There seems to be a difference between Lawyers and everybody else. I am expected to know my specialty before I arrive.

I think lawyer's research time charges are like an auto mechanic's diagnostic charges. I would say "diagnostics" is a reasonable charge for an HVAC guy as well. Being so experienced, it doesn't take you long to diagnose. You'll just have to force yourself to mill around with a multimeter and a thermometer while you check ACC - but I don't really think that is ethical, reasonable or logical. As a customer, I would prefer to pay a higher price for an expert.

 

Thanks everyone. It sounds like the bottom line is I really need to find an attorney that will talk to me, so I can at least get an idea for what my risk really is, and play it from there.

Does anyone know how well disclaimers hold up? i.e. if I just stuck a label across it that must be read before it's installed that reads "this device has not been evaluated for safety, use at your own risk" or something similar. Does anyone have insight as to whether these types of things really hold up in court?

Surprisingly, they are holding up better and better. It made me cringe when I heard about a family who injured their baby when the bouncy chair fell off of a table. Then I cringed again when I heard they were suing the manufacturer. The judge threw the case out on a summary judgement because the label says, "do not use this chair if the child can pull themselves up to a sitting position" and "do not leave child unattended" and "do not place this chair on elevated surfaces like tables or counter tops"

 

Also, googling around, these things are for sale all over in various forms, for example:

http://www.motorcyclepartsmegastore...ium=shopping&gclid=CObO3tCQyssCFYiVfgodMbwDTA

The only difference with mine is I'm assembling the parts myself and selling into a market where I already have name recognition. The profit would be 1/3, but maybe my liability is reduced if I try to buy someone elses wholesale and resell them, instead of making my own?

 

... Does anyone know how well disclaimers hold up? i.e. if I just stuck a label across it that must be read before it's installed that reads "this device has not been evaluated for safety, use at your own risk" or something similar. Does anyone have insight as to whether these types of things really hold up in court?

I'd be afraid that such a disclaimer, worded in that manner, could be used against you. Demonstrating that you might know that the product was unsafe.

 

@#12 Absolutely. In my profession, we frequently did research before reporting an opinion and cited references. Charges were fixed. In fact, we were prohibited from charging for such research. However, even when you ask a simple question of an attorney, say ask a tax attorney specialist, "can I deduct this or not," you end up paying for research. Laws are written by attorneys. We have been assured there is no conflict of interest.

@MrSoftware I have been told that disclaimers don't hold up well with individual sales. At the corporate to corporate level, they can. The difference has been explained to me that the corporate deal is a true contract between mutually competent parties. At the individual level, one may consider a sale as a contract, but our courts do not. US courts have generally taken the approach of strict liability. The American tort system is not called a "lawyers' lottery" without good reason.

John

 

Also, googling around, these things are for sale all over in various forms, for example:

http://www.motorcyclepartsmegastore...ium=shopping&gclid=CObO3tCQyssCFYiVfgodMbwDTA

The only difference with mine is I'm assembling the parts myself and selling into a market where I already have name recognition. The profit would be 1/3, but maybe my liability is reduced if I try to buy someone elses wholesale and resell them, instead of making my own?

I would suggest that you contact a Nationwide (or similar) commercial insurance provider in your area. Look specifically for a commercial insurance agent. My next-door neighbor is a commercial agent. I hear stories from him all the time. He says most everyone in the value chain (Manufacturers, contract manufacturers, distributors, Importers, and retailers) all need liability insurance of some type. The exact type all depends on your company structure and whether or not you are willing to crumble/fold your company to avoid lawsuit when it happens, vs, maintaining an on-going business. Also depends on your state laws and the laws where you are selling. Typing up some standard terms and conditions of sale that go that a company an order acknowledgement are helpful to control the liability process. E.g. Buyer give up his right to sue for damages, and agrees to arbitration according to the laws of XYZ state.

That helps for controlling the original buyer's action but not necessarily anyone else hut by your product.

