Business Law 2016

L AW

2016

BUSINESS

GUIDE

Table of Contents

The Lawyers are In Business is at the heart of law firms’ counsel, support

2016 Changes to the Fair Labor Standards Act

4

Working with Counsel to Manage and Mitigate Legal Risk

5

No Longer a Business Tax Haven

6

Break Up with Your Power Company

8

What Every Nevada Business Should Consider Before Saying Goodby to NV Energy

10

Avoid Significant Consequences by Reading the Boilerplate in Every Contract

12

Five Things You Should Know about Nevada Commercial Real Estate Law

14

Will Your Buy-Sell Agreement Hold up in a Divorce

15

Finally, Somthing to Protect Your Assets

16

A Lack of Dissent

17

Protecting Your Business from its Most Valuable Asset

18

General Manager

Northern Nevada continues to experience economic growth and to attract new businesses to the region. With this growth, comes many challenges and opportunities for the business community.

Many business issues today are legal issues. It is important for business owners to stay informed on changing legislation and to understand the impacts to their business.

In this edition of Business Law, some of the region’s top legal minds delve into a variety of topics such as the impacts of Nevada’s new commerce tax, changes to the Fair Labor Standards Act, rules and procedures of leaving your power company, Nevada commercial real estate law, working with counsel to manage and mitigate legal risks and more.

The topics explored in this publication are designed to help employers be proactive in keeping up with the legal landscape so their company can thrive.

Alsy Brinkmeyer

Business Development

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Business Development

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Office Manager

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Reporter

Annie Conway

Reporter

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Graphic Design

Welcome to the 2016 edition of the Business Law Guide.

Rob Fair

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Reproduction in whole or in part without written permission is prohibited. For reprint permission, please contact the publisher.

Northern Nevada Business Weekly |

3

2016 Changes to the Fair Labor Standards Act: Is the Final Rule Impacting Your Bottom Line?

By Jordan Walsh

F

or many employers, it may feel like their rights and responsibilities are always changing. As difficult as it is to keep up with the changing landscape of labor and employment law, employers need to stay abreast of the law, support employees, and keep their businesses profitable – a task that is daunting at the best of times. To add to the conundrum, on May 18, 2016, President Obama and the U.S. Secretary of Labor, Thomas Perez, announced the Department of Labor’s publication of its “Final Rule” revising the application of the Fair Labor Standards Act (FLSA).

What does this mean for employers? The Final Rule extends the minimum wage and overtime standards outlined under the FLSA to millions of “white collar” employees working in the United States.

The changes imposed under the Final Rule will become effective on December 1, 2016, so it is important for employers to familiarize themselves with the changes over the next few months so as to ensure their compliance with the FLSA at the time that the Final Rule takes effect.

Among other things, the FLSA establishes a minimum wage and overtime pay standards for employees working in both the private and public sectors. Under the FLSA, employees covered by the Act are entitled to collect the federally established minimum wage and receive overtime pay, at a rate of one and one-half percent of their regular rate of pay, for any time in excess of forty hours, which the employee works in a single workweek. While this list is not exhaustive, the following kinds of employees are typically covered under the FLSA: 1.

2.

3.

4.

5.

6.

7.

An employee who works for an enterprise that has an annual gross volume of sales equal to or greater than $500,000; An employee who works for an enterprise that does annual business equal to or greater than $500,000; An employee who works for a hospital, or other business providing medical or nursing care for residents; An employee who works for a school (whether operated for profit or not-for-profit), excluding teachers whose primary duty is teaching, tutoring, instructing, or lecturing.

An employee who works for a public agency; An employee whose work regularly has the employee engage in or become involved in interstate commerce; or An employee working for a non-profit charitable organization engaged in commercial activities resulting in $500,000 or more in business being done, or sales being made.

Notably, in the past, the FLSA did not apply to “white collar” employees; namely, bona fide executive, administrative, and professional employees, unless the employees made less than $23,660 annually (less than $455 per week)1. This “white collar exception” to the application of the FLSA was “premised on the belief that these kinds of workers typically earn salaries well above the minimum wage and enjoy other privileges, including above average fringe benefits, greater job security, and better opportunities for advancement, setting them apart from workers entitled to overtime pay.” Under the current version of the rule, a “white collar” employee does not qualify for coverage under the FLSA if he or she (a) is paid on a salary basis, (b) is paid $455 or more per week, and (c) his or her primary duties involved the kind of work associated with one of the aforementioned exempt duties – executive,

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| Business Law Guide 2016

administrative, and professional duties. Where this exception applied, an employer was not required to meet the federal minimum wage, or pay the employee overtime. Instead, so long as the employer’s employee meets each of the criteria listed above; the employer was not required to pay the employee overtime or to meet the federal minimum hourly wage.

While the white collar exemption will still be available for employers come December 1, 2016, and the same factors will be used to determine which “white collar” employees are covered under the FLSA (see factors (a) through (c) listed above), employers must be cognizant of the fact that the salary criteria used to form the test changes dramatically on December 1. Specifically, “white collar” employees who earn less than $913.00 per week will now be covered under the FLSA. This means that employees who earn annual salaries that are less $47,476 will now enjoy coverage under the FLSA. Notably, under the new rule, any “white collar” employee making less than $47,476 annually will be entitled to (i) collect overtime for any time worked in excess of 40 hours in a single workweek, and (ii) collect an hourly wage that is at the very least equal to the federal minimum wage.

Employers are expected to understand and comply with the Final Rule come December 1, 2016. While employers have many options for ensuring their compliance, failure to comply with the Act could result in the employer being subject to significant fines, fines up to $10,000; and/ or up to 6 months of jail time. If stakes weren’t high enough, an employer may also be subject to litigation, and could be held liable to an employee for any unpaid wages and/or overtime, and may be liable for equitable and/or liquidated damages depending on the egregiousness of his or her non-compliance with the FLSA. Accordingly, in the coming months, employers in Nevada must take stock of their “white collar” employees, and should any of these employees fall within FLSA coverage, employers should start planning methods for ensuring that their businesses are, or come into, compliance with the FLSA by the Final Rule’s effective date.

Employers need to be proactive in their efforts to comply with the Act. While they do not need to be experts on the application of the FLSA; employers should be aware that major changes to labor and employment law will be taking effect come December 1, and should they have any questions or concerns regarding their compliance with the law, they should seek legal counsel to assist them in navigating this complex area of the law. Furthermore, if you are an employer, it is advisable to seek legal advice before the Final Rule takes effect. Doing this will help to prevent you from running afoul of the new rules, a situation which could adversely impact the profitability of your business. ● See discussion at 81 Fed. Reg. 32392 (May 23, 2016).

1

Jordan Walsh is an associate with Allison MacKenzie Law Firm with primary practice in the areas of Labor and Employment Law and Civil Litigation. Jordan was admitted to practice in Nevada and California in 2014.

Jordan can be reached by calling 775.687.0202 or by email at JWalsh@AllisonMacKenzie.com

Working with Counsel to Manage and Mitigate Legal Risk

By Justin J. Bustos

B

usinesses should be proactive in identifying potential threats to the organization. However, many organizations often overlook the risk associated with the failure to adhere to applicable law, i.e. legal risk. The management of legal risk should be part of any organization’s general strategy. Many businesses have failed for lack of proper legal risk management. If legal risk is actively identified, it can be managed, minimized, or even eliminated.

In general, the cost associated with active legal risk management is a small fraction of the cost that would be incurred in defending a lawsuit initiated based on an organization’s failure to meet its legal obligations.

