How to resolve business conflicts without costly litigation

Jennifer E. Acheson, partner, insurance and bad faith expert, Ropers Majeski Kohn & Bentley PC

Jennifer E. Acheson, partner, insurance and bad faith expert, Ropers Majeski Kohn & Bentley PC

Abraham Lincoln may have been the first lawyer to recognize the pitfalls of litigation but certainly not the last. He noted that: “The nominal winner is often a real loser — in fees, expenses and waste of time.”

Fortunately, today’s executives have an alternative way to resolve disputes that doesn’t put your fate in the hands of a judge or jury.

“Not only is mediation less expensive than litigation, the parties are in control of the outcome and they can be completely creative in finding a solution,” says Jennifer E. Acheson, partner and insurance and bad faith expert at Ropers Majeski Kohn & Bentley PC.

Smart Business spoke with Acheson about the benefits of mediation.

What is mediation and how is it different from arbitration and litigation?

Mediation is a type of alternative dispute resolution, where a neutral or trained mediator helps conflicting parties resolve issues, ideally before a lawsuit is filed. Mediation differs from arbitration and litigation in that it’s not a sworn evidentiary hearing or trial, and the mediator doesn’t rule on the merits of the case or take sides. The parties still have the opportunity to air their grievances during caucuses with the mediator and there’s more leeway in offering testimony.

What are some common business situations where a mediator might be used? 

Mediation can be used to settle a variety of disputes including:

• Employee disputes with other employees.

• Employee disputes/grievances with management.

• Sexual harassment complaints.

• Hostile workplace issues.

• Discrimination complaints.

• Americans with Disabilities Act compliance issues.

• Business partner disputes.

• Contract disputes.

How do you select an appropriate mediator, who pays for mediation and how much do mediators charge?

The actual cost of mediation varies with the complexity of the case; however, the parties split the charges and avoid the cost of pre-trial maneuvering, court reporter fees or similar expenses. Mediation is a bargain when you consider that lawsuits cost small businesses $105.4 billion in 2008, according to the U.S. Chamber of Commerce. Since the process of being heard is often the overture to resolution, look for a mediator who is a close and patient listener.

Is mediation confidential?

Yes, anything said during the course of mediation is inadmissible in court, and the communication among participants is confidential. In fact, the mediator needs permission to disclose information revealed during individual caucuses with the other party. This protection even extends to the settlement agreement, unless the parties agree to waive confidentiality. In contrast, trials are normally open to the public.

What happens if the parties can’t agree?

Unlike arbitration or trials, which have a mandatory and possibly binding decision, the mediator doesn’t have the power to force the parties to reach an agreement. The process is voluntary and either party can withdraw at any time. If the parties can’t resolve their issues in one session, with the parties’ permission, the mediator can continue the process until the dispute is resolved.

Is an agreement made at mediation enforceable?

A mediation agreement is enforceable as long as the authorized parties agree on a deal and sign the memorandum. If a party refuses to comply, the parties can appoint the mediator as an arbitrator for the sole purpose of rendering an award that complies with the agreement, as long as the dispute hasn’t gone to litigation. If the matter is already in litigation, a motion for enforcement can be brought under the civil code. This makes mediation an enforceable and cost-effective alternative to litigation.

Jennifer E. Acheson is a partner, insurance, and bad faith expert at Ropers Majeski Kohn & Bentley PC. Reach her at (650) 780-1750 or [email protected]

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC


High stakes if Apple e-books antitrust case goes to trial

NEW YORK, Wed Feb 13, 2013 — As the only remaining defendant in the U.S. government’s e-books antitrust case, Apple Inc. appears headed for a high-stakes trial that could significantly increase the personal computer company’s liability in related litigation.

Apple faces a June 3 trial date over civil allegations by the U.S. Department of Justice that it conspired with five publishers to raise the price of e-books and to fight the dominance of Inc.

On Friday, Macmillan became the fifth and final publisher to settle with the government. The Justice Department alleges that Apple came to agreements with each of the publishers meant to ensure that e-book prices at its iBookstore and other retailers would remain higher than those offered by

At the Apple trial, to be overseen by U.S. District Judge Denise Cote in Manhattan, the Justice Department will seek not monetary damages but a judicial decree that Apple violated antitrust law, court papers said.

