Trusts and Estates website

One of the neatest parts of practicing law at a firm like Cantey Hanger LLP is that I get to work with some pretty amazing attorneys.  One such attorney is Noel Ice, a recognized leader in the field of trusts and estates law.  Noel maintains a website named www.trustsandestates.net that has a tremendous amount of very useful information, including over 150 articles, memos, and other resources related to estate planning and probate materials generated by Noel over the last couple of decades. I encourage readers of this blog to check it out.

JOBS Act becomes law

On April 5, President Obama signed into law the Jumpstart Our Business Startups Act (the "JOBS Act").  The JOBS Act represents the most significant change to the law governing securities offerings since the Securities Act of 1933.  I'm sure I will be blogging about the JOBS Act quite a bit in the coming months as the SEC rolls out its new rules implementing the JOBS Act, but I thought I'd mention an aspect of the law I found most interesting today.

Many private offerings will soon no longer be private!  Let me explain.  Most private offerings of securities rely upon Rule 506 for its exemption from the registration requirements of the Securities Act.  Usually, Rule 506 offerings are made exclusively to accredited investors (investors with high incomes, high net worths, or both).  Rule 506 currently prohibits general solicitation (such as advertisements on television, radio, newspaper, etc.) to publicize the offering.  The JOBS Act requires the SEC to adopt rules permitting general solicitation connection with 506 offerings on so long as all of the purchasers of securities in the offering are accredited investors.  Hence, companies seeking capital will soon be able to publicly offer securities in a "private" offering!  These are interesting times to be a securities lawyer.

Little Known Facts: English First for Recording Instruments

With six flags having flown over Texas and numerous foreign languages spoken in this state, one might wonder if property can be conveyed and recorded in a language other than English.  While parties may be able to agree to convey property in a language other than English, a deed or any other instrument relating to real or personal property cannot be recorded in Texas unless it is written in English.

Section 11.002 of the Texas Property Code provides that "an instrument relating to real or personal property may not be recorded unless it is in English or complies with this section." That statute identifies only two exceptions to the English-only rule for recording instruments in Texas, each of which require that an English translation accompany the foreign language filing:

1. An instrument written in another language executed prior to August 22, 1897; or
2. An English instrument with a foreign-language acknowledgement if acknowledged outside the United States and containing a certificate, stamp, or seal of a notary public or other official before whom the acknowledgment was taken.

Use of Assumed Names in Texas

How does the Texas Business Organizations Code ("TBOC") address the use of assumed names by companies in Texas?  That's a trick question - it doesn't, except by reference to the Texas Assumed Business or Professional Name Act (the "Assumed Name Act"), Chapter 71 of the Texas Business and Commerce Code.

Under the Assumed Name Act, a company that conducts business in Texas under other than its legal name (an assumed name) must file an assumed name certificate.

If the company using an assumed name is a filing entity, such as a corporation, limited partnership or limited liability company, the assumed name certificate must be filed with the Texas Secretary of State and the Texas county where the company's principal office is located (or if the company's principal office is outside of Texas, the Texas county in which the company's registered office is located).

If the company is not a filing entity, such as a sole proprietorship, the company must file the assumed name certificate in each Texas county in which the company maintains a business premises (or each county it conducts business if it does not maintain a business premises in any county).

The assumed name certificate must state:

1. the company's assumed name;
2. the company's legal name;
3. the company's jurisdiction of formation;
4. the period, not to exceed 10 years, that the assumed name will be used;
5. the company's entity type;
6. the address of the company's principal office or registered office, as applicable; and 
7. the counties in which the assumed name will be used.

An assumed name certificate must be renewed every 10 years if the name is still in use. The renewal certificate must be filed within six months prior to the assumed name certificate's expiration date.

Filing an assumed name certificate does not give the company the right to use the assumed name in violation of another company's the common or statutory copyright law or similar law.      

A company that violates the Assumed Name Act may face civil or criminal penalties.

Lessons from Linsanity

Like many basketball fans worldwide, I've been captivated by the story of Jeremy Lin.  In case you've missed the seemingly endless coverage of the Jeremy Lin story (dubbed "Linsanity") on ESPN and elsewhere, Lin is the starting point guard for the NBA's New York Knicks.  Since getting his first NBA start earlier this month, Lin has been terrorizing the NBA.  Among the amazing bullet points about Lin are as follows:

• Lin is a 2010 graduate of Harvard University.  As a 1998 graduate of Harvard Law School myself, I can tell you that it is very rare for a Harvard man to excel in the NBA.  How rare?  The last Crimson player in the NBA was Ed Smith in 1954!   
• Lin is a Taiwanese-American and the first American-born NBA player ever to be of Chinese or Taiwanese descent.
• Lin was undrafted out of college, waived by two other NBA teams, and was in-and-out of the NBA's developmental league (D-league) before landing as a back-up for the Knicks this year.  At some points during his brief NBA career his prospects were so uncertain that he was sleeping on his brother' couch rather than signing a lease on his own apartment.
• The Knicks were 8-15 with their season circling the drain until injuries and poor play by other Knicks forced Lin into playing time and into the national spotlight.  Then, Linsanity struck and the Knicks won 7 straight games.
• During Lin's first 5 games as a starter, he scored 136 points (27.2 points per game), the most by any NBA player in his first 5 games as a starter since the 1976 NBA-ABA merger.

