More legal disputes are being resolved through alternative dispute resolution (ADR) in an effort to sidestep the often high cost and long timeline of traditional litigation. ADR is often a mystery, however, because it doesn’t receive the same attention that typical courtroom proceedings do through traditional media. Parties considering ADR should know the differences between and benefits of arbitration and mediation.

In addition to often being less expensive and quicker than litigation, arbitration and mediation both rely on a neutral third party to assist the parties. Both proceedings are usually confidential, and the record and resolution do not become a matter for the public. But the similarities end there.

Smart Business spoke with Brian E. Cohen, an associate at Novack and Macey LLP, about when arbitration or mediation is the appropriate solution.

What is arbitration?

Arbitration is like a typical litigation proceeding in that the arbitrator, or arbitration panel, will, in many ways, act like a judge and determine the respective rights of the parties. An arbitrator’s ruling is a final, binding resolution.  
A growing number of commercial contacts contain arbitration clauses that require the parties to use this ‘stripped down trial’ process rather than litigating their case in court. The specific form of arbitration differs from case to case, but often involves reduced document discovery, limited witness testimony and fewer procedural restrictions than accompany a traditional court case.

What is mediation?

Mediation is a less formal process through which the parties attempt to settle their dispute by mutually agreeing on the outcome. The mediator is there to facilitate a conversation that offers the parties an opportunity to express their interests, listen to the other side’s point of view, and, in some cases, agree to resolve their dispute.  

Mediators do not deliver a judgment, determine the parties’ rights or declare one side the winner and one side the loser. He or she does not have the authority to compel the parties to do anything. In mediation, each party retains control over its fate rather than surrender that control to a judge or jury. At the end of the day, only the parties can decide whether or not they want to agree to a particular set of settlement terms.  

How should clients prepare to enter into either mediation or arbitration?

As with a trial, the goal of arbitration is to ‘win.’ Is there anything the client should know about the arbitrator(s)? What are the strengths and weaknesses of the case? How can the client be helpful during the proceeding? Of course, attorneys and clients should discuss whether the client, or any of its employees, is going to testify at the arbitration, and be sure to go over that testimony.   

Preparing for mediation is different, however, because the goal of mediation is not the same as the goal of arbitration. Attorneys and clients should discuss and agree on their particular goals ahead of time. Is it to settle at all costs? Is it to get close to settling with the hope that the other side’s offer might improve a few days later? Is it simply to have an opportunity to be heard by the other side — to hear their perspective?

After the goal has been established, logistical issues remain. Will the client speak to the mediator or to the other side during the mediation? Will the client or attorney make an opening statement? If the client is going to verbally participate, what kind of message would be best for the client to deliver?

In either case, clients should be sure to talk to their lawyers about what to expect from the process and how to best prepare for whichever form of ADR they are using.

Brian E. Cohen is an sssociate at Novack and Macey LLP. Reach him at (312) 419-6900 or bcohen@novackmacey.com.

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You spent hours working on a new contract for your business, negotiating terms and swapping drafts of the agreement. But time was of the essence and in your rush to get started on the real work, once the terms were set, you and the customer neglected to exchange signatures on the contract.

The project started well enough, but then circumstances changed. The customer wants out of the deal and claims that there is no contract. You want to hold the customer to the agreement. That’s when you realize you don’t have a signed copy of the contract. What now?

Smart Business spoke with Christopher Dean, an associate at Novack and Macey LLP, about how to enforce an unsigned contract for services.

What is a services contract?

A services contract is, as the name suggests, any contract for the performance of services, as opposed to the sale of goods.

Does the distinction between services and goods matter?

It does. Almost every state has adopted a version of the Uniform Commercial Code (UCC), which contains provisions applicable to the enforcement of an unsigned contract. The UCC, however, generally applies only to the sale of goods, not to the provision of services.

If the UCC doesn’t apply, is the contract claim dead in the water?

Not necessarily. An unsigned services contract can be enforced in certain circumstances. The biggest hurdle is proving that a binding agreement exists, despite the absence of a signed contract.

Ideally, you’d have a fully signed document — it is close to irrefutable evidence that you and the customer agreed to the terms of the contract. But even if you don’t, the existence of a contract can be shown in other ways. The trick is gathering as much evidence as possible to show that a contract was formed.

What sort of evidence is useful?

