By Curtis Sobel
Most lawyers will advise against engaging in any act – from ordering a la carte in a local restaurant to merging multi-national corporations – without first consulting counsel. Conversely, do-it-yourself (DIY) legal websites would seemingly advocate self-representation in all but the most complex matters. As an attorney who has practiced for and in the retail and food industries for more than a quarter century, I tend to take a more balanced approach.
Legal representation can be a significant front-loaded expense for any company, especially start ups short on capital. However, a DIY approach could ultimately expose a company and its principals to unnecessary personal and corporate risk that a properly timed legal spend can avoid down the road. Of critical importance is the periodic review and analysis of a company’s procedures and agreements to ensure that they are geared to maximize the avoidance, and minimize retention, of risk and thus maximize the company’s net profitability. The risk management program I typically recommend for retailers large and small often comprise the second- or third-largest component of corporate expense. Gaining control over this portion of a company’s operation is therefore essential to profitability.
Risk management is as important as the obvious questions that surround starting a retail or food centric company – whether or not to incorporate, deciding where headquarters should be, financing the company and deciding on the company name. As an advocate and trial counsel for national and regional retailers and restaurants, as well as large and small food-centric companies, the best advice I can give leads to avoidance of my own firm’s retention. Avoid litigation and you will avoid many of the reasons so many companies cease doing business. Proper timing of your legal spend is essential to risk management and ultimately avoiding or minimizing litigation.
Risk Management
When deciding the first time to attach to counsel, I recommend that early intervention often leads to less intervention. Incorporating a new business does not require an attorney, however, the potential problems that can be preempted in the formation process should lead to a company’s first meeting with counsel. The state and county in which to incorporate, the type of entity, selection of directors and officers, the initial financing structure and debt instruments are all capable of being decided by non-attorneys.
However, consider the example of New York. The state in which to incorporate can determine whether a company is sued in state or federal court, a factor that significantly impacts a lawsuit’s outcome. The selection of a company’s home county will provide the basis of venue (the location a lawsuit must be brought), which also significantly affects litigation outcome. The selection of state and county also affect operating expenses, including but not limited to the cost of insurance and the availability of tax incentives from state and local authorities.
The impact of the internet upon corporate decision making cannot be underestimated and has significantly broadened the impact and risk associated with the selection of a company or product name and logo, style of doing business, advertising, insurance and risk management program development. Lahnam Act (trademark) violations, once the province of only the largest of companies, are now also a risk for the smallest of start ups. Websites and apps such as Open Table bring into conflict retailer and restaurant names that may have no geographic similarity but still can be viewed improperly competing due to a similar name or logo. Federal and state regulations applicable to the new company’s business, i.e. label and allergen alerts, must be taken into account or your risk tolerance and entrepreneurship may be met by costly enforcement or worse, consumer-based litigation.
For companies already in existence, the issues addressed by start ups are no longer relevant. However, a thorough review of existing corporate filings, contracts, leases, vendor agreements and standard operating procedures (SOPs) should be completed periodically. Under the law of many states, all parties in the chain of distribution – from the supplier or manufacturer to the end retailer – are potentially liable for food and product liability.
For retailers, the challenge is to push the risk of food or product defects upstream so that the party responsible for the defect or introduction of a foodborne pathogen is held accountable. Properly drafted vendor agreements, additional insured endorsements to commercial general liability (CGL) insurance policies and proper risk management SOPs are all essential to minimizing the risk that a retailer could assume for the food and products they sell.
For the manufacturer or suppliers in the distribution chain, the challenge is to ensure that all parties downstream assume the portion of risk that properly falls to them. Typically this involves the proper handling of food products, including refrigeration, and defects in products that arise from modifications and assembly by the retailer.
Retain Lawyers Early, Less Often
After more than 25 years of running an active trial law practice, I may sound a bit like an alarmist when it comes to litigation. However, easy access to the country’s court system coupled with a population seemingly incapable of taking responsibility for its own actions have resulted in an ever-growing volume of lawsuits affecting businesses in America. With proper counsel at the nascent stage of a business cycle and periodically throughout a business’ life, risk avoidance and risk allocation can be accomplished.
Corporate documentation is just the beginning of the process. Once established, the company should then undertake the careful and sometimes artful creation of SOPs, compliance safeguards, trademark and service mark search and evaluation, allocation and purchase of appropriate insurance, creation of risk allocating documentation – such as vendor and hold harmless agreements – as well as the development of proper corporate procedures. These are a few significant steps companies can take with qualified counsel.
Over the years, I have been involved in every aspect of retail industry and food-centric risk from the design and maintenance of retail space, the establishment of best practices for food safety and avoidance of food borne pathogens to the litigation of premises and product liability, and trademark and trade dress issues. Politicians love to say, “Vote early and often.” When it comes to the proper time to retain a legal expert, my rule of thumb is retain early and thus less often.
For companies involved in retail and wholesale food and distribution – from the producer to the end retailer – understanding and allocating the risks inherent in your business model from the outset will absolutely result in lower overall operating costs downstream. If properly crafted, contracts and vendor agreements, effective insurance and claims decisions, trademark and service mark clearance, labeling and allergen review and clearance will all serve to minimize the frequency of litigation and the costs associated with a company’s risk management program as a whole.
Article taken from September 2014, Gourmet Business Magazine.
Curtis Sobel is the senior partner and founding member of the Sobel Pevzner, LLC. LLC. The firm principally practices in the area of premises liability, food and product liability, trucking and transportation defense in New York, New Jersey and Pennsylvania. Sobel is also a frequent lecturer and instructor on topics including risk management, premises and product design, claims processes and procedures and litigation avoidance. More information is available at www.sobellawgroup.com.