Indeed, the potential costs associated with litigation are substantial, as is the associated business disruption. Litigation is expensive, time consuming, uncertain, stressful, and it takes an organization’s focus away from its core business. It can also impact a business’ reputation in the market place.

The risk management process generally involves three basic steps.

First, legal risk must be identified. Second, the legal risk must be analyzed to determine the likelihood of occurrence and the impact it will have in the event it occurs. Finally, once risk is identified and analyzed, an organization should implement measures to reduce, mitigate, or, if possible, eliminate risk. The process necessarily involves communication within the organization and with any applicable regulatory authorities. In addition, attorneys, in their function as counselors at law, can and should be utilized by businesses to help manage legal risk and minimize the potential exposure to the business.

Although not meant to be a comprehensive list, this article offers several tips that can be utilized by any organization in working with an attorney as part of an organization’s overall risk management process.

However, in order for an attorney to help your organization manage and minimize legal risk, it is important that the advice you receive be implemented.

If you don’t know, ask Legal risk often materializes as a result of uninformed decision-making.

The legal environment is complex and, in general, continues to grow more complex over time, particularly if your business is expanding into new markets or areas of service. For this reason, it is important to consult with an expert that has the specialized knowledge and skill relevant to your business. Thus, if there is any doubt as to what the law permits or restricts, it is always best to consult counsel before taking action.

The attorney-client privilege and the importance of candor In Nevada, confidential communications between an organization and its lawyer are protected by the attorney-client privilege.i This means that the confidential communications you have with your attorney cannot be disclosed to any third person. As such, in consulting legal counsel, it is important that the organization be candid and fully explain the situation confronting the organization.

Attorneys can assist an organization manage risk under the most egregious facts. However, attorneys cannot provide the best advice to

Justin J. Bustos is Of Counsel in Dickinson Wright, PLLC’s Litigation Department. He focuses his practice on complex litigation and appeals.

the organization if they are uninformed or have not been provided with all the relevant facts.

Record Retention Policy If your organization has not already done so, it should work with its counsel to develop and implement a record retention policy. A good record retention policy not only helps a business to better manage and access important information, but it also helps protect a business from legal risk. This policy should help the organization identify and store important documents that may be necessary in the event of litigation and any documents that the law may require that the business keep. In addition, the policy should provide a mechanism to filter out unimportant documents that have no relevance to the business’s operations or risk management. In the event an organization is involved in a lawsuit, the organization should also have the ability to put a “legal hold” on any information that is potentially relevant to the litigation as litigants are required by law to preserve such information.

Pursuing New Income or Revenue Streams If your business is considering pursuing new income or revenue streams, it is wise to consult with your legal advisor. Fundamental to the management of legal risk is obtaining an understanding of the boundaries of lawful conduct and legal restrictions. For example, many businesses are subject to complex government regulatory schemes. The failure to comply with these regulatory schemes can result in disastrous consequences, including administrative audits, punitive fines, and even dissolution of the business itself. These risks may be minimized by understanding the legal environment and structuring your business accordingly.

Threat of Litigation It is important to consult with counsel in the event your business learns of any threatened litigation before responding to the threat of litigation. This is true even if you believe the threatened litigation is meritless or frivolous.

Pursuant to the Rules of Evidence, statements made by your organization can potentially be used against the organization in any future litigation.ii The organization’s attorney can properly evaluate the threat, analyze the potential risk involved with the threat, and advise you as to the best course of action to minimize any potential risk associated with future litigation.

To begin working with your counsel on legal risk management, you can start by discussing any known risks to the organization with the organization’s internal counsel. If your organization does not have internal counsel, it is wise to develop a relationship with a trusted attorney that can help you with your legal risk management and refer you to topic specific experts when needed.

The process of risk management should not end once an organization begins to proactively manage legal risks. Instead, the organization should continue to review and monitor its risk management process based on the organization’s experience and expertise and the advice it receives from counsel. Continuous monitoring, improvements, and mitigation can ultimately help the organization to minimize legal risk and allow the organization to focus on its core competencies. ● ______________________ i NRS 49.095 ii NRS 51.035(3)

Northern Nevada Business Weekly |

5

No Longer a Business Tax Haven?

The Impacts of Nevada’s New Commerce Tax

By Michael Knox and Brian Pick

I

n June 2015, the Nevada Legislature passed SB 483, which landmark legislation not only included revisions to several existing Nevada fees and taxes designed to increase revenue, but imposed a new “commerce tax” on businesses operating in Nevada. While the statutory language of the commerce tax has been available to review, the Nevada Department of Taxation only recently adopted regulations related to the implementation of the commerce tax, not coincidentally two days before the end of the first taxable year under the commerce tax. Although these regulations provide some additional guidance as businesses complete their first mandatory commerce tax filing, the commerce tax is a new world for Nevada businesses to navigate as they make these initial filings and look for tax planning opportunities.

The commerce tax applies generally to any business entity that engages in business within the state of Nevada. As defined by the statute however, “business entity” encompasses certain types of organizations that may not usually be subject to direct taxation, including partnerships, limited liability partnerships, and limited liability companies. There are also certain types of entities, like charitable organizations that qualify for tax-exempt status under federal law, that are specifically exempted from the commerce tax. The majority of businesses that generate revenue within the state, however, will be subject to the requirements of the commerce tax.

While payment of the tax itself is only triggered if a business’s Nevada gross revenue in a taxable year exceeds $4,000,000, the law imposes a number of obligations on all businesses operating in Nevada. Every business, regardless of the amount of its Nevada gross revenue, must file a commerce tax return within 45 days of the taxable year ending on June 30. If a business has more than $4,000,000 in Nevada gross revenue, then tax is owed on the revenue beyond the taxable threshold (at rates between 0.051 percent and 0.331 percent, depending on the type of business activity in which the taxpayer is engaged).

Nevada’s commerce tax implicates a number of other potentially complex issues that can have a significant impact on a business’s commerce tax liability or its operations.

First, the applicable tax rate varies based on the type of activity a business engages in, so the tax liability of an entity that engages in various kinds of revenue generating activities within the state can be significantly impacted by the determination of the business category in which the company is “primarily engaged.”

Second, for businesses that operate in other states as well as Nevada, determining what portion of the company’s total revenue must be sitused to Nevada can have a material impact on the company’s total Nevada gross revenue, and on its ultimate commerce tax liability.

Michael Knox is an attorney at Downey Brand.

He has represented a wide variety of clients, including Fortune 500 companies, gaming companies, contractors, real estate developers, and small business owners over the course of his career.

He can be reached at mknox@downeybrand.com.

Finally, the commerce tax creates document retention obligations for businesses. A company must keep whatever records might be necessary to determine the amount of its tax liability for the longer of four years or until any litigation related to its commerce tax obligation is resolved. The business must make these records available for inspection by the Department of Taxation upon demand at reasonable times during regular business hours. The Department, or anyone authorized in writing by the Department, can examine a business’s records to either verify the accuracy of a return that has been filed, or to determine the proper amount of commerce tax owed if a return has not been filed. Notably, a business that maintains its records outside of the state can be required to pay the Department an amount equal to the allowance provided for state employees while travelling outside Nevada, as well as any other actual expenses incurred in order to examine the documents.

As the commerce tax is beginning to be implemented by the State, businesses must be aware of the filing deadlines regardless of whether tax is owed and, because some of the calculations are not yet entirely clear, they should ensure that any claims that the business has overpaid the tax are timely made.

