Through this arrangement, Jones Waldo will offer Utah companies access to legal resources and strategic business advice regarding opportunities in China, a rapidly expanding area of the global economy. We are excited to be at the forefront of companies who see the value of thinking globally and look forward to assisting business owners who are ready to benefit from the opportunities that are waiting.

We’ll be posting items of interest concerning doing business in or with China. Let us know if there is a particular topic you’d like to know more about.

This implied covenant of good faith and fair dealing cannot change the actual written terms of any of the clauses of a written contract, and a court cannot use it to negate or ignore a specific written term of agreement between the parties.  However, many times a contract will include language which purports to give a decision to one party at its “sole discretion” or with its “complete discretion.”  If the contract includes such a clause, sometimes a person may mistakenly believe that he has an unfettered right to make his decision without any regard to how it might impact the other party.  In fact, some have chosen to exercise their discretion in order to create the most negative impact on the other party as possible.

Utah appellate courts have held that when a party exercises its “sole discretion,” it must do so according to specific terms and standards set forth in the contract.  If there are no such specific criteria or standards as to how to exercise its discretion, the party exercising its “sole discretion” cannot decide to make a decision that harms the other party and keeps it from being able to receive its benefit under the contract.  In other words, sole discretion should be viewed as sole “reasonable” discretion.

In a recent Utah Court of Appeals decision, Markham v. Bradley, 2007 UT App 379, 173 P.3d 865, the Court of Appeals determined that the sellers under a standard Real Estate Purchase Contract had breached the implied covenant of good faith and fair dealing when they improperly rejected the buyers’ financial information received as part of their seller financing agreement.  In addition, the sellers had decided not to sell to the buyers even though the buyers had obtained other financing and were able to close on time.  The court determined that the sellers had breached the implied covenant of good faith and fair dealing by not properly evaluating the financial documents provided by the buyers.  Therefore, the sellers’ rejection of the buyers’ financial documents was not done in good faith.  The court ruled that the sellers were obligated to complete the sale of the property to the buyers.

For parties entering contracts regarding leases, purchase of property, or other contracts where there are a variety of different duties and obligations for each party to perform, the parties need to remember that a court can evaluate whether the parties are treating each other fairly and, if a party tries to take advantage of the other party in a way that shows an action in bad faith where its discretion is involved, there is a good chance that a court will not look favorably on the party acting in bad faith.

This article is not intended to be legal advice.  Receipt of this information does not create an attorney-client relationship.

The Guides set forth the general principles that the FTC uses to evaluate endorsements and testimonials. In any action to enforce the requirements of the law as explained by the Guides, the FTC has the burden of proving that a particular use of an endorsement or testimonial is deceptive. The Guides are designed to assist business comply with the law.

The Guides consist of definitions, statements of the FTC’s understanding of the standards applicable under Section 5 of the FTC Act, and examples that help illustrate these standards.

According to the FTC, even factually correct statements can be determined to be deceptive and misleading. If a company can’t make a statement, then neither can an endorser. There is no protection afforded by having someone other than the business make a statement. The FTC indicates that if you can’t back up a statement, then you should not make it. A consumer endorser claiming that your product cured them of some affliction is not sufficient substantiation to make such a claim. According to the FTC, if you market a weight-loss product then you must possess and rely upon adequate substantiation, including competent and reliable scientific evidence that proves the product is effective for the purpose of weight-loss.

If you showcase someone that has had extraordinary success with your product a simple “Result Not Typical” will no longer be sufficient according to the FTC. The FTC indicates that if a company has given money or free products or any other incentive to a blogger with the expectation that the blogger will or possibly will review the product, then that must be disclosed by the blogger in the review by a statement, such as, “ABC Company gave me this product to try.” In many cases, both the endorser and the company may be liable for violations of the law in this area.

It would be wise for companies to make clear to their distributors what is and what is not allowed when it comes to claims about their products, services or the opportunity. Companies should also consider the impact of blogging and other “new media.” If a distributor is going to write about your products, services, or opportunity on a blog or other “new media,” such as Facebook or Twitter, then it is likely that the FTC would consider their connection to the company material and require a discloser of that connection.

Results Not Typical

Under the old Guides companies could use testimonials that were not generally representative of what consumers could expect from the advertised product so long as the marketers clearly and conspicuously disclosed either what the generally expected performance would be in the depicted circumstances (as an example the average result is 2 pounds lost per week as compared to the atypical 10 pounds per week), or the limited applicability of the depicted results to what consumers can generally expect to receive (results not typical or similar).

