Legal Phrase of the Day (Brought to you by Stormy Daniels): Breach of Contract

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The latest lawsuit to grip the U.S. news cycle has all the makings of an interesting drama complete with pseudonyms, an agreement to “hush,” a payment for $130,000, and an absent signature. That missing signature is, in part, what brings us to an adult film actress’ lawsuit that a 15-page agreement between “Peggy Peterson” and “David Dennison” concerning an alleged affair with the president is null and void. How? The actress/stripper/director, Stormy Daniels (legal name: Stephanie Clifford), and her attorney, Michael Avenatti, filed their complaint on the bases that that the contract is unconscionable (unreasonably excessive) and invalid since Trump never personally signed. There are also allegations of coercion and physical threats against the actress by the opposing party to stay silent about what she knew about Donald Trump.

If the agreement is found to be invalidated, that would fling open the door for Stormy Daniels to publicly share her story involving Donald Trump without having to pay any damages to Trump’s attorney, Michael Cohen, who brokered the deal.

Daniels requested declaratory relief from the agreement—which Trump’s representatives are intent on enforcing—and even offered to return the $130,000 payment she received.

Many words could be written on the potential legal avenues both sides of this suit could pursue. But, with a CBS “60 Minutes” interview with Daniels slated to air this month, let’s zoom in on one important aspect of the agreement in question: breach of contract.

Even if you’re not suing Trump, we all enter into contracts and agreements, large and small, as a part of living in a modern society. Knowing what breach of contract means could have implications on partnership agreements, residential leases, and employment contracts, among many, many other kinds of agreements.

Legal & Binding

Suit on stairs

Before we dig into how a party can breach a contract, let’s establish what a contract actually is. A contract simply refers to a promise between two or more parties that establishes binding legal duties on the parties, such that the contract can be enforced in a court if necessary. While there are still major differences between states regarding contract law (i.e. a contract valid in Iowa is not necessarily binding in California), under the legal framework of the Uniform Commercial Code and common law, there are necessary provisions for all legally enforceable contracts in the U.S. The major requirements include (but are not limited to): (1) offer; (2) acceptance; (3) legality of purpose; (4) intent; (5) “competent” parties; and (6) consideration. Let’s look at each of these requirements:

Offer

An offer must be made. Of course, you know what an offer is in general, but in the legal world a contract offer means it must include three parts-

  1. The offering party must make a statement of intent to enter into a contract.
  2. Terms must be specified with a specific proposal.
  3. The offer must identify the party who is receiving the offer. a communication that identifies the person to whom the offer is made.

If any of these elements are not present, an offer has not been made.

There’s no one proper way to make an offer; it could be made via email, letter, text message, telephone call, and even through behavior.

Acceptance

This requirement seems like common sense—the offer must be accepted by the other party. But, like the offer, there are certain aspects that must be present in the acceptance. For instance, an offer must be accepted in the way that the offering party authorizes. (Example: an offer you received by email could specify that acceptance means signing and mailing back to a specific postal address. Another example: a grocery store coupon in the newspaper must be used, or accepted, by a date certain or it expires.)

Plus, an offer can only be accepted by the party to whom the offer was made, unless there’s a power of attorney or other authorization of another agent to accept on the party’s behalf.

Let’s say you receive a job offer with a new employer. That’s exciting, but you’re going to want to give the offer in the form of an employment agreement a thorough review. If you review (and consult with your attorney) and decide there are terms you don’t agree with, you may suggest changes and send your counteroffer back to the prospective employer. The edited, updated version of the contract you suggested could be accepted or rejected by the employer. Without acceptance of the agreement from all parties, there is no agreement.

This is one of the elements Daniels is asserting in her lawsuit against Trump—that the existing agreement is not valid and enforceable since one of the parties, David Dennison (AKA Donald Trump), never signed the written contract.

Legality

For an agreement to be enforceable, it must be made for a legal purpose. In other words, a contract’s subject matter cannot violate public policy or be deemed illegal. For example, a “contract” involving the sale of heroin would not be enforceable. If some parts of a contract violated either a state or federal statute, while the other parts were legal, and the two could be reasonably separated, only the aspects of the contract that were lawful could be enforced.

Intent

Sometimes referred to as “mutuality of obligation,” this necessary provision means that both parties to a contract must have a similar intent for the contract. So, if one party to a contract had been shown to purposefully misled or defraud the other party on the terms of the contract, then the contract could be nullified. Basically, everyone involved needs to enter into the contract honestly.

If you were to take a contract to court with the allegation that there was a lack of mutuality of obligation, the court would likely review records and communications that were used in creating the contract. This would provide evidence and a basis for the court to determine if an agreement on intent was actually absent at the time of drafting and execution. For that reason, I typically recommended my clients keep records of communications regarding contracts for a reasonable amount of time.

