More On Piercing The Corporate Veil In Indiana, And The UFTA by John D. Waller

This follows-up my May 15, 2007 and May 23, 2007 articles about Indiana law applicable to creditors that want to pierce the corporate veil and that wish to recover under Indiana's Uniform Fraudulent Transfer Act. On July 20, 2007, the Indiana Court of Appeals issued an opinion upholding the trial court's piercing of the corporate veil, normally a difficult thing to do, as well as affirming liability based on the UFTA. See, Four Seasons Manufacturing, Inc. v. 1001 Coliseum, LLC, 2007 Ind. App. LEXIS 1589 (Ind. Ct. App. 2007).
Indiana's general principles on "piercing". Four Seasons, on page 12, sets out these guidelines:
1. Indiana courts are reluctant to disregard the corporate identity and do so only to protect third parties from fraud or injustice when transacting business with a corporate entity.
2. The process of piercing a corporate veil is equitable in nature, and courts necessarily engage in "a highly fact-sensitive inquiry."
3. Parties seeking to pierce the corporate veil bear the burden of establishing that the corporation was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the misuse of the corporate form would constitute a fraud or promote injustice.
Factors to be considered. To get to individual owners, the following evidence may be considered (see, pp. 12 and 13):
1. Undercapitalization;
2. Absence of corporate records;
3. Fraudulent representation by corporation shareholders or directors;
4. Use of the corporation to promote fraud, injustice or illegal activities;
5. Payment by the corporation of individual obligations;
6. Commingling of assets and affairs;
7. Failure to observe required corporate formalities; or
8. Other shareholder acts or conduct ignoring, controlling or manipulating the corporate forum.
To get to other entities, in addition to the eight factors above, Indiana courts consider these:
1. Similar corporate names were used;
2. The corporations shared common principal corporate officers, directors, and employees;
3. The business purposes of the corporations were similar; and
4. The corporations were located in the same offices and used the same telephone numbers and business cards.
Importantly, each of the above factors does not need to be proven in order to pierce a corporate veil. The list is non-exhaustive. There does not necessarily need to be evidence of every factor. Id. at 16. In Four Seasons, the Court of Appeals held that the plaintiff commercial lessor (creditor) presented adequate evidence that the defendant entity basically orchestrated a fraudulent purchase agreement between two related entities (both of which were owned by the defendant) in order to shield those entities from liability associated with a lease default.
Uniform Fraudulent Transfer Act. Actions pursuant to the UFTA and proceedings to pierce the corporate veil sometimes go hand in hand. Four Seasons is one of those cases. Indeed the plaintiff was able to recover its damages from the corporate owner of the defaulting entity/lessee under the piercing theory and, alternatively, the fraudulent transfer theory. One specific question in Four Seasons was whether the defendant was a "debtor" under the UFTA, Ind. Code § 32-18-2. A "debtor" is "a person who is liable on a claim." I.C. § 32-18-2-6. The Court of Appeals held that the defendant entity was a debtor because it coordinated the fraudulent transfer at issue. Also important was the fact that the defendant was the 100% owner of both the defaulting lessee and the entity that "purchased" the lessee at the time of the default.
The remedies provision of the UFTA, I.C. § 32-18-2-7, focuses on the amount of the fraudulent transfer - no more, no less. In Four Seasons, the UFTA damages consisted of the value of assets the defendant entity fraudulently transferred between one entity to the other entity in order to avoid a judgment based on the lease breach. Id. at 22-24. That amount consisted of the value of the assets that the breaching entity (the corporate lessee) possessed upon default - the same amount of money fraudulently transferred out of that entity to the second, related entity.
The Four Seasons case offers secured lenders guidance when faced with decisions concerning whether to pursue the assets of individuals or entities other than those of the actual borrower's. Piercing the corporate veil and UFTA actions can be expensive and time-consuming cases, not to mention difficult ones to win. This and other recent Indiana cases demonstrate, however, that it can be done under certain circumstances.
About the Author
John D. Waller is a partner at the Indianapolis law firm of Wooden & McLaughlin LLP. He publishes the blog Indiana Commercial Foreclosure Law at http://commercialforeclosureblog.typepad.com. John's phone number is 317-639-6151, and his e-mail address is jwaller@woodmclaw.com.