Among other things, government lawyers want the judge to issue an order enjoining Apple from engaging in any conduct similar to that alleged in the case. Such a judgment could make Apple vulnerable to steep damages in related litigation.

Apple and the publishers also face a class-action suit filed on behalf of consumers and a similar suit filed by dozens of state attorneys general. Neither suit puts a figure on the exact amount of damages sought.

How businesses can avoid or resolve disputes with neighboring landowners

William J. Maffucci, Of Counsel, Semanoff Ormsby Greenberg & Torchia, LLC

Disputes between adjoining landowners can be bitter. Landowners, whether they be businesses or individuals, want to “protect their turf.” Landowners upset with their neighbors will often rush into court with a spare-no-expense resolve.

“But that can be foolhardy, because they often don’t realize the magnitude of the expense,” says William J. Maffucci, of counsel with Semanoff Ormsby Greenberg & Torchia, LLC in Huntingdon Valley, Pa.

Smart Business spoke with Maffucci about ways businesses that own real property can avoid and economically resolve disputes with neighboring owners.

What types of disputes arise between adjoining owners?

I would put them in five categories.

First are traditional disputes about the location of a boundary. Resolving these disputes almost always requires a survey.  Sometimes the parties agree to be bound by a single survey or by the opinion of a single surveyor. More often, the parties each retain their own surveyor. And the surveyors don’t always agree. A boundary dispute is often a ‘battle of the surveyors,’ with a court or other arbiter deciding which surveyor prevails.

There is a different type of boundary dispute that isn’t resolved by surveys. A claimant may instead be relying upon the doctrine of ‘adverse possession’ or on the related doctrine of ‘consentable line by recognition and acquiescence.’ Both flow from the principle, recognized by the courts, that an open and notorious use of property continuously over a long period (21 years in Pennsylvania) by one who does not hold record title to it but who nevertheless acts like its owner, putting up a hostile front and fighting off competing claims of title, effectively becomes the owner of the property.

Next are easement disputes. These are disputes in which your neighbor acknowledges that you own the property but claims a right to use it, such as to drive across it. Many of these claims are based on either ‘prescription’ or ‘implication.’ A ‘prescriptive easement’ is acquired in the same way title is acquired by adverse possession: through open and notorious use continuously over a sufficient period. But a prescriptive easement doesn’t prevent the owner from using the property, too. And it doesn’t result in a change of ownership; it results only in the right to continue the use perpetually. An ‘easement by implication,’ by contrast, is based upon logic. The law recognizes, for example, that when the obvious consequence of a sale or subdivision is to leave lot owners with no access to a public road other than by passage over the land conveyed or subdivided away, the owner of the landlocked land has an ‘easement by implication’ to travel over the other land.

Then, there are disputes over whether an owner is using his or her own property for an improper purpose. These are usually resolved under local zoning law or under the law of ‘nuisance.’ The latter recognizes that even a use that is permitted under the zoning ordinance may be enjoined if it is inherently offensive to neighboring properties.

Last are encroachment disputes, whether the encroaching items be artificial (buildings, parking areas) or natural (tree branches, roots). Your neighbor’s building or tree’s branches extend onto your property. Here the law usually gives you the upper hand; the courts generally require that a proven encroachment be removed.

Once a lawsuit is filed, is it likely that the case will proceed all the way to a formal court trial?

No. Most cases are eventually settled. They don’t settle quickly, because they begin with so much bad blood. But litigation between neighbors can be very expensive. It could easily cost more than $100,000 in legal fees to take an adjoining-neighbor dispute through trial.

And the expense will often escalate as trial approaches. So even litigants who began with a ‘spare-no-expense’ approach are often forced to undertake a cost-benefit analysis. Winning the case could cost more than the property is worth.

William J. Maffucci is of counsel at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (267) 620-1901 or [email protected]

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Aetna to pay up to $120 million to settle case over payments

HARTFORD, Conn., Fri Dec 7, 2012 — Aetna Inc. on Friday said it agreed to pay as much as $120 million to settle litigation over its practices on the payment of claims for services by providers with which Aetna does not have a contract.

The agreement calls for Aetna to pay $60 million, plus as much as $60 million more following a claims submission period that will begin after a court grants final approval to the settlement.