Evidence will differ from case to case. Generally speaking, however, any writing tending to show that an agreement had been reached will be useful in proving that a contract had been formed.

For example, emails, memoranda, notes or even text messages might contain admissions from the customer such as, ‘We’re fine with these terms;’ or an unsigned copy of the contract with a note reading, ‘Here’s the final version.’

Of course, a writing signed by the customer is best, but even a writing by you concerning the contract can have some value. This is particularly true if it was the type of writing that invited — but did not result in — an objection from the customer, such as an email from you to the customer confirming the terms of the contract.

Is there any other evidence that might be useful?
Testimony from people with knowledge of the contract negotiations also may be useful. Testimony, however, is often treated with skepticism, especially when given by someone with a personal stake in the outcome. The key is to be as specific as possible in describing the negotiations and discussions that led to the formation of a contract.

In addition, performance can be strong circumstantial evidence of the existence of a contract — the longer the performance, the better. So, if it’s the case that you performed for only a day before the customer attempted to get out of the contract, the performance may not be very powerful evidence. But if you spent six months performing under the contract without objection from the customer, the customer will have a harder time denying that a contract exists, particularly if you were paid for your efforts during the period according to the contract terms.

Christopher G. Dean is an associate at Novack and Macey LLP. Reach him at (312) 419-6900 or cdean@novackmacey.com.

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The greatest impediment to the successful resolution of a commercial dispute is the failure of both clients and attorneys to understand and think adequately about the extent, nature and amount of damages at issue in the dispute, says Eric N. Macey, partner at Novack and Macey LLP.

“While clients will invest huge amounts of time and money to focus on the merits of a case to prove they are ‘right,’ they either ignore or fail to give the same consideration to damages issues,” he says.

Yet, in order to resolve the dispute, management needs to properly evaluate damages so they can engage in meaningful settlement discussions or understand what they can expect to get or lose if the case goes to trial.

“Simply put, commercial disputes are about risk, and you need to monetize that risk early in the case to intelligently develop a strategy for the suit,” he says.

Smart Business spoke with Macey about understanding and evaluating damages.

What are the steps in evaluating damages?

Begin your damages analysis very early in the case. Talk to counsel about the various theories of damages available to you or your adversary. Are lost profits an issue? Do you want damages for monies that you gave to your counterparty that you now want back, or do you want damages for the costs you incurred by reason of your opponent’s conduct?

Identify various methodologies to calculate damages. For example, if you or your opponent assert damages in the form of lost profits, you need to identify with great specificity how that figure will be calculated. As part of that analysis, you will need to decide if an expert is necessary and also understand the physical evidence you will need to support your arguments.

Read contracts or purchase orders front to back, including all the fine print. Contracts often contain provisions that limit damages.

You need to identify whether there is any statute that impacts your damages analysis. There are many statutes that limit or expand damages. For example, if you manufacture and/or market consumer goods, you may be subject to claims under consumer fraud statutes like the Illinois Consumer Fraud and Deceptive Business Practices Act. That statute expands damages because it provides that a successful plaintiff can recover both punitive damages and attorneys’ fees. Similarly, Title VII of the Civil Rights Act of 1964 limits certain remedies. If your business is sued for employment discrimination under Title VII, that statute imposes limits on the amount of compensatory or punitive damages that a person can recover, which varies based on the size of the employer. Consequently, you need to include any statutory expansion or limitation on damages in your risk analysis when you try to monetize your exposure from such a claim.

What other factors could affect a case?

Be sure to think through mitigation of damages. If you or your counterparty brings suit to recover damages for breach of contract, the party asserting the claim has a duty to mitigate damages. This is called the doctrine of avoidable consequences and simply means that the party asserting a claim must take all reasonable steps to keep its damages from getting larger and larger.

Let’s say you are in the business of selling a certain type of customized computer hardware, and through your efforts, your business enters into a $2 million contract with a manufacturer that needs your technology. You deliver some of the hardware and get paid $1 million on the contract amount, but for some reason the manufacturer tells you it will not honor the balance of the deal. So now you’re stuck with the equipment and out $1 million. You sue for the $1 million. However, you still have a duty to mitigate your damages, which means that you must use reasonable efforts to sell the equipment to another manufacturer. If you do nothing in this regard, the court or jury can take this into account and reduce your damages even if you win the case.