Guide to Current Patent Reform Legislation by Robert Ambrogi

Legislation that would dramatically overhaul U.S. patent law appears to be on a fast track in Congress, but legal and business groups are finding themselves at odds over the legislation. In an effort to help make sense of this legislation, we offer this guide to its key provisions, together with summaries of the arguments being raised for and against.
CONVERT U.S. TO FIRST-TO-FILE
In what would be a fundamental shift in U.S. patent law, the bill would bring the United States into conformity with the rest of the world by converting it from a first-to-invent to a first-inventor-to-file system.
Proponents maintain this would simplify the patent process, reduce legal costs, improve fairness, and enhance the opportunity to make progress toward a more harmonized international patent system. A first-to-file system, they say, provides a fixed and easy-to-determine date of priority of invention. This, in turn, would result in greater legal certainty within innovative industries.
Proponents also believe that this change would decrease the complexity, length, and expense associated with current USPTO interference proceedings. Rather than tie up inventors in lengthy proceedings seeking to prove dates of inventive activity that may have occurred many years earlier, inventors could continue to focus on inventing.
Finally, because this change would bring the U.S. into harmony with the patent laws of other countries, it would enable U.S. companies to organize and manage their portfolios in a consistent manner.
Opponents argue that adoption of a first-to-file system could promote a rush to the USPTO with premature and hastily prepared disclosure information, resulting in a decline in quality. Also, because many independent inventors and small entities lack sufficient resources and expertise, they would be unlikely to prevail in a "race to the patent office" against large, well-endowed entities.
The USPTO opposes immediate conversion to a first-to-file system, in part because this remains a bargaining point in its ongoing harmonization discussions with foreign patent offices. Inventors also oppose this.
APPORTIONMENT OF DAMAGES
The bill would significantly change the apportionment of damages in patent cases. Under current law, a patentee is entitled to damages adequate to compensate for infringement but in no event less than a reasonable royalty. Section 5(a) of the bill would require a court to ensure that a reasonable royalty is applied only to the economic value attributed to the patented invention, as distinguished from the economic value attributable to other features added by the infringer.
The bill also provides that in order for the entire-market rule to apply, the patentee must establish that the patent's specific improvement is the predominant basis for market demand.
Proponents say this measure is necessary to limit excessive royalty awards and bring them back in line with historical patent law and economic reality. By requiring the court to determine as a preliminary matter the "economic value properly attributable to the patent's specific contribution over the prior art," the bill would ensure that only the infringer's gain attributable to the claimed invention's contribution over the prior art will be subject to a reasonable royalty. The portion of that gain due to the patent holder in the form of a reasonable royalty can then be determined by reference to other relevant factors.
Complex products, the proponents contend, often rely on a number of features or processes, many of which may be unpatented. Even where the patented component is insignificant as compared to unpatented features, patentees base their damage calculations on the value of an entire end product. This standard defies common sense, distorts incentives, and encourages frivolous litigation.
Further, courts in recent years have applied the entire-market-value rule in entirely dissimilar situations, leaving the likely measure of damages applicable in any given case open to anyone's guess.
Opponents argue that Congress should not attempt to codify or prioritize the factors that a court may apply when determining reasonable royalty rates. The so-called Georgia-Pacific factors provide courts with adequate guidance to determine reasonable royalty rates. The amount of a reasonable royalty should turn on the facts of each particular case.
Although intended to guard against allegedly inflated damage awards, this mandatory apportionment test would represent a dramatic departure from the market-based principles that currently govern damages calculations, opponents say. Even worse, it would result in unpredictable and artificially low damages awards for the majority of patents, no matter how inherently valuable they might be.
Opponents further argue that this change would undermine existing licenses and encourage an increase in litigation. Existing and potential licensees would see little downside to "rolling the dice" in court before taking a license. Once in court, this measure would lengthen the damages phase of trials, further adding to the staggering cost of patent litigation and delays in the judicial system.
WILLFUL INFRINGEMENT
Section 5(a) of the bill would limit a court's authority to award enhanced damages for willful infringement. It would statutorily limit increased damages to instances of willful infringement, require a showing that the infringer intentionally copied the patented invention, require notice of infringement to be sufficiently specific so as to reduce the use of form letters, establish a good faith belief defense, require that determinations of willfulness be made after a finding of infringement, and require that determinations of willfulness be made by the judge, not the jury.
Proponents say that willfulness claims are raised too frequently in patent litigation - almost as a matter of course, given their relative ease of proof and potential for windfall damages. For defendants, this raises the cost of litigation and their potential exposure.
A codified standard with fair and meaningful notice provisions would restore balance to the system, proponents say, reserving the treble penalty to those who were truly intentional in their willfulness and ending unfair windfalls for mere knowledge of a patent.
Further, tightening the requirements for finding willful infringement would encourage innovative review of existing patents, something the current standard discourages for fear of helping to establish willfulness.
Opponents argue that willfulness is already difficult to establish under existing law. The additional requirements, limitations, and conditions set forth in the bill would significantly reduce the ability of a patentee to obtain treble damages when willful conduct actually occurs. The possibility of treble damages under current law is an important deterrent to patent infringement that should be retained as is.
INTERLOCUTORY APPEALS
Section 10(b) of the bill would permit an interlocutory appeal to the Federal Circuit Court of Appeals after a Markman hearing on claim construction, rather than waiting for a final judgment from the district court.
Proponents say these appeals would reduce the length and cost of litigation. Claim construction, they argue, is a fundamental predicate that goes to the heart of any patent infringement case. Until a claim is construed, it is impossible to establish whether infringement occurred and whether the patent is invalid. This process also serves to narrow discovery and motion practice and related expenses.