The deadline for filing may be extended by the Department for no more than 30 days, based on the submission of a timely written application and a showing of good cause. No penalty or late charge will be assessed against the taxpayer as long as the tax is paid in full during the extension, but the business must pay interest on the amount due at the rate of 0.75 percent per month until the payment is completed.

Any business that fails to pay the commerce tax by the deadline (or an extension) can be assessed a penalty that varies from 2 percent to 10 percent of the tax obligation, depending on how late the payment is made, plus interest.

Should a business determine that it has overpaid its commerce taxes, it must file a claim with the Department within three years after the last day of the month following the last month of the taxable year for which the overpayment was made. The claim must be in writing and state specifically the grounds upon which the claim is based. The failure to file a claim within this time frame acts as a waiver of the claim against the state, leaving the company without a remedy.

As the commerce tax is initially implemented and imposed on Nevada businesses, there are numerous new requirements and issues facing businesses, both administrative and financial. Since the tax has potentially significant implications on all businesses, savvy business operators will consult with their legal and accounting professionals to minimize their potential tax liability and ensure full compliance with the commerce tax as they begin to navigate this new world. ●

Brian Pick is a partner at Downey Brand.

Since 2006, Brian has guided northern Nevada and northern California clients through commercial transactions, mergers and acquisitions, securities, venture capital and financing transactions, and real estate transactions and development.

He can be reached at bpick@downeybrand.com.

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For more than 80 years, Downey Brand has provided resources and expertise in Business, Litigation and Natural Resources Law for clients in Northern Nevada, California and beyond. downeybrand.com

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7

Breaking Up with Your Power Company

By Nathan Kanute and William Peterson

I

n the last year, utility breakups between large Nevada companies and their utility providers have been front-page news. As a business leader, the questions that likely came to your mind in reading about these breakups are: would this be worth it for my company and, if so, where would we even start? This article will provide a high-level review of the latter of these two questions by looking at the process and procedures for a breakup. The first question requires a more thorough analysis based on each company’s circumstances and energy profile.

Companies that are looking for a new energy provider usually do so for two reasons: the company believes it can purchase energy in the energy markets for less than it can procure it from its utility provider; or the company wants to purchase energy from sources that align with its corporate values relative to the environment.

The major deterrent for companies seeking a new provider, though, is the statutory and economic impediments and barriers to leaving or “exiting” the local utility. The economic impediment ultimately boils down to statutory exit fees. The stated basis for requiring the exit fees is that the exiting end-user needs to immunize the utility, the state and other ratepayers from any negative impact on their rates and or the rate structure resulting from the user’s departure. The administratively set return for a utility is decided based on the utility’s costs and a reasonable rate of return, which are, for the most part, fixed over the short-term.

Also, the “dividing up” of this return is done based on the user mix and decisions about subsidizing certain types of energy usage through additional charges to other users made at the time the rates are being set. The imposition of an “impact fee” and or imposition of “nonbypassable” future charges imposed on the existing customer after they exit the system is meant to keep the already set allocation of the utility’s needed return substantially similar among the remaining users. Social considerations aside, the determination of the “cost impact” resulting from an exit or departure is the single most critical component of the decision-making process in determining whether it is economically advantageous to exit the system. For very large customers, the fees are in the tens of millions of dollars, but because of their smaller size and impact, can be far less for smaller customers.

Many of the statutory and regulatory hurdles present themselves before the economic issues arise. First, a company must determine whether the law permits a departure. For commercial or industrial utility end-users, their average annual load must be at or above 1 megawatt, meaning the end-user consumed 8,760,000 kilowatt-hours or more of energy in the most recent 12 months.1 In context, this is the annual energy consumed by roughly 800 average U.S. households.

If your company is eligible, and has determined that it would like to purchase energy from sources other than its utility company, the first step is to seek out qualified experts, including a knowledgeable lawyer.

These experts will be able to assist with the many steps that come next, including, but not limited to, the letter of intent, mandatory meetings, the application, and the analysis.

The letter of intent, the next step in the process, includes information on your company, the electric utility, your proposed new energy provider and the proposed transaction.2 That letter must be submitted to the electric utility and the state offices 30 days, or more, before an

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application is filed with the Public Utility Commission of Nevada (“PUC”).3 This extra time enables the company, the electric utility and the PUC to hold required meetings to discuss the information in the letter of intent and any issues that may arise with the application, which is filed next.4 The application must contain additional information demonstrating that the company is eligible, the energy is from a new electric source5 and the energy is capable of being provided to the user.6 The application must also contain the terms and conditions of the transaction to allow the PUC to evaluate the impact on other customers and the public interest as discussed above.7 In addition, if the electric utility receives a majority of its profits from Clark County, the company must negotiate a separate contract for additional energy, and make such contract available and assignable to the electric utility.8 The application then goes through an analysis by the PUC. This is where the company will get a first indication of the fee it will need to pay to exit its utility. Any party may disagree and provide its own analysis of the effect the proposed transaction will have on the electric utility and the remaining customers of the utility.9 If it is determined that the proposed transaction is not contrary to public interest and the applicable statutory provisions are complied with, the PUC should approve the transaction,10 but even at that point, the company still has the ability to decide that it will not move forward with the transaction.11 If your company is considering going this route, note that the application generally must be filed at least six months before the company plans to start purchasing energy from the new provider.12 Building in the time for the letter of intent and the meetings, this requires at least seven months, likely more, before you can purchase energy from the new source.

The Energy Choice Initiative, which will be up for a vote in November, may alter this landscape. It proposes to substantially deregulate the energy industry and permit more end-users to purchase their energy from new providers. Unless that measure passes, the general roadmap provided by this article, with all statutory specifics complied with, will be the course a company will need to follow to breakup with its utility. ● ______________________ 1

NRS 704B.080; Nevada Administrative Code (“NAC”) 704B.300 (1 MW every hour of the year (8,760 hours)).

2

NAC 704B.320(2).

3

NAC 704B.320(1).

4

NAC 704B.330(1).

5

A new electric resource is a resource that does not belong to, or is under contract with, the utility.

It is not “new” in the physical sense of the word.

6

NRS 704B.310(2); NAC 704B.340.

7

NRS 704B.310(2).

8

NRS 704B.320(2); NAC 704B.340(1)(f).

9

NRS 704B.310(6); NAC 704B.

10

NRS 704B.310(5).

11

NAC 704B.380 and 704B.385.

12

NRS 704B.310(1)(a).

Nathan Kanute and Bill Peterson are attorneys with the Reno office of Snell & Wilmer L.L.P. – a regional law firm with offices in Reno, Las Vegas, and across the Southwest.

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9

What Every Nevada Business Should Consider Before Saying Goodbye to NV Energy

By Roman Borisov

I

n recent months, a number of Nevada casino operators made plans to exit NV Energy’s bundled service using a 2001 law. The Providers of New Electric Resources law, enacted in response to the Western Energy Crisis of 2000-2001, sought to alleviate distorted market pressures on Nevada’s electric utilities and their customers by allowing large NV Energy customers to obtain power they consume from generating assets not committed to the utilities. The purpose of the law was to bring additional electric capacity into the state to ease the energy shortage and cut the state’s dependency on dysfunctional, shortterm energy markets.

The market conditions cannot be more different today than they were at the turn of the century. Whereas in 2000 and 2001, the market experienced severe shortages, today, the western United States is awash with excess generating capacity. Locally, NV Energy has taken consistent steps to acquire, and contract for, additional generation assets to insulate Nevada ratepayers from volatile wholesale price fluctuations characteristic of the Western Energy Crisis.

