Happy Labor Day

It’s Labor Day weekend and thoughts turn to the end of the summer and cookouts. And beer. Labor Day weekend accounts for a significant portion of the $100 billion U.S. annual beer sales.

There are thousands of beer choices in 2022. Craft beer breweries are everywhere. But when all is said and done, by this coming Tuesday, the best selling beers will be Anheuser-Busch and Coors brands. Two companies that began as family-owned businesses in the mid-1850s and eventually morphed into brewing conglomerates.

Anheuser-Busch and MolsonCoors are the two largest brewers in the United States. Hardly surprising, it’s been that way for generations of beer drinkers.

It wasn’t quite that way in 1980. Anheuser-Busch was number one but Coors – still not quite a national brand – was fourth. Between them was another family owned brewery started before the Civil War – Stroh’s. You may have never heard of Stroh’s but for 130 years it was a household – well, at least a beer-drinker-in-the-Midwest household – name.

Like Coors and Budweiser, Stroh’s was founded by an immigrant in the mid-1850s. Like them, Stroh’s started as a family business. Like them, the Stroh’s passed the business down for four generations.

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Chadwick Boseman's Estate Settled

It was big news last week when it was announced that Chadwick Boseman's estate settled. You may remember that the great actor Chadwick Boseman died two years ago after a long battle with cancer.

He survived four years with colon cancer that was Stage III when discovered. He never got around to creating a will or an estate plan. If we had to guess why, we'd venture that fighting cancer while working took up all his energies and, perhaps at some point, he equated making a will/estate plan to giving up. Understandable, but the problem is, wills and estate plans are not about you, they're about the people you leave behind.

The good - extensively covered - news last week was that Boseman's estate settled. His widow, appointed administrator, chose to evenly divide the estate with his parents. They'll be no probate battle or litigation. A feel-good story . . . . . . that was a panther’s whisker away from disastrous.

When Chadwick died, he was supporting his close-knit family and his new wife. He continued working. He had appeared in two of the highest grossing movies of all time – the potential residuals are head-spinning.

He not only died intestate, he married his long-term partner, Taylor Simone Ledward, just a few months before his death. California law states that when “a person dies without a will, the spouse inherits all community property and is to split the individual’s separate property with the deceased surviving parents.” (California, like Texas, is a community property state).

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Happy Fourth of July

We’re headed into the long July 4th weekend . . . what better time to talk about a startup.

It’s a big startup, based on a radical idea, revolutionary in fact. It started out with small, modest goals but quickly expanded – far too quickly, it’s on shaky ground, underfunded, and burning up the capital of its main VC. The founders never had the time to do more than hastily incorporate. Operating agreements, much less employment agreements and guidelines, do not competes and non-disclosures were never enacted.

The competition is old, established, monolithic, and slow moving – but rich beyond measure.

The board of directors are split – almost evenly – on the startup’s long-term goals. Some of them want to be bought out by the competition. Unsurprisingly, they spend most of the time arguing among themselves. Only two directors took the time to visit the physical plant.

The CEO is tall, aristocratic, smart, taciturn – the perfect qualities, he is indispensable. The board, however, continuously tie his hands, interfere in day-to-day operations, and withhold funds needed for training. He’s put everything on the line for the company to succeed on its own, the alternative would be personally ruinous.

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We Were Ohtani-ed!

The Astros got the full Shohei Ohtani experience Wednesday night. He walked and scored leading off the first then doubled in two runs when he came up again. Then he went to the mound and threw five perfect innings, leaving after 6 innings of one-hit ball with 12 strikeouts.

National headlines, again, for Ohtani, last year's American League MVP. The comparisons to Babe Ruth quivered across the media and burned up Twitter. Ruth was the best left-handed starting pitcher in the American League before he moved to the field full-time and became, well, Ruthian. A few more astute baseball writers compared Ohtani with the great Negro League two-way players Ted Radcliffe, Bullet Joe Rogan, Leon Day, and Martin Dihigo.