In sum, do not blindly pursue or defend claims solely on the merits without evaluating what you may recover in damages or risk paying. Remember, commercial litigation is just resolution of a business dispute in another, albeit unique, forum with special rules. This does not mean that you forego monetizing your risk. It is imperative to do so to manage your case successfully.

Eric N. Macey is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or emacey@novackmacey.com.

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In 2012, more than 40,000 businesses filed for federal bankruptcy protection. When this happens, the bankrupt entity or the bankruptcy trustee will sometimes seek to recover certain payments previously made to the bankrupt entity’s creditors so that those funds can be redistributed in accordance with the U.S. Bankruptcy Code. One type of payment that the bankrupt entity or the trustee may seek to recover is called a preference.

Smart Business spoke with Julie Johnston-Ahlen, of counsel at Novack and Macey LLP, about how to deal with being sued for preferential payments.

What is a preference?

A preference is a transfer or payment on an existing debt. It’s made by a soon-to-be bankrupt debtor to a creditor within the 90-day period preceding the bankruptcy filing.

Why can’t you keep the money that the bankrupt entity paid you?

The purpose of the law on preferential transfers is to try to make the bankruptcy process as fair as possible for all of the bankrupt entity’s creditors. When a business has insufficient cash flow, it will often pay certain creditors in full and not pay others, depending on which goods and services are most critical to the soon-to-be bankrupt entity’s business. In an effort to maximize the fair distribution of the bankrupt entity’s assets, creditors that receive preferential payments are often forced to return the money to the bankruptcy estate for redistribution, subject to the supervision of the court.

Do you have to return the money?

It depends. The bankrupt entity or trustee has the burden of proof. So, it must be demonstrated that there was a transfer or payment of property of the debtor, to or for the benefit of a creditor, on account of antecedent debt. This must occur within 90 days of bankruptcy and enable the creditor to receive more than it would in a Chapter 7 liquidation. In addition, the transfer or payment must have been made when the bankrupt entity was insolvent.

Even if these elements can be established, many creditors have viable defenses that may enable them to keep some or all of the money they received. These defenses are fact specific, and in practice, can be difficult to assert without the assistance of an attorney familiar with defending preference actions.

What should you do if you are sued for a preference?

In most cases, you have two options: you can pay back the full amount of the payment, or you can fight the claim. If you fight it, you have a good chance of keeping some portion of the payment, particularly if you can demonstrate that you have one or more viable defenses. Further, even if you don’t assert specific defenses, but you make a reasonable offer of partial repayment, the bankrupt entity or trustee may be willing to settle for that lesser amount. This is particularly true in larger bankruptcy cases where the bankrupt entity may be pursing repayment from many creditors. It’s often not feasible to fight with every creditor in an attempt to recover the full amount of each transfer.  

Should you accept payments from a customer that might be having financial trouble?

Generally speaking, yes. There is nothing ‘wrong’ with accepting a payment that turns out to be a preference. You just might be forced to pay the money back later.

Creditors are almost always better off accepting payment from the future bankrupt entity, and then later dealing with any efforts it makes to recover the money. Again, it is often the case that the bankrupt entity or trustee will settle the claim for less than the full amount of the payment. The creditor keeps the rest, and it’s almost always the case that it ends up recovering more money than if it had not received the payment.

Julie Johnston-Ahlen is of counsel at Novack and Macey LLP. Reach her at (312) 419-6900 or jja@novackmacey.com.

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Is the confidential information on your network safe? That’s a question every organization should ask itself because network security breaches are common and becoming even more prevalent.

Kristen Werries Collier, a partner with Novack and Macey LLP, says organizations must acknowledge this risk and vigilantly monitor and evaluate their cybersecurity safeguards and protocols to minimize it.

Smart Business spoke with Collier about network security breaches and the steps companies can take to mitigate or eliminate them.  

How common are enterprise security breaches?

Most large and midsize companies have confronted a cyberattack at some point. Network security attacks are a reality you must confront head on. The threats to your network posed by unauthorized access — and the damage caused by a successful attack — will only continue to rise.  

Can you prevent a security breach of your network?

While you may not be able to prevent a breach with absolute certainty, you can certainly deter one by proactively assessing and addressing your network’s vulnerabilities. If you don’t have the in-house expertise to do that, consult a security adviser. You want to invest your money in safeguards that deter — if not prevent — the attacks you are likely to face, and a security adviser can identify those for you.