Proponents assert that an interlocutory appeal would help to mitigate the judicial inefficiency that occurs when a full trial is conducted based on an incorrect interpretation of the patent, only to be reversed on appeal and sent back for a second trial. More than a third of all Markman rulings are overturned on appeal, meaning that many litigants end up paying the attorney fees and expenses for two trials.
Opponents say interlocutory appeals from Markman hearings would increase litigation and court congestion and offer "another bite at the apple" because the reversal rate for claim construction is fairly high. The net result, they say, will be to significantly delay final judgments from the lower court, significantly delay potential settlements, and significantly increase litigations costs.
Opponents argue that the Federal Circuit would not be able to handle expeditiously the large numbers of Markman appeals, meaning that resolution of the underlying district court cases would be delayed for years.
If this provision is enacted, opponents say, it would result in an interlocutory appeal in virtually every patent infringement case as soon as a Markman order is issued. One study estimates this would double the number of appeals each year.
POST-GRANT REVIEW
The bill would expand the ability of third parties to challenge a patent after its issuance. In particular, it would allow any person to oppose a patent within 12 months after it is granted. More controversially, it would allow a challenge at any time if the petitioner "establishes a substantial reason to believe that the continued existence of the challenged claim in the petition causes or is likely to cause the petitioner significant economic harm."
A newly designated Patent Trial and Appeal Board would be responsible for conducting the post-grant reviews. The presumption of validity that applies to patents during litigation would not apply to these post-grant review proceedings. Instead, a "preponderance of the evidence" standard would apply.
The so-called second window - the ability to challenge at any time - is necessary, proponents say, to allow for a meaningful and broadly available reevaluation of suspect patent claims before a firm is forced into prolonged and expensive litigation.
PRIOR USER DEFENSE
Section 5(b) of the bill expands the prior-use defense, which presently applies only to business-methods patents, to cover all patents.
Proponents argue that this expansion is reasonable in a competitive economy and strikes a balance between trade secret and patent protection. They also say it goes hand-in-hand with U.S. adoption of a first-to-file rule. Prior-user rights benefit smaller businesses, which often lack the resources or know-how to pursue patent protection, proponents say. This measure would allow them to commercialize their inventions when they used the subject matter of the invention prior to the patent's filing date, even when they did not pursue patent rights.
Some foreign countries presently allow prior-user rights, including Germany and Japan. This measure would help level the playing field for U.S. companies by putting them in the same competitive position as their overseas counterparts.
Opponents contend that prior-user rights undermine the purpose of a patent system by creating a strong incentive to protect innovations as trade secrets. Under a prior-use defense regime, if inventors are able to protect their innovations as trade secrets, they are able to use them indefinitely, even if someone else obtains a patent on the invention.
Opponents also argue that this change would benefit larger corporations at the expense of smaller ones. They also contend that prior-user rights would reduce the value of patents and therefore make innovation less desirable.
VENUE
Section 10(a) of the bill limits the places where corporations may be sued in patent cases by amending 28 U.S.C. § 1400(b) to provide that a corporation "resides" only where it has its principal place of business or in the state in which the corporation is incorporated. Current law presumes a corporation to reside wherever it is subject to personal jurisdiction. This change would not apply to declaratory judgment actions brought by alleged infringers.
Proponents argue that this change would discourage forum shopping. As the law now stands, any company whose products are sold nationwide is subject to patent litigation in any jurisdiction in the country. As a result, certain jurisdictions have become magnets for patent cases because of the disproportionately high number of cases they decide in favor of patentees.
This forum shopping imposes a costly burden on businesses which must collect evidence and witnesses and travel to remote jurisdictions to try complex patent cases over a period of weeks or months.
Opponents argue that this change would be a substantial departure from established practice and may not result in the most appropriate and convenient venue for litigation. Certain district courts attract patent cases not because of favoritism, they say, but because of their expertise and timeliness. They also argue that the impact of forum shopping is minimized by the existence of a single appellate court for patent cases, the Federal Circuit.
USPTO REGULATORY AUTHORITY
The bill would authorize the USPTO to promulgate substantive - as opposed to procedural - rules and regulations for the first time in its history.
Proponents argue that giving the USPTO substantive rulemaking authority would be beneficial to the patent system and would help ensure an efficient and quality-based patent examination process.
Opponents note that the U.S. Constitution expressly gives Congress the power to protect intellectual property and that delegating that authority to an administrative agency would be an ill-considered abdication of that Constitutional authority. Further, this grant of authority would create instability in the patent system, because the USPTO could make multiple changes to the law during the life of a patent. The job of defining substantive patent law is better left to Congress and the courts.
INVENTOR'S OATH
The bill would change the current practice of requiring the inventor to sign an application. It would allow the assignee of an invention to file a patent application in its own name. It would also allow substitutes for the inventor's oath where the inventor is unable or unwilling to sign.
Proponents say this change would reduce unnecessary formalities in the patent application and simplify and streamline the process. They also say this change would go hand-in-hand with a U.S. shift to a first-to-file system.
Opponents say that patent applications filed by assignees may lack the actual inventor's personal guarantee that the application was properly prepared. In addition, assignee filing might derogate the right of natural persons to their inventions.
About the Author
Robert Ambrogi is the editor of BullsEye, a monthly newsletter distributed by IMS Expert Services. IMS Expert Services is the premier expert witness and litigation consultant search firm in the legal industry, focused exclusively on providing custom expert witness searches to attorneys. To read this and other legal industry BullsEye publications, please visit IMS Expert Services at www.ims-expertservices.com.