 

I think lawyer's research time charges are like an auto mechanic's diagnostic charges. I would say "diagnostics" is a reasonable charge for an HVAC guy as well. Being so experienced, it doesn't take you long to diagnose. You'll just have to force yourself to mill around with a multimeter and a thermometer while you check AC - but I don't really think that is ethical, reasonable or logical. As a customer, I would prefer to pay a higher price for an expert.

I think the automotive diagnostic charge is a scam, too. I was in a Ford Dealership to buy some strange part that only a dealer would have (oh yeah, a metering orifice for a car A/C) and asked the price for a car battery. They said it starts with a $90 diagnostic charge regardless of whether I want to put it in a car or whether I brought a car with me.

I have typed the price lists for 4 local corporations and I have never seen a diagnostic time charge. We assume the first half hour (included in the charge for the house call) is enough for conversation and measurements. However, making measurements is different from researching how the A/C (or how the law) works. I'm supposed to know how air conditioners work before I get there and I think a business lawyer should know how Sub-S corporations work before he takes the BAR exam. After all, I had to know how air conditioners work before I took the state licensing test.

Now, when it comes to designing a system from scratch, duct sizes and everything, that time is included in the bid price. It doesn't matter how good you are, you still have to run the numbers and look up parts in the catalogs because every building is different, but we don't charge for time to learn how to do the math or to learn how to read a parts catalog.

 

LLC.



It is the best protection YOU can have. Write yourself very generous paychecks from the corporation and only leave enough capital on the books to cover operating expenses.
Let people sue. The company goes belly up and the following day you start a new LLC with a slightly different name. They get squat and your PERSONAL wealth and possessions are protected.
My father was a one man software/programmer contractor on IBM machines. He was shoke down for almost 20,000 over a line of code that crashed a mainframe payroll computer. A phonecall and 30 min. later the problem was fixed, but he was sued for the short down time of a "critical business system"
He went LLC after that and was never hassled again.

 

It's just a capacitor with some wires, no patent or anything special. There's nothing proprietary for me to sell to a larger company.

You MIGHT be able to get a patent on it (based mostly on what it is being used for -- assuming no one else has ever done the same thing), but it would probably cost far more than it is worth. So you are likely correct -- which means that you have to stay below the radar because if you start creating a market for them then anyone else can jump in and undercut you. Sounds like there's no future in the project, but perhaps some short term income can be had.

It's just a capacitor and I really can't see it starting a fire, and with a 25v rating even if they connect it backwards it should be safe (12v electrical system), so I'm considering just putting a big disclaimer on it and selling it. Something along the lines of not professionally safety tested, use at your own risk type of thing.

That can work against you. Someone gets hurt -- even if it's patently their stupidity at play -- and they sue you and point to your disclaimer asserting that you KNEW the product wasn't properly safety tested for the purpose you were selling it for and, if it had been, then they wouldn't have gotten hurt.

In general, liability waivers have to be written very, very carefully otherwise they are worthless at best and undermine you at worst.

But I sure would prefer to have insurance or some other way to limit my liability.

I still think an umbrella policy is probably your best way to go.

 

I still think an umbrella policy is probably your best way to go.

Liability laws vary greatly state-to-state. Specific advice about safe harbors (e.g., an LLC) should be checked by the TS for his state -- assuming he will be sued in that state.

More generally, it is unclear whether the "umbrella" you (WBahn) refer to is the typical umbrella for a homeowner or small business. Because of the nature of the exposure,* I suspect that in the TS's home state such policies do not extend to product liability, and if they do, he must notify his carrier to get adjusted rates.

John

*Consider that infamous case of the drive-though customer at McDonald's who spilled hot coffee on herself and ended up $5 million richer (actually a lot less than that because of the way such awards are "double taxed" in contingency-lawyer speak). Personal injury awards have no ceiling in some states, and the aggrieved often forum shop in such states.

