This court examined this Order and determined that it violated the automatic stay provisions of the Bankruptcy Code. There is an exception to the automatic stay for the enforcement of a judgment by a governmental unit. But the court held that an exception to the exception held that the governmental unit could not use this exception to collect a money judgment.
This is a must read case for all attorneys with clients interested in asset protection and offshore trust arrangements.
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Howard Z. Gopman is a principal in Howard Z. Gopman & Associates, Ltd., located in Skokie, Illinois.
December, 2000
By Donna J. Cunningham, Cunningham & Colleagues, P.C., Barrington
Copyright, 2000; All Rights Reserved; Donna J. Cunningham
1. OSHA issues final ergonomics rule.
Despite the controversy, and while we were looking the other way, President Clinton has adopted OSHA's Final Rule requiring businesses to deal with the repetitive stress and other ergonomic injuries of their workers. With few exceptions, the Final Rule applies to all businesses covered by the Occupational Safety and Health Act, and takes effect on January 16, 2001. Every business covered by the Rule must disseminate basic information to its employees about Musculoskeletal Disorders (MSDs), the risk factors of work activities, the signs and symptoms of an MSD, a description of OSHA's standard, and instructions about how to report an MSD. No further action is required unless an employee reports an MSD. Employers must begin to disseminate information to employees by October 14, 2001. http://www.osha-slc.gov/ergonomics-standard/index.html See especially the FAQs, and Information Kit, listing the Rule's exceptions for small businesses.
2. The Internet I: ICANN approves new TLDs, including ".pro" for lawyers.
ICANN, the Internet Corporation for the Assignment of Names and Numbers, this month announced the designation of new Top Level Domains (TLDs). Of the many proposed TLDs, ICANN approved only these: .aero (air-transport industry), .biz (businesses), .coop (non-profit cooperatives), .info (unrestricted use), .museum (museums), .name (for use by individuals), and .pro (for use by accountants, lawyers and physicians. The price to register a ".pro" domain has not been set, but reportedly, the cost to register a ".biz" name is $2,000, plus a $150 annual maintenance fee. The new TLDs are not expected to be operational until the second quarter of 2001, but you can contact the registrars for each of the new domains from: http://www.icann.org/tlds/ No early registrations, though.
3. Internet II: ailing Internet suffering from access restrictions, net jurisdiction disputes, UK spying, and breakaway countries.
Access restrictions: A French Court has held US-based Yahoo accountable for failing to block the content of its auction materials to Internet surfers located in France, and has threatened fines in excess of 100,000 francs (US$12,853) per day unless Yahoo installs a keyword-based blocking system that prevents French citizens from seeing the offending Yahoo sites. Aside from the impracticality of implementing such a system on a wide scale, the ruling also sets a dangerous precedent by seeking to impose an obligation on every internet business to comply with the laws of every country in which a viewer may see its Web sites. If allowed to stand, the decision would change the Internet as we know it. http://www.cdt.org/publications/pp_6.20.shtml#1
Net jurisdiction: The European Commission is expected to announce a decision mandating that e-commerce complaints be heard in the courts of the consumer's country, rather than in the courts of the vendor's country. The ruling is expected to increase the insurance costs of doing business for e-commerce retailers, to defendout-of-country actions. http://www.thestandard.net/article/display/0,1151,20366,00.html
UK spying: Britain's police and intelligence services have jointly asked for legislation permitting them to monitor every email message, telephone call and internet connection within or to the United Kingdom (UK), and store it in a database for seven years. Roger Gaspar, Deputy Director of the National Criminal Intelligence Service (NCIS) says the request is "proportional and necessary." http://news.bbc.co.uk/hi/english/uk/newsid_1052000/1052341.stm
Breakaway countries: Stung by ICANN's request for higher fees, and protesting that they have no input into the process, Germany (.de), the United Kingdom (.uk), and others are considering moving their domains from ICANN's root servers, and taking several million internet users out of the Domain Name Server system. http://www.theregister.co.uk/content/6/14999.html