What Employers Must Know About Whistle Blowing by Attorney Gabirel Cosh

Whistle blowing is an act wherein an employee reports, to the proper authorities or government agencies, what he perceives as wrongful acts being committed by his employer.
If you are an employer, you should be well informed that your employee is protected by the law against retaliation for his or her whistle blowing. If you are doing something unlawful and you were reported by one of your employees to the proper agency, you cannot penalize your employee for doing this. The next thing that you may do is to prepare yourself for the notice of violation or subpoena from the court requiring your attendance at a hearing. Meaning, face the accusations against you and defend yourself in the proper forum.
Furthermore, you cannot terminate or even discriminate the whistle blower for that matter. You should treat him like any other ordinary employee. Otherwise, you will be in for more damages. The law allows the whistle blower to recover damages from his employer if he was wrongfully terminated or otherwise discriminated due to his act of whistle blowing.
However, you should also know that your employee is not protected by whistle blowing laws if he files any complaint for your illegal acts to other person in your company. But don't be too quick to get back at your employee.
Even though he is not protected by whistle blowing laws, you still cannot attack the whistle blower with impunity. Otherwise, you could be liable for damages for violating your responsibility to treat each of your employees justly and reasonably. In short, you will be violating public policy provisions.
What if you are not really committing an illicit act? Can you then retaliate against your over zealous employee for such wrong accusations? The answer still is no. You cannot retaliate against your whistle blowing employee even if you did not actually commit any illegal or wrongful act. The criteria are, for as long as the employee, in good faith, thinks that you were committing a wrong, the employee is protected from telling on you despite the fact that the information was erroneous.
But then again, you should not fret. A whistle blowing employee is not immune from any sanctions from you after the whistle blowing act. The law mandates to treat the whistle blowing employee the same way you treat an ordinary employee.
Hence, if the whistle blowing employee committed subsequent conduct for which he can be terminated under the law, then you have the suitable reasons to terminate the whistle blower. It is only where the act of terminating an employee is tantamount to retaliation and the law steps in to protect the employee. Treat your employees fairly, especially in California. Otherwise, expert legal eagles might swoop in to make you accountable for violating the law against employee retaliation.
About the Author
For more information about Violation of Whistle Blowing Laws, visit our Los Angeles Lawyers