 

Also, googling around, these things are for sale all over in various forms

These were a big thing back in the 1970's for guys building a chopper from a Triumph motorcycle. then they were called a "battery eliminator". allowed the engine to run and lights to work after kick starting the bike.

 

LLC.

It is the best protection YOU can have. Write yourself very generous paychecks from the corporation and only leave enough capital on the books to cover operating expenses.

While the general idea is valid, the specifics of the details that need to be looked at carefully. Otherwise this is a recipe for letting the lawyer that sues you pierce the corporate veil. If they can convince a judge that the compensation you gave yourself was excessive and was done, in part, for the purpose of shielding what should have been company assets from liability exposure, then the judge can declare the LLC an illegal shell entity and pierce the veil.

The compensation that is made has to be reasonable, and while there is a broad range of what can be defended as "reasonable", you don't want to be put in the position of having to prove that "very generous paychecks" that leave the company just enough to cover expenses is "reasonable". You want your compensation to be well within the range for people doing similar jobs with similar risks -- it can be in the upper end of that spectrum, but don't get too close to the top. And the company has to have sufficient reserves on hand to function (which is generally considered to be somewhat more than just immediate operating expenses, but doesn't have to be hugely more).

A common strategy is to operate the company deep in debt (well beyond the assets, anyway). Before the other party's lawyer sues -- let along before trying to piece the veil -- they will look at the company's finances and if they see that there are already creditors that have total claims that are more than the company's assets, then there is no percentage in pursuing a liability case unless it is obvious that they can pierce the veil. If you are careful, you can set it up so that the bulk of the debt owed by the company is to another company that you own. The key is for the debt to be for things that are reasonable for that type of business.

Another thing to consider is that you do not want to own more than 49% of the company. If you did, then they could sue you personally (the slip on the sidewalk having nothing to do with the company) and gain controlling interest in the LLC. But if you own less than 50%, then they know that they can not get controlling interested and so that is removed from consideration in whether they will bother to sue you at all.

Remember, the law recognizes that an LLC is there primarily to limit the liability of the owners from the actions of the company. So they expect you to use it for that purpose. But they will generally punish you (by piercing the veil) if they conclude you are abusing it for that purpose.

 

Liability laws vary greatly state-to-state. Specific advice about safe harbors (e.g., an LLC) should be checked by the TS for his state -- assuming he will be sued in that state.

More generally, it is unclear whether the "umbrella" you (WBahn) refer to is the typical umbrella for a homeowner or small business. Because of the nature of the exposure,* I suspect that in the TS's home state such policies do not extend to product liability, and if they do, he must notify his carrier to get adjusted rates.

Which is why I said things like:

"If the former, one option is to get umbrella insurance for yourself. It's generally pretty cheap -- a couple hundred dollars a year for a couple million dollars of coverage. But you would need to be sure that it would cover your personal liability that might arise as a result of a lawsuite surrounding this product."

and

"But you would really need to talk to the insurance carrier and read the fine print regarding not only what is covered, but under what conditions coverage can be voided."

 

Which is why I said things like:

"If the former, one option is to get umbrella insurance for yourself. It's generally pretty cheap -- a couple hundred dollars a year for a couple million dollars of coverage. But you would need to be sure that it would cover your personal liability that might arise as a result of a lawsuite surrounding this product."

and

"But you would really need to talk to the insurance carrier and read the fine print regarding not only what is covered, but under what conditions coverage can be voided."

Unfortunately, those comments weren't available to me at post #30. You clearly recommended an umbrella policy,

I still think an umbrella policy is probably your best way to go.

John

 

If you get big enough for a lawyer to start such antics just so they can get your personal loot, then you should already have acquired lawyers of your own who can use their legal PFM skills to hide your loot from such simple minded lawyers.

 

If you get big enough for a lawyer to start such antics just so they can get your personal loot, then you should already have acquired lawyers of your own who can use their legal PFM skills to hide your loot from such simple minded lawyers.