Just over 23,000 men have played in the MLB and Negro Leagues over the 146 years professional baseball has been around. Less than a dozen of them were two-way players. Does that mean that over all those decades no one else was capable of pulling it off? Of course not – recently departed Astro pitcher Zack Greinke, on course for the Hall of Fame, was an excellent hitter and won multiple Gold Gloves (should he have been pulled from Game 4 while throwing BBs at the Braves? Discuss).

Every year we hear about the great college pitcher-shortstop-outfielder drafted in the first round. But that’s it, he’s quickly made a full-time pitcher or infielder or . . .

Why is that?

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Business Law & Negotiations

Happy Opening Day!

Happy Opening Day! The Astros are opening and all's right with the world. Every opening day we’re always reminded how close the MLB came to imploding. Several times over the last few years.

As a law firm that engages in negotiation after negotiation on behalf of clients (and Astro fans) we watched the negotiations with professional curiosity. There were a lot of lessons to be learned, all of them, we think, on how not to negotiate.

The baseball lockout lasted 99 days. That boiled down to hundreds of threats, weeks of no action whatsoever, deadlines made and ignored, tens of thousands of social media posts, thousands of media appearances, hundreds of proposals thrown out without regard to reality, tens of solid solutions seriously offered, discussed, amended, and agreed on.

That’s 99 days of acrimony, misunderstandings, and things better left unsaid being said aloud then tweeted. We could teach an entire course in negotiating and never exhaust the lessons of the lockout and the 2020 COVID shortened-seasons negotiation.

A few thoughts as we wait for tonight:

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Wills, Trusts, Estates

"It Ain't Over 'Til . . ."

Here's a common Wills, Trust, Estates question: "How long does probate stay open?" The lawyerish answer is: "as long as it takes, but we know how to move it along and will be staying on top of it ..." Charles Dickens' answer is Bleak House’s Jarndyce v Jarndyce, a probate case that lasted ‘generations.’ Which, at 1,036 pages (the Penguin Edition) is almost as long as it takes to read it.

The Estate of Henry Danger is somewhere in between. Henry’s been in the news lately despite the fact he died in 1973. That is not a typo, Henry Darger died in 1973 and, yes, his estate is still open, there is an active probate case in Chicago as we write this.

A bit of background: Henry Darger was a hospital janitor and dishwasher who lived a reclusive life. He spent most of his time at work or in his two-room apartment. When he was forced to retire in 1963 because of a work injury, he spent almost all his time in his apartment with a few forays out for food and to regale kids with fantasy stories he seemingly conjured out of the air.

Mostly, though, he was a hoarder and a hermit. When he had to move to a nursing home in 1972, he left an apartment buried under old newspapers, books, magazines, and Pepto-Bismol bottles. The landlord and a neighbor cleaned it, it took two full truck loads to haul away the trash.

Trash cleared, the reason why Henry was able to regale kids with great stories was gradually revealed - over the years, unseen, Henry drew, painted, and wrote a 15,000 page illustrated fantasy novel. His real life's work was 850 drawings and paintings, the novel, much, much more. Thankfully, Henry’s landlord was an artist himself. He immediately recognized what the art world was about to discover - Henry Darger was a genius.

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Shareholder Rights

"I am my Board of Directors!"

Series about dysfunctional - if not straight up fraudulent - startups are everywhere from Showtime to streaming services and podcasts everywhere.

They're the kind of shows that get viewers doing Google searches halfway through episodes to see if what they're watching is true. It's safe to say they all get the gist of the stories right while doing what they need to do to keep the plots moving and building some tension.

They add characters who never existed to make it easier to follow. Conflicts that never happened but quickly (and dramatically) make a point that's usually spot on are invented.

Then there's WeCrashed, the story of WeWork and its founder (and erstwhile cult leader) Adam Neumann. WeWork has already been the subject of a podcast (WeCrashed) and a documentary (WeWork: Or The Making and Breaking of a $47 Billion Unicorn). The writers of WeCrashed had a problem - if they left everything 'true' in, no one would believe it. The story of WeWork is insane.

But instructive.

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General Counsels

Super Pumped!

You have your pick Silicon-Valley-Startup-Charismatic-Entrepreneur-Rise-and-Crash shows across streaming platforms. And more are on the way.

