Category Archives: Contracts

Tips & Resources for Homeowners Recovering from Hurricane Harvey

There are countless legal issues that will arise in the aftermath of Hurricane Harvey.  This article is aimed at providing some tips and resources specifically for homeowners with property damage requiring repair.  The first few weeks are about cleanup and recovery.  After that time the repairs begin and that is when a lot of homeowners can get into even more trouble.

The unfortunate truth is that a lot of contractors will descend upon areas devastated by natural disasters such as this.  The large volume of repair work needed combined with a lot folks in desperate situations is a breeding ground for fraudulent and criminal activity.  Invariably, fraudulent contractors come in, steal money, and get out before they are ever caught.  The homeowner ends up losing twice – once with the property damage and a second time with the money they thought they paying to have their home repaired.   Those most at risk from these types of predators include the elderly, those with limited English skills, and those with low income.

There is no way to guarantee you won’t fall prey to a bad contractor.  But here are some things you can do to increase your odds.

Tips to Limit the Risk that a Bad Contractor Will Take Advantage of you

  1. Be patient!  It’s tough to do that when your home has been destroyed or suffered significant damage and you just want a safe secure place to live.  But that desperation is exactly what bad contractors are hoping to take advantage of.  So be patient throughout the process – don’t make quick decisions.  Don’t be afraid to sleep on it or take a few days to think about a decision.   Finding the right contractor that will work with you on many of the issues below may take a lot of time but spend that time.  Believe me – you will regret your impatience if it leads to someone taking advantage of you.
  2. Always get multiple estimates.  Never sign an agreement with the first contractor you come across.  There can be significant differences in costs and estimates from one contractor to the next.  Take the time to learn about the range of prices and the differences in the estimates (or contractor’s method of business) that account for those differences in pricing.
  3. Avoid paying the contractor significant money up front.  It is not unreasonable for a contractor to require some form of down payment for supplies and materials when he starts work on your project.  But it also is not necessary.   It is certainly not necessary for the homeowner to put down a large fixed percentage of the total cost up front.  Or worse – pay in full up front.  If you have a contractor demanding you make such a payment – move on.  If you have a contractor pushing you for a down payment so he can “put you on his schedule” – move on.
  4. Always have a written contract for the work.  Never pay money to a contractor without a written agreement signed by both you and the contractor.  The agreement should specifically state the scope of work that the contractor is responsible for performing and the price for that work.  The contract should specify when payment is due – upon completion or periodically.  If periodically, then the contract should set specific bench marks for the contractor to earn each periodic payment.  More detail is better.
  5. Inquire whether the contractor will use employees or subcontractors.  Make sure the answer is stated in the contract.  If the contractor uses subcontractors, you must get lien releases from the subcontractors showing that the subcontractor has been paid in full at the time you make any payments.  If you do not then you risk the subcontractors filing a mechanic’s lien on your home for the work they performed if you pay the contractor and he does not pay the subs.  Make sure your obligation to make any payment is contingent on receiving those releases.  Make sure the subcontractors are licensed, insured, and bonded.
  6. Home Equity Loans.  You may need a loan to repair your property and this is not uncommon.  However, do not allow the contractor to push you into that decision or “recommend” a lender to you.  It is an all too common scam for a contractor to induce a homeowner into securing a home equity loan, then take the loan proceeds and leave with out performing any work.  This leaves the homeowner with a loan payment, a lien on their house, no more equity, and the repairs still need to be done.
  7. Verify the contractor.  This means check his license.  Check his liability insurance.  Check his workman’s compensation insurance.  Check his Better Business Bureau rating.  Is the contractor bonded? Ask for referrals – and contact those people.  Verify the contractor’s address – a lot of contractors will chase storms from out of state.  You are less likely to run into trouble if you work with a local contractor that has a long history of successful services in your area.  If he is using subcontractors, ask for their credentials.
  8. Get a firm start date and time estimate.  Then put it into the contract.  It is not uncommon for the start date to slip a few days or even a week or two.  But address that possibility in the contractor and secure a right to walk away from the contract if the contractor does not begin work on or before a certain date so that you are not stuck waiting.  See #3 above – do not make any payment prior to the date the contractor actually begins work.  Also – get a firm estimate on the time to complete the work.  See #3 above – do not pay your contractor in full before the work is done and you receive all lien releases (see #5).  Do not pay the contractor on anything but the agreed upon schedule under any circumstances.  If you properly addressed the payment schedule in your contract then this will provide you with some protection should the contractor leave mid-job.
  9. Here are some additional miscellaneous red flags.  Contractors soliciting door to door.  Out of state contractors.  Contractors using P.O. Box addresses.  Contractors with no history that you can locate.  Contractors with phone numbers from a non-local area code.  Contractors who cannot or will not address any of the issues above.