In fact, NV Energy’s southern Nevada electric utility, Nevada Power Company, now controls about 96 percent of the capacity required to meet its service obligations; in 2001, it relied on regional energy markets for 50 percent of its needs. Nevada Power can now afford to shut down the 812-megawatt (MW) Reid Gardner coal plant ahead of schedule without detrimental effect on the reliability of service or unwarranted market exposure.

Besides excess capacity, cheap natural gas and plummeting prices of large-scale renewable generation are putting downward pressure on nationwide and regional energy prices. Despite vastly different energy macroeconomics, the 2001 Providers of New Electric Resources law stayed on the books in Nevada, and, sensing an opportunity to save on electricity costs, Nevada casino operators have sought permission to exit the system. In January 2016, the Public Utilities Commission of Nevada (PUCN) gave MGM Resorts International, Wynn Las Vegas and Las Vegas Sands permission to exit NV Energy’s bundled service. Peppermill Casinos Inc. is the latest applicant seeking to exit NV Energy’s bundled service and the first northern Nevada casino operator to do so.

The temptation to reduce costs is further supported by the relative ease and speed of the exit process. The PUCN generally renders a decision within 180 days of filing. Exit eligibility requirements are straightforward and clear.

The law requires that an exit applicant be a nongovernmental commercial or industrial end-user with an average annual load of one megawatt or more and an annual consumption of 8,760 MW-hours.

After widely publicized PUCN casino exit decisions and price tags assigned to the exits, a potential exit applicant may be under an impression that it can make a calculated business decision based on the information that has been published. However, any potential exit applicant should consider the following before filing an exit application with the PUCN. The PUCN has to, by law, ensure that the remaining NV Energy customers will not be harmed by the exit. NV Energy’s system was built to serve the peak load; thus, every large customer’s exit leaves fewer participants to pay for the generation plants that make it possible for every household in the Las Vegas valley to have cold air at 5 p.m. on a hot July afternoon.

To insulate the remaining ratepayers from having to bear the increased burden, the PUCN has imposed significant impact fees on MGM, Wynn, and Sands based on the companies’ contribution to the peak load. For instance, with the peak load of 174 MW, MGM’s exit fee was set at $87 million. With the peak load of 20 MW, Wynn’s exit fee was set at $15 million. However, these amounts represent only those portions of the impact fees that could be calculated at the time of the approvals – upfront fees.

MGM and Wynn are also responsible for millions of dollars in what the PUCN designated as “non-bypassable charges.” Most of these non-bypassable charges represent costs Nevada Power incurred as a result of legislatively

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mandated clean energy programs that superseded the usual least-cost resource planning. Among such costs are long-term power purchase agreements for renewable energy at prices that far exceed current market prices.

Nevada Power entered into such agreements to satisfy the state’s renewable portfolio standard at the time when the price of large-scale solar exceeded $100 per megawatt hour. Upon exiting and paying the calculated upfront fee, MGM and Wynn will continue to pay the non-bypassable, and currently incalculable, charges for years to come. Any future exit applicant can expect to be subjected to similar non-bypassable charges.

Another major consideration for any business contemplating an exit from NV Energy’s bundled service should be The Energy Choice Initiative (Initiative).

The measure, which was initially backed exclusively by Sands, seeks to deregulate Nevada’s electricity market by 2023. The backers of the Initiative succeeded in placing it on the November 2016 ballot, and many believe the Initiative will pass in light of the negative publicity rooftop solar companies were able to create around NV Energy. The Initiative’s chances of succeeding are further amplified on account of NV Energy’s decision not to oppose the measure.

Contrary to the opinions of those who believe that the Initiative would end NV Energy, the passage of the Initiative may prove rather lucrative for the utility. NV Energy will remain the distribution and transmission services provider in Nevada. Furthermore, it will be able to sell its generating assets at favorable prices. Thus, in light of the likely passage of The Energy Choice Initiative, a savvy potential exit applicant would be wise to first consider whether it is sensible to pay NV Energy’s rates for the next seven years and be able to subsequently purchase electricity on the open market without paying a multimillion dollar exit fee. If the answer is in the affirmative, it would behoove a potential applicant to wait to see what the outcome of the November ballot will be before making a decision to stay with or leave NV Energy.

The final consideration stems from the risk an exit applicant immediately exposes itself to upon abandoning generally predictable and stable utility rates and services. History tends to repeat itself, and no historical lesson may be more illustrative than the cautionary tale of aluminum smelters in the Pacific Northwest. Aluminum production requires enormous amounts of electricity.

In the 1990s, many aluminum smelters in Washington and Oregon stopped relying on reasonably priced hydroelectric power supplied by the Bonneville Power Administration choosing instead to buy electricity in the open market.

Unfortunately for these producers, they chose to buy power from the same energy suppliers that sold electricity to California. When the Western Energy Crisis hit California and prices spiked, only a few of those smelters managed to survive into the 21st century. Today, the aluminum industry has been decimated, and the few survivors face tough competition from low-priced Chinese exports. In five to 10 years, Nevada businesses may also face power market conditions vastly different from those that exist today. Today’s low energy prices are largely a result of low natural gas prices. As natural gas prices increase, electricity prices will follow, thereby cutting the casinos’ and other businesses’ profit margins.

In sum, a savvy business operator should be mindful of the above considerations before untying itself from the utility that has, for the most part, provided reasonably priced and reliable service all while being among the industry leaders in supplying renewable energy. ● Roman Borisov is an attorney in the Reno office of Lewis Roca Rothgerber Christie LLP. A member of the firm’s Government Relations practice group, his practice focuses on energy and utility matters. He can be contacted at 775-321-3458 or rborisov@lrrc.com.

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Northern Nevada Business Weekly |

11

Avoid Significant Consequences by Reading the Boilerplate in Every Contract

By Colleen Dolan

W

e all know that “read before you sign” is the number one rule of entering a contract. Since contracts can be long and oftentimes boring, it can be tempting to skip over what we consider the boilerplate language. Boilerplates are regarded as the same old thing we’ve seen over and over, right? Not so fast! The boilerplate in a contract is often overlooked, yet can have important consequences down the line if a dispute arises.

In a contract, the boilerplate is typically found at the end, after the more “important” provisions, such as price, obligations and time for performance. Sometimes, the boilerplate is segregated in its own special section, often titled “Miscellaneous.” The very title of the section suggests that it is the equivalent of the kitchen junk drawer, a hodgepodge of less important information.

Many people, upon reaching the boilerplate provisions, think their review is complete and, at worst, stop reading or, at best, merely skim. Boilerplate provisions can have different effects depending upon the circumstances of the contracting parties. There are some typical boilerplate provisions that should raise questions. Some of these provisions/questions include: 1.

Attorneys’ fees provisions Most agreements regularly include a “fee-shifting” provision that causes the losing party in any litigation to pay the attorneys’ fees of the other party. Questions that the contracting party should ask: a) b) c) d) e) f)

Does the contract have an attorneys’ fees clause?

If so, does it provide for payment of fees by the prevailing party and is it mutual, or a one-way street?

Given the relative obligations of the parties in the contract, which party will most benefit from the attorneys’ fee clause?

Who can better afford to bear the cost of litigation?

How does the attorneys’ fees provision work if there are multiple claims and the verdict is split − who is the prevailing party?

What is the value of any likely dispute?

Based on the answers to these questions, the contracting party might decide that the provision should be changed, eliminated or, if it does not have one, added.

2.