These shows can be hypnotic – a riveting 'underdog triumphs' success story for four episodes, a spectacular immolation over the next four. There are, obviously, lawyers all over the place. Good, bad, indifferent, understanding, belligerent, cold blooded, totally invested, competent, and not so competent.

One of the shows is Super Pumped – the story of Uber and its founder and former CEO Travis Kalanick. Three episodes are out so far, the last two highlight the importance of a General Counsel by – apparently accurately – showing what happens when there’s a bad one in place during a crisis.

In Uber’s early years it was trying to get traction in its hometown, San Francisco. The city is not enthused. The head of the city’s transportation has a vested interest in seeing that the existing pay ‘a fortune for a medallion to drive a cab’ system stays intact. He goes after Uber, fining them daily for every ride, every car, simply existing.

The fines and penalties pile up. Sheriffs serve cease and desist papers and threaten to arrest Uber’s officers. The general counsel is flummoxed, he’s a ‘startup and IPO’ lawyer. He waffles between paying the fines and working ‘something out’ with the city and giving up.

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Being Prepared

Planning for Things that May Never Happen

March Madness has begun with conference tournaments around the country. The NCAA seedings will be announced Sunday night.

In a couple of weeks we’ll know if Gonzaga can finally win the ‘big one.’

One thing about March Madness, teams that prepare for situations that may never arise do a lot better than the teams that don’t – no matter what the seedings. The classic example of that was the National Championship game in 2016, Villanova - North Carolina.

You may remember – we know, after the last couple of years 2016 seems more like 1620 – that Villanova won on a three pointer with no time left. At the buzzer. The first time since 1983 the final was decided on a buzzer beater.

The scene – UNC, down three, tied the game on a ridiculous, hang-in-the-air-double-pump-leg-kick three pointer with 4.7 seconds left. Villanova called time out.

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Business Planning

A Lesson From Billions

If you follow Showtime's Billions you can’t miss the fact that every character (except Tuk) turns on a dime when their plans don’t work out (or are stomped into the ground).

Is that possible in the real business world? If so, how do they do it?

It is. How they do it has been alluded to from the first episode of the first season on. It’s been mentioned by name a few times this season: 'selling your position.'

It’s about basic psychology, as Wendy would say. It starts with ‘loss aversion.’ Loss aversion is hardwired into our brains. It's left over from when our ancestors were running around chasing wooly mammoths.

Loss aversion in a nutshell: humans get twice as much pleasure from holding on to $10 than we do finding $10 on the sidewalk. In other words, we put twice as much weight on keeping something than we do getting or experiencing something new.

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Business Planning

A Small Town and a Forced Sale

A business planning story from a colleague in New England:

It’s a typical New England river town – once a thriving center of manufacturing, now it’s just a tired downtown, magnificent but abandoned brick mill buildings scattered on the riverbanks, and the rundown Victorian homes of the owners and execs. Even the river has seen better days.

It started its long trek downhill during the late 1920s. The advent of air-conditioning and rise of cheap labor in the South quickly stripped away businesses that had been thriving since before the Civil War. The final nails in the coffin were the Great Hurricane of 1938 and devastating floods in the mid-1950s.

By the 1970s, downtown was almost completely boarded up. It's too far from a city for people to commute to work and there were no jobs in town.

Then, two brothers came along. They looked like twins – they’re both tall, thin, avuncular, with pleasant, laugh-lined faces – though they were three years apart in age.

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Communication is Everything

If you went to law school in the early ‘90s and took Wills, Trusts & Estates you may have run across this story in the casebook - well, the shell of the story, a little research fleshed it out. It is probably still the best punchline ever found in a casebook.

It goes like this:

There was an eccentric old man who lived in the middle of nowhere. He lived on a rundown old farm, hoarder-like. No heat, no air conditioning, he walked into town for groceries, brought them back in a wheelbarrow that barely wheeled. He kept chickens, he had to put the eggs in a bucket hung on a tree branch to keep snakes from eating them.

All this despite the fact, as his family and friends knew, he was wealthy.

