A cease and desist letter puts a person or business on notice that they are engaging in illegal activity, and if they do not stop, you will pursue legal action. It essentially serves as a warning and does not have any immediate legal consequences in the same way an order from the court or other government agency would.
However, because litigation can be time-consuming and expensive for both parties, a cease and desist letter can be a way to quickly and simply resolve the conflict. In addition, sending a letter provides evidence that the party had notice of the illegal behavior but continued to engage in it. In some cases, such as trademark infringement, this may allow you to collect additional money damages if you decide to bring the case to court.
You can use these letters in a variety of situations to protect your legal rights. Common reasons to use a desist and cease letter include:
Intellectual property infringement: A cease and desist letter is often the first step in resolving a dispute over copyright, trademark, or patent infringement.
Breach of contract: After you have entered into an agreement with another party and they have violated the terms of the agreement, sending a letter is one way to resolve the dispute out of court.
Libel and slander: You may use a cease and desist letter to put an end to false and defamatory statements about you or your business.
Debt collection harassment: State and federal law prohibits debt collectors from harassing you to collect a debt. A cease and desist letter puts them on notice that you are aware of your rights, and the activity must stop.
Other harassment: If someone is harassing you or your business, such as through stalking or repeated phone calls, a cease and desist letter asserts your rights and provides documentation of the behavior.
It is important to note that a cease and desist order, also known as an injunction or restraining order, is different from a letter. As opposed to being sent by an individual or his attorney, an order is an official legally-binding document that is issued by a government agency or a court. An order requires someone to stop doing a certain behavior, and if they fail to do so, they may be found in contempt of court and face penalties such as fines or jail time.
To obtain a cease and desist order, you must file a lawsuit or other paperwork with the court. The papers filed and the terminology used will differ depending on the circumstances and your state law. After the paperwork is filed, the other side will have an opportunity to respond, and the court will decide on the matter based on all the facts presented.
An effective cease and desist letter includes a few key provisions. It is important to be clear about what specific activity you want the person to cease, and why it is illegal for them to continue to do so. You should include a warning that you will pursue legal action—such as filing a lawsuit—if the activity does not stop. To preserve your rights, you may include a statement that you are not waiving present or future rights to sue based on prior misconduct. Send the letter via certified mail, as this will provide a record that it was sent to the correct party.
It is a misconception that this document must be sent by an attorney, although having an attorney or law firm name on the letter may put more pressure on the other party. However, the actual content of the letter is fairly simple. You can use one of Nolo’s free samples included below, Trademark Cease and Desist Letter and Cease and Desist for Collections.
After giving the party time to respond to or cease the activity, you should consider your next steps. The letter may only be the first step in resolving the conflict. If the party asserts he or she is not legally required to stop the activity, such as if there is a disagreement over whether or not a term of the contract has been breached, you may be able to negotiate a compromise.
If you are not able to reach a compromise, or if the letter and subsequent notices are ignored, the next step may be filing a lawsuit. Here you may be awarded damages for any harm caused by the activity, or have the court stop the activity through a cease and desist order.
]]>In these tough economic times, many small business owners are scrambling to keep their companies afloat or are closing down. If a corporation or LLC ends up having to shut its doors, the last thing a small business owner wants is to have to pay the business's debts. But when cash is tight and owners aren't careful, if an unpaid creditor sues for payment a court might "pierce the corporate veil" (lift the corporation or LLC's veil of limited liability) and hold the owners personally liable for their company's business debts.
Read on to learn the rules about piercing the corporate veil. (To learn about other ways you can become personally liable for corporate debt, see Nolo's article Are You Personally Liable for Your Business's Debts?)
Corporations and LLCs are legal entities, separate and distinct from the people who create and own them (these people are called corporate shareholders or LLC members). One of the principal advantages of forming a corporation or an LLC is that, because the corporation or LLC is considered a separate entity (unlike partnerships and sole proprietorships), the owners and managers have limited personal liability for the company's debts. This means that the people who own and run the corporation or LLC cannot usually be held personally responsible for the debts of the business. But, in certain situations, courts can ignore the limited liability status of a corporation or LLC and hold its officers, directors, and shareholders or members personally liable for its debts. When this happens, it is called piercing the corporate veil. Closely held corporations and small LLCs are most likely to get their veils pierced (corporations that are owned by one or just a few people are called closely held corporations, or close corporations for short).
If a court pierces a company's corporate veil, the owners, shareholders, or members of a corporation or LLC can be held personally liable for corporate debts. This means creditors can go after the owners' home, bank account, investments, and other assets to satisfy the corporate debt. But courts will impose personal liability only on those individuals who are responsible for the corporation or LLC's wrongful or fraudulent actions; they won't hold innocent parties personally liable for company debts.