According to a court filing, the plaintiffs said Aetna improperly used third-party databases to systematically underpay claims involving services and supplies provided to members by out-of-network providers. The litigation also challenged other methods by which Aetna calculated out-of-network reimbursement rates, and its disclosures for how it calculated those rates.

How to manage a dispute to avoid the expense of protracted litigation

Stephen L. Ram, Attorney, Stradling Yocca Carlson & Rauth

The costs of litigation can quickly escalate, especially if you’re facing a motivated and well-funded plaintiff who seems intent on aggressively pursuing litigation. Dealing with litigation can create a big burden upon management to respond, collect documents and be available to give a deposition, testimony or consultation.

“If you have experience with lawsuits, then you understand the cost and time pressures associated with them,” says Stephen L. Ram, Attorney with Stradling Yocca Carlson & Rauth. “That’s why attempting to come to a resolution with the other party ahead of reaching the courts makes sense for both parties.”

Smart Business spoke with Ram about resolving disputes without litigation and the legal protections that exist around conversations undertaken to come to an agreement outside the courts.

What are kinds of disputes do companies become aware of before a lawsuit is filed?

There are a number of common disputes that can come from vendors, contractors and shareholders that stem from some dissatisfaction with your business relationship. Most often, a company is made aware of them through a demand letter sent from counsel, or, as with many vendor disputes, a sales representative will be aware that some looming frustration is becoming more than a trifle and should be a concern for the company.

How do you approach a solution when one or both parties are emotionally charged?

It’s common to have a powerful initial emotional response to a dispute when it arises, particularly when a party makes substantial or possibly outlandish monetary demands. Understand that emotional reactions are natural, but consider what is best for the company and its shareholders and find a suitable resolution. Recognize that the other side has different pressures and emotions to which it’s reacting. Step back and be dispassionate and objective because a measured, discerning approach makes it easier for you to facilitate a resolution. Also consider the applicability of any insurance coverage and notify the broker or carrier after receiving a demand.

What needs to be considered when unequal information is causing or adding to the dispute?

Disputes generally arise because one party speculates the other has done them wrong or has done something suspicious. While there may be a grain of truth to the gripe, the other party’s speculation is usually accompanied by a lack of information or a misunderstanding regarding what actually transpired. Naturally, you will undertake your own formal or informal investigation into the basis for the dispute. There is an opportunity before this dispute boils over into a lawsuit to be open to what the other side needs and wants from you, and you can consider your willingness to share information from your own internal inquiry. Being open to this type of dialogue makes it easier to work toward a resolution.

When should a representative begin talking with the other side?

The decision of when or how to open a dialogue is unique to each situation. Most times, the initial dialogue should be between counsel to ensure confidentiality protections and avoid a blindsided attack. The first step is to gauge and engage the other party, which involves acknowledging the other party’s monetary or other demands. However, you also need to be clear that you do not intend to cave to those demands to manage their expectations, but state your willingness to work with them to reach a fair resolution.

Next, establish parameters for future dialogue. If the other side is requesting information or you would like to voluntarily provide information to correct misunderstandings, legal counsel can assist in determining what documents to provide, what level of detail to share, or perhaps to make a company employee available to tell the story of what happened or answer questions.

If you are going to make a member of management or another company employee available, the third step is preparation. Preparation involves understanding the parameters for the dialogue, understanding of the relevant facts and your story, and that person’s ability to bring back conversations that go astray, or refrain from going beyond the scope of the conversation. This conversation can be as simple as a phone call or as structured as mediation.

Are you putting yourself at risk by engaging in this type of dialogue?

There are legal protections for communications that are undertaken for the purpose of reaching a settlement of a dispute. These protections, available under state and federal law, dictate that what you say during these resolution conversations is not admissible in court to prove liability. This means you can share information that might legally amount to admitting to a breach of a contract, for example, in an effort to reach a compromise.

To invoke the protections of these statutes, you just need to tell the other side you are having the conversation in order to resolve the dispute. But for added protection, talk with outside counsel about what you’re planning, that you’re serious about reaching a resolution, and ask for a confidentiality or nondisclosure agreement. Convince the other side to put this protected dialogue in place, as well. The confidentiality under these statutes and a binding agreement offer comfort to both parties and help facilitate conversations. Still, there may be situations where it’s not advisable to share or only share limited information.

If a resolution cannot be reached, how should  you proceed with management of a lawsuit?

