Connecticut Business Litigation Blog

Business Blog Round Up

N. Kane Bennett — Fri, 05 Feb 2010 11:50:52 -0500

Here are some quick hits on business blogs:

The Wall Street Journal blog reports on two restaurants involved in a lawsuit to determine who is most harmful to your health. Well, sort of. The Heart Attack Grill, an Arizona eatery, filed a federal lawsuit against the owners of Heart Stoppers Sports Grill, a Florida restaurant, accusing them of stealing the idea for an unhealthy menu.

Victoria Pynchon of the Settle It Now blog is trying to decide on a cover for her conflict resolution book entitled "A is for Asshole, the ABC's of Conflict Resolution." If the cover is anything like the title, it should be a hit seller.

Edward McNally of the Delaware Business Litigation Blog has a helpful post that links to a new Delaware case for anyone looking for ways to calculate money damages or breach of a non-compete agreement. Many times, these cases are resolved with injunctions or temporary restraining orders. It is not very common to actually get to the issue of monetary damages for breach of a non-compete agreement. This new case provides some ideas on how to calculate damages.

Megan Erickson's Social Networking Blog discusses Facebook's concerns over identifying its responsibilities for privacy of its 350 million users.

Maxwell Kennerly's Litigation and Trial Blog digests recent Third Circuit law in two different cases involving first amendment and privacy rights for students creating fake MySpace pages.

The Business Law Prof Blog has an interesting post about turning a simple contractual relationship into a fiduciary relationship. Once a fiduciary relationship is established, it can have significant implications on the outcome of litigation. A mere contractual relationship is not significant enough to form a fiduciary relationship absent other special factors. One of my prior posts covers breach of fiduciary duty in Connecticut.

Twitter Defamation Case Gets Tossed - But Concerns Remain

N. Kane Bennett — Tue, 26 Jan 2010 18:02:13 -0500

In a previous post, I linked to a story about a tenant who was sued for libel after posting an allegedly disparaging comment on Twitter about her apartment. The Twitter lawsuit was a hot topic on the internet for some time. Many commentators believed it was only a matter of time before Twitter resulted in a damage award for libel. Not so in this case. A Chicago judge has tossed out the lawsuit. Reports indicate that the Judge made a specific finding that the "tweet was nonactionable as a matter of law."

In this case, the tenant made a Twitter post that her apartment was moldy. Before bringing the suit, the landlord might have considered how many people actually read the Tweet. My guess is probably a few hundred at best. After the lawsuit was filed, millions read about it. At the time of the lawsuit, the landlord company issued a statement saying "we're a sue first, ask questions later kind of organization." That is not a wise strategy in general, but in particular when it comes to an Internet defamation case. Anything involving a lawsuit and social networking has a good chance of being picked up in the media and in various places on the Internet.

The Chicago court's ruling that the statement on Twitter failed to meet the standard for defamation seems correct if you consider Connecticut's defamation standard, which is similar. The takeaway here is that not every negative statement qualifies as a defamatory statement. This does not mean a post on Twitter cannot constitute defamation. In fact, Twitter postings remain fair game for defamation suits, and we are likely to see more of these claims.

Firestorm Over Whether Bysiewicz Legally Qualified To Be Connecticut Attorney General

N. Kane Bennett — Thu, 14 Jan 2010 14:28:35 -0500

As many of us know, the Connecticut Attorney General, Richard Blumenthal, is stepping down and running for Chris Dodd's U.S. Senate seat. Several candidates have stepped forward indicating that they are going to run for Attorney General. The Connecticut Attorney General has a significant impact on businesses in this state. For one thing, the Attorney General often brings lawsuits to protect businesses and consumers related to unfair trade practices. For example, within the last few days, Attorney General Blumenthal filed a lawsuit on behalf of over 400,000 Connecticut residents related to the Health Net data breach. The old saying in legal circles is that the Attorney General runs the largest law firm in the state.