Additional Resources for Homeowners Recovering from Hurricane Harvey

Below are links to some additional resources:

  1. State Bar of Texas Disaster Recovery Manual
  2. State Bar of Texas Disaster Relief Page
  3. Federal Emergency Management Agency (FEMA)Hurricane Harvey Page
  4. Office of the Governor Hurricane Page
  5. Office of the Attorney General Consumer Protection
  6. Texas Association of Builders (with more information on choosing a reputable contractor)
  7. City of Houston Disaster Recovery

Forfeiture Provision in Executive Bonus Compensation Incentive Program is Not a Covenant Not to Compete Under Texas Law

The Supreme Court of Texas issued its opinion in Exxon Mobil Corporation v. Drennen this past week considering whether New York choice-of-law provisions in a Texas based corporation’s executive bonus-compensation incentive programs are enforceable.  The Court’s decision ultimately turned on whether or not a forfeiture provision in those programs constituted a covenant not to compete under Texas law.

The programs provided that an employee would forfeit his outstanding awards if he engaged in “detrimental activity” or resigned.  “Detrimental activity” was defined by the programs to include becoming employed by an entity that regularly competed with the company.  After being informed that he would be replaced, the executive in this case resigned and later accepted employment with a competitor of the company.  Exxon then terminated his outstanding incentive awards under the detrimental activity provisions.  Drennen filed suit seeking a declaratory judgment that the detrimental activity provisions were being utilized as covenants not to compete, were unenforceable, and were an impermissible attempt to recover monetary damages for an alleged breach of such covenant.  The jury found in favor of Exxon, the court of appeals reversed and ordered the trial court to render judgment in favor of Drennen.

The Court’s Analysis

The Supreme Court’s analysis started with a consideration of whether the programs’ choice of law provisions selecting New York law were enforceable.  The court noted that Texas recognizes the party autonomy rule under which parties may agree to be governed by the law of another state.  The Court previously set forth the  framework for determining whether such a provision is enforceable in DeSantis v. Wachenhut Corp. which adopted Section 187 the Restatement (Second) of Conflict of Laws.

The Court found that under Section 187, the parties had a reasonable basis for choosing New York law, Texas had a more significant relationship to the transaction and the parties than New York, and Texas had a materially greater interest then New York in whether the agreement was enforced.  The Court’s analysis of whether the choice of law provision was enforceable then turned to whether or not the application of New York law would be contrary to a fundamental policy of Texas.

The Court noted that while it had not previously defined “fundamental policy,” it had determined that the law governing enforcement of non-competes was a fundamental policy of Texas in its DeSantis opinion.  The question in this case was whether or not Exxon’s incentive programs, and the forfeiture provisions specifically, constituted a covenant not to compete.  If the forfeiture provision was in fact a covenant not to compete, then enforcing the choice of law provision would implicate a fundamental policy of Texas and its law governing the enforcement of non-compete agreements.

In Marsh USA  Inc. v. Cook, the Court provided a general definition of a covenant not to compete as a covenant “that places limits on former employees’ professional mobility or restrict[s] their solicitation of the former employers’ customers and employees.”  The Court found that the restrictions in Exxon’s incentive plans did not fit this general definition because Drennen did not make a promise not to compete or to solicit customers or employees under the forfeiture provision.

The Court also identified a key difference between non-compete provisions and forfeiture provisions in that the former are designed to protect a company’s investment in its employee by restricting that employee’s post-employment activities while the latter are designed to promote loyalty through rewards without restricting an employee’s post-employment activities.  In this case Drennen did not promise to refrain from competing with Exxon, rather, he agreed to continued loyalty as a condition to the receipt of his outstanding bonus compensation.  Drennen was not prohibited by the agreement from any post-employment activities meaning that Exxon had no legal right to prohibit his employment with its competitor (at least not one that it tried to enforce).