Keep an open dialogue and don’t entrench yourself in an emotional reaction or overly rigid position. Allow the other side to see that you’re serious about defending or prosecuting, but hopefully cooler heads can prevail and a resolution is reached, especially if there is an ongoing relationship. An early resolution is usually far less costly and disruptive than one reached after protracted litigation.

Stephen L. Ram is an Attorney with Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4102 or [email protected]

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

How to protect your company’s trade secrets during litigation

Joshua E. Liebman, Attorney, Novack and Macey LLP

For a company that depends on the confidentiality of its intellectual property, protecting its trade secrets during litigation may be as important, if not more important, than succeeding in the litigation itself.

“Whether the company is a plaintiff or a defendant in litigation, depending on the scope of the case, its trade secret information may be discoverable,” says Joshua E. Liebman, an attorney at Novack and Macey LLP.  “In fact, in some instances, a company may be required to disclose its valuable trade secrets to one of its direct competitors.”

Smart Business spoke with Liebman about how to protect trade secrets during litigation.

What are trade secrets?

To paraphrase Section 1(4) of the Uniform Trade Secrets Act — which has been adopted by most states — a trade secret is information that derives independent economic value from not being generally known to other persons and that is the subject of efforts that are reasonable under the circumstances to maintain their secrecy. It is important to remember that both elements must be met for information to be classified as a trade secret.

In other words, although a customer list that is developed over two decades and that identifies particular needs and price points for each customer clearly provides its owner with economic value, it is a trade secret only if its owner takes reasonable steps to keep the list secret.

Why would a party be required to disclose its trade secrets?

Trade secrets will almost always be disclosed by a party prosecuting a claim for either misappropriation of trade secrets or breach of a confidentiality agreement involving trade secrets.  In addition to those two obvious examples, trade secret information could be responsive to discovery requests served in any other breach of contract or business tort case.

Generally, courts permit broad discovery and require parties to produce documents and other potential evidence that are relevant to any party’s claim or defense, even if the potential evidence constitutes a trade secret. As a result, a defendant company may not only find itself in a lawsuit that it did not initiate but also in a position where it is forced to produce trade secret information to its competitor.

What can a company do to protect its trade secret information from disclosure?

The first step is to identify what it considers to be trade secret information. Once the trade secrets are identified, the company’s attorney should closely scrutinize the discovery requests to determine whether the trade secrets are responsive to the requests. If the information is not responsive, it does not have to be produced.

If the attorney determines that the trade secret information is responsive to one or more requests, he or she should analyze whether there are proper grounds for objecting to those requests. Objecting on the basis that the information requested is confidential or a trade secret is not permitted. Instead, a valid objection is that the discovery request is overly broad because a complete response thereto would require the production of information that is not relevant to any of the parties’ claims or defenses.

Once an objection is made, the attorneys may try to negotiate a limitation on the discovery request. If the attorneys cannot reach an agreement, then the party that served the request can ask the court to intervene by filing a motion to compel the production of documents or other information.

If a company’s attorney or the court determines that trade secret information is responsive to a discovery request and no objection applies, then the information must be produced. However, the information can be protected through the entry of a protective order, which prohibits the use of the disclosed information for any purpose other than the litigation in which it was produced.

How does a protective order work?

Generally, parties negotiate and agree to the terms of a protective order. In some instances, certain provisions of the protective order may be in dispute and require court intervention.In either case, the court must approve of the terms and enter the order so that it is a court order that can be enforced against anyone who breaches it.

Although protective orders vary, typically they divide protected information into two categories: confidential information and attorneys’ eyes only information. Confidential information usually can be shared with the court (but only under seal), counsel for the parties to the litigation and their legal staffs, expert witnesses or consultants retained by the parties, deponents in the litigation and the parties themselves. Most protective orders require expert witnesses, consultants and deponents to sign acknowledgements consenting to be bound by the terms of the protective order prior to reviewing confidential information.

By contrast, attorneys’ eyes only information generally can only be shared with counsel for the parties to the litigation. Highly sensitive and/or competitive information that a company does not want its opponent to access should be designated as attorneys’ eyes only.

That designation, however, should be used sparingly. It places a heavy burden on the attorney reviewing the information because he or she cannot consult with the client to determine whether the information is relevant, accurate or complete. Accordingly, a blanket attorneys’ eyes only designation likely will invoke an objection to the designation, which may result in loss of the heightened protection necessary for the information that truly is a trade secret.