Secretary of State Susan Bysiewicz is one of the candidates running for Attorney General. Ryan McKeen, at A Connecticut Law Blog, has a very interesting post today about whether Susan Bysiewicz has the legal resume to meet the statutory qualifications to be elected Attorney General based on needing 10 years in "active" law practice. The media has jumped on his blog post and there are several reports on it already in the news. The Bysiewicz campaign has responded and claims that she is qualified despite only six years of practice in the state based on her years of "supervising" attorneys at the Secretary of State's office. Now that the issue has been joined, everyone is waiting for Ryan to respond, including me.

Class Action Lawsuit Filed In Connectiut Against AT&T Over Internet Access Tax

N. Kane Bennett — Thu, 14 Jan 2010 08:59:01 -0500

On January 11, 2010, a class action lawsuit (download here) was filed against AT&T alleging that it improperly charged sales tax to access the Internet in violation of Connecticut law and the Internet Tax Freedom Act.

The case was brought on behalf of David Rock who subscribed with AT&T for a "wireless data plan that permits access to the Internet by radio device." The plan permits Internet access remotely by computer or smartphone, such as an iPhone or BlackBerry.

The complaint alleges improper charges from AT&T for state and local sales taxes on internet access on monthly bills. The complaint is based in part on Connecticut General Statutes 12-407(a)(26)(A) which excludes Internet access from the state's sales tax on telecommunications. The Internet Tax Freedom Act also prohibits taxes on Internet access. The complaint alleges thousands of potential members for the class in Connecticut. The complaint alleges breach of contract and violation of Connecticut's Unfair Trade Practices Act.

Nate Anderson of ars technica reported on several identical lawsuits filed in Georgia, Indiana, and Alabama over the last month. Mr. Anderson reported that the same lawyers where behind the multiple filings. In a Hartford Courtant article today by Matthew Sturdevant, the attorney for Mr. Rock,Michael Koskoff, noted that perhaps a dozen similar suits will be filed in various states.

Mr. Anderson made a humorous comment that all the complaints in the Georgia, Indiana, and Alabama cases have the same typo or misuse of the word "I-Phone" rather than iPhone. The complaint in the Connecticut case has the same misuse of "I-Phone." So, either there is some cooperation nationwide on the plaintiff side on the content of the complaints or perhaps none of the lawyers involved own iPhones.

In any event, these cases will be interesting to track as all of the lawyers involved on the consumer side have significant experience in class action lawsuits, including against telecom providers. I also agree with Mr. Anderson that the actual definitions of "sales tax" and "Internet access" might seem simple enough, but can actually be quite complicated. I expect AT&T will make use of those complications.

Don't Get Rocked like RockYou - - Protect Your Customers' Personal Information

N. Kane Bennett — Tue, 05 Jan 2010 11:20:36 -0500

A recently filed class action lawsuit (download complaint) against RockYou highlights the very real threats to businesses related to hackers stealing customer data also known as personally identifiable information (PII).

According to the complaint filed in federal court in San Francisco, RockYou is a publisher and developer of popular online applications and services for use with social networking sites such as Facebook and MySpace. RockYou allegedly exposed 32 million of its users to identity theft by failing to encrypt or otherwise protect email account information and passwords. The suit alleges violations of California Civil Code, breach of contract, and negligence.

Jason Remillard of Web Host Industry Review provided a detailed post on the lawsuit noting that RockYou may face more difficulties than expected because RockYou is a "launchpad type of service, that hold credentials for other services (myspace, facebook, etc)..." As such, RockYou may face liability for data exposures across other platforms.

Mr. Remillard notes that he has been warning site owners about the risks of holding PII information of consumers. I agree with Mr. Remillard that avoiding storage of such personal data in the first place is often the best way to prevent liability exposure for both loss of data and a security breach. If a business must store PII in its systems then a data loss and security plan must be in place to protect the data. In prior posts, I offer some suggestions and tips for Connecticut business owners that have sensitive data or store PII of its customers.