Courts might pierce the corporate veil and impose personal liability on officers, directors, shareholders, or members when all of the following are true.
The most common factors that courts consider in determining whether to pierce the corporate veil are:
Some corporations and LLCs are especially vulnerable when these factors are considered, simply because of their size and business practices. Closely held companies are more susceptible to losing limited liability status than large, publicly traded corporations. There are several reasons for this.
Failure to follow corporate formalities. Small corporations are less likely than their larger counterparts to observe corporate formalities, which makes them more vulnerable to a piercing of their corporate veil. To avoid trouble, it's best to play it safe. It's important for small corporations and LLCs to comply with the rules governing formation and maintenance of a corporation, including:
Commingling assets. Small business owners may be more likely than their larger counterparts to commingle their personal assets with those of the corporation or LLC. For example, some small business owners divert corporate assets for their own personal use by writing a check from the company account to make a payment on a personal mortgage -- or by depositing a check made payable to the corporation into the owner's personal bank account. This is called "commingling of assets." To avoid trouble, the corporation should maintain its own bank account and the owner should never use the company account for personal use or deposit checks payable to the company in a personal account.
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]]>You or your business can suffer consequences from failing to answer a demand letter in a timely fashion. Most demand letters will instruct you to provide a written reply (your response letter) within a certain amount of time (the response deadline), or else the sending party (the obligee) will consider taking legal action against you. Although you’re generally not legally bound to send a reply before the response deadline (or at all), the referenced time frame can give you some insight as to the obligee’s eagerness to move forward with the adversarial process. Ignoring a demand letter — particularly if you don’t read it at all — usually gives the obligee no other choice but to initiate a formal legal action against you or your business, perhaps even sooner than they otherwise would have. Once the obligee has expended funds to hire a lawyer and file an official complaint, there is often little that you can do to stop the process. Furthermore, in the subsequent legal proceeding, the obligee will be able to argue to the trier of fact that they offered you a reasonable time to amicably resolve the issue, but you ignored their good faith efforts.
Demand letters can either be expected or unexpected. Your motivation and willingness to confront the matters described in the letter will not only depend on your assessment of the merits of the underlying claim, but also on your visceral reaction. No matter what your attitude is towards the dispute, you must sufficiently restrain your emotions so that you can readily address the issue. By simply reading the letter (rather than throwing it away or tossing it aside), you might even realize that the other party’s demands are more reasonable than you had previously anticipated. This would give you the opportunity to save yourself unnecessary strife by readily redressing the outstanding matters. Note that, in the event you’re able to reach a mutually satisfactory conclusion, the obligee should provide you with a signed and notarized written release.
Once you’ve read the demand letter in full, make an honest assessment of the validity of the obligee’s arguments, including any monetary amounts that you might legitimately owe them. Also, make note of any discrepancies you see in the obligee’s recitation of the underlying factual background. Furthermore, you should make a tabulation of any deductions or counterclaims that you feel you could rightfully assert against the obligee.
Every demand letter is issued with varying motives and levels of expectations. Although most demand letters use hyperbolic language intended to elicit your compliance (by threatening a lawsuit), this is often a bluff meant to intimidate you into some sort of settlement — even if it’s for much less than what the demand letter is requesting. In particular, this might be the case if the obligee believes that you’re either lacking adequate counsel, naïve with respect to legal matters, or unlikely to effectively rebut the merits of their claims. In short, the obligee might simply feel that sending a terse demand letter could be a quick and cost efficient way for them to walk away with something rather than nothing.
Even in cases where the obligee’s claims are entirely warrantless or frivolous, the obligee could still try to bully you into a settlement if they believe you’ll seek to avoid litigation at all costs.
If you already have an attorney, then you will likely want to have them respond to opposing counsel on your behalf. If you don’t have an attorney, you still might consider hiring one for the sole purpose of responding to the demand letter, if you can negotiate a nominal, one time legal fee. Using an attorney adds legitimacy to your response letter and ensures that it is written with relevant legal arguments and vernacular.
If you elect to prepare the response letter yourself (in other words, without an attorney), then be sure to deliver it within the requested time frame. Your response letter should be both factual and professional and written on your company’s letterhead. Based on the merits of the claim, your available resources, and your personal situation, you’ll have to determine how vigorously you want to respond; but you should only include as much forceful language as is minimally necessary to convey your arguments effectively. Always remember that part of the obligee’s motivation in eliciting your written response is so that they can possibly use it against you in court. If the obligee can demonstrate that your response letter was merely a vitriolic rant devoid of any cogent argument, then it will likely tarnish the launch of your defense. And with the judge (as with anyone else), you only get one chance to make a first impression.