Settling a Personal Injury Case by Attorney Gabirel Cosh

Our current legal system is encountering problems due to its own nature. It has become so open and accessible to the public that the slightest injury sustained by a person or the slightest damage that a property has experienced would already amount to a long-standing litigation that would take years before final resolution. We have a society that is sue happy and breaks into litigation that so appropriate in our prevailing realm.
Our government is aware of this growing dilemma, and the fact that our courts' dockets are clogged with so many petty cases. Unfortunately, the more pressing claims are given less attention. With this in mind, our government has outlined several means to settle a particular case without having to resort to court litigation. These other means include mediation and arbitration of the claims.
Mediation and arbitration involve pre-litigation avenues in settling a particular dispute. The fact that the parties are given the opportunity to air their grievances and address their arguments until they reach a common ground. The main goal in mediation and arbitration is arriving at a settlement. These types of settlement process are encouraged by the courts to do away with the adversarial set-up in court litigation and the expensive process of going through the rigid court procedures.
The good thing with the use of these alternative modes of settling disputes is the fact that any settlement arrived at by the parties would be controlling between and among them, it has the force and authority of a decision of a jury, which is considered as final and executory.
Owing to its nature of dependency to the voluntary conduct of the parties in the case, no one can appeal on the final decision of a mediation or arbitration settlement. This means that after the victim accepts the settlement arrived at by the parties then he or she could no longer file any claims in court for the same cause of action. The plaintiff is barred from filing a lawsuit based on a case that has been previously decided upon through mediation or arbitration.
The alternative procedures for settling disputes is now being given importance since it provides the opportunity for the parties to sit down and talk about the circumstances without rigid formality and cost. It does not only foster rational thinking, it also gives ample consideration for the wrongdoers who have accepted the civil wrong he or she committed. It also allows allows another party to willingly forgive the wrongdoer after deciding upon the proper and just compensation.
About the Author
For more information please log on Los Angeles Personal Injury Lawyer site

Discrimination based on Age by Attorney Gabirel Cosh

A person's willingness to continue working in order to provide for the needs of his family is admirable. However, when one reaches a certain age, it comes to a point when a body fails and unable to do the things it can when young. That is the time when a person must forgo of his or her employment.
Nevertheless, it must be pointed out that age is not major factor in determining if an employee can no longer comply with the demands of his occupation. The condition of the body that determines whether one is qualified to continue with his job.
As always, the employer has ample authority to terminate an employee and break the employer-employee relationship, especially if the production process is already affected by the incompetent acts of the employee. Yet this power granted to the employer cannot be exercised without due regard to the regulations contained in our Constitution and laws.
This means that if an employee has been terminated on the sole basis of his or her age, then such act amounts to unfair labor practice or labor law violations. It is also tantamount to employment discrimination based on age. If this case occurs, the employer would be liable for any untoward damages that may be experienced by the employee.
To further stress the point, if an employee reaches a certain age wherein he would be considered rather old, and then he were terminated from work or become subject to a constructive dismissal by the employer which primary factor solely depends on his age, then the act would fall under discrimination in employment on the basis of age.
An employer has the prerogative to hire or fire an employee, however, this prerogative cannot be used as basis for discriminating against an employee, whether basing on his age or other notable factors like gender, race and religion.
A termination would be valid if it is based on acceptable reasons like if the employee is considered as a liability, already rather an asset to the company. These reasons and other civil wrongs and criminal acts can be the valid reasons for an employee to be dismissed.
An employee who is a victim of discrimination for his or her age and is unlawfully terminated for this reasons, can file for labor law violation claims and can be actually given a higher settlement amount if it is proven that the employer acted beyond his or her jurisdiction. Usually, the reason for the high claims is when an employee is discriminated for his old age and he finds it difficult to find another job again.
About the Author
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