Keep in mind that no system is ironclad because hackers adapt as security measures evolve. Accordingly, you must routinely monitor your layered security measures to make sure you are keeping up with determined hackers. Avoid being the easy target.  

What should you do if, despite your precautions, a breach happens?

Undertake these best practices:

  • Act fast. Perform a post-attack forensic analysis to determine the ‘who, what, when, where and how’ of the breach. You’ll need to preserve this information to evaluate the damage, mitigate the fallout, structure appropriate remedial measures and build a case against the hacker.
  • Promptly notify anyone whose sensitive information may have been compromised.
  • Update your intrusion detection and prevention systems and other safeguards to deter future breaches.
  • Assess what your legal obligations are in the wake of the infiltration.

What is the potential fallout if your network is breached?  

Breaches expose your organization to legal claims and undermine its competitive advantage. As for the legal claims, the law mandates the protection of certain types of information like consumers’ personal and nonpublic financial information, Social Security numbers and medical records. Your organization could potentially face claims predicated on an array of legal theories, including negligence; breach of contract; the Fair Credit Reporting Act, which subjects certain organizations to liability if they fail to safeguard consumer credit information in their possession; and Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive practices affecting commerce.

While you may defeat such legal claims on a motion to dismiss or ultimately at trial, it will cost you money to do so. From a business perspective, a security breach may have financial and competitive repercussions by publicly exposing your organization’s highly confidential or propriety information, and by eroding consumer confidence in doing business with you. 

What, if anything, is the government doing to crack down on hackers? 

The government is cracking down by charging hackers with crimes carrying potential years of imprisonment and hefty monetary fines. However, the deterrence effect of this crackdown is somewhat limited given that numerous hackers operate outside of the U. S., making prosecution difficult, if not impossible. This is yet another reason to deter, if not prevent, a breach of your organization’s network in the first place and quickly mitigate the fallout if one occurs despite your best practices.

Kristen Werries Collier is a partner at Novack and Macey LLP. Reach her at (312) 419-6900 or kwc@novackmacey.com.

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The purpose of an arbitration clause is to resolve disputes by means of a private proceeding that is generally perceived as quicker and less expensive than the court system. Yet many contracting parties do not fully analyze the arbitration clauses in their contracts, and so do not draft such provisions in a comprehensive and precise manner. These lapses can lead to costly and time-consuming disputes.

“Any party entering into an arbitration agreement, therefore, would be wise to carefully analyze the arbitration clause thoroughly, with a view to ensuring that it will accomplish all of the party’s goals,” says Courtney D. Tedrowe, a commercial litigation partner at Novack and Macey LLP.

Smart Business spoke with Tedrowe about what it takes to draft an effective arbitration clause.

What are the key considerations in drafting an arbitration clause?

Broadly speaking, there are two categories of issues to consider when drafting an arbitration clause. The first of these concerns the extent to which the court will be involved in pre-arbitration and post-arbitration issues. The second category concerns the parameters and procedures of the arbitration proceeding.

Why consider the court’s involvement in pre- and post-arbitration proceedings?

Just because you have an arbitration clause doesn’t mean that you will avoid court proceedings. Not infrequently, a party will oppose the arbitration demand on the grounds that it does not fall within the scope of the arbitration clause. Under the Federal Arbitration Act, courts are required to ensure that the claim is arbitrable. However, the arbitration clause can specify that the arbitrator decides such substantive ‘arbitrability’ issues, effectively limiting the court’s role from the very outset.

The parties may also restrict the court’s involvement in post-arbitration proceedings. Some post-arbitration judicial action is inevitable, since courts, not arbitrators, have the power to reduce the arbitration award to an enforceable judgment and to decide any challenges to the award. Here, the parties can use the arbitration clause to limit the grounds of appeal, further reducing the chances that the award is vacated, and minimizing the risk of lengthy appeals.

How should the arbitration clause be drafted to provide for procedural matters?

Parties can agree to pretty much whatever they want when it come to procedures. Typically, agreements simply select an organization’s rules, such as the American Arbitration Association, JAMS or ADR Systems.

There are two big pitfalls here. First, most organizations have more than one set of rules with sometimes very different deadlines, discovery options and evidentiary rules. When drafting the clause, be sure that you select not just the organization, but the specific set of rules most favorable to the particular situation.

Second, organizations change their rules regularly, meaning parties will likely be bound to use the rules in effect at the time of the dispute, which may have changed.