Furthermore, keep in mind that attorneys often write these types of letters for their clients solely to earn a fee, without fully understanding the particulars of the underlying history. If you respond to the demand letter in a factual, deliberate, and conscientious way, then it’s possible that the obligee’s legal counsel could convince their client to either abandon the dispute altogether or take a more conciliatory approach, based on their recent revelations.
When you deliver your response letter, make sure that you send it to the obligee’s attorney via both email and a postal service that allows you to track and confirm delivery. You should have some form of tangible evidence that your response letter was both delivered and accepted. Save this documentation in a safe place, just in case you need to produce it in connection with a future proceeding.
]]>This article looks at BP's compensation fund for businesses and workers affected by the oil spill and the process for getting a claim filed with the fund. (For a broader look at legal issues related to the BP oil spill, check out Nolo's article BP Oil Spill Lawsuits and Legal Issues.)
After some prodding from President Obama and his administration, BP set up a $20 billion escrow fund to be used to compensate businesses and workers whose financial livelihood has been damaged or threatened as a result of the BP oil spill disaster. The fund is primarily meant to help individuals and companies located in Louisiana, Mississippi, Alabama, Florida, and Texas.
Early on, claims were handled by BP itself, but as of August 23, 2010, an independent entity called the Gulf Coast Claims Facility began accepting and processing claims related to the Gulf oil spill (see the GCCF's official website at www.gulfcoastclaimsfacility.com). Individuals and businesses that file a claim can be compensated for a variety of economic damages attributable to the oil spill and cleanup efforts, including:
If you or your business has been hit hard financially as a result of the BP oil spill, filing a claim with the Gulf Coast Claims Facility might be a quick way to get compensation and keep your doors open or your bills paid. But, as a condition of receiving a lump-sum payment under the fund, you'll probably be asked to waive your right to file a lawsuit against BP and others (the waiver probably won't be made a condition for the receipt of monthly "emergency" payments). It could be risky to accept a one-time payment now and waive your right to file a lawsuit when the scope of your financial losses may not be fully defined. Keep in mind also that not all claims will speed through the process. Claims for $5,000 or more are considered "large loss" claims by BP, and those claims will go through a longer review process. And as more and more claimants get in line, there's no guarantee that the $20 billion fund will be enough to compensate everyone. Before you file a claim with the Gulf Coast Claims Facility, you may want to speak with an attorney to make sure all your legal bases are covered. You can use Nolo's Lawyer Directory to locate and talk with an attorney in your area.
The more evidence you can show to a Gulf Coast Claims Facility adjuster, the better your chances of getting back as much of the money you lost as possible -- and getting it as quickly as possible. BP has called the lack of documentation "the single biggest issue holding up claims."
So what kind of documentation do you need to speed up your claim and collect compensation? Whether you own a business or worked in the Gulf region, you should provide a "before and after" economic snapshot. First, what did your economic situation -- business profits, sales, income, wages, tips, and the like -- look like in the months before the BP oil spill? Second, what has happened to those profit and income numbers since the spill? Here's a look at the kinds of documentation that you should locate and submit, for different types of claims.
Separate claims forms are available for commercial fishermen, crabbers, oyster lease owners, and commercial shrimpers. Once you file a claim, you will be assigned a claim number, and then a Gulf Coast Claims Facility adjuster will contact you to discuss the specifics of your claim, including what kinds of supporting documentation you will need.
If you decide to file a claim with the Gulf Coast Claims Facility, here's how to get started:
The very people that business owners rely upon -- their subcontractors, suppliers, and customers -- can also be the source of all kinds of disputes. Subcontractors may leave work unfinished, suppliers may deliver subpar goods, and customers may not pay their bills.
Business owners typically can use small claims court in two main ways: to collect overdue bills or to resolve disputes with customers or other businesses.
Small claims court is particularly cost-effective for collecting unpaid bills because it eliminates the need for bill collectors and lawyers -- who often keep, as their fee, up to half of what they collect. Indeed, small claims court works so well that in many courts over 60% of the cases are filed by businesses. Because a substantial percentage of these claims are uncontested by the defendant (they know they owe the money and don't show up), little preparation or court time is needed. And best of all, many defendants who don't want their credit rating damaged pay voluntarily -- sometime between the time they receive a final demand letter threatening a small claims suit and the date a court judgment is entered.