Since the forfeiture provision was not a non-compete, and there was no other fundamental policy implicated by the provision, the Court found that enforcement of the New York choice of law provision would not contravene a fundamental policy of Texas.  The Court then applied New York law to the facts to determine that the New York’s “employee choice” doctrine applied and that the forfeiture clause should be enforced.

A Change In Texas Policy?

In its analysis of Texas’s public policy the Court noted a potential shift in Texas policy regarding the enforcement of Texas laws on companies operating in Texas and also the application of out of state laws under choice of law provisions in Texas.  I’ve excerpted the language below:

With Texas now hosting many of the world’s largest corporations, our public policy has shifted from a patriarchal one in which we valued uniform treatment of Texas employees from one employer to the next above all else, to one in which we also value the ability of a company to maintain uniformity in its employment contracts across all employees, whether the individual employees reside in Texas or New York.

This appears to be a signal from the judiciary that as Texas continues to grow as a business friendly state and as businesses continue to move to the state, the state’s courts will be increasingly willing to forgo a strict application of Texas laws to those companies.  The courts will allow companies based in Texas to elect to have their employment agreements governed by laws from other states even when those agreements are with Texas based employees.

When should you hire an attorney to negotiate your agreement?

Business owners, partners, managers in closely held companies all share a very common trait – they like to do things themselves.  Why pay someone else if you can do it yourself?  The first question every business owner usually asks before spending money is whether the expenditure will provide convenience, cost savings, expertise, or will it make them more money?

So when should you look at bringing on an attorney (or other adviser) to assist with negotiating a contract, lease, asset purchase, business investment, or other deal on behalf of your company?  I’m not talking about for his or her expertise with the subject matter, I’m talking about practical reasons why it might make sense to hire someone to negotiate for you instead of doing it yourself.  I believe there are a number of reasons why a business owner could get a better deal by hiring an attorney to negotiate their next agreement and I’ve discussed them below.

You are not comfortable with confrontation or saying “No.”

Negotiations are difficult and this remains true if they are conducted in a polite and cordial manner.  There is no avoiding the fact that there is conflict inherent in every negotiation.  Some people are not comfortable dealing with that conflict.  This leads to bad deals because the you avoid discussing difficult issues instead of dealing with them.  This also leads to unfair deals because you are afraid to simply say “No” or are willing to give up too much to avoid the conflict rather than working through it to develop a mutually acceptable resolution.

You should bring in an adviser if you are too emotionally involved to maintain objectivity.

Sometimes you are just too emotionally involved in the deal.  Whether because of the deal’s importance to your company or the fact that it is your “baby” that is being discussed and dissected during the negotiations, it is often hard to separate the emotion from the discussion.  This can make it difficult to maintain your objectivity and appreciate the other party’s position.  This can cause you to reject perfectly reasonable positions taken by the other party due to a defensive or emotional reaction.

Emotions can also drive you to make a bad deal simply to get any deal.  Often business owners are so invested in their product or service that they will give up more than they should simply to get a deal done because they believe so strongly in what they are selling that they will make any sacrifice to see it succeed.  Instant gratification can be a strong and powerful emotion to contend with.

You should bring in an adviser if the personalities require it to get a fair deal.

Sometimes you just know that you aren’t the best person to handle the negotiations.  At the end of the day its about business.  Its about getting the deal done.  Whether its because of personal issues with the other party or past dealings, sometimes you just know that your involvement will cause the other party to take a difficult posture solely to “beat” you in the deal rather than negotiate reasonably.  Using an adviser can mitigate those personality issues because he or she has no skin in the underlying deal.  A neutral adviser can also take the air out of a party who is posturing simply to “beat” you because you are no longer involved in making the deal.

You should bring in an adviser if you get too excited.

When you near the end of any negotiation that you have an interest in, it is natural to get excited.  Particularly in business, you often see the light at the end of the tunnel and race to get the deal done because carrying out the terms of the deal (and getting paid) is more important to you than negotiating it.  Often this can lead you to leave little things on the table that collectively would make a big difference for your company or it could even lead to a bad deal that over looks important details.  If your excitement makes it difficult for you to slow down to evaluate and re-evaluate the overall deal then you may do well to hire an adviser to handle the negotiation.

A Summary of the 2013 Texas Legislature’s Impact On Business Laws In Texas

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The Leno Deal…Be Careful What You Wish For!

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Texas Buy-Sell Agreements

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Recent Posts on S-Corps

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