Protective orders generally require protected information to be returned or destroyed at the end or litigation. A party concerned about its opponent using its trade secrets at the close of litigation should demand a signed verification that all protected information, including electronic and hard copies thereof, has been destroyed.

Joshua E. Liebman is an attorney at Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected]

Insights Legal Affairs is brought to you by Novack and Macey LLP

How policies can help you prevent, and fight, lawsuits

Thomas M. Hanson, Member, Dykema Gossett PLLC

Every business, no matter how well it is run, faces the possibility of a lawsuit.
But there are steps you can take before that happens to position your company to prevail, says Thomas M. Hanson, a member of Dykema Gossett PLLC and head of the firm’s Dallas office financial services litigation practice.
“If you’re in business, litigation is not necessarily inevitable, but it is certainly a possibility,” Hanson says. “Every company needs to prepare for it, just as you would prepare for other contingencies that might affect your business.”
Smart Business spoke with Hanson about the policies you need to have in place and if, despite your best efforts, you are sued, the steps to take to lessen the pain.

What everyday practices can help minimize litigation costs and potential liability?

In litigation, documents generally carry the day. Most businesses utilize some type of standard form contract, such as purchase orders, sales orders, or a standard form employee/consultant agreement. Businesses need to review those forms on a regular basis to ensure they clearly lay out the terms of the contract. A manufacturing company might think, for example, that its sales order gives the buyer ten days to inspect the goods. But review the contract from the perspective of a judge who has no understanding of your industry. Will she read it the same way? If not, you should clarify the language and potentially save yourself many thousands of dollars in litigation costs, not to mention potential liability.
Significant litigation expense can also be avoided if you have a standard document retention policy. Every company should have one, particularly given the proliferation of e-mail communication. Whatever your policy — if e-mails are deleted every six months, every five years or never — it should be written down. When you get into litigation, courts are more and more interested in finding out what happened to electronic documents.
If you have a standard policy and can show that a key e-mail in the case was deleted according to a standard policy, you’ll be in much better shape than if you have no policy and it looks like e-mails were deleted haphazardly. Again, this simple practice can not only save you from attorneys’ fees but also from potential liability.

What other steps should businesses take to protect themselves?

Another issue with standard contract terms and conditions is making sure employees are using them. Too often, there is a two-page contract; the first page has a purchase order and page two is the standard terms and conditions. But your employees may not bother to send that second page. Suddenly, the case-winning provision you were relying on may not be part of your contract at all.
Finally, proper insurance coverage can be a lifesaver if your company is sued. If you have coverage, the insurance company is not only obligated to pay damages assessed, but, even more important, it is generally obligated to defend you and pay your lawyers. It makes cases infinitely more resolvable if you have a policy that will cover all or some of the cost.

If, despite its best efforts, a business is sued, how should it approach that suit?

Again, documents are key. In particular, courts are cracking down on what happens to electronic documents after litigation commences. If your servers automatically delete e-mails at a set time period, you need to have your IT personnel stop the automated delete function for any potentially relevant electronic documents.
Take steps to collect documents that might be relevant right at the beginning, and make sure, in writing, to instruct any employee who might have relevant documents not to delete anything — not e-mails, spreadsheets or documents stored on their hard drives. If you don’t, some courts may severely punish even the innocuous destruction or deletion of relevant documents. Real-life horror stories exist of courts ordering monetary sanctions of tens or hundreds of thousands of dollars or (even worse) issuing instructions allowing a jury to infer that the destroyed documents were harmful to the company’s case.

Should companies consider alternatives to fighting in court?

Absolutely. There are many ways of trying to resolve a suit without going through a trial, even without invoking a formal litigation process.
Arbitration, especially for smaller disputes among smaller companies, can be a great forum. You have much more limited discovery and, generally, you’ll have an arbitrator who is much more informal and will allow the parties more flexibility to try to work things out on a reasonable schedule. Also, decisions reached in arbitration can generally not be appealed, which lends more finality to a judgment that might be reached in court.
The downside is that you’ll have to pay for arbitration services, but a case that might be a two-week jury trial may only be three or four days in arbitration due to the informality and the lack of dealing with a jury.