Companies used the “results not typical” language to inform consumers about how rare the featured results were. The new Guides reflect the FTC belief that “disclaimers of typicality” are not sufficient in most circumstances. Therefore any depiction of extraordinary results must be accompanied with a notice of what the consumer can general expect to obtain.

Conclusion

 If your company is or has been using the “results not typical” language or relying on a similar format, you should review these activities in light of the revised Guides and make any adjustment before the December 1, 2009 effective date. You should seek competent legal counsel to ensure you are compliant. If you desire assistance from Jones Waldo, please contact us and we will be glad to determine if we can advise you on the matter. We wish you the best in your business pursuits.

Enter the Foreign Trade Zone – FTZ.  An FTZ is a location to which imported goods can be shipped upon arriving in the U.S. and treated for the most part as if they have not yet entered the U.S.  They are not just near seaports.  There are 275 U.S. government approved FTZs across the country, including one in Salt Lake City and another in Las Vegas.  Imported products admitted to the FTZ are not entered into the U.S. customs territory until their withdrawal from the FTZ.  Products can be moved from one FTZ to another and still avoid customs (and duty) payments. 

Thus, a product arriving in Long Beach, California, from China can be processed into the FTZ there and then be shipped to the FTZ in Salt Lake City.  If the process takes weeks or even months because the product, for some reason, is warehoused in the FTZ, the products are “Kings-xed” from U.S. Customs.  This allows the importer to pay the duty at a point in time much closer to delivery into the market.  For items that take a long time to sell, such as large equipment and vehicles, this deferral of the payment of duty can be critical.  In fact, it is possible that the FTZ could even be used to move imported products across the country from FTZ to FTZ and then on to Canada without ever becoming subject to payment of duty in the US.

Another advantage is if products are imported into the U.S. but are defective, become obsolete, or otherwise need to be destroyed.  If held within the FTZ, no duty will have been charged to the importer – obviously important to the importer who may be unable to sell the products. 

Now, back to our unassembled goods vs. finished BMW example.  If you arrange to have your product assembled from the imported components (as well as those already here in the U.S.) at a facility within an FTZ you only pay 2.5% duty on your imported components.  This can be a significant incentive to assemble and warehouse your products in an FTZ. 

The benefits of an FTZ to a small Utah-based importer can be significant.  The benefits range from deferring, eliminating or reducing customs duties, improving cash flow by lowering inventory costs as well as inventory levels, and other consolidation advantages.  

The Utah Foreign Trade Zone is located at 1105 South 4800 West in Salt Lake City, not far from Salt Lake International Airport.  The Las Vegas Foreign Trade Zone is at  McCarran International Airport.  For more information go to www.commerce.gov, www.goed.utah.gov or www.expand2nevada.com.

An ALTA survey is one means of reducing risk in a real estate transaction. The process of preparing an ALTA survey may show that possession or use of the property does not conform to record information, with the result that the extent of title and rights do not always conform to the boundaries set forth in a deed. An ALTA survey provides detail, such as fences, trails, roads, utility lines and other features of the property, and may highlight the need for further investigation into the possibility of adverse rights. Also, an ALTA survey can establish that the legal description being relied upon in the purchase contract and deed can be used to actually locate the property on the ground.

If a buyer requires an extended coverage owner’s title policy, it must provide the title insurer with an ALTA survey so that the insurer can delete the standard exceptions for (i) easements, or claims of easements, not shown by the public record; and (ii) encroachments, overlaps, boundary line disputes, or other matters that would be disclosed by an accurate survey and inspection.

(A boundary survey shows the boundary lines between parcels of land, but not necessarily any improvements on the land. It does not conform to uniform requirements and does not typically show the level of detail that a buyer of commercial real estate needs to evaluate.)

A letter of intent (LOI) can range from being a preliminary, non-binding expression of the parties’ intentions to negotiate and complete a transaction, typically including only the essential terms, to a document that the parties intend to be fully binding, with detailed provisions that will be in the final agreement. This range in the binding nature of an LOI can cause frustration if the LOI is not skillfully drafted so that it is clear to all concerned whether it is meant to be non-binding, partially binding, or fully binding. (Often the parties mistakenly believe that entering into an LOI will shorten the timeframe or reduce the cost of the overall transaction. However, this is not necessarily true, nor is it the primary purpose of an LOI. While the LOI can be a helpful outline for reaching agreement on essential terms, the parties often become aware of items that have not yet been considered and that they wish to include in the final agreement. This may add to the upfront time and expense of the transaction, but will help avoid the need for amendments to a final agreement or costly litigation which can result from ambiguity in the agreement).