To go back to our Trump lawsuit example, intent also comes into play. Daniels has asserted that she was coerced into signing the agreement, and therefore there’s a lack of intent since, if this was the case, she wouldn’t have entered into the contract entirely freely. If proof can be found of blackmail or other types of intimidation, a court will rule the contract lacking in validity and thus unenforceable.

Man looking at grey building

Competency

Parties that enter into a legal contract must have the competency and capacity to do so. People who are limited in their ability to enter into a contract include persons who have been deemed mentally incompetent, or temporarily incapacitated in the case of being under the influence of drugs or alcohol, and minors (unless they have been legally emancipated). This requirement ultimately provides protection for both parties.

Consideration

This essential part to a valid, enforceable contract is actually quite different than it sounds. Instead of simply “considering” the agreement, this means that both parties need to provide something of value. Consideration could be a good, service, money, or even benefits. What if there isn’t consideration on both sides? Then the agreement creates the situation for a gift instead of a contract.

To use our previous employment example, the consideration in most employment contracts is the exchange of a service (the work) for money (such as a salary or wage).

All or Nothing

It’s not good enough if just two or three of the elements are present—all aforementioned requirements must be met if a court is to find a contract legally enforceable and binding. 

Breach of Contract Video

Click the image to watch an easy-to-understand video on “breach of contract”

Does a Contract Have to be in Writing?

A question I receive often is if every contract must be in writing. The short answer is no, but it’s a good idea whenever possible, especially in any business contract. Plus, under the intimidating-sounding Statute of Frauds, written contracts can be necessary for certain agreements to be enforceable like those involving real estate transactions, marriage, and long-term contracts (where duties cannot or will not be performed with one year of execution). That being said, if all the required elements are present in an oral agreement (and could be backed-up if necessary) a valid, enforceable exists.

Statute of Frauds mnemonic device

Breach of Contract

Now that we’ve established what a contract is, what’s a violation or breach of a contract mean? A breach of contract occurs when either party in the legal, enforceable agreement fails to perform their duties as outlined in the contract. When a breach of contract occurs, the other (injured) party can be entitled to a remedy, typically monetary damages. In theory the monetary remedy is to be an adequate substitute for the contracted duty and that it will set-up the injured party to be in the same position had the contract never been breached.

breach of contract definition

This makes a lot of sense when you consider real-world scenarios where the monetary remedy could be used to enlist a substitute. Let’s say you’re remodeling your house and you contracted with ABC Construction to redo your kitchen. You contracted with ABC Construction based on the fact they quoted you a lower cost for the remodeling services than XYZ Construction, the only other company that performs similar services in the local area. For whatever reason, the company refuses to complete their end of the contract; they fail to show-up multiple times and you can’t get in contact with them. If the contract were legal, you could sue ABC Construction for breach of contract, and ask for monetary damages (likely equal to the higher cost of services from XYZ Construction), since ABC failed to complete their end of contracted duties. As you can see, the money remedy “restores” your economic position to that as if ABC never breached.

In almost all cases money damages are the go-to remedy for contractual performance, but there are few exceptions. Specific performance of the contracted duties can be required in unique situations where cash is not sufficient to adequately compensate the non-breaching party. Real estate offers a common example where specific performance is often required. Let’s say a valid, enforceable written contract is executed for Alan to sell Bert his house at a certain rate, but then Alan later decides he doesn’t want to sell at all. Because there is no property just like Alan’s house, Bert may be entitled to specific performance of Alan going through with the sale.

The injured party can also be entitled to contractual performance if a total value of damages cannot be calculated.

Other remedies an aggrieved party can pursue in a breach of contract include recession from the contract (terminating the contract); quantum meruit (a fancy latin way of saying “what one has earned” meaning in contract law a recovery of the value of labor and materials); and injunction (a court order for a party to do, or cease, specific acts).

Breached Mnemonic Device

Let’s take it back to the 2016 nondisclosure agreement between Daniels and Trump (or, rather, Trump’s attorney Michael Cohen). The agreement asserts that if Daniels breaches the contract (meaning she discusses information about Trump in relation to the alleged affair) the remedy will be $1 million for each violation on top of any compensation Daniels earns from disclosing information about Trump. At this time, Cohen filed papers in a federal court reportedly seeking $20 million in damages from Daniels for 20 supposed breaches of the agreement. Which circles back to Daniels’ legal argument that she is not required to pay any damages; no breach of contract occurred as there was no valid contract to begin with.

On top of all this, the clause for $1 million in liquidated damages per breach is debatably a penalty clause. “Because penalty clauses are generally not enforceable under contract law, a court will construe an excessive liquidated damages clause as a penalty clause and will simply not enforce it.” (Note that liquidated damages are defined as specific sum of money parties agreed to and wrote into the contract. This is the amount the injured party should be paid if the other party breaches certain aspects of the contract.) Then, there is the question if the agreement and payment of $130,000 violated campaign finance laws.