Integration clause Generally, these clauses say that the whole agreement is in the document everyone signed. a) b)

3.

Governing law, jurisdiction and venue These provisions determine what state laws are implicated and what courts are entitled to hear in a dispute and where. a)

b)

If you are dealing with an out-of-state party who chooses their state’s laws to govern, how are the terms of the contract affected by that state’s laws? For example, some provisions of a contract that might be perfectly fine in Nevada might be void in California or another state.

If jurisdiction and venue are that of another state and locale, you may have to absorb the expense of litigation conducted in another state. Additionally, the other party is well known and well-liked in the locale; there might be an unconscious bias toward the other party.

Depending on the bargaining positions of the parties, you might be able to change these terms and gain a significant advantage (or at least avoid a disadvantage) in the event of a dispute.

4.

Waiver of jury trial a) b)

Are you in an industry that might not be highly regarded by a “jury of your peers”?

Or is the other party less likely to be highly regarded by their peers?

Based on these and other factors, you may decide to include or delete a waiver of jury trial.

5.

Arbitration Often, a form contract will contain an arbitration provision. a)

Do you really want arbitration? Theoretically, an arbitration conducted according to a well-drafted arbitration clause would be less expensive and less time-consuming than litigation.

However, a clever attorney may be able to find a way to have a court review the arbitration award. Such awards are supposed to be non-appealable other than in very narrow circumstances.

In that case, you could wind up in court, enduring the expense of the court’s review of the arbitration judgment. Whether to include an arbitration clause can be a close call and you probably do not want to decide until after consulting with your attorney.

Is there a prior term sheet or letter of intent that should be superseded by the contract?

Are there ancillary agreements that need to stay in place and not be superseded?

These questions will lead to the conclusion of whether or not to include, and in what form, an integration clause.

Colleen Dolan is an attorney with Fennemore Craig. Her area of practice focuses on real estate development, general real estate transactions, leasing, commercial finance and corporate law. Reach Colleen at cdollan@fclaw.com.

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b)

c)

If you accept the idea of arbitration, do you want the contract to first provide for mediation, which is a more informal process and typically less expensive, but also not binding on the parties unless a mutual agreement is reached?

The specific provisions of the arbitration clause are also important as they, to some extent, will govern the money and time expenditure, as well as the thoroughness of the proceeding. So, for a small contract, you might want one arbitration clause and for something more complex, you might want another.

6.

Notices You might think that a simple notice provision does not deserve any attention beyond making certain the addresses of the parties are correct.

However, it is important to look at the acceptable forms for delivering notices and think about which alternatives work best for your business. a)

b)

c)

Notices by U.S. mail − Is there someone in your office each business day to ensure legal notices are promptly discovered?

Have you had any issues with unreliability of mail delivery in the past? Should you consider requiring certified mail, which adds to the time it takes to receive a notice but provides greater assurances that important items will not be missed?

Notices by overnight courier service − If your office is not always staffed, courier services such as Federal Express might not be able to leave a delivery. Additionally, Federal Express will not deliver to a post office box, and requires a physical address.

Notices by email or fax − Are you inundated with so many emails each day that it could be easy to miss an important one? How reliable is your email system? If you accept notices by fax, do you have a dedicated fax that is received in your

d)

personal computer, or does your business use a common fax machine? It is quite easy for a one-page fax to be scooped up at the end of a prior longer fax and remain undiscovered until well after the deadline prescribed in the notice has passed. You might wish to allow notices by email or fax but require a confirming copy be sent via U.S. mail as a precaution to the person receiving the notice.

Who gets the notice − Does the notice clause provide for notice to a specific person by name, or to a title, in other words, to “Jane Smith” or to “general manager”? Contracts potentially have a very long life, and the new employee who processes your mail might not know that Jane Smith, who has since retired, was the general manager at the time the contract was signed, and might dispose of the mail or return it to the sender.

Keep in mind that the boilerplate provisions of a contract have the same degree of validity and enforceability as any other provision in a contract. Also, just because a section is titled “Miscellaneous,” it does not mean that some crafty (or just disorganized) drafter has not put in a boilerplate provision one would not typically expect to see there. This could have significant impact on your bargaining. The good news is that it’s easy to protect yourself from boilerplate mishaps by simply reading each provision and giving consideration to provisions that best suit your circumstances. ●

Northern Nevada Business Weekly |

13

Five Things You Should Know about Nevada Commercial Real Estate Law

By Angela Turriciano Otto

C

ompared to other states like California, Nevada does not have many laws regulating commercial real estate. Nevada, however, does have certain unique laws affecting commercial real property.

If you are involved in the Nevada commercial real estate industry, you should be aware of these laws and understand how they could affect your business.

1.

Nevada’s ‘One Action Rule’ This rule generally requires that the holder of a mortgage or deed of trust first exhaust its rights to the real property collateral before proceeding against a borrower on the underlying debt. If such a holder brings an action to obtain a money judgment before proceeding against the real property collateral, the mortgage or deed of trust is discharged as a lien against the real property upon entry of a final judgment. This rule can also be used as an affirmative defense. A waiver of this rule is unenforceable against the grantor of the mortgage or deed of trust, but guarantors who have not granted a mortgage or deed of trust to secure their guaranty obligation can generally waive the protection of this rule.

Some acts do not constitute an “action” for purposes of this rule and may be brought without violating the rule. Such permitted acts or proceedings include, among others, (a) the appointment of a receiver, (b) the enforcement of a security interest in or the assignment of rents, (c) the exercise of any right or remedy authorized by the Uniform Commercial Code as enacted in Nevada or any other state, and (d) an action for a breach of an environmental provision pursuant to Nevada Revised Statutes (“NRS”) 40.508.

2.

Commercial Foreclosure Process In Nevada, most commercial foreclosures are conducted as nonjudicial foreclosures primarily because judicial foreclosures, which require the filing of lawsuits, are often more expensive, typically take longer and permit all parties foreclosed upon the right to redeem the real property for a period of one year following the applicable foreclosure sale. By contrast, in a non-judicial foreclosure, no lawsuit is filed. Instead, the trustee of a deed of trust must generally record certain notices in the applicable recorder’s office, provide copies of such notices (including, as to the notice of sale, by posting and publication), and wait certain time periods, in each case, as required by applicable statutes. After satisfying the statutory requirements, which takes at least 111 days, the trustee will then conduct the sale. The purchaser of the real property at the trustee’s sale takes title to the property free and clear of any and all junior liens or encumbrances and there is no right of redemption.

Deficiency Judgments If the commercial foreclosure sale amount is less than the amount of the outstanding secured indebtedness, the holder of the mortgage or deed of trust may pursue a deficiency judgment against the borrower and any guarantor. Such holder must file a complaint for a deficiency judgment within six months from the date of the foreclosure sale. With the recent changes to NRS 40.459 pursuant to the passage of Assembly Bill No. 195 (2015), the amount of the deficiency judgment in the commercial real estate context is limited to the lesser of: (a) the amount by which the amount of the secured indebtedness exceeds the fair market value of the property sold at the time of the foreclosure sale, or (b) the amount which is the difference between the amount for which the

property was actually sold at the foreclosure sale and the amount of the secured indebtedness, in each case, with interest from the date of the sale.

4.

Transfer Tax In Nevada, real property transfer tax is generally imposed on each deed or land sale installment contract. Currently, the amount of such tax in Washoe and Churchill counties is $2.05 for every $500 of value or portion thereof, and in all other northern Nevada counties is $1.95 for every $500 of value or portion thereof. The tax is collected by the applicable recorder’s office prior to accepting the deed or contract for recordation. Some real property transfers are exempt from such tax including certain transfers between a business entity and certain of its affiliates. Such tax, however, does not apply to transfers of equity interests.