A non-binding LOI should include the basic elements of the deal, but will not afford remedies if one of the parties fails to go through with the deal. Its value is mostly psychological. A non-binding LOI must state clearly that it is merely an expression of the parties’ general understanding; it should not contain words that might lead to the inference that the parties intended to be bound, such as “offer” or “acceptance,” nor should it require the parties to use “best efforts” to negotiate a deal.  Also, in order to counter the argument that a party has a duty of good faith and fair dealing, an express provision should be included stating that the parties have no obligation to engage in good faith and fair dealing in negotiating a binding contract.  It would be wise to expressly state that (i) neither party is to rely on the non-binding LOI as creating any promises, and (ii) it should not be interpreted as justifying action or forbearance by either party.

On the other hand, the if the LOI is intended to be fully binding, it will require much more time and care in drafting, as it may address numerous details and provisions regarding contingencies, conditions, representations and warranties, due diligence period, assignment and assumption rights, remedies, survivability, confidentiality and nondisclosure obligations. The fully binding LOI should state very clearly that it is intended to be enforceable and that the parties are bound by the duty of good faith and fair dealing; it should also set out the remedies for a breach. (Not to be overlooked – a binding LOI must also be supported by consideration).

A common misconception is that a binding LOI can substitute for the final agreement because of its level of detail. If the parties have reached agreement to the extent that no additional terms remain to be worked out, the time and expense of preparing an LOI may be unnecessary, in which case the parties should move directly to documenting the full agreement.

Why can you sell goods and services from Southern Utah and other perfect places largely in your own language and largely in the way that you are accustomed to doing business? In no small part, you can thank the British.

In 1992, before “the earth is flat” era, Joel Kotkin authored Tribes, a fascinating book about how race, religion and identity determine success in what was then seen as a new world economy. Kotkin’s premise was that notwithstanding the dissolution of national boundaries due to a modern world-wide system of trade, tribalism is still alive and well as certain “global tribes” have been at the center of the world’s economy for hundreds of years and will continue into the 21st century. His thought provoking work focused on five major groups: Jews, British, Chinese, Japanese and Indians. I recommend this book highly to those seeking deeper insight into the longer term influences that shaped our world economy.

The opportunity for the small business person in rural America of today to be a participant in international trade was shaped, in part, years ago as the British undertook a form of conquest somewhat unique to world history at its greatest period of expansion. Kotkin points out that the march through history of the British certainly confounded the other seekers of global power such as the Germans, Italians, Spanish and most of all, the French. Even as late as the 1780’s, France had surpassed Britain in overseas colonial trade. The population of France was four times greater than that of Britain. French industrial power was superior and the French language stood second to none throughout Europe. It was the language of kings.

Yet today among the nations that were spawned by the British Empire, the United States, Canada, Australia, India, Britain and New Zealand, you have over half of the world’s GDP and by far the largest block of overseas foreign investment on the globe. You have English as the first language or the second language of preference virtually everywhere. What the English did to accomplish this phenomenal result was varied, but among the most important reasons is that when the British moved around the globe with their navies and armies, they did not merely go as the conqueror. To the contrary, legions of administrators and business people followed. Often it was the British East India Company or some other major commercial entity that helped guide government objectives and policy. The result is that a society was installed wherever possible that had perpetual mercantilism and trade at its heart. It stood to reason that war was disruptive to commerce and that good was more apt to flow in times of peace than in time of conflict. The British did not do a perfect job. They can’t forget that little mistake of getting the American colonists upset, but they did undertake a much more comprehensive effort in building community and commerce as opposed to mere conquest.

The result is that great empires, rather than falling, merely took on new custodians like the Americans and the Indians who continued the practices of government laid down and established by their British ancestors or conquerors. Moreover, other emerging economies have found success in adopting the British commercial models installed long ago. You see it in China, Japan and many of the prosperous Arab states. You see it in Hong Kong, Singapore and New Delhi, which retained much of their British traditions and architecture. British law, customs, commercial practices and business language are replete throughout the world – and even in the small towns of America.

When you, as a small business person in America have something to sell, the rest of the world is to some degree already prepared and waiting, thanks to the British. They often speak English or desire to. They are already experts at supply chain models established by the traders from the British Isles who came and in many cases stayed until their story was well understood, and until their story was part of the local history.

So, if you wonder why I can encourage you to put together a strategy for selling in foreign lands and actually lay out a process for doing so, it is thanks in part to the British, one of the great “tribes” who two centuries ago, built the economic core of today’s global commerce.

