Paula Cozzi Goedert
Jonathan Howe
Few consider that work produced by others during the conduct of business involves someone’s intellectual property. You must remember that the author of the work owns the copyright.
Because we associate boilerplate with the paragraph that we tack on to our media releases, we assume the boilerplate in hotel contracts is also generic and harmless. However, it’s anything but.
Protecting your association from legal trouble requires constant vigilance.
If your CEO job description is like many, it doesn’t mention one of your most important responsibilities: keeping the association, its members and staff out of legal jeopardy. It is important to pay closer attention to the countless ways your association can become ensnared in legal problems. I asked two legal experts—Jonathan Howe, founding partner and president of Chicago firm Howe & Hutton, Ltd. and Paula Cozzi Goedert, a partner in the Chicago office of Barnes & Thornburg LLP and chairman of the Associations & Foundations Practice Group—to share what they consider to be the three most-common ways that association executives get tripped up.
Let’s begin with Jonathan Howe’s top three:
1. Failing to follow your own bylaws, policies and state law.
This is the issue that gets more associations into trouble than any other. Howe cautions executives to be especially careful when it comes to any action that might negatively impact someone, such as a staff member’s removal from office, a member’s expulsion or the imposition of sanctions borne out of an ethics or code of conduct issue. Bylaws, if they are written correctly, should delineate a member’s rights under such proceedings in detail. For example, the following procedure is typical of many bylaws provisions and is, correctly, explicit in detail:
Removal From Membership: Any member, or any representative of a member, may be removed, as the board of directors shall determine, for conduct prejudicial to the welfare, interest or character of the corporation by the affirmative vote of two-thirds of the board of directors; provided, however, that notice in writing, together with a copy of the charges and specifications shall have been sent to said member, or representative of a member, at least twenty (20) business days before the meeting of the board, where such action shall be considered. A member or its representative so accused may appear before the board and may have legal representation at said meeting and shall have the right to appeal from the decision of the board at the next annual or special meeting of the membership of the corporation. The majority decision of the voting members of the corporation present at such meeting shall be final.
Any deviation, intentional or otherwise, from these provisions may expose the association to risk, even simple miscalculations. For example, accidentally counting weekends in your 20 business day notice could end up exposing the association to litigation.
In the last year, state laws addressing nonprofit associations have changed in dozens of states. Some of the changes are innocuous but some, like New York’s Nonprofit Revitalization Act (the first comprehensive overhaul of that state’s nonprofit law in 40 years), can be sweeping. Since most state laws that affect nonprofits change regularly, it is important to secure information about changes at the conclusion of every legislative session or annually, whichever comes first.
Attention must also be paid to antitrust statutes, because associations fundamentally consist of competitors who regularly engage with each other. Competitors who meet together constitute one of the three elements the courts will examine in order to prove an antitrust civil or criminal violation has occurred.
2. Believing in long-term rights of employment contracts.
Executive employment contracts, according to Howe, are really nothing more than prenuptial agreements. While approximately 60 percent of association CEOs now possess a written contract, the clauses having to do with the termination of employment really trump almost all of the other provisions. The term of an executive’s contract may be five years, but if the board of directors can remove the CEO for whatever reason it chooses by providing six months of severance, in reality it is only a six-month contract.
3. A lack of understanding or adherence when it comes to meetings, events and exhibition contracts.
More and more, a rider or amendment to one contract will trigger a ripple effect that can also affect other contracts, said Howe. In one recent instance, the meeting planner succeeded in reducing the potential penalty for room attrition by 50 percent, but the rider to the contract confirming this also contained the standard phrase, “notwithstanding the provisions of this amendment, all other provisions of the contract shall remain in full force and effect.” Remaining in place were food and beverage attrition penalties and meeting-space concessions that were contingent upon meeting the original room-occupancy threshold, which no longer applied. While the rider reduced the potential room attrition penalty, it did nothing to alter the remaining attrition obligations.
Another potential source of trouble is the boilerplate language at the end of all contracts. Because we associate boilerplate with the paragraph that we tack on to our media releases, we assume the boilerplate in hotel contracts is also generic and harmless. However, Howe said, it’s “anything but.”
Take the case of a hotel contract whose boilerplate reads, in part, “All amendments to this contract shall be made in writing.” In the cancellation section of the contract, it states that the contract can be canceled without penalty if done so more than 365 days in advance. In a recent case, an association executive canceled a significant room block at this hotel by telephoning the hotel’s account executive. While the sales associate verbally acknowledged the executive’s verbal notice, the hotel still billed the association for the cancellation because written notice, as required in the boilerplate, was not provided. Remember: Read all of the contract language carefully, including the boilerplate.
According to Paula Cozzi Goedert, the following issues stemmed from cases she has managed in the last year.
1. Don’t agree that the loser of litigation pays plaintiff’s attorney fees.
While this is becoming more common in proposed contracts, “It is not the American way,” said Goedert. “It is, in fact, the British system of law, and arms the plaintiff with such overwhelming leverage that lawsuits in Britain are rare.” Agree to such a contract provision and you may end up paying the plaintiff’s lawyer thousands of dollars—even if a judgment is minimal.
2. Focus on the jurisdiction clause in all contracts.
Make sure you try as hard as possible to secure jurisdiction for legal disputes in your location, not the other party’s. Here is why:
An association located in Florida contracted with a printer in Seattle to print its annual meeting program book, but three weeks before the event the printer became too busy to complete the job. The association’s event planner called Goedert, its legal counsel, for advice. Goedert called the printer and notified him that the association would file litigation in Florida the next day. She also suggested he be prepared to travel to Florida—not once but several times for depositions and the eventual trial. He quickly delivered the goods to the association. In Goedert’s opinion, that would never have happened if the association had agreed to Seattle as the jurisdiction.
3. Obtain written copyright assignments from all who provide intellectual property to the association.
Few consider that work produced by others during the conduct of business involves someone’s intellectual property. You must remember that the author of the work owns the copyright. Unless an association secures written permission, it may be violating someone’s intellectual property rights if it re-purposes the work or displays it in a different medium.
But what about the case of a committee whose members work together to create some sort of association publication? Conceivably, each of the author’s intellectual property rights might be upheld in court.
Goedert suggests that associations routinely issue a “Welcome to the Committee” letter in which all members are asked to sign a copy assigning any copyright ownership to the association. This is an effective way to plug a legal gap that many associations are facing today.
Protecting your association from legal liabilities has never been easy. But as today’s environment becomes more complex, it has never been more important. So read every contract carefully and secure your legal counsel’s advance review any time you’re in doubt.