Yes and no. There are LOT's of lawyers out there that are barely making it and so it doesn't take a very big target to attract them. Also, there's no shortage of lawyers that treat liability cases as their own form of lottery in which the key to winning it to file lots and lots of suits (though, yes, they favor obviously deep pockets when they can find them) because you never know which ones will payoff.

 

While the general idea is valid, the specifics of the details that need to be looked at carefully. Otherwise this is a recipe for letting the lawyer that sues you pierce the corporate veil. If they can convince a judge that the compensation you gave yourself was excessive and was done, in part, for the purpose of shielding what should have been company assets from liability exposure, then the judge can declare the LLC an illegal shell entity and pierce the veil.

The compensation that is made has to be reasonable, ...

That's all a bunch of crap. An LLC is a glorified sole proprietorship according to the IRS and you have to file additional paperwork if you want the taxation to be done corporate style. Earnings of the LLC are the earnings of the sole owner if Mr.Software wants to go the LLC route - since he never mentioned any co-owners.

 

That's all a bunch of crap. An LLC is a glorified sole proprietorship according to the IRS and you have to file additional paperwork if you want the taxation to be done corporate style. Earnings of the LLC are the earnings of the sole owner if Mr.Software wants to go the LLC route - since he never mentioned any co-owners.

None of this conversation has anything to do with taxes, so why are you bringing them up? An LLC has NO standing as an IRS entity -- when you form an LLC you have to declare how it is to be treated for tax purposes -- it can be treated as a sole-prop, as a partnership, as an S-Corp, or as a C-Corp. The fact that, if you elect to be taxed as a sole-proprietorship, all of the company's profits are passed through to the owners for tax purposes is totally irrelevant to the discussion at hand. The LLC still maintains control of undistributed earnings, even though the owner(s) paid tax on them, and those earnings are assets of the LLC and are exposed to legal liability. The owner(s) extract money from an LLC two ways -- through salary/wage compensation and through distribution. The IRS can look at both to determine if you are in substantial compliance for tax purposes. Here they are often looking at people that take too low a wage compensation combined with significant distributions since that is a way to avoid employment taxes. The courts can look at both to determine if you are in violation of limited liability status for legal purposes. Here they are looking for excessive compensation and/or distributions since that is a way to unfairly avoid liability. These are two different and largely separate things.

 

None of this conversation has anything to do with taxes, so why are you bringing them up? An LLC has NO standing as an IRS entity -- when you form an LLC you have to declare how it is to be treated for tax purposes -- it can be treated as a sole-prop, as a partnership, as an S-Corp, or as a C-Corp. The fact that, if you elect to be taxed as a sole-proprietorship, all of the company's profits are passed through to the owners for tax purposes is totally irrelevant to the discussion at hand. The LLC still maintains control of undistributed earnings, even though the owner(s) paid tax on them, and those earnings are assets of the LLC and are exposed to legal liability. The owner(s) extract money from an LLC two ways -- through salary/wage compensation and through distribution. The IRS can look at both to determine if you are in substantial compliance for tax purposes. Here they are often looking at people that take too low a wage compensation combined with significant distributions since that is a way to avoid employment taxes. The courts can look at both to determine if you are in violation of limited liability status for legal purposes. Here they are looking for excessive compensation and/or distributions since that is a way to unfairly avoid liability. These are two different and largely separate things.

There is no such thing as "excessive" distribution or compensation on a single-owner LLC. Is there a maximum payment for any business owner? Or CEO? I don't think so.

The only situation I could imagine is spending paying yourself with borrowed money that was borrowed after the owner knew he was getting sued and not telling creditors. Which is outside of the scope of this discussion.

 

There is no such thing as "excessive" distribution or compensation on a single-owner LLC. Is there a maximum payment for any business owner? Or CEO? I don't think so.

Feel free to think whatever you want.