So, needless to say, the Stephanie Clifford a.k.a. Stormy Daniels a.k.a. Peggy Peterson vs. Donald J. Trump a.k.a David Dennison and Essential Consultants, LLC. lawsuit seems to be getting increasingly complex with news of Cohen’s lawsuit against Buzzfeed. It’s also likely that we’re going to see other conversations surrounding Trump and breach of contracts considering the nondisclosure agreements he had White House staffers sign. The agreements supposedly have economic penalties for “unauthorized disclosures” not just during Trump’s term in the White House, but even after he’s out of office.

All of this is to say before you sign a contract, be it for some aspect of nonprofit operations, a personal property transaction, or employment agreement, you’ll need to spend ample time reviewing all the fine print. If at all possible you will also want to run the agreement by a skilled attorney, so they can help catch any obscure legalese or one-sided loopholes.

Questions about “breach of contract?” Need advice on a pending agreement? Want to know if a contract has all the required elements? Don’t hesitate to contact me via email or by phone (515-371-6077).

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Is Your Favorite (Nonprofit) Team on the Bubble?

#SelectionSunday

As we basketball fans get ready for #SelectionSunday, is your team on the bubble? Lots of reporting (like here and here and here) features teams that are oh-so-close to being in the NCAA Tournament, but perhaps not quite so.

Which reminds me to ask, how is your nonprofit team doing? In terms of compliance, is your favorite nonprofit safely “in” the compliance zone and ready to play to win, or are you hoping that the team can be just compliant enough to slide in?

Who do YOU cheer for?

person shooting on basketball court

When I say favorite nonprofit, think of it like the team you have slated to go all the way and win the final round! Perhaps your fave nonprofit is arts-oriented, like Revival Theatre Company in Cedar Rapids. Maybe your top pick is a local human services organization, like The Crisis Center in Johnson County. You could cheer the most for an animal welfare organization, like Friends of the Animal Center Foundation in Iowa City. You may be a tried and true support for a nonprofit that works for the benefit of developing countries, like Self-Help International based in Waverly, Iowa.

In any case, the nonprofit topping your list will likely need to submit an annual filing with the IRS to be “in” the compliance zone. The majority of nonprofit organizations must file some version of IRS Form 990, which asks about a number of policies and procedures.

Go for the win!

Just like the game of basketball is played within an established set of rules, tax-exempt organizations must also “play” within specific guidelines. Doing so means having specific policies and procedures in place to be compliant and in order to meet the IRS’ expectations. When a nonprofit invests in comprehensive internal and external policies and procedures it’s like investing in the right training and resources to maximize the sport team’s strengths.

To continue the analogy, consider me the coach for these policies and procedures and I want to help all Iowa nonprofits teams play their best. This is why I’m offering the 10 for 990 nonprofit policy special now through March 15. Leave the legal drafting to someone else while you continue to maximize your mission. Note that the $990 rate for the 10 important policies asked about on Form 990 also includes a comprehensive consultation and one full review round.

Help your team!

If you’re a nonprofit founder, executive, board member, or even an active volunteer, this is an excellent way to ensure the organization you’re deeply invested in is meeting (and exceeding!) the standard for tax-exempt organizations.

The 10 policies a part of this promotion will save your tax-exempt organization time, resources, and you can feel good about having a set of high quality policies to guide internal operations, present to the public (if appropriate), and fulfill Form 990 requirements.

Don’t wait for a last second shot!

As the game changes your team needs to adapt. If you already have some (or all) of the policies your team needs in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.

After you’re done filling out your March Madness bracket, commit to helping your own nonprofit team be a champion. Contact GFLF before the policy promotion is up (March 15) via email (Gordon@gordonfischerlawfirm.com) or by phone (515-371-6077) to get started.

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Hot Off the Press: March Edition of The Iowa Lawyer

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The March issue of The Iowa Lawyer magazine is out and I’m happy to say that includes Gordon Fischer Law Firm’s latest piece on how to account for digital assets in estate and business succession planning. Entitled “Down Low on the Download,” the article covers points including an overview of the Digital Assets Act, how digital assets should be considered in lawyers’ succession plans under Iowa Court Rule 39.18, and easy steps all Iowans can take to include digital assets in planning for the future. Click to page 9 to read more.

March Iowa Lawyer

Also in the Iowa State Bar Association’s publication are stories on local rules, a profile on Iowa Legal Aid’s new director, and a cover piece on a Vinton lawyer (who happens to share the Fischer last name) who tragically lost his office to a fire.

If you’re interested in reading GFLF’s previously published articles in past editions, click here to scan through the archives.