4. Intellectual property: no software patents in Europe --not yet.
Although the European Patent Office favors software patents, every European country except for Austria, Liechtenstein and Switzerland voted to keep Europe's law at status quo, forbidding software patents. Expect the debate to continue. http://www.theregister.co.uk/content/4/14933.html
5. New legislation I: Illinois securities law, Business Brokers Act and business opportunities laws amended.
In an attempt to protect investors, Public Act 91-809, effective January 1, 2001, http://www.ilga.gov/ publicacts/pubact91/acts/91-0809.html rewrites the Illinois Securities Law, the Business Brokers Act, http://www.ilga.gov/ilcs/ch815/ch815act307articles/ch815act307artstoc.htm and the Business Opportunities Sales Law. http://www.ilga.gov/ilcs/ch815/ch815act602articles/ch815act602artstoc.htm.
Changes to the Securities Law (http://www.ilga.gov/ilcs/ch815/ch815act5.htm) require that investment advisers with assets under management of less than $25 million register in Illinois, subjecting themselves to enforcement actions by the Secretary of State. For purposes of the exemption allowing unregistered securities to be offered to a person with a net worth of $1 million, the value of a person's principal residence will now be excluded, so that far fewer will qualify for this exemption. The Business Opportunities Sales Law of 1995 is amended to eliminate the exemptions for sales of less than $500, and sellers with a net worth of more than $1 million. The statute also removes the exemptions for a seller with a minimum net worth of $1 million concerning any business opportunity that involves a marketing plan made in conjunction with the licensing of a federally registered trademark or service mark. All of the changes are effective January 1, 2001.
6. New legislation II: Illinois Business Corporation Act amended to prohibit misrepresenting of corporate location.
Public Act 91-906 prohibits the use of an assumed or fictitious name that intentionally misrepresents where the business is located or operating, or falsely states or represents that it is located in the area covered by the telephone directory in which it is posted. Effective January 1, 2001. http://www.ilga.gov/
publicacts/pubact91/acts/91-0906.html
7. "Apportionable business income" construed; Department of Revenue loses.
Plaintiff, a Texas corporation doing business in Illinois, appealed a decision of the Illinois Department of Revenue that it owed back taxes on the interest earned on all funds made available for working capital, only a portion of which was used as working capital. Finding that all interest income from such funds constituted apportionable business income, the circuit court affirmed. Plaintiff appealed, contending that such a construction violated the due process and commerce clauses of the US constitution; the First District Appellate court agreed, and reversed, holding that only that portion that was actually used for working capital may be taxed. Home Interiors and Gifts, Inc., v. Dept. of Revenue, No. 1-99-1953 (November 13, 2000) 1st Div. (FROSSARD) Reversed. http://www.state.il.us/court/2000/1991953.htm
8. Damage to "individuals" under Federal Computer Fraud and Abuse Act includes corporations.
Disgruntled former employee's manipulation of company's computer system could not be defended on the grounds that the Act only prohibited damage to "individuals." Although the Federal Computer Fraud and Abuse Act, 18 U.S.C. 1030, http://www4.law.cornell.edu/uscode/18/1030.html, provides that damages may be recovered by "individuals," that term was construed broadly enough to encompass corporations. United States v. Middleton, U.S. Ct. App., 9th Cir., No. 99-10518, 11/16/00). http://www.ca9.uscourts.gov/ca9/newopinions.nsf/04485f8dcbd4e1ea882569520074e698/21cf83922264a943882569990061dfc7?OpenDocument