Can parties modify the applicable rules?

Yes. For example, although the rules of evidence do not typically apply in arbitration, parties may specify that they will apply, or that only certain rules of evidence apply. Parties also have the ability to craft the discovery process to their particular situation. The arbitration clause can set forth, among other things: whether parties may take depositions and, if so, how many; whether documents requests and interrogatories will be allowed and, if so, how many; and the parameters of any other discovery method.

The clause may also deal with the hearing location; pre- and post-arbitration motions, such as motions to dismiss; and the arbitrator’s power to fashion specific remedies.

How much freedom do the parties have to control the arbitrator selection process?

Parties have complete control over who arbitrates their dispute. The specific arbitrator could be identified in the clause, or the clause can set forth the rules by which an arbitrator is selected, either expressly or by selection of a particular organization’s rules.

Courtney D. Tedrowe is a commercial litigation partner at Novack and Macey LLP. Reach him at (312) 419-6900 or cdt@novackmacey.com.

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Parties often have lengthy negotiations before they enter into a final written contract. Various promises and representations are made and relied on during those negotiations.

“Be sure to incorporate all important terms and promises into the final written contract,” says Shelby Drury, of counsel with Novack and Macey LLP. “Later, if there is a dispute that results in litigation about the contract, the court is unlikely to allow either party to introduce evidence of promises or representations that are not stated in the written contract.”

Smart Business spoke with Drury about the admissibility of promises or agreements that are not stated in the final, written contract, and how to draft a contract in a way that makes it clear whether or not the parties intend to incorporate prior or contemporaneous agreements.

How do courts determine the contracting parties’ intent?

Illinois courts generally follow the ‘four corners rule,’ which provides that a written contract speaks for itself and the intent of the parties is to be determined from the language used in the contract without looking at outside evidence.

What if a party relied on earlier promises or agreements that are not expressly stated in the final, written contract?

Generally, parties are bound by the contract as written and may not bring in evidence of additional promises or agreements. The ‘parol evidence rule’ bars evidence of prior or contemporaneous oral or written agreements and discussions or promises offered to explain or contradict the plain, unambiguous terms of a written contract. Significantly, the rule bars evidence of promises or agreements that contradict a written contract as well as evidence of additional consistent terms. The reason for this was explained by the Illinois Supreme Court, which stated, ‘when parties sign a memorandum expressing all the terms essential to a complete agreement, they are to be protected against the doubtful veracity of the interested witnesses and the uncertain memory of disinterested witnesses’ concerning its terms.

Are there exceptions to the parol evidence rule?

Yes. If the court finds that the contract is unclear or ambiguous because its language is susceptible to more than one meaning, then the court may allow parol evidence to help resolve the ambiguity. Also, if the contract is incomplete, the court may allow evidence of additional consistent terms to supplement or explain it. Additional exceptions apply to contracts that are covered by the Uniform Commercial Code.

Is there anything that contracting parties can do for extra assurance that prior agreements or promises will not be admissible in a lawsuit concerning the contract?

It is wise to include an ‘integration clause’ in the final contract to make clear that the parties agree that:

1) The contract is complete.

2) Negotiations and representations made prior to the written contract are not part of the agreement.

3) The parties intend that the contract be interpreted solely based on its plain language.

A typical integration clause provides: ‘This agreement constitutes the entire understanding between the parties hereto and supersedes and cancels all prior written and oral negotiations, understandings, representations or agreements with respect to the subject matter of this agreement.’

What if the parties want to include terms not included in the contract?

In that case, the parties should expressly incorporate such other agreements by reference in the final, written contract. They should do this by identifying the title and date of such agreements and expressly stating in the final, written contract that such agreements are incorporated by reference.

Shelby Drury is of counsel at Novack and Macey LLP. Reach her at (312) 419-6900 or sdrury@novackmacey.com.

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When people consider intellectual property (IP) they most often think patent or copyright, which can be very valuable to a business. But, in fact, one form that’s often overlooked is trade secrets.

What constitutes a protectable trade secret varies from state to state, but the gist of what trade-secret law protects is similar in almost every state. A trade secret is any sufficiently valuable, secret information that can be used in the operation of a business to afford an actual or potential economic advantage.