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Legal Word of the Day (Brought to you by Sam Nunberg): Subpoena

subpoena and pen

The language in which much of the law is written and conducted in can be downright confusing…it’s not called legalese for nothing! Even basic words, like property and trust, can take on varied and more specific meanings than their normal everyday meanings. But other words and phrases are a part of most adult Iowan’s peripheral lexicons if even from watching shows like The Good Wife or the nightly news Certain events or people can also spark an interest in legal-based terminology. For instance, many more people have now heard of the legal term “inclusion rider” thanks to Frances Dormand’s Best Actress acceptance speech at the recent Academy Awards. We’ve seen plenty of headlines featuring the word “subpoena” in the news cycle recently particularly in relation to a former outspoken Trump aide. It’s one of those words you kind of know, or think you may know, but again aren’t for sure. In order to better understand what’s going on with special counsel Robert Mueller’s investigation on Russia’s interference in the 2016 elections, let’s review what the legal term “subpoena” really means and if you can simply ignore it or refuse to cooperate if you want to…looking at you, Sam Nunberg.

What Does Subpoena Mean?

A subpoena is a formal court-ordered command to do something specific. There are two main, different kinds of subpoenas. (Quick phonetics lesson: the “b” is silent and the “poe” makes a long “e” sound.”) We’ll use the former Trump campaign aide (and defendant in a Trump lawsuit) Sam Nunberg as an example throughout.

Subpoena duces tecum

One type, subpoena duces tecum, demands you present a kind of tangible evidence like a physical item or document. For instance, a subpoena could request letters, photographs, emails, audio recordings, video footage, and text messages related to the case. (In fact, as a practical matter, a subpoena duces tecum will generally request all these items).

In the case of Sam Nunberg, the subpoena requested documents and communications dating back to November 2015 with people related to the scope of the investigation such as Donald Trump, former campaign advisor Roger Stone, Trump’s lawyer Michael Cohen, and former chief strategist Steve Bannon, among others. The subpoena was issued by a grand jury. (Grand jury reminder: a prosecutor establishes a grand jury to determine if there is enough probable cause, or evidence, to pursue a criminal case.) Earlier this week, Nunberg said in an interview he “objected to the subpoena because it asks for information about people whom he either never talked to or with whom he had close relationships.” Nunberg also asserted that it wasn’t fair for the investigation to demand his personal communications and that his emails weren’t relevant to the investigation.

subpoena nunberg

An excerpt from Nunberg’s subpoena | The New York Times

Subpoena ad testificandum

The other type of subpoena is ad testificandum, which compels a person to give their oral testimony at a specific time before an authorized legal body, such as a court, congressional/legislative body, grand jury, or government administrative agency. Before such a subpoena is issued, the person or group seeking information will typically first seek testimony on a voluntary basis. (For example, Trump’s White House attorneys have provided the investigation team with voluntary testimony.)

In the two-page subpoena, Nunberg was also requested to appear before a federal grand jury testimony and deliver oral testimony this Friday, March 9.

Subpoenas & Enforcement

Quite literally the word subpoena is derived from the similar Latin term sub poena which means “under penalty.” This makes it pretty obvious that there are penalties involved if you don’t do whatever is requested without a valid reason. If you receive a subpoena and you don’t cooperate with the (presumptively reasonable) request, you could be held in contempt of court and/or hit with time in jail and/or a fine.

Relating this back to our infamous subpoenaed headliner—when Nunberg was asked by MSNBC if he was worried about being arrested for defying the subpoena, he didn’t seemed concerned and said, “I think it would be really, really funny if they wanted to arrest me because I don’t want to spend 80 hours going over emails I had with Steve Bannon and Roger Stone.”

If no proper legal reason was asserted by Nunberg’s attorneys, and he failed to testify in front of the federal grand jury, prosecutors could ask a judge to grant a bench warrant for Nunberg’s arrest.

supreme court building

Can You Refuse a Subpoena at all?

Some scenarios allow you to present a valid legal defense against complying with the subpoena. You can claim the subpoena’s request(s) is overly taxing or too expansive in scope. You could also refuse if the material(s), info, or data requested is eternally lost, or is privileged in nature. (Think attorney-client, executive, or physician-patient privilege.) Another avoidance tactic for a subpoena in criminal cases is asserting it violates your Fifth Amendment right not to incriminate yourself. (This, however, would still require you to show up, you just wouldn’t have to answer questions). Of course, these efforts aren’t always successful, and the subpoena could still be enforced.

In short, Nunberg’s defense of “screw that” without anything to back it up, is not a proper excuse.

In the latest reporting on Nunberg, apparently he’s indicated he will now cooperate with Mueller and comply with the subpoena.

Subpoenas are serious legal documents and always require serious legal advice. It’s important to seek counsel from a trusted attorney if you get served with a subpoena, most especially if you want to deny a subpoena request.

chess board

Applicability of this Knowledge to Nonprofits

You may be thinking, “wow, this is all really interesting, and thanks so much, but what the heck does this have to do with nonprofits?”