Is settlement sometimes a better option than fighting a lawsuit?

Yes. Businesspeople often take a sound, rational, economic approach to business matters until they get sued, then the gloves are off and they don’t care about the expense and just want to fight it. When passion takes over and you’re lashing out at the other side not because there is any long-term benefit but because you are outraged that you’ve been sued, you have to ask if this is the right business decision for your company. But if the answer is yes, and a principled stance is the best approach for the company’s long-term success, then stick to your guns.

Thomas M. Hanson is a member at Dykema Gossett PLLC. Reach him at (214) 462-6420 or [email protected]

Insights Legal Affairs is brought to you by Dykema Gossett PLLC

How electronic discovery during litigation is impacted by information stored in the cloud

James P. Martin, Managing Director, Cendrowski Corporate Advisors

Cloud computing is the marketing focus of many IT companies.
Ads touting the benefits of cloud computing and the “cloud readiness” of software products are visible in airports, print media and on TV, and surveys predicting the rapid adoption of cloud computing solutions appear regularly. But how do cloud computing solutions affect the production of electronic documents and information in a litigation setting?
Smart Business spoke with James P. Martin, CMA CIA CFE, managing director of Cendrowski Corporate Advisors, regarding the issues that can arise when attempting to obtain information when a party has information stored in the cloud.

What is cloud computing?

Cloud computing describes an IT model in which computing resources can be obtained and utilized on an as-needed basis; this is why cloud computing is often referred to as ‘utility computing.’ The end user is provided a turnkey solution that is supported and maintained by the service provider at a remote location.
Cloud computing is enabled by rapid, reliable Internet communications, and, in fact, ‘the cloud’ is a term referring to the pool of resources hosted on the Internet.

What are some common cloud solutions that should be considered in litigation?

Cloud computing applications include hosted email products, such as Gmail or Hotmail, picture hosting services, text message services, hosted document processing, as well as social media services such as Facebook, Myspace, or dating sites. These sites would potentially have data that could be relevant to the litigation.

How does a cloud solution affect electronic discovery?

Moving to a cloud computing solution does not remove an organization’s document retention requirements, and many cloud solutions tout their ability to help the organization meet statutory requirements.   If the cloud vendor performs services to the public, access to the data stored in that solution would be subject to the restrictions of the Stored Communication Act.
It is also important to understand that this is an emerging area of law. Third-party solutions are evolving rapidly, and social media services are creating issues and carrying information that was inconceivable a few years ago. The legal system is dealing with emerging issues related to these new technologies and case law is changing rapidly.

What is the Stored Communication Act?

Data hosted by a third-party service provider may be covered by the Stored Communications Act (18 U.S.C. §§ 2701-2712 (SCA). This act was included as Title II of the Electronic Communications Privacy Act of 1986.
The SCA states that ‘a person or entity providing an electronic communication service to the public shall not knowingly divulge to any person or entity the contents of a communication while in electronic storage by that service.’ The SCA was primarily written to protect the end user of computing services from government surveillance. In civil litigation, some courts have concluded that contents of communications cannot be disclosed to litigants even when presented with a civil subpoena.

How can a litigant obtain information subject to the SCA?

The SCA defines three categories of information; each category has different requirements to obtain the information. In litigation, the parties will tend to need access to ‘contents,’ such as email conversations and documents, which has the highest threshold. Contents generally require a subpoena with notice, a court order with notice, or search warrant.
One wrinkle is that the SCA defines a ‘court of competent jurisdiction’ as any district court of the United States, and the U.S. Court of Appeals; it is silent on whether state courts may issue orders to providers outside their districts.

Are there any exceptions to these requirements?

Yes, the SCA includes several exceptions.  Importantly, contents can be produced with the permission of the subscriber.  Also, contents can be released in emergency situations related to the commission of a crime, death, or serious physical injury, or if it is submitted to the National Center for Missing and Exploited Children.
Also, the SCA applies only to companies that provide the service to the public.  For example, consider a consultant who is provided an email account by a company where he or she is assigned for work.  Court decisions have determined that the company providing such an email account is not covered by the SCA, as it does not provide services to the public.

How are courts dealing with discovery in a civil matter?