9. Physician's non-competition agreement held void and unenforceable.
Drawing parallels between Rule 5.6 of the Rules of Professional Conduct applying to lawyers and section 9.2 of the Opinions of the Council on Ethical and Judicial Affairs of the American Medical Association, the Fifth District Appellate court has held as void and unenforceable a physician's non-competition agreement. Finding that the restrictive covenant was an unreasonable restraint of trade and contrary to public policy, the court declined to follow a contrary decision of the Fourth District Appellate court in Prairie Eye Center, Ltd. v. Butler, http://www.state.il.us/court/appellates/1999/4990127.htm, 305 Ill.App.3d 442, 713 N.E.2d 610 (1999). Shields, infra, also held as void and unenforceable the employment contract between Plaintiff and the employing corporate entity, and therefore declared it unassignable. Shields vs. Alton Health Institute, No. 5-99-0359, Fifth Dist., (November 3, 2000). http://www.state.il.us/court/2000/5990359.htm
10. How to make those e-mail trails disappear
For businesses that become involved in litigation, a "smoking gun" is often found in the e-mails stored on the company's computers, since even after an email is "deleted" it can be recovered from a computer's hard drive. But what's worse is that copies of the message are everywhere: the sender's and recipient's hard drive, the hard drives of third parties to whom it was forwarded, back-up tapes and files, and on every one of the servers the message has passed through. How do you delete all of those copies, no matter where they are? Try San Francisco's Disappearing Inc., which provides a service that encrypts the mail and assigns a unique key that resides on the company's server. The message remains encrypted on every server it passes through, as well as on the sender's and the recipient's hard drives--and on all backup copies. At some time determined either by the sender or by company policy, which can be hours, days or weeks, the key is automatically deleted and all the messages become unreadable. For a free trial copy of the software, go to www.
disappearing.com.
January, 2001
Alert: Last year, many of our readers called looking for the Ingram Micro case, which held that loss of computer use and functionality was compensable under the "physical damage" portion of a liability policy. We now have a copy of the Order granting partial Summary Judgment on this issue, which will shortly be posted on our Web site at http://www.bzlaw.com3. Our thanks to Attorney Mark Slater of McCutcheon, Doyle, Brown & Enerson, LLP, in San Francisco, CA, who represents Ingram Micro, and who provided us with a copy of this non-published opinion. But see below for a contrary Illinois opinion.
Note: Since our links must be limited in number of characters, instructions for for getting to links will be given any time the direct link would exceed the allowable number of characters.
1. Patent applications to be published 18 months after filing.
Bringing the US patent system into line with patent systems in Europe and Japan, the American Inventors Protection Act of 1999, requires that the U.S. Patent and Trademark Office (USPTO) publish most applications 18 months after their filing, whether they are granted or denied. The publication provision of the new law is effective as of January 1, 2001. An inventor whose application is granted after publication would have the right to seek royalties from others who use it before the patent is granted. Inventors who don't plan to seek a patent overseas may qualify for non-publication under an exception to the new law. Because this bill was incorporated into the Intellectual Property Omnibus and Correction Act, which was itself incorporated into a larger appropriations bill, no manageable link exists which can be used or explained within our space limitations.
2. Tax I: Installment Tax Correction Act corrects onerous installment sales tax treatment of sales of small businesses.
As previously reported in our March, 2000 issue, small businesses using the accrual basis of accounting were taking it on the chin because a new law which taxed the entire proceeds of the sale of a business upon the sale, even if the payments were to be received in installments. That law is now history, as President Clinton, on December 17, 2000, signed into law the Installment Tax Correction Act of 2000, which essentially returns the law to what it was before last year's new law took effect. To see the bill, go to http://thomas.loc.gov/4, click on "Public Laws by Law Number", and input # 106-573.
3. Tax II: New IRS reporting requirements for attorneys postponed.
A new IRS Regulation scheduled to take effect January 1, 2001, was again postponed, to the relief of the bar nationwide. New 1099-MISC reporting requirements would have eliminated the $600 threshold for reporting, eliminated the exception for professional corporations, and required payors to report not only "income" but "information" regarding all monies passing directly or indirectly through the hands of attorneys. Such information reporting would include checks payable to a client, but delivered to an attorney. the regulations appear to require, for instance, in a real estate transaction, the reporting of the gross sale price without setoff for the mortgage or other expenses, and presumably, in a business sale transaction, the gross sale price of the business, and requires middlemen to report on amounts relayed to attorneys. Fortunately, IRS Notice 2001-7 http://www.fedworld.gov/pub/irs-drop/n-01-7.pdf5 postpones indefinitely the adoption of the regulation as to 26 USC 6045 (f), http://www4.law.cornell.edu/uscode/26/6045.html,6 which remains in effect without regulative interpretation.