It’s true that the mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa.

Realize that nonprofits can receive subpoenas, too! And they do!

Remember, as was stated earlier, subpoenas can be issued not only by grand juries, but also by government agencies. So, if a disgruntled ex-employee complains, you might receive a subpoena from, say, OSHA, or the Department of Labor, or the Iowa Civil Rights Commission. It’s critically important that if this happens to you, or your fave nonprofit, you understand all the legal rights and responsibilities by contacting appropriate counsel.

Questions? Thoughts? Tell me in the comments section below or contact me via email or phone (515-371-6077).

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Nonprofit Formation: What the Parkland Students Should Do Now

In the days since the horrific school shooting in Parkland, Florida on February 14, many of the surviving students of Marjory Stoneman Douglas High School, along with students across the country and their supporters, have banded together to demand “never again.” Their battle cry is built on the disappointment and frustration with elected policymakers at the state and federal levels that fail to change the current status quo. They are calling out the politicians’ collective “there’s nothing we can do about it” shrug and the cumulative sag of the democratic system weighted by prescribed partisanship, undeniable deadlock, and constricting lobby money.

Parkland Students

Cameron Kasky, Emma Gonzalez, David Hogg, and Delaney Tarr (art by Kimothy Joy) via Vince Reinhart, Flickr

In the wake of yet another senseless mass shooting, these students are calling for actionable policy changes that will serve to protect other youth from having to face the same horrific scenario of murdered friends, teachers, and administrators that they did. Without a doubt, these teens have shown an impressive level of organization that has already resulted in some changes and important conversations on the issue. The Stoneman Douglas students have inspired school walkouts across America, published impassioned articles and op-eds, given interviews on national news, led televised press conferences, influenced a lie-in in front of the White House, took center stage at a CNN town hall, have advocated for gun control at their state Capitol, are creating “wining” social media content to spread their message to legislators and the general public, and so much more. The March For Our Lives is planned for March 24 in Washington D.C. (and in more than 460 sister sites/events around the world) as activists will “demand that their lives and safety become a priority and that we end this epidemic of mass school shootings.”

As time goes on, the #NeverAgain movement may take on different forms, pursue various routes, and try different tactics. Given the life cycle of major protests, it can be difficult to sustain the momentum of continued interest and activism so imperative for driving change. Because of this I want to offer up some legal strategies the Parkland activists and others could employ.

https://twitter.com/neveragainmsd

Form a 501(c)3

One legal strategy the Parkland youth (and other groups interested in pursuing progressive gun policies with a structured platform) could take is forming a 501(c)(3) organization. But, as we mentioned, the Never Again activists are making waves and changes without an official nonprofit platform to stand on, so why would they bother? It’s a good question, and the answer is a multitude of benefits including the following:

Tax exemption/deduction: Organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible for federal exemption from payment of corporate income tax. Once exempt from this tax, the nonprofit will usually be exempt from similar state and local taxes.

Tax-deductible contributions: Even better—if an organization has obtained 501(c)(3) tax exempt status, an individual’s or company’s charitable contributions to this entity are tax-deductible. (It’s true that charitable deductions are generally not as “valuable” since the changes made by the 2017 tax bill, but that’s a topic for another post entirely).

Eligibility for public and private grants: Nonprofit organizations can not only seek charitable donations from the public, they can also seek funding from grant making organizations, like foundations and government entities.

Formal structure: A nonprofit organization exists as a legal entity and separately from its founder(s). Incorporation puts the nonprofit’s mission and structure above the personal interests of individuals associated with it.

Limited liability: Under the law, creditors and courts are limited to the assets of the nonprofit organization. The founders, directors, members, and employees are not personally liable for the nonprofit’s debts. Also these folks have no personal liability for the actions and obligations of the nonprofit. Of course, there are exceptions. A person obviously cannot use the corporation to shield illegal or irresponsible acts on his/her part. Also, directors have a fiduciary responsibility; if they do not perform their jobs in the nonprofit’s best interests, and the nonprofit is harmed, they can be held liable.

Focus your giving: With charitable giving flowing through a central nonprofit organization, it’s easier for donors and the organizers alike to focus the giving on a singular mission (such as advocating for progressive gun control and reform at both the state and federal policy levels). An organized nonprofit can be much less susceptible to varied causes and cases of the different donors, volunteers, and employees, because a platform can be clarified.

With all of these benefits in mind, the present-day Women’s March is great example of a movement that has spawned dynamic nonprofits including March On, Women’s March LA Foundation, Women’s March Alliance, and Women’s March Canada. Women’s March leaders also launched a super PAC in 2017, March On’s Fight Back PAC. (Note: The 501(c)(3) organization Gathering for Justice served as the presenting partner for the Women’s March on Washington, meaning the organization lent their 501(c)(3) status to the grassroots movement, so that all donations could be tax-deductible.)