NOTE: Next Post - Some Nuts and Bolts for International Selling from Southern Utah and Other Perfect Places

Status of the key parts of the Consumer Product Safety Improvement Act

• A lead content limit for children’s products which will likely apply retroactively beginning on February 10, 2009, with lower lead content limits coming on line over the next few years – delayed one year due to the stay
• A Certificate of Conformity requirement for all consumer products that are regulated in any manner under U.S. consumer product safety laws – delayed one year due to the stay
• Mandatory third party testing and certification for all children’s products – delayed one year due to the stay
• A ban on certain phthalates in children’s toys and child care articles beginning on February 10, 2009 – not stayed, enforcement will begin
• Permanent tracking label requirements for all children’s products – not enforced until August 14, 2009
• Hazard warning requirements for advertisements of certain toys and children’s products.  For advertising on the internet, enforcment is now in effect. For catalogs and other printed materials, enforcement will go into effect on February 15, 2009.

Quotes from the stay:

Manufacturers and importers — large and small — of children’s products will not need to test or certify to these new requirements, but will need to meet the lead and phthalates limits, mandatory toy standards and other requirements.

The stay of enforcement provides some temporary, limited relief to the crafters, children’s garment manufacturers and toy makers who had been subject to the testing and certification required under the CPSIA. These businesses will not need to issue certificates based on testing of their products until additional decisions are issued by the Commission. However, all businesses, including, but not limited to, handmade toy and apparel makers, crafters and home-based small businesses, must still be sure that their products conform to all safety standards and similar requirements, including the lead and phthalates provisions of the CPSIA.

Cautions:

1. The foregoing does not exempt compliance with state laws that can be more stringent than the federal standard.
2. The stay does not relieve testing and certification with ASTM standards or any other preexisting testing and certification requirements.
3. There are many other parts of the Act that apply to vehicles, recreational equiptment and other items that are now in effect.

You should consult your legal counsel to determine whether you import or manufacture porducts that are regulated by the Act. The fact that you may be a small business or home-based business does not exempt you from compliance.

Significant to makers of children’s products, the vote by the Commission provides limited relief from the testing and certification requirements which go into effect on February 10, 2009 for new total lead content limits (600 ppm), phthalates limits for certain products (1000 ppm), and mandatory toy standards, among other things. Manufacturers and importers – large and small – of children’s products will not need to test or certify to these new requirements, but will need to meet the lead and phthalates limits, mandatory toy standards and other requirements.

The stay of enforcement provides some temporary, limited relief to the crafters, children’s garment manufacturers and toy makers who had been subject to the testing and certification required under the CPSIA. These businesses will not need to issue certificates based on testing of their products until additional decisions are issued by the Commission. However, all businesses, including, but not limited to, handmade toy and apparel makers, crafters and home-based small businesses, must still be sure that their products conform to all safety standards and similar requirements, including the lead and phthalates provisions of the CPSIA.

See CPSC website: http://www.cpsc.gov/ABOUT/Cpsia/cpsia.HTML

Jones Waldo represents manufacturers and importers/exporters in connection with US and foreign compliance issues.

Fiduciary Duties

If a member of an LLC is also a manager of the LLC, then that member is in a position of trust. To protect other owners of the LLC, these members owe the LLC the duty of loyalty and the duties of care.

The duty of loyalty prevents a member from competing with the LLC in another business. A member must refrain from dealing with a person or business with interests adverse to those of the LLC and must account for any benefits received from use of LLC property or from the winding up of LLC affairs.

The duty of care requires a member to refrain from grossly negligent, reckless, or intentional misconduct.

The duties of loyalty and care are similar in partnership law. Managers of an LLC who are not owners are held to the same standard. However, a member who is not a manager of an LLC is not bound by the same duties, since such a manager is not involved in the day-to-day activities of the company

Indemnity and Contribution Rights

The Uniform Limited Liability Company Act (UCCLA) provides that a member must be reimbursed for payments made on behalf of the LLC and indemnified for liabilities incurred by the member during the ordinary course of the LLC’s business. These rights are similar to those provided to partners in a general partnership. However, most state statutes do not address indemnity rights. Similarly, the ULLCA provides that members are required to make contributions according to the agreement of the owners of the company, which is similar to rights provided in partnership laws. An operating agreement will often set forth such indemnity and contribution rights

The default rules regarding distributions to members differ among the states. Some states provide that members receive a share of distributions in the same proportion as their contributions to the LLC (pro rata distribution). Other states, including those that have adopted the ULLCA, provide for equal distribution among the members (per capita distribution). These provisions can be altered in the operating agreement.

Transferring Interests

A member may transfer his or her financial rights to profits and losses, and the right to receive distributions, in all states. However, a member cannot transfer full ownership interests, such as those related to the right to manage the company, without unanimous agreement of all of the other members. Rights related to transferability of interests can be modified in the operating agreement.