There is very little about Linsanity that is not amazing and unprecedented, so what can we learn from all this?  Well, here are a few timeless nuggets that are reinforced by the Linsanity story:

1) Dream Big.  We shouldn't let stereotypes or other people's preconceived notions limit the dreams or goals we set for ourselves.  Jeremy Lin had let the facts that he played basketball at Harvard, or that he was a Taiwanese-American, or that he was undrafted, cause him to give up on his dream of playing in the NBA.  He believed in himself and eventually the rest of the world started believing in him too.

2) Be Ready.  Although Jeremy Lin began his career in the D-league and began the season as a back-up player, he worked hard and was prepared.  So when the coach called his name, he was ready to perform.  There is an old saying that "Luck is where preparation meets opportunity."  Lin wasn't lucky - he was prepared when he got his opportunity.

3)  Be Bold.  Beyond being ready, Lin was bold and played his game when his number was called.  Given his humble background, he knew he might not have many chances to show what he could do in the NBA.  So when he got the chance, he didn't play safe - he played with confidence and aggressiveness.  And that has made all of the difference.

4) Have Fun.  Lin's joy for the game is obvious on the court, making his journey more fun for all of us to follow.  As Mae West famously said, "You only live once, but if you do it right, once is enough."

OTCBB vs. OTCQX

Last week I saw a very interesting presentation by a representative of the OTC Markets Group Inc.  That's the company that runs the world's largest trading market for companies whose stocks are traded over-the-counter (OTC).  OTC companies are not listed on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq.  OTC Markets operates three tiers of trading markets for OTC companies:

• OTCQX (its top tier);
• OTCQB (its middle tier); and
• OTCPink (its bottom tier).

OTC Market competes with OTC Bulletin Board (OTCBB) for quotation of OTC stocks, though a security may be dually quoted on both OTC Market and OTCBB.  According to information provided by the representative of OTC Market, the securities marketplace seems to be moving in OTC Market's direction.  In 2008, both OTC Markets' OTC Link platform and OTCBB each provided about 35,000 quotes.  Today, OTC Link provides about 65,000 quotes, while the OTCBB provides about 5,000 quotes.

The representative of OTC Market seemed to attribute much of their success to the fact that their OTC Link platform is electronic while the OTCBB platform is telephonic, thereby making the OTC Link system more user-friendly.  I don't know if the OTC Link system is truly more user-friendly (I invite any readers who are registered broker-dealers to comment on that issue), but I would note that the OTCBB requires its companies to be current in its SEC reporting obligations under the 1934 Act, while the OTC Market has no such requirement. The OTCBB loses companies on the top end that "graduate" to become exchange-listed companies and those on the bottom end who choose to "go dark" and cease their SEC reporting obligations. OTCQX companies need not be SEC-reporting, but the OTCQX does have requirements regarding asset size ($2 million), revenues ($2 million), minimum share price ($0.10), etc., while the OTCBB does not.

As of today, there are 330 securities quoted on the OTCQX and 2,355 securities quoted on the OTCBB.  

Covenants Not to Compete in Texas

When is a non-competition agreement enforceable against an employee in Texas?

That question is simultaneously very simple and very complex to answer.  We'll tackle the simple answer first.  Generally, a covenant not to compete is enforceable under Texas law when it complies with Section 15.50(a) of Texas Business and Commerce Code which provides:

“[A] covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”

So when is a covenant not to compete "ancillary to or part of" an otherwise enforceable agreement?  That's the complex answer. 

In 1994, the Texas Supreme Court took a stab at answering that question when it decided the case of Light v. Centel Cellular Co. of Texas.  In Light, the court established a two-pronged test: 

"(1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer’s interest in restraining the employee from competing; and 

(2) the covenant must be designed to enforce the employee’s consideration or return promise in the otherwise enforceable agreement."

Under Light, an employer's promise to provide confidential information and trade secrets to its employee contemporaneously with the signing of a non-competition agreement would be enforceable as a covenant ancillary to an otherwise enforceable agreement.  On the other hand, under Light, if the employer does not promise to provide confidential information or trade secrets as part of the agreement (even if the employee later actually does receive such confidential information or trade secrets!), the covenant would not be enforceable because at the time the contract was signed it was a unilateral contract - the employer could fire the at-will employee the next day and never provide such confidential information or trade secrets, so the parties didn't have an "otherwise enforceable agreement."

Since 1994, the Texas Supreme Court has slowly backed away from its very narrow reading of Section 15.50(a) of the Texas Business and Commerce Code in Light.

In 2006, in Alex Sheshunoff Management Services, L.P. v. Johnson, the Texas Supreme Court removed Light's restrictions on enforcing executory unilateral contracts.  Hence, a covenant not to compete made by an employee in exchange for an employer's confidential information or trade secrets may now be enforced so long as such confidential information or trade secrets are actually delivered to the employee during the course of his or her employment, even if the employer was not contractually obligated to provide such information at the time the agreement was signed.

In 2011, in Marsh v. Cook, the Texas Supreme Court further liberalized the holding in Light, thereby further expanding the types of agreements which could give rise to an enforceable covenant not to compete.  In Marsh, the court ruled that the grant of stock options to an employee could be sufficient to support a covenant not to compete.  The court reasoned that the grant of stock options to the employee was reasonably related to the employer's legitimate business interest in protecting its goodwill.  The Marsh court thus rejected the Light court's requirement that the otherwise enforceable agreement must "give rise" to the employer's interest in enforcing the covenant not to compete and replaced it with a requirement that the otherwise enforceable agreement "reasonably relate" to the employer's interest.  

Although determining the enforceability of any particular covenant not to compete under Texas law continues to be challenging and fact-specific, there is recent trend at the Texas Supreme Court toward making such covenants easier to enforce.