Women's March on Washington

Wait, Can Teens Even Form a Nonprofit?

Some of the criticism the Parkland students have weathered in the recent weeks has been based on their age. Without a doubt, these students have the right and have demonstrated a clear, mature ability to speak up for their cause even if some cannot legally vote in an election yet. Additionally, being a minor doesn’t prohibit them from founding a nonprofit organization. There are countless success stories of inspiring youth who haven’t let age hold them back from pursuing an amazing missions such as those behind The Ladybug Foundation, We Movement (which began as Free the Children), Kids Saving the Rainforest, Alex’s Lemonade Stand, and FUNDaFIELD (among many others).

The one things teens need to be aware of is that minors are typically not permitted to enter into legal contract unless they are emancipated. So, a teen could form a nonprofit, but then they may need to hand over control to a legal adult executive director in order for the nonprofit to pursue certain agreements and the like that would be beneficial.

person with backpack

How to Form a Nonprofit

Previously on this blog I wrote about how to form a nonprofit organization, but let’s review the basics; forming a 501(c)(3) involves four main steps:

  1. drafting, editing, and filing articles of incorporation;
  2. drafting and editing bylaws, with new board members then voting in favor of the bylaws in a duly authorized meeting;
  3. applying for an Employer Identification Number (EIN); and
  4. drafting, reviewing, and editing the IRS non-exempt status application, known as IRS Form 1023, as well as all the supporting materials IRS Form 1023 requires.

Note that each state can have different requirements for initial registration and filing, annual and employment filing, charitable fundraising compliance, and governance structure requirements. For example, in Iowa, there needs to be a minimum of one director (directors comprise the governing body of the nonprofit and serve as stakeholders in its mission and success) and an annual meeting is required.

So, if high school students in Florida form a nonprofit it would differ in process and compliance than if high school students in Iowa did the same.

What About Political Activity?

The limits on political activity is something that the Parkland students would have to adhere to if they formed a 501(c)3 organization. To maintain tax-exempt status, nonprofit organizations cannot participate with political campaigns on the behalf (or in opposition) of a candidate running for elected public office. So, this includes campaigns for U.S. president, senate, house of representatives, governor, state legislators, and even local offices like the county trustee. The IRS takes this rule super seriously and violations can result in a range of penalties from corrective actions to ensure the violation won’t reoccur, to excise taxes, to the revocation of tax-exempt status.

If the students did form a 501(c)(3), what could they do in terms of political-related activities?

peace flag

The rule of thumb here is nothing partisan. So, nonprofits can certainly engage in non-partisan activities like voter education and registration drives, as well as non-partisan political debates. (Nonprofits just need to be prepared to demonstrate that their activities don’t help or harm any particular candidate, and how the activities fit in with the organization’s exempt purposes.)

Up until now the Parkland students have been advocating largely for a specific stance (legislation that favors gun control) and not specific political campaigns. They could continue to do this issue-related advocacy work, so long as boundaries are not overstepped and the lobbying turns into political campaigning.

Remember that individuals associated with a nonprofit (say a founder or director of fundraising, for example) retain their right to participate in the democratic process by campaigning for specific candidates and vocalizing opinions; individuals just cannot do so as a representative of a nonprofit organization.

Other Options for Organization

501(c)(4)

If the Parkland students and their supporters want more of an active role in directly supporting candidates that agree and support gun control, they may want to pursue forming a 501(c)(4) instead of or in addition to the 501(c)(3).

A 501(c)(4) IRS designation indicates a “social welfare” organization, which the IRS defines as, “Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” (Note: A 501(c)(4) can also include local associations of employees.) Some commonly recognized examples of this type of organization are volunteer fire departments, homeowners associations, Disabled American Veterans chapters, and community service groups like the Rotary Club. Even Miss America Organization is a 501(c)(4)! You may also know 501(c)(4)s that are openly connected with a specific political party or ideology, like Organizing for Action and Crossroads GPS.

What differentiates the 501(c)(4) from it’s (c)(3) cousin is this type of organization is allowed to participate directly and indirectly in politics…so long as it is not the organization’s primary focus. Under this type of designation, organization representatives can conduct unlimited lobbying efforts and engage in partisan campaign activity…but only as a secondary activity. In practice, this means the organization must spend less than half of their funds on political campaigns, candidates, and the like. (Most counsel would recommend 30 to 40 percent of funds to be on the safe side).

Super PAC

Another option would be for the students to form a super political-action committee (PAC). Super PACs are not a category of nonprofit, but rather their own beast. I could (and will!) write a full post on this type of entity’s history, fundraising abilities, and limitations. What’s important for you (and the Parkland students) to know is that that super PACS have no limitations on who (be it unions, corporations, associations, or individuals) can contribute and how much they spend on elections, specific candidates, and in opposition of other candidates. This is why the 2016 presidential election saw super PACs donate massive amounts like Priorities USA Action spent more than $133 million supporting Hillary Clinton’s campaign, and Right to Rise gave $86 million to Jeb Bush’s candidacy.