They also knew he had a will. They knew it because he told everyone. He was quick to add that he was not above changing his will if a potential heir displeased him.

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Business Law

Grocery Store Music

Over the last year Bruce Springsteen, Stevie Nicks, The Killers, Joni Mitchell, Shikira, Bob Dylan, Disturbed, Barry Manilow, The Weekend, and fifty-four other musicians sold all or the bulk of their music catalogs to the Sony and Warner music companies of the world. For hundreds of millions.

If you hear any of these artists in a grocery store you can be sure Sony et al are getting paid top dollar for every play.

Most grocery stores, though, don’t spend much on music. They don’t have to, there are ten of thousands of songs by thousands of groups and singers available for pennies.

Grocery store music, after all, exists mostly to cover up the clicks, whirls, thuds, groans, creaks, and other store noises to create a better shopping environment. Industrial psychologists figured that out during the Eisenhower administration. It’s not there to remind anyone that Tommy Tutone was once a thing.

Let's start with two premises: first, when someone forms a band they are forming a company; second, the songs are products and assets.

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Real Cases

It Had Everything

Our own Kirby Hopkins was recently named one of Houston's top Commercial Litigation Attorneys by Houstonia Magazine as voted by members of the Houston Bar - which makes the honor especially pleasing.

'Commercial Litigation’ is not always easy to quickly, concisely define. It’s at once specific (Commercial) and general (Litigation). Neither begins to get across what Kirby and we do as a firm.

Luckily, one of the cases that contributed to Kirby’s honor does all the explaining for us.

Kirby was local counsel in a business dispute that resulted in one of the biggest jury verdicts in Texas in 2021, $32 million.

It was a breach of contract action. A shareholder derivative claim. An employment law claim for non-payment of salary. A corporate claim for breach of fiduciary duty. There were [ample] elements of unethical business practices, fraud, bribery, battery, malice, gross negligence, and intentional self-enrichment.

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Happy New Year

It's the first day of the New Year! Or not. Maybe the New Year doesn’t start until March 15th. Or, sometime next October. Who knows? January 1st is, after all, an arbitrary date picked by a Pope in the 16th Century while the Spanish Armada was headed to England.

For over 1600 years the standard calendar for most of the world was the Julian Calendar, designed by Julius Caesar in 45 B.C. A great accomplishment but based on round numbers. The earth and the sun, however, do not operate in round numbers and the calendar was doomed to fall apart. By the 16th century it was obvious by simply observing the spring equinox that the calendar was off. Way off.

In 1582 Pope Gregory XIII launched the calendar we use today. He had to cheat to make the numbers work – he deleted October 5 - October 14th, 1482. He undated them. They never happened. Then he finagled the ‘leap-year-every-four-years-except on centennial years that aren’t divisible by 400.’

‘Centennial years not divisible by 400’ – you have to wonder how much trial and error went into that not-so-scientific calculation.

Gregory finished by changing New Year's Day from March 15th to January 1st.

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Christmas Special

Have a Dickens of a Christmas

We hope everyone is having a great week preparing for a joyful, fun, Christmas weekend with family and friends.

Here's a thought as you put the last trim on the tree (we went with an Astro's theme) - we have a commercial transaction gone wrong, a collection action, solid estate planning, and copyright/intellectual property infringement to thank for the way we celebrate Christmas.

We're talking, of course, about Charles Dickens and A Christmas Carol.

Let's back up for a second: before A Christmas Carol, Christmas was not a holiday in the United States - not in any way we'd recognize today. The Puritans, not exactly renowned for levity, had banned the celebration of Christmas in the 1650s. Then they outlawed it..

Christmas didn't get any cheerier for the next 180 years in the U.S. It was considerably more fun and festive in the British Isles (they got rid of the Puritans, remember) and Europe.

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Shareholder Oppression Special Edition

“Souls are boring. Boo, souls.”

We won't have HBO's Succession to write about for a while, but they left us - no spoilers - with a few last lessons/observations/morals. As the final episode of Season 3 wound down we couldn't help but think - we are a law firm after all - of how the shareholders of Waystar would have felt this season.