You must have hard evidence that a debt is owed; small claims court is not biased in favor of allowing small businesses to collect debts. When defendants believe they have a good defense and fight back, they have a decent chance of winning or at least of paying substantially less than the plaintiff claims. For example, in a study of 996 small claims cases that went to trial, the National Center for State Courts found that 20% of the time the defendant won outright. In another 20% of the cases, the defendant was ordered to pay substantially less than the plaintiff demanded.
Contractual disputes between two small businesses or a business and a customer are also common in small claims court. Commonly, a business argues that goods or services were of poor quality, or provided late, or not at all.
Here's an example of a common dispute: Suppose Ted, an independent graphic designer, sues Tip Top Excavators because it won't pay him for redesigning its logo and newsletter. Tip Top's defense is that because the work was both substandard and late, the contract was broken and no payment is due.
If the parties don't negotiate their own solution or arrive at one through mediation, each will have a chance to present their side of the story to a small claims court judge. A succinct and well-organized court presentation is always important. And in a close case, chances are good that the side with the most convincing written evidence will have the edge.
For example, if the graphic designer can produce a written contract (or other documents showing that a contract existed), a decent-looking sample of the redesigned newsletter, and a letter from someone with expertise in the field stating that the work met industry standards, he will be in an excellent position. The graphic designer would also be wise to prepare to rebut the likely points the opposing business will make. For example, if the design work was a few weeks late, the graphic designer would want to present a good excuse, such as the fact that the client asked for time-consuming changes.
The defendant would be wise to present evidence that either the work was delivered so late that it amounted to a serious breach of the contract or that the graphic designer failed to meet other important contractual specifications (designed a 4-color, 24-page newsletter template when the contract called for a 2-color, 12-page job). Again, the more hard evidence the defendant has (such as a letter to the graphic designer pointing out the project was over deadline and asking for immediate completion), the better the defendant's chances of winning.
After both parties have their say, it will be up to the judge to decide. And again, there is good news. Instead of waiting around for months, as can happen in regular court, the judge will either announce a decision on the spot or mail it out in a few days. Either way, both sides will know where they stand and be able to get back to business.
For the information, tips and strategies you need to sue successfully in small claims court, get Everybody's Guide to Small Claims Court, by Ralph Warner (Nolo).
]]>It is often overwhelming for a small business to come up with the time, money, and expertise to cope with a relatively minor dispute through legal means. What's more, unless the situation is resolved amicably, the leftover hostility could affect a small business owner's quality of life -- it can be unpleasant to bump up against an unfriendly party on a day-to-day basis.
Mediation is an efficient and effective way to resolve disputes and build community among small business people and their customers and neighbors.
Mediation offers another way to resolve conflict -- one that can help you and the other party come to a genuine understanding and find a resolution that addresses both of your needs and interests. In mediation, a neutral third person -- the mediator -- meets with parties who are having a conflict to help them try to work it out together. Because you and the other party make the agreement together, you are both more likely to keep it. Also, the process of working things out in mediation is an experience you and the other party can draw upon if you run into problems again in the future.
For more on mediation, see Nolo's Mediation Resource Center.
Mediation is usually much less expensive than hiring a lawyer. Community mediation centers offer low-cost services, and even if you hire a private mediator who charges by the hour, you'll be sharing the cost with the other party instead of paying a lawyer on your own. Mediation also works more quickly -- it usually only lasts a few hours, compared to the many hours a lawyer would spend preparing your case and arguing with the other side.
If you think you might want to mediate a dispute, the first step is to find a mediator or mediation service. Lots of places have community mediation centers that use volunteer mediators and offer very low-cost mediation services. Look in your local phone book under "mediation" or "conflict resolution." That's also where you'll find private mediators. Some mediators are lawyers, so you can also look under "attorneys" if you want to use a lawyer-mediator.
If you belong to a small business association like a chamber of commerce or the Better Business Bureau, check to see whether they have a mediation program tailored to small businesses -- many of them do.
For more on finding a good mediator, see Mediation FAQ.
The vast majority of mediations result in a settlement. If your mediation is successful, you'll leave with a signed agreement or, at the very least, a signed memorandum setting out what you and the other party have agreed to. You have the choice of making the agreement enforceable in court or not -- many people want to be able to ask a judge to enforce the settlement in the future if the other party doesn't live up to the agreement.
If you don't reach a resolution in mediation, you haven't lost anything. If nothing else, you've probably learned a lot about how the other person sees the problem. You still have the option of taking legal action if that's what you feel you need to do.
If you are ready to use mediation, or just want to learn more about it, read Nolo's eBook Mediate, Don't Litigate, by Peter Lovenheim and Lisa Guerin.
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