.
  3. Pay interns if you can: By far, the safest way to go with interns is to pay them.  Even paying minimum wage will alleviate all of the potential pitfalls.  If your business can afford to pay, then do it.

The legal risks involved in using unpaid interns are both technical and practical.  There is no perfect answer, but structuring an intern program carefully and actually following the structure devised can mitigate the risk and bring valuable talent in the door.

Lawyer Money Stuff: Retainer Fees and Fee Agreements

July 5, 2010 · Filed Under Using Lawyers! · 2 Comments 

Money. It’s the reason a lot of lawyers become lawyers in the first place (because they want a lot of it). We all grew up watching Perry Mason, Matlock or LA Law and thought…those guys make good money, I should do that! But how is it that lawyers get paid? And why does paying their lawyer make most clients jittery, sick and/or angry enough to wield a gun?

A Fee Agreement is a required (as in, required by most states in their code of professional conduct for attorneys) contract between an attorney and a client. The Fee Agreement, also known as an Engagement Agreement or Retainer Agreement, represents the understanding between the attorney and the client. For example, “I will defend you from that unfortunate animal cruelty and public indecency indictment from beginning to end, and you will pay me $500 per hour for every hour that I work on your case.” This would be a very basic Fee Agreement. It spells out what the lawyer will do for the client, and what he/she will charge.

A Retainer Fee is a necessary part of the Fee Agreement and payment arrangement among the client and the attorney. Often, an attorney takes on a client for a single, one-off representation. Because of this, and because of the way in which legal representation is front-loaded with costs (the attorney usually expends the most time, and thus bills the most hours, on the front-end of the engagement), the attorney usually requires a Retainer Fee.

This is an up-front deposit by the client which shows that the client is serious enough to put down a significant sum of cash, and assures the attorney that he/she will be paid at least for initial work done for the client. The attorney takes the retainer fee, and starts working. Until the attorney has expended hours working on the client’s matter, he/she is not entitled to keep the retainer (it remains the property of the client and the attorney must keep the retainer fee separate and apart from his own funds). Once the attorney has billed hours to the client, the attorney credits the retainer fee over to his own account. This is the easiest payment an attorney will ever receive (because to get the money, all the attorney has to do is make an accounting entry…way better than arguing with clients).

So there it is…how attorneys get paid…the easy way.

New Post on the Nanny Tax at Grown in My Heart

November 6, 2009 · Filed Under Income Taxes · 1 Comment 

Just posted here at Grown in My Heart on the so-called “Nanny Tax” talking about the tax aspects of hiring nannies or other household workers.

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