When it comes to political activity, the main restriction is that a super PAC cannot spend funds “in concert or cooperation with, or at the request or suggestion of, a candidate, the candidate’s campaign or a political party,” according to the Federal Election Commission. It’s also important to note that donors can give to a nonprofit anonymously, but cannot make anonymous contributions to PACs.

Tax-exempt organizations interested in direct political work can form a PAC as a separate legal and funded entity in addition to their normal mission oriented work.

This is all to say that the Parkland students (and their supporters) have a multitude of options if they wanted to harness the benefits a nonprofit organization and/or an entity like a super PAC allows.

For anyone looking to form a nonprofit (regardless of age!) I recommend you meet with an attorney experienced in nonprofit formation and compliance to ensure you’re meeting all requirements, as well as drafting the important policies and procedures.

I would be happy to offer you a free consultation, address any questions, or help you get started on pursuing your mission-oriented organization. You can contact me via email or by phone (515-371-6077).

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Legal Word of the Day (Brought to you by Frances McDormand): Inclusion Rider

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No sooner had I written a blog post on how the Academy Awards relate to estate planning, did one of the award recipients bring up another legal topic that needed to be covered!

Best Actress winner Frances McDormand gave a powerful speech about gender equality in Hollywood. Her words seemed a fitting continuation of the #MeToo movement and Time’s Up initiatives that had a clear presence (both spoken and unspoken) in Los Angelas’ Dolby Theatre. At the conclusion, Ms. McDormand said, “I have two words for you: inclusion rider.”

https://www.facebook.com/ABCNetwork/videos/1880602121983915/

What is a Rider?

You may already know that a “rider” is an addition or extra to the main contract. Riders have special meaning when it comes to the entertainment world.

Perks!

Riders can be used to grant certain perks to an artist (like all of the actors and actresses present at last night’s Academy Awards).

Does a principal dancer want a certain kind of water available backstage? Is the guitarist picky about what foods will be available in the green room before and after a concert? If you’re an entertainer (dancer, comic, actor, musician, speaker, etc.) with a reasonable amount of bargaining power (i.e. star power!), you would want to be sure that your contracts include all your favorite little extras. These extras, or demands, should be placed in writing in each legal contract so that they must be honored by the other party such as a film production company, concert promotor, performance venue, and the like.

guitarist on stage

Finance

Riders can also cover specific financial elements. If a pop star, for example, wants a percentage of a concert’s profits, she might request this through a rider. A television actor could attempt to request something similar from online streaming sales.

Inclusion Rider 

Tack the specific word “inclusion” onto rider and you have a contractual clause that actresses/actors can insist be inserted in contracts that requires cast and crew on a film to meet a certain level of diversity (both racial and gendered).

The concept was explored in a TED talk in 2016 by Stacy Smith. Smith, director of USC Annenberg’s Media, Diversity & Social Change Initiative, believes that inclusion riders (also called an “equity clause”) could be part of the solution for the lack of diversity in films. In a 2014 piece she penned for The Hollywood Reporter, she wrote:

What if A-list actors amended every contract with an equity rider? The clause would state that tertiary speaking characters should match the gender distribution of the setting for the film, as long as it’s sensible for the plot. If notable actors working across 25 top films in 2013 had made this change to their contracts, the proportion of balanced films (about half-female) would have jumped from 16 percent to 41 percent. Imagine the possibilities if a few actors exercised their power contractually on behalf of women and girls. It wouldn’t necessarily mean more lead roles for females, but it would create a diverse onscreen demography reflecting a population comprised of 50 percent women and girls.

Smith asserts that there’s no reason why the majority of the minor roles (on average, 30-ish or so roles) cannot reflect the demographics of the realistic environment where a story is taking place. An A-list actor or actress can use their contract to stipulate that the supporting roles in the film (or show) reflect equitable diversity in terms of both race and gender.

Smith said she’s worked with attorneys in the past to craft specific language for the provisions where if the other party failed to meet the inclusion rider requirements, they would need to pay a penalty to a fund or charitable cause that supports underrepresented persons in the industry.

It’s a smart, common sense move that could mean a big change in countering the bias (both conscious and unconscious) in auditions and casting. The intended result is for greater representation and opportunities for women, persons of color, the LGBT community, and persons with disabilities in entertainment. Plus, as actress and comedian Whitney Cummings said, this increased pressure for inclusivity “will make movies better.”