“Given this broad definition, it should come as no surprise that a wide variety of things have been found to constitute trade secrets, including product formulas, data compilations, customer or client lists developed through hard work, manufacturing techniques and some forms of business know-how,” says P. Andrew Fleming, a partner at Novack and Macey LLP. “The point is that many things could be protectable trade secrets if a business took the time to identify and properly protect them. All too often, however, businesses do not do a good job at either.”

Smart Business spoke with Fleming about how your company should be protecting your trade secrets.

How might a company’s trade secrets be vulnerable?

It is hard for a business to protect something unless it knows what it is — a business has to identify its trade secrets before it can protect them. A little common sense goes a long way. Business owners should start by asking a simple question: ‘What does my business do better than the competition that my competition does not know about, and that I do not want them to know about?’

What policies should a company put in place to protect its trade secrets?

The next step is protecting that trade secret. This can be tricky because, as the name implies, a trade secret loses protection when it is no longer secret. Moreover, the law does not protect a trade secret unless its owner takes reasonable steps to keep it secret. Although there is no hard and fast rule, a business should consider:

  • Password-protecting computers containing its secrets.

  • Limiting access to secrets on a ‘need-to-know’ basis.

  • Keeping hard copies of documents containing or describing its secrets under ‘lock and key.’

  • Entering into contracts with its employees that requires those employees to maintain secrecy during employment and after their employment ends.

A business also might consider using reasonable non-compete agreements with employees who know trade secrets to keep them from going to the competition. After all, if a former employee cannot work for a competitor, he or she has little incentive to reveal secrets once employment ends.

How has social media affected a company’s ability to protect its trade secrets?

The explosion of information on the Internet has made it more difficult for businesses to argue information or know-how is sufficiently secret to constitute a trade secret. It is now far easier to find descriptions of techniques, know-how and even customer lists — a point underscored in Sasqua Group, Inc. v. Courtney. There, the defendant allegedly took secret and valuable customer information to her new job, and the plaintiff argued the information was a trade secret. The court acknowledged that the customer information could in the early days, i.e. pre-Internet and pre-social media, have been sufficiently secret, but since virtually all of the allegedly protected information could be found on the Internet, including through social media sites, it no longer qualified.

It is not difficult to imagine other scenarios in which a business could lose trade secrets via the Internet or social media. For example, a disgruntled employee could intentionally post secrets so the otherwise secret information loses its protection. Even a happy employee unwittingly could disclose secrets through careless posting, such as establishing links to all customers on a social media page.

There are no easy answers to such problems, but businesses must remain on guard, take care when creating or posting to social media sites, and educate employees about the pitfalls of using social media.

P. Andrew Fleming is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or andrewf@novackmacey.com.

 

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Is the confidential information on your network safe? That’s a question every organization should ask itself because network security breaches are common and becoming even more prevalent.

Kristen Werries Collier, a partner with Novack and Macey LLP, says organizations must acknowledge this risk and vigilantly monitor and evaluate their cyber-security safeguards and protocols to minimize it.

Smart Business spoke with Collier about network security breaches and the steps companies can take to mitigate or eliminate them.

How common are enterprise security breaches?

Most large and mid-sized companies have confronted a cyber attack at some point. Network security attacks are a reality you must confront head on. The threats to your network posed by unauthorized access — and the damage caused by a successful attack — will only continue to rise.

Can you prevent a security breach of your network?

While you may not be able to prevent a breach with absolute certainty, you can certainly deter one by proactively assessing and addressing your network’s vulnerabilities. If you don’t have the in-house expertise to do that, consult a security adviser. You want to invest your money in safeguards that deter — if not prevent — the attacks you are likely to face, and a security adviser can identify those for you.

Keep in mind that no system is ironclad because hackers adapt as security measures evolve. Accordingly, you must routinely monitor your layered security measures to make sure you are keeping up with determined hackers. Avoid being the easy target.

What should you do if, despite your precautions, a breach happens?

Undertake these best practices:

  • Act fast. Perform a post-attack forensic analysis to determine the ‘who, what, when, where and how’ of the breach. You’ll need to preserve this information to evaluate the damage, mitigate the fallout, structure appropriate remedial measures and build a case against the hacker.

  • Promptly notify anyone whose sensitive information may have been compromised.

  • Update your intrusion detection and prevention systems and other safeguards to deter future breaches.

  • Assess what your legal obligations are in the wake of the infiltration.

What is the potential fallout if your network is breached?  