In a recent decision, the court noted that a subscriber could grant permission for the provider to release contents and reasoned that the information held by the provider was under the control of the subscriber, and therefore had a duty to exercise this control and retrieve the content. The court allowed a subpoena to the subscriber directing it to provide permission to produce the information. Courts continue to evaluate aspects of the SCA, and case law continues to build around these issues.
Investigators attempting to access information held by a third party will need to evaluate an appropriate course of action depending on the type of information to be received, as well as the relative cooperation of the subscribing party.

JAMES P. MARTIN, CMA, CIA, CFE, is managing director for Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or
[email protected]

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

Navigating a new era of securities litigation and enforcement

John Cannon, Securities Litigation, Enforcement Defense Attorney, Stradling Yocca Carlson & Rauth

The realm of securities litigation and enforcement is shifting. Federal enforcement investigations are on the rise, prompting the need for more robust compliance and training programs for businesses, says John Cannon, a securities litigation and enforcement defense attorney with Stradling Yocca Carlson & Rauth.

“When I first started practicing, it was often the rule that securities litigation would be something that would occur first, and following that, maybe an enforcement action, which didn’t always have teeth,” Cannon says. “That’s changed; it’s actually flipped. The risk associated to a company’s bottom line could be much more material today with the government taking a more focused look at these issues.”

Smart Business spoke to Cannon about the changing landscape and how businesses can prepare and protect themselves.

What trends should companies pay attention to?

Nowadays, the real threat to companies — public companies, in particular — is the potential for an enforcement action by an agency or department of the government. That could range from a Foreign Corrupt Practices Act issue, an Exchange Act issue, a False Claims Act issue and an FDA issue, as well as other agencies and departments.

The government is taking a much more active role, and the risks and the penalties associated with that process are very different than in typical securities litigation.

Enforcement defense raises different issues relating to insurance coverage. Often, private securities litigation tended to be covered by a directors’ and officers’ insurance policy. But coverage for a government investigation might be much more limited — in fact, it’s nearly nonexistent under some policies.

What types of securities fraud class action filings should be of concern?

Taking the place of the classic ‘stock-drop’ lawsuit in terms of the volume of cases that a company should be worried about are cases related to the mergers. If you’re involved in a public company merger or going private transaction, the chances of being sued in your home state and Delaware are fairly high. Those cases tend to be manageable, and they tend to be dealt with in a way that preserves the transaction.

The other issue that you’re seeing is ‘circumstance cases,’ where you’ll have an event happen, like the Gulf explosion, or a matter such as options backdating, which will then trigger a whole series of cases. Or you’ll have the financial downturn, which will trigger a series of cases involving the institutions that are most affected. What you get is a kind of localized action surrounding a particular event, as opposed to an across-the-board risk.

What can businesses expect going forward in regard to enforcement?

Any enterprise that is in one way or another connected to or regulated by the federal government should be looking at itself immediately to determine whether or not it has appropriate compliance policies and procedures in place to prevent violations of law. And they should also anticipate that it’s as likely to get a knock on the door from the FBI as it is to get served with a lawsuit.

The reality is that the federal government in particular is looking toward the various statutory mechanisms it has in place on the enforcement side to mold, form and direct business as it’s done in the United States. It’s also a revenue source for the government. If you start totaling up these numbers in terms of fines and penalties that companies have to pay, they’re not small.

Who is impacted the most by the current environment?

Prime examples of entities that are particularly at risk on a regular basis:

  • Small and medium-sized public companies
  • State and local agencies
  • Private equity/hedge funds/investors/investment advisors
  • Direct and indirect payees of funds from federal programs and contracts
  • Pharmaceutical and medical device companies
  • Companies doing business internationally

How can businesses prepare?

Fortune 100 companies, and some Fortune 500 companies, have been somewhat proactive in establishing programs that ensure that they are in compliance. That can range from everything from an insider trading policy to a policy regarding anti-trust laws to a policy regarding the False Claims Act.

For mid-size, emerging public and private companies, I don’t think they have been as effective or have prioritized compliance as much as their larger brethren. Because larger companies have focused more on compliance, there is an expectation in the enforcement process that policies should be in place to protect against violations. Emerging companies tend to focus on revenue and the bottom line.

Quite frankly, that needs to change, because they are as susceptible to a knock on the door by the FBI today as larger companies, and the expectations about what should be in place are fairly high from a government standpoint.