McDormand on Inclusion Riders

Backstage after the Oscars ceremony, McDormand said of inclusion riders, “I just found out about this last week. There has always been available to all, everybody who does a negotiation on a film, which means you can ask for or demand at least 50 percent diversity in not only the casting and the crew. The fact that I just learned that after 35 years in the film business – we aren’t going back.”

Inclusion Riders & You

While you may not be nominated for an Academy Award anytime soon, the takeaway is twofold.

First: if you support increased representation of different genders and races in movies you can support the films that respect inclusion riders with your money. You can also spread the word with the tag #EquityRider when tweeting to actors and actresses asking for them to support the concept through their own contract.

Second: this goes to show the power of the contact and negotiation process. Because the contract can dictate how the relationship between employer and employee (or production company and talent, for instance) run, it’s important to hire an attorney to help you stand up for your wants and needs in respect to the relationship.

To this point, if you’re a nonprofit organization looking to make some new hires or an employee wondering if the contract you’re about to sign will actually be in your best interest, don’t hesitate to contact me.

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Read Across America Day: Introducing the GoFisch Book Club

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Happy Read Across America Day! Coinciding with Dr. Seuss’ birthday, the “holiday” encourages kids to get excited about reading and read more books. Created by the National Educational Association and first celebrated in 1998, the day is marked by reading events at libraries, bookstores, and schools, among other community spots, to celebrate the joy of reading.

While the day was originally intended for school children, I like to celebrate it by taking some time out from legal work and curl up with any one of the good books that have been piling up on my bookshelf begging to be read. As an attorney, reading is a regular part of my work, but unfortunately reading State of Iowa code just isn’t the same experience in the way that a fiction adventure sucks you in or a nonfiction account expands your world. On top of that, I enjoy book clubs (and have tried my fair share of them), but it’s hard to be a steady, regular attendee at a book club! Life happens, work happens, and before you know it, you’re the person pretending to have read the book and adding little to the discussion…

GoFisch Book Club Flyer

That’s why I’m starting the GoFisch book club! Just like Read Across America Day is about getting students excited about reading, I want this club to get Iowans excited about different aspects of charitable giving, estate planning, and nonprofits. The titles chosen will be in some way or another related back to Gordon Fischer Law Firm’s core services, but they’ll be books you would want to read to learn and grow from regardless. Plus, you’ll never have to clean the house in order to host, make treats, or worry about being on time! Sounds good right? (Of course, you’re more than welcome to make treats to eat while you read and share your opinions on the book!)

So, if there are no meetings, how does a digital book club like this work?

Three months of book selections will be listed at all times. So, today the titles for this month, April, and May will be available. (See below.) June’s title will be announced in April and so on. This way you can read ahead, or pick and choose which titles you wish to read.

At the beginning of each month an intro to the book will be posted. All readers are invited to post their own discussion questions in the comments for me and all other readers to consider as we read the book together. At the end of the month I’ll post a follow-up with some discussion questions (including those posed by readers in the comments) and corresponding thoughts; all readers can add to the discussion in the comments. Simple enough. Two posts: one at the beginning of the month introducing the book and one at the end with questions and thoughts. Suggestions for discussion questions and future books are HIGHLY encouraged.

March GoFisch Book Club Pick

What’s the first read to kick the GoFisch book club off? Drumroll please… The Gentle Art of Swedish Death Cleaning: How to Free Yourself and Your Family from a Lifetime of Clutter.

It seems to me that with words like “hygge” all over Instagram, natural materials integrated into interior design, and “lagom” as a philosophic life approach, borrowing life tips for the Scandinavians is all the rage as of the past few years. I don’t see why “death cleaning” would be any different—taking smart, practical steps in preparation for something that will inevitably happen to us all. Without a doubt this book ties in with estate planning as a complementary, future-focused action you may take during life to prepare your loved ones for your death. 

Written by the artist Margareta Magnusson, the book explores the Swedish practice of döstädning, the practice of taking stock and clearing out any unnecessary stuff before others have to do it for you. It’s minimalistic in theory and extremely considerate to your family and friends in practice. At a short and sweet 128 pages, the text is a quick read with a healthy dose of humor and wisdom sprinkled throughout the guide.

Magnusson’s approach also encourages you to begin the sometimes difficult or sensitive conversations around death with family members. Ultimately, the author wants to help her readers take the question “will anyone I know be happier if I save this” and apply it to a process that’s uplifting, rather than depressing or overwhelming.

How you acquire the book is up to you. You could check the book out from your local library, read it on your Kindle or tablet, or buy a nice hardcover addition for your reading nook.

April & May Book Picks

After you get schooled on how to prep for death like a Swede, dive into the following reads:

Calling all Bibliophiles: Make a Book Club Suggestion

What books would you like the GoFisch book club to read beginning in June? Add your book suggestions (along with any discussion questions) to your comments below. You can also share your thoughts on Twitter, Facebook, and Instagram with the tag, #GoFischbookclub.

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