5.

Mechanic’s Liens from Tenant Improvements Nevada law provides a detailed procedure by which a landlord and its property may not be subject to mechanic’s liens arising from its tenant’s improvements. Generally, the procedure requires that a landlord record in the applicable recorder’s office a notice of non-responsibility within three days immediately following the earlier of the effective date of the lease or the date of the full execution of the lease, and timely provide copies of such notice to the tenant and the prime contractor. Additionally, prior to commencement of construction, a tenant must (a) either (i) establish a construction disbursement account funded with at least the amount of the total cost of the construction project, or (ii) record a surety bond in the form required by the applicable statute in an amount equal to 1.5 times the amount of the prime contract, (b) record a notice of posted security in the applicable recorder’s office, and (c) comply with the other applicable statutory provisions regarding this procedure. Please note that current law generally provides that the tenant must comply with the foregoing requirements unless the landlord records a written waiver of its rights set forth in NRS 108.234 (regarding the notice of nonresponsibility) and timely serves such notice upon the prime contractor and all other lien claimants who provide a notice of right to lien.

Please keep in mind that these laws are subject to change and that such changes may also potentially impact your business. ●

3.

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Angela Turriciano Otto is a shareholder at Brownstein Hyatt Farber Schreck. With a robust background in corporate law, Angela has the business insight and unique experience in real estate and gaming to advise clients on hospitality transactions.

She routinely closes more than $1 billion in real estate gaming transactions annually, working for major hospitality brands such as Caesars Entertainment, MGM and Wynn Resorts, along with advising clients on other major commercial, financial and real estate transactions. She can be reached at aotto@bhfs.com.

Will Your Buy-Sell Agreement Hold up in a Divorce

By Gloria Petroni

A

s a common business practice, many owners put buy-sell agreements in place at the onset of their business or later as the business evolves. The agreement, also known as a buyout agreement, essentially defines the exit strategy for company partners or shareholders. It is a legally binding document between co-owners that determines what will happen in the event an owner exits the business for any reason. Some of those scenarios could include voluntary exit (like retirement), involuntary exit, injury, disability or death. The agreement can be included in a partnership or operating agreement or can be a freestanding document. But what many owners fail to address is how the buy-sell agreement may apply should a partner or shareholder experience a divorce.

If correctly put in place, a buy-sell agreement would determine the following; • • • •

Who is eligible to purchase a departing owner’s share of the company? Can outsiders enter the company or will this be limited to current partners or shareholders?

What events will trigger a buyout?

What method of valuation will be used to determine the value of the business should a buyout be triggered?

What occurs in the event a partner or shareholder is divorced?

Because no business owner wants to suddenly have a business partner they did not choose or have their business the subject of a divorce dispute, whether their own or that of another owner, it is not uncommon for spouses of owners to be asked to sign a buy-sell agreement with the goal that the business be isolated from a potential dispute. However, regardless of the provisions of those agreements, many business owners fail to realize this may not be legally binding in Nevada.

Whether you are involved as an owner in an LLC, corporation or partnership, or a buy-sell agreement between spouses, the agreement may not be binding if the spouse did not have independent legal counsel review the Buy Sell Agreement. The agreement may be found to not be applicable to the divorcing shareholder and his spouse, but rather only to employees, or the court may find that the consent of the spouse who is not in the business was not obtained either for the purposes of divorce, or was not advised to obtain independent counsel.

Nevada is a community property state. All income and debt alike must be split equally between spouses in the event of a divorce in the absence of overriding documents that distinguish separate property. Even in the event business ownership predated a marriage, the growth of a company may be

Gloria Petroni is the owner of Petroni Law Group.

With more than 38 years of experience in family law, Ms. Petroni focuses her practice on complex cases.

She holds a J.D. from McGeorge School of Law at the University of the Pacific and a LL.M. in taxation from the University of Miami.

characterized by the court as community property depending on the causes of that growth.

The calculations applied to a divorce dispute are very different than what a buy-sell agreement would and could address. A division of personal assets may consider market value when your buy-sell agreement may define a different method of valuation, for example.

This does not mean that business owners should not plan for changes in ownership. What is does mean is that in most cases a buy-sell agreement is not sufficient to bind a shareholder’s spouse in the event of divorce unless that spouse obtained independent counsel and/or the language indicated it would be binding on that spouse in the event of a divorce.

The alternative route is to obtain proper and separate counsel and clearly identify the triggers of the buy-sell agreement. Even if you are not in and do not anticipate an adversarial situation, the consenting spouse should have independent counsel to make the agreement binding.

In addition, you may also want to consider putting the following into place to help protect everyone involved and see to it that your business is protected long term.

•

Consider whether you have a need for disability insurance.

Depending on how or if this is addressed in a buy-sell agreement, there can be consequences for you and your family should an injury occur.

• Consider putting an estate plan in place. Proper estate planning can compensate for inequities a buy-sell agreement between spouses can create.

• A post-nuptial agreement may be a saving grace in keeping a business intact should the worst occur.

Courts want fundamental fairness in agreements and will look at the agreement as to (1) the proximity of the date of the agreement to the date of separation/divorce to ensure that the agreement was not entered into in contemplation of divorce; (2) the existence of an independent motive for entering into the buy-sell agreement, such as a desire to protect all shareholders against the effect of a corporate dissolution; and (3) whether the value resulting from the agreement’s purchase price formula is similar to the value produced by other business valuation approaches used by business valuation experts.

Business owners go through changes in life that can and will affect a business. No one wants to have feuding spouses claiming rights to a business or its assets or have an owner pass away and suddenly be in business with their next of kin, whoever that may be. But putting an agreement in place that will not stand should the worst occur will not help. Instead, make sure your company’s buy-sell agreement was properly done and that the correct legal mechanisms are in place in the event an owner experiences a divorce or there is a change in ownership. ●

Northern Nevada Business Weekly |

15

Finally, Something to Protect Your Assets: The Federal ‘Defends Trade Secrets Act’ of 2016

By Alex J. Flangas and Robert C. Ryan

B

efore this year, enforcing your company’s trade secrets has been subject to the difficulty presented by the fact that trade secret laws were dominantly a matter of state law. Trade secret law varied by state and often made enforcement of trade secret rights unnecessarily difficult, time consuming, and expensive when misappropriation took place in multiple states or occurred in other states after enforcement and procurement of a favorable outcome in one state.

Thankfully for many businesses, in May of 2016, the Federal government stepped up and passed a meaningful reform – the “Defend Trade Secrets Act” (“DTSA”), Pub. L. No. 114-153 (May 11, 2016). This Act is designed to provide a one-stop-shop remedy for protecting your company’s trade secret assets, giving your company the ability to use a federal court to protect its most precious assets – without having to jump from state to state and deal with the variance of trade secret law in each state.

Third, and most importantly for most business owners, the DTSA authorizes a company to proceed directly to a federal court for relief under a new “federal” right that provides various legal remedies, including:

The need: trade secrets are a subset of a wide range of types of intellectual properties – properties of the mind. Trade secrets generally consist of a person’s or entity’s confidential information that has value because it is not generally available in the trade. A restaurant company can have valuable confidential recipes. A hot dog company can have a special formula for its tastiest brat or wiener. The successful retail sales company can have developed inventory management, warehouse controls or stocking procedures that provide it a competitive advantage or allow it to be more profitable than one or more competitors. The customer list of a consultant/advisor company, or a salesforces’ list of contacts, may be that company’s single, greatest asset. Even the most basic information – internal knowledge of which people in your company are the most significant producers and why they are as compared to other employees – can be a “trade secret” if the information is properly protected and treated accordingly.