Breaches expose your organization to legal claims and undermine its competitive advantage. As for the legal claims, the law mandates the protection of certain types of information like consumers’ personal and nonpublic financial information, Social Security numbers and medical records. Your organization could potentially face claims predicated on an array of legal theories, including negligence; breach of contract; the Fair Credit Reporting Act, which subjects certain organizations to liability if they fail to safeguard consumer credit information in their possession; and Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive practices affecting commerce.

While you may defeat such legal claims on a motion to dismiss or ultimately at trial, it will cost you money to do so. From a business perspective, a security breach may have financial and competitive repercussions by publicly exposing your organization’s highly confidential or propriety information and by eroding consumer confidence in doing business with you.

What, if anything, is the government doing to crack down on hackers? 

The government is cracking down by charging hackers with crimes carrying potential years of imprisonment and hefty monetary fines. However, the deterrence effect of this crackdown is somewhat limited given that numerous hackers operate outside of the U. S., making prosecution difficult, if not impossible. This is yet another reason to deter, if not prevent, a breach of your organization’s network in the first place and quickly mitigate the fallout if one occurs despite your best practices.

Kristen Werries Collier is a partner at Novack and Macey LLP. Reach her at (312) 419-6900 or kwc@novackmacey.com.

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Published in Chicago

The cornerstone rule of discovery in civil litigation is that parties to a lawsuit must preserve, gather and produce relevant documents.

However, “it is becoming increasingly difficult and expensive to carry out this basic obligation, given the staggeringly high volume and informal nature of our electronic communications in the workplace,” says John Shonkwiler, a partner at Novack and Macey LLP.

Smart Business spoke with Shonkwiler about the importance of forming better emailing habits.

What are some ways to improve emailing habits?

Stop ‘reflex’ emailing. Too often, we respond to email immediately. This is the texting culture invading the workplace, which is an environment that demands better judgment and discretion.

It is not inconsiderate or unprofessional to deliberate before responding to email.  Sometimes just waiting 10 to 15 minutes can make a big difference. Except in those rare instances where an urgent response is called for and cannot be made by phone, people should not fire off immediate responses.

Why is ‘reflex’ emailing problematic from a litigator’s perspective?

As the volume increases, so does the cost of electronic discovery. Reflex emailing exacerbates the problem by creating more email unnecessarily and so often it can be inconsequential. For example, a response of, ‘I’ll check on this and get back to you,’ is often unnecessary. And you don’t have to be a physicist to understand the laws of ‘e-gravity’: When you send more email, you receive more email. So, consider whether each email you compose has a purpose.

Also, emails that are carelessly or informally prepared are more likely to reflect poor judgment, convey inaccurate information, or contain sarcastic or flippant remarks on serious topics that don’t translate well on paper. These things make for bad documents in litigation. You want to think of every email like a potential trial exhibit. Ask yourself, if you were on the witness stand, would you like to be confronted with this? Often the worst documents that we see as lawyers as we’re gathering documents in discovery are careless emails.

How should employers teach employees about using better discretion?

Just ask employees to place a higher value on their email correspondence. Apply the same care and consideration when you’re sending an email that you would if you were sending a letter on your company’s letterhead. And remember to consider that your message might be better delivered in person or over the phone.

How does organizing help reduce exposure and litigation costs?

Email can be organized like paper correspondence. This means deleting the emails you don’t need and organizing the messages that you keep into folders.

This helps in at least two ways. First, it makes it far easier and cheaper to find and gather relevant email in response to discovery requests. Second, when every email must be accounted for and filed, or deleted, the sender tends to place a higher value on each email, give greater care to the contents and more carefully consider whether a message needs to be sent in the first place.

For people who have never organized their email, how can they get started?

If the task of sorting through every email in your inbox is too imposing, just move the entire contents of your Inbox into a folder titled ‘My Inbox as of [date].’ You can do the same with your sent items. This way, you can start clean and use your new habits going forward, and still have easy access to your old emails if you need them.

Have there been any recent developments in the law concerning email discovery?

Electronic discovery is probably the single hottest topic in continuing legal education courses, and has been for years. It is interesting, however, that for all the attention given to the issue, there has been relatively little discussion about addressing the root of the problem, our emailing habits. This is going to change as employers continue to learn about the significant costs of housing massive amounts of unorganized email.

John Shonkwiler is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or jshonkwiler@novackmacey.com.Insights Legal Affairs is brought to you by Novack and Macey LLP

Published in Chicago
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