It was a season of wild swings in the company's value - it happens, of course, with all businesses at one point or another and can be tied to many outside influences.

That, though, was not the case with Waystar this season. All the fluctuations were based on rumor, innuendo, and the bad acts of several of the company's officers/shareholders/directors. In short, all the damage was self-afflicted by the very people who were supposed to be responsible for Waystar' financial well-being.

The fictional Waystar Royco company is publicly traded. It's also controlled by the Roy family with the patriarch, Logan Roy, the major shareholder and CEO. He wields that power like he rules his family - impetuously, head-strong, unyielding, profane, and brash.

Three of his four children - all shareholders, all (at one point or another) officers - act like dad, just much less effectively. One thing they all have in common is that the Roy family always - always - act in their own interests before Wayco's.

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Client Advisory Bulletin

CLIENT ADVISORY BULLETIN

The Department of Treasury's recently issued Proposed Regulations under Section 2704 once they become final would adversely impact the estate planning for some business owners by eliminating certain valuation discounts as well as reducing the ability to leverage the maximum amount of assets out of harm's way due to divorce, lawsuits or other claims.

Proposed Regulations Recently Issued: The Department of Treasury ("IRS") recently issued Proposed Regulations that could have a dramatic impact on your estate planning by eliminating valuation discounts. For high net worth individuals looking to minimize their future estate tax, this is critical. It can also be important for others as well. If you are concerned about protecting a family business from the risks of future divorce, or protecting your assets from lawsuits or other claims, discounts can enable you to leverage the maximum amount of assets out of harm's way, without triggering a gift tax to do so.

Act Now: Time is of the essence. Once the Proposed Regulations are effective, which could be as early as year-end, the ability to claim discounts might be substantially reduced or eliminated, thus curtailing your tax and asset protection planning flexibility.

What are Discounts Anyway? Here's a simple illustration of discounts. Tom has a $30M estate which includes a $15M family business. He gifts 40% of the business to a trust to grow the asset out of his estate. The gross value of the 40% business interest is $6M. Since a minority 40% trust/shareholder cannot force a sale or redemption of its interest, the non-controlling interest in the business transferred to the trust is worth less than the pro-rata value of the underlying business . Thus, the value should be reduced to reflect the difficulty of marketing the non-controlling interest. As a result, the value of the 40% business interest transferred to the trust might be appraised, net of discounts, at $3.6M. The discount has reduced the estate by $2.4M from this one simple transaction.

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A Life Lesson from the Horrible People on HBO’s Succession

HBO’s Succession is halfway through its third season, making this the perfect time to review some of the things the show absolutely nails about the law and clients and corporate America and a dozen other things we don’t have room to write about right now.

First, let’s address the two burning questions left unanswered from the halfway episode (don't worry, no spoilers): Yes, Kendall, bagels are [very] bad for rabbits; no, Greg, there’s no way to “affectionately sue a relative” (and you have no standing to sue Greenpeace).

Succession has been a hit since it started, a good chunk of its audience is attorneys. Estate planning/corporate/family law attorneys in particular. As a show about an eighty-year-old three-time married media mogul with four entitled avaricious children and a pack of relatives who work for the company[1] would be.

The patriarch, Logan Roy, keeps promising to step down; three of the four children (Kendall, Shiv, Roman) are constantly scheming to be the chosen one. The fourth, Connor, just wants his money and maybe to run for the presidency.

This, then, is the story of a pack of wolves at each other’s throats. It’s funny, profane, dramatic, and dead on for those of us who deal with the issues Succession raises on nearly a daily basis.

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Forming the Right Type of Business Organization

What kind of company should I form?

Is an LLC better than a S-Corp?

The answers to these questions will affect your new business for most – if not all – of its life. By the way, if you pose either of those questions on Google you’ll get over 349 million results in just over half a second.

According to the internet, choosing the right way to organize your business is easy and its even easier to file the paperwork needed to formalize the company. Because it’s vital to get it right from the start, it’s anything but simple.

A successful business starts with its organization. The type of entity you choose will dictate how the company runs, is managed, how taxes are paid, how the owners are compensated, and much more.

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