John Cannon is a securities litigation and enforcement defense attorney with Stradling Yocca Carlson & Rauth. Reach him at [email protected]

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How to avoid business litigation

Monte Mann, Partner, Novack and Macey LLP

There is a time and a place to fight for an important principle. Yet, business litigation is rarely about principle. After all, you are in business to make a profit. Often this is something business owners need to remind themselves of.

Monte Mann, partner at Novack and Macey LLP, urges owners to think long and hard about the costs and distractions of business litigation, which can be severe.

“As a business litigator who makes a living in the courtroom, it may be surprising to learn that I also spend a great deal of time in the boardroom — working with clients on ways to avoid litigation well before it arises,” he says.

Smart Business spoke to Mann about the six items that come up most frequently when he is working with clients on avoiding litigation.

What are some common ways that litigation arises for a business?

Many companies find themselves in litigation with their own minority shareholders. Yet, surprisingly few shareholder agreements have ‘buy-sell’ provisions, which provide the company with the right to buy out a minority shareholder based on a stipulated price formula.

Disgruntled minority shareholders are a big source of litigation, and these buy-sell provisions can be used to remove the complaining shareholder and, consequently, eliminate the likelihood of litigation.

Partnership agreements may also include these useful provisions. Business owners should check their shareholder or partnership agreements to ensure that they have  these buy-sell provisions. If their agreements lack provisions, they should make efforts to include them as soon as possible. It’s very difficult, if not impossible, to negotiate later when something goes wrong.

How can owners avoid employee-related litigation?

Your employees are another big source of potential litigation. You must  have an employee handbook that sets forth policies on issues central to the employer-employee relationship, such as confidentiality, discrimination and harassment, employee absences, sick leave, vacation time, and other employer rights and employee benefits.

Policies should be simple and clear, and all managers should be intimately familiar with them. Moreover, these policies must be applied consistently. While it will not totally eliminate them, operating your business in a way that is consistent with your handbook will greatly reduce the likelihood of employee-initiated lawsuits.

What other practices and policies should be reviewed to help companies avoid litigation?

Terms and conditions of buying and selling should be an area of focus. Your purchase and sales order forms should be reviewed and revised by counsel periodically to ensure that your terms and conditions give you critical advantages if a dispute arises with a customer. At a minimum, the terms and conditions that you want to review include terms on payment, risk of loss and warranties.

In addition, requiring that the other side litigate all disputes in your jurisdiction (a ‘choice of forum’ provision) will likely reduce lawsuits against your company. Even better, require that all disputes be resolved in an expedited arbitration in your jurisdiction, with strict limits on pre-trial discovery. This should reduce: a) the number of claims against you; b) the costs of each claim; and c) the amount of time each claim will take until resolution.

Finally, if you have to pursue amounts owed to you, make sure that your forms allow you to recover your costs of collection, including, but not limited to, attorneys’ fees.

How else can a business ensure that it is protected?

Pay close attention to protecting intellectual property. You do not get the right to do business under a particular name just by incorporating or filing a name registration in your state. The only way to properly select and protect a name is through a trademark search and registration with the U.S. Patent and Trademark Office. This is not for the uninitiated. An outside search and legal review may cost less than $1,000.

Your company’s name is not likely its only valuable intellectual property. Patents protect those who invent or discover new processes, machines, manufacturing methods, or any new or useful improvement thereof. Trademarks protect words, names, symbols, sounds and even colors that distinguish goods and services from those manufactured or sold by others. Copyrights protect original works of authorship. Patents and trademarks are registered with the U.S. Patent and Trademark Office. Copyrights are registered with the U.S. Copyright Office. Consider the intellectual property your business uses and seek to register it as early as possible to avoid problems.

When should a business owner involve a litigator?

Don’t wait until you are sued, or you want to sue, to involve a business litigator. The time to do so is when you see trouble out on the distant horizon. An experienced business litigator can help you shape the dispute so that it is consistent with your contract terms and conditions — as well as the law — so that you are in a better position to prevail in court. After all, when a dispute arises, one of the best ways to avoid litigation is to convince the other side that you will likely prevail in court.

Monte Mann is a partner at Novack and Macey LLP. He is a business litigator who represents closely held corporations and partnerships in business disputes. Reach him at [email protected] or (312) 419-6900.

Insights Legal Affairs is brought to you by Novack and Macey LLP