4. On discovery of malpractice, statute of limitations begins to run as to all defendants. Debtor's adversary proceeding against defendant-accounting firm for their failure to advise of the financial state of the business debtor was purchasing, was barred by two-year statute of limitations, since more than two years earlier, Debtor wrote to defendant, advising that its lawyers were investigating whether defendant and others were liable for accounting errors. Once debtor has "strong suspicion" that one potential defendant had been engaged in wrongdoing, the statute of limitations began to run as to all other potential defendants. The Whitlock Corporation vs. Deloitte & Touche, LLP, 00-1718 (12-7-00). To read the case, go to http://www. ca7.uscourts.gov/,7 click on "Judicial Opinions" and input case number 00-1718.
5. Attorney fees owed by client can be proven without "detailed, contemporaneous time records."
After its client refused to pay attorney fees, law firm Wildman, Harold, et al. brought a breach of contract action. Although no written representation contract was signed, Wildman proved up its fees in the proceeding by establishing (1) the existence of an attorney-client relationship, (2) the nature of the services rendered, (3) the amount of time expended, and (4) the result, if any, obtained for the client. Defendant objections, based on fee petition cases, were inapposite, and did not apply to a breach of contract or quantum meruit proceeding. Here, the parties had agreed to a certain hourly rate which satisfied professional standards. Wildman, Harrold, Allen and Dixon vs. Gaylord, No. 1-99-4301 (11-20-00). http://www.state.il.us/court/2000/1994301.htm.8 If this link does not work, go to http://www.state.il.us/court/20009, and search for case # 1-99-4301.
6. Former employer loses non-compete, but wins with "inevitable disclosure" under Trade Secrets Act. Lesson: appeal denial of TRO.
Although employee had signed a non-compete and confidentiality contract with her employer, Strata Marketing, she left to work for Strata's fiercest competitor. Strata sued, alleging breach of contract and violations of the Illinois Trade Secrets Act (765 ILCS 1065/1 et seq.) http://www.ilga.gov/ilcs/ ch765/ch765act1065.htm 10. Strata filed a Motion for a Temporary Restraining order (TRO), and former employee moved to dismiss. The trial court granted the Motion to Dismiss on both counts, and denied the TRO on substantive grounds, saying the employment contract was not enforfceable. Strata appealed the rulings on the motion to dismiss, but not the denial of the TRO. On appeal, the 1st District Appellate Court ruled that the failure to appeal the TRO was fatal for the contract action, that Strata may proceed under the Trade Secrets Act, to prove its action based on the theory of "inevitable disclosure." Strata Marketing, Inc. vs. Murphy, 1-99-2749 (12-06-00). http://www.state.il.us/court/2000/1992749.htm11 .
7. Intellectual property: "Smoke Daddy" fails to show "Bone Daddy" confusing for consumers.
Saying that Plaintiffs had not met their burden of proving that consumers would be confused by these similar names, the Seventh Circuit Court of Appeals reversed a preliminary injunction prohibiting the owners of Bone Daddy from using that name while it tries to fight off a trademark infringement suit brought by the owners of Smoke Daddy. Although both parties agreed that "Smoke Daddy" was a name protectable under the Lanham Act, Plaintiff had failed to prove Defendant's bad intent, as well as consumer confusion. Barbecue Marx, Inc. v. 551 Ogden, Inc., No. 00-3110, (12-22-00). To read the case, go to http://www.ca7.uscourts.gov/12, click on "Judicial Opinions, and input case number 00-3110.
8. Defective plumbing system not covered unless leak during policy term; no coverage for damage during removal of defective part.
In a case involving the appeals for four Declaratory Judgment Actions involving several insurers, concerning defective plumbing systems (Qest) installed across the country, the Illinois Supreme Court has ruled, distinguishing between Illinois law and New York law. Under New York law, the mere installation of the Qest system into a larger entity constitutes "injury to tangible property," whereas under Illinois law, no "physical injury to tangible property" occurred when the Qest systems were installed, but no leaks suffered. Writing for a majority of the court, Justice Heiple ruled that damage caused by removing and replacing a system which has not leaked does not constitute "physical injury" to tangible property. Traveler's Insurance Co., et al v. Eljer Manufacturing Inc., Consol. No. 88407 & 88410, (12-1-00). http://www.state.il.us/court/2000/88407.htm.13
But see Ingram Micro, referred to above.