Empirical evidence shows that the marketplace recognizes the value of trade secrets. “Intangible assets,” which include patents, copyrights, trademarks, tradenames, goodwill, and especially trade secrets, have increased in value dramatically in recent years. For example, in The Power of Intangible Assets: An Analysis of the S&P 500, Keith Cardoza, CFA (Ocean Tomo 2006), the author explains that in the 30 years from 1975 to 2005, the value of intangible assets versus traditional “hard” assets for S&P 500 companies leapt from 2 percent of book value in 1975 to 43 percent in 2005. Intangible assets as a percent of the market capitalization of those companies jumped even more impressively, from a mere 16 percent in 1975 to approximately 80 percent in 2005! So, by 2005, 80 percent of the value of an average S&P 500 company was its intangible assets – not its brick and mortar, inventory and other hard assets.

How significant can a trade secret be? Think of Coca-Cola. The formula is still a secret today, and the company thrives as a direct result of that secret.

Trade secrets and other intangible assets are where your company’s value is today – and both your employees and your competitors know it. Protecting those secrets is essential.

– damages for actual loss caused by the misappropriation, plus unjust enrichment enjoyed by the wrongdoer not covered in the actual loss calculation.

Elements of the DTSA: First, the new Federal DTSA does not preempt state trade secret laws; rather, it is designed to coexist and work together with them, so you shouldn’t lose remedies you previously had under state law.

If you prefer to seek relief under known state laws, you still can do so.

Second, the Economics Espionage Act of 1996 (which generally provides for primarily criminal penalties for intentional foreign economic espionage and trade secret theft) was amended to include a new civil remedy under the DTSA.

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– seizure of the secret back from the offending party to prevent its propagation or dissemination. This remedy is unique, to be used only in extraordinary circumstances, but can be obtained “ex parte,” meaning without advance notice to the accused person or party.

– injunctive relief to prevent use or misappropriation of the trade secret and greater ease of enforcement nationwide. The form of injunction can be restrictive, to prevent the use of the secret, or mandatory, such as ordering the offending party to take affirmative actions to protect the trade secret and maintain its secrecy from the public.

– double damages for willful or malicious misappropriation. When the actions of the offending party are willful or malicious, the court can award double the actual damages.

In addition, the DTSA provides enhanced protections for trade secrets during litigation, designed to protect the confidentiality of the information during any lawsuit involving trade secrets, and also includes whistleblower protections (immunity) for those who report trade secret violations to law enforcement in order to encourage the reporting and investigation of possible violations of the law, or who file any lawsuit and include the secret in any filing made “under seal” in a court filing.

Caveat for Businesses: The DTSA requires entities who seek to procure certain rights provided by the DTSA to include particular language in every contract entered into with an employee or an independent contractor after the Act’s effective date (May 11, 2016) if the contract “governs the use of a trade secret. …” That language must notify the employee or independent contractor of the immunity set forth in the DTSA. An employer’s failure to provide that notice in the contract bars recovery of double damages or attorney fees.

This DTSA provision could well effect your rights under all of your employee and independent contractor contracts having confidentiality or non-disclosure provisions, as that language likely “governs” the use of trade secrets too. Since you most likely will want the enhanced remedies provided by the DTSA, all your employee and independent contractor contracts should be reviewed to ensure compliance with DTSA safe harbor/notice provisions.

Epilogue: The DTSA is a welcome step in the right direction for businesses, providing greater trade secret uniformity, nationwide enforceability, and enhanced remedies. The law should render your intangible assets even more valuable. ●

Alex J. Flangas and Robert C. Ryan are both partners at Holland & Hart, LLP, based out of its Reno Offices although practicing statewide including out of the firm’s Carson City and Las Vegas Offices.

Alex focuses on commercial litigation, primarily in business, construction and natural resource areas.

Robert (“Bob”) is a patent attorney and specializes in intellectual property procurement, enforcement and transactions, and related law such as technical contracts and inter-corporate products liability matters.

A Lack of Dissent

By Adam Hosmer-Henner

W

hen the intermediate Court of Appeals was created in Nevada, part of the rationale was to reduce the Supreme Court’s caseload, shorten the time to decide appellate cases, and increase the number of published opinions on Nevada law. While the Court of Appeals has been hearing cases since early 2015, the statistics have not yet borne out the expected impact upon the appellate process. The Nevada Supreme Court published 103 opinions in 2015, only slightly up from the 100 opinions in 2014, and is on track for even fewer in 2016 with only 65 opinions published so far. While the raw numbers of published opinions may grow as the new appellate structure matures, it is important to track the number of dissenting opinions issued by the Supreme Court justices as well.

In its 2016 published opinions, the Nevada Supreme Court resolved 91 percent of its commercial cases unanimously without the inclusion of any accompanying dissenting opinions. Additionally, the Nevada Supreme Court’s unpublished orders, which are the outcome resolving the majority of appeals, are almost always unanimous. In contrast, the United States Supreme Court has decided fewer than 40 percent of its cases unanimously since 1946. The discrepancy between these two courts may be a function of the high volume of cases that are still being heard by the Nevada Supreme Court. This lower volume of cases permits the United States Supreme Court justices significantly more time to craft lengthy opinions and draft dissents. Even compared to other state supreme courts though, Nevada still ranks on the lower end of the spectrum for frequency of dissenting opinions.

The lack of dissents should not be taken as an indication that the Nevada Supreme Court is necessarily “getting it right” or is being presented with straightforward questions. Instead, the Court may be resolving cases on relatively narrow grounds in order to build a consensus or expedite

resolutions. The late Justice Scalia disclaimed this practice in a concurring opinion in McCullen v. Coakley, 573 U.S. ___ (2014), noting that he preferred “not to take part in the assembling of an apparent but specious unanimity.”

Even if the Nevada Supreme Court is able to reach a unanimous agreement to resolve a complicated case, this may mean that the Court holds off deciding more controversial but less central issues raised in the appeal.

By contrast, in Badger v. Dist. Ct., 132 Nev. Adv. Op. 39 (2016), Justice Pickering and Hardesty wrote a dissent criticizing the majority opinion for failing to address 2015 amendments to Nevada’s antideficiency statutes. The majority responded to this criticism but ultimately held that because “neither party raised this argument to this court,” it did not need to be resolved. In the absence of this dissent, the majority opinion may not have included any discussion of the 2015 amendments at all and future litigants would not have had any insight into the Court’s analysis of this important issue. Justice Ginsburg of the United States Supreme Court noted that “there is nothing better than an impressive dissent to lead the author of the majority opinion to refine and clarify her initial conclusion.” Rather than create clarity in the law, unanimous but narrow decisions can leave important questions unresolved, creating ongoing uncertainty for businesses and residents of Nevada.

In addition to the limited effect of narrow decisions, an overemphasis on consensus also prevents the Court from helping guide legislators and lawyers in Nevada toward the creation of better law. A dissenting opinion can inform a legislator as to the changes to the statutes necessary to achieve a different result the next time the issue is presented on appeal.