9. Technology advancing to protect copyrights.
A story in the latest issue of Wired magazine reports on the development of software capable identifying pirated material on the internet, and tracing it back to the originating server. Once the server is located, an automatic "take-down" notice is sent, in compliance with the Digital Millenium Copyright Act of 1998, which requires copyright holders to contact infringers, and requires infringers to remove the copyrighted material from their Web sites. http://www.wired.com/news/technology/0,1282,40866,00.html14
10. First major Y2K ruling favors insurer.
Saying that Xerox waited too long and spent too much before consulting its insurer for reimbursement. Justice Charles Ramos of the State Supreme Court in Manhattan, noted that Xerox had spent $138 million, and that Xerox's delay had deprived its insurer, American Guarantee and Liability Insurance Co. of the chance to examine Xerox's hardware and software to determine how much work was needed, if any, before it was carried out. http://www.nytimes.com/2000/12/22/technology/22YEAR.html15
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1 mailto:cunning@bzlaw.com
2 http://www.bzlaw.com/
5 http://www.fedworld.gov/pub/irs-drop/n-01-7.pdf
6 http://www4.law.cornell.edu/uscode/26/6045.html
7 http://www.ca7.uscourts.gov/
8 http://www.state.il.us/court/2000/1994301.htm
9 http://www.state.il.us/court/2000/
10 http://www.ilga.gov/ilcs/ch765/ch765act1065.htm
11 http://www.state.il.us/court/2000/1992749.htm
12 http://www.ca7.uscourts.gov/
13 http://www.state.il.us/court/2000/88407.htm
14 http://www.wired.com/news/technology/0%2C1282%2C40 866%2C00.html
15 http://www.nytimes.com/2000/12/22/technology/22YEAR.html
February, 2001
Note: Since our links must be limited in number of characters, instructions for for getting to links will be given any time the direct link would exceed the allowable number of characters. Note also that the Illinois Courts Web page is down, so we do not have links or URLs.
1. New secretary of state filing by fax procedures proposed; your comments needed.
From Lin Hanson Vice Chair, Secretary of State's Business Laws Advisory Committee: The Secretary of State is considering a new method of filing corporate and other business documents. Under the new system, attorneys would register as users, providing the Secretary with their names, addresses, telephone numbers, and credit card information. Registered attorneys could fax Articles of Incorporation and other documents to the Secretary of State, which upon receipt, would be electronically assigned to a reviewer. If correctly completed, and if the quality of the fax reproduction is high enough for filing, the form would be filed, fees charged to the user's credit card, and the filed document would be faxed back. This (faxed) document would be your "official" charter document for all purposes. Normally, documents will be filed and returned within 48 hours of receipt. There will be an expediting fee attached to this service. This system is presently in use in Michigan, where 10,000 registered users are now filing over 90% of all documents received in the corporation department. The new system will not be adopted without support from the attorneys who would use it. To comment regarding whether you would use such a system, or about how to make the system most useful to you, contact Lin Hanson at lhanson27@aol.com.
2. Illinois Supreme Court I: collateral estoppel applies to questions of law as well as questions of fact.
Resolving a conflict between the state's Appellate Courts, the Illinois Supreme Court has ruled that the doctrine of collateral estoppel applies to questions of law as well as questions of fact. Having lost its case against Machinery Distribution, Inc. on the grounds that no exclusivity provision existed pursuant to Illinois' Franchise Act, Plaintiff was prohibited from suing a different defendant alleging tortious interference with an exclusive contract. As the case is not yet posted online, we have only the case number: DuPage Forklift Services, Inc. vs. Material Handling Services, Inc., No. 88116.
3. Illinois Supreme Court II: rehearing granted in "property damage" insurance case.