As the Court of Appeals continues to reduce the workload of the Supreme Court, Nevadans may start to notice more dissenting opinions being issued by the Supreme Court. The dissenting opinions, and the sharper majority opinions they generate, not only will help provide direction to the lower courts, lawyers, legislators, but also will provide greater legal certainty to Nevada businesses and residents. ● Adam Hosmer-Henner is an attorney with McDonald Carano.

He can be reached at ahosmerhenner@mcdonaldcarano.com.

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Northern Nevada Business Weekly |

17

Protecting Your Business from its Most Valuable Asset: Effectively Utilizing Non-Compete Agreements

By Austin Sweet, Esq.

I

t is often said that a company’s most valuable asset is its employees.

However, a company’s employees can also be its biggest liability.

Your employees know everything about your business, from its operations to its customer-base. Losing a key employee to your competitor can be a major problem for any business owner.

To alleviate that risk, savvy business owners utilize non-compete agreements. Non-compete agreements have become commonplace in the modern world, from CEOs to minimum wage workers. However, recent events are starting to chip away at the prevalence and enforceability of such agreements. It is therefore critical for business owners to ensure that they are using well-drafted and properly tailored non-compete agreements in their business.

Carefully Consider and Define Your Goals In the workplace, non-compete agreements have two functions: a legal function and a practical function. The legal function is to prevent your partners/employees from leaving to work for your rival or start a rival company themselves. The practical function is to “handcuff” your partners/employees into staying at your company or leaving on your terms instead of theirs. These functions must be carefully considered when drafting a non-competition agreement.

The underlying theory behind non-competition agreements is to protect businesses from a key owner or employee, who knows everything about the business, leaving and using all the knowledge and skills they have learned from you to open up shop across the street. When buying a business or hiring a key employee or highly-compensated chief officer, requiring that they sign a non-compete agreement is critical to protecting your investment. This is the legal function of the non-compete and it should be carefully tailored to ensure your specific goals are addressed.

In Nevada, however, non-compete agreements are enforceable against all types of employees. As a result, some business owners require all of their employees to execute non-competes, regardless of whether the employer truly considers the employee leaving for a competitor to be a realistic threat to his business. This is the practical function of the noncompete and should be used with extreme caution.

Non-compete agreements that prevent former employees from working in their chosen industry in the greater Truckee Meadows area for up to two years have been considered reasonable and enforceable, although the effects of this restriction on employment can be devastating on the employee. An IT technician may have no practical or marketable skills outside of IT: if he is subject to a non-compete, he may be forced to either move his family to a new city or accept a job for which he is severely overqualified and underpaid. Neither option is appealing, so a disgruntled employee may elect to stay at his current job. As you can imagine, such employees do not promote a productive or healthy work environment. Thus, although using non-competes in this manner may increase employee retention, is often does not improve the bottom line.

Non-compete agreements can be an incredibly valuable tool when used in proper contexts. If you are truly concerned that the viability of your business could be jeopardized by your employee leaving, then your non-compete should be specifically tailored to the issues pertaining to that employee. If you simply require all employees to sign the same non-compete regardless of actual concerns, consider alternative legal protections such as non-solicitation agreements, non-disclosure agreements, or conditional non-compete agreements.

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Carefully Draft Your Non-Compete As with any contract, a non-compete agreement is only useful if it is enforceable. Generally in Nevada, non-competes are enforceable so long as the restraint of trade is not greater than required for the protection of the employer and does not impose an undue hardship in the employee.

The length, scope, and physical area of the restraint are important factors to consider in this analysis.

Two recent cases from the Nevada Supreme Court have restricted the enforceability of non-compete agreements. The first decision made it more difficult for employers to obtain an order preventing an individual from working in violation of a valid non-compete. Thus, if your primary purpose is to accomplish the legal function and judicially restrain your former employee from working for a competitor, your non-compete must be properly written to accomplish that goal. Otherwise, your former employee may be allowed to work for your competitor and you will only be able to recover the damages you can actually prove you suffered as a result of the breach, which can be extremely difficult to quantify.

Second, Nevada’s Supreme Court recently confirmed that unreasonable non-compete agreements will not be enforced. Although this decision may appear obvious, it closed what many believed to be a critical loophole. Previously, a prevalent theory in Nevada was that, if a non-compete agreement was deemed to be unreasonable, a judge would simply reduce the scope of the agreement to something that was reasonable. Thus, employers were often encouraged to err on the side of greater restrictions, believing that if the non-compete was deemed to be unreasonable, some reduced version of the non-compete would still be enforceable. Today, if a non-compete agreement is deemed unreasonable, it will not be enforced in any manner.

Non-Competes Are Generally Unenforceable in California Finally, many businesses in northern Nevada also work across the border in California. Business owners should therefore know and understand that non-compete agreements are generally against public policy and unenforceable under California law. If your company is based in or does work in California, well-drafted non-solicitation and non-disclosure agreements should be utilized instead of non-compete agreements.

When drafting a non-compete, it is imperative that you carefully consider and define the goals you wish to accomplish with this contract and then narrowly tailor the language of the non-compete to accomplish that goal. Failure to do so can quickly turn your greatest asset into your greatest liability. If you have any questions about drafting, enforcing, or utilizing non-competition agreements to maximize the benefit to your business, you should consult an attorney. ●

Austin Sweet is an attorney at Gunderson Law Firm in Reno, practicing commercial litigation and general business law. He can be contacted at 775-829-1222 or asweet@gundersonlaw.com

New Location Announcement:

Reno, Nevada welcomes Blanchard, Krasner & French!

EFFECTIVE • TIMELY • THOROUGH

RENO’S NEWEST BUSINESS LAWYERS

Blanchard, Krasner & French, a professional law corporation, is excited to announce its next location opening in Reno, Nevada later this year. The address of our Reno office is 5470 Kietzke Lane, Suite 200, Reno, Nevada 89511. Abigail Stephenson, Esq., formerly of the La Jolla office, will be working full-time at our Reno office. Blanchard, Krasner & French is looking forward to the addition of our second firm location and the opportunity to offer our comprehensive legal services, expertise and involvement to the Reno and Northern Nevada communities. As part of our commitment to client service, we continually seek feedback from our clients—both positive and negative—to strengthen and improve our relationships. In our most recent Client Satisfaction Survey, 83 percent of clients rated BKF’s legal services “strongly effective,” while 63 percent said BKF’s services exceeded expectations. All of our clients said they would recommend BKF to others. These results are a testament to the relationships we build with those we serve.

Giving back to the communities we serve is an important part of who we are. Blanchard, Krasner & French is already actively participating in Big Brothers Big Sisters of Northern Nevada, Ronald McDonald House of Northern Nevada and the Nevada Art Museum. A special thank you to everyone for their continued support of Blanchard, Krasner & French as we embark on this new adventure.

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ABOUT BLANCHARD, KRASNER & FRENCH: Blanchard, Krasner & French is a boutique law firm originally based in La Jolla, California. Our attorneys have broad experience in legal matters related to business, real estate, litigation, and individual wealth preservation and management with capabilities across a spectrum of practice areas. At Blanchard, Krasner & French we are unique in our ability to offer high quality legal services while maintaining “small firm” accessibility, service, and attention to our clients. We offer more than just technical legal expertise. Our lawyers provide creative, intelligent, and pragmatic solutions to address our clients’ particular business models, industries, and concerns. That is who we are and what we do.

OPENING THIS FALL IN RENO 5470 Kietzke Lane, Suite 200 • Reno, NV 89511 • 858.551.2440 • www.bkflaw.com /BKFAttorneys @BKFAttorneys /company/clanchard-krasner-&-french Northern Nevada Business Weekly |

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