Dave Kravets of Wired.com offers some more details about RockYou's alleged security failures that apparently resulted from the same common vulnerability exploited by hackers in the cases of Hannaford Brothers, 7-Eleven and Heartland Payment System. The vulnerability results from RockYou's SQL database,which relates to the actual storage method and management of millions of email accounts and passwords. The complaint against RockYou alleges that the prior well publicized flaws in SQL should have been addressed with readily available protection measures.

Brennon Slattery of PCworld wrote about the security breach and compared RockYou's security system to storing passwords and emails on sticky notes. He noted that RockYou stored the information in plain text words. In other words, once the hacker got inside RockYou's system, the passwords and email accounts were easy to read like sticky notes because there was no encryption of the text.

RockYou has issued a statement explaining the breach and intends to defend the lawsuit. RockYou also has implemented new steps to avoid future breaches including implementation of encryption for all passwords. Encryption is the method used to make the passwords unreadable once the hacker gains access to the system.

The RockYou case is another example of the increasing number of data loss and security lawsuits and should serve as a reminder to any business that stores PII to implement a data loss and security plan.

Business Litigation Roundup

N. Kane Bennett — Mon, 28 Dec 2009 11:40:19 -0500

As we head to the new year, here is a round up from some fellow bloggers on contracts, cobra, wage disputes, patents, and oral agreements for limited liability companies.

The California Business Lawyer Blog offers a very detailed post about contractual relationships between manufacturers and suppliers. The focus is on well drafted agreements eliminating the fears and concerns of both sides.

A lot of talk about the AT&T suits in different states for $1 billion dollars for unpaid overtime. The suits picked up a lot of steam with a recent employee favorable ruling from the federal court in Connecticut allowing the claim to proceed as a class action. Rush on Business covers some tips for businesses to avoid these suits.

Just in time for Christmas, President Obama has extended the COBRA subsidy. Dan Schwartz's Connecticut Employment Law Blog covers this topic in detail for employers.

Twin Cities Business Litigation Blog has an interesting post on concerns you might have as a shareholder of corporation that fails to follow corporate formalities. Gavin Craig gives examples of how a shareholder could be exposed to liability.

Anyone who frequently litigates matters involving limited liability companies will tell you that there is not much case law out there in Connecticut. It is still a developing area of the common law. Delaware law is often a good option for law in this area because these issues are more frequently litigated by volume in Delaware. A good resource is the Delaware Corporate and Commercial Litigation Blog. Two recent posts concerning oral partnerships and LLC agreements are just an example.

PatentlyO hits on some themes for 2010, including an expected increase in patent prosecution and litigation. They also have a cool picture of heat miser, a childhood classic.

Jeff Mehalic, author of the West Virginia Business Litigation Blog, writes a detailed follow up post to his coverage of the Connecticut dispute between Charter Oak Lending and CTX Mortgage. Jeff also comments about a post I wrote on the same case. The case remains significant as it is an example of what can go wrong when a business grows too fast and no written agreements are in place with employees.

Just In Time For Christmas - - Lawsuits, Snowball Fights, and Michael Bolton

N. Kane Bennett — Thu, 24 Dec 2009 10:37:31 -0500

Here's some humor for the holidays:

A very funny post from Faces of Lawsuit Abuse.org. It is a 2009 poll of the most ridiculous lawsuits of the year. My vote was for the April winner: "Tourist sues New York club after she slipped while dancing on top of the bar." (story here). The judge carefully examined the facts and made his ruling according to simple math: drunk + dancing + wet bar = case dismissed.

"You dont bring a gun to a snowball fight," brought to you by one of my favorites Above the Law, a legal tabloid. This is now a viral holiday story about a snowball fight between a lawyer and a police officer. Who do you think wins that fight? Read the lawyer's take here, and to make your own decision, check out the video.

Inmates do not like Christmas music, but judges do! According to the Phoenix news blog, the Maricopa County Sheriff has won its fifth lawsuit from inmates related to playing Christmas tunes in county jails. My guess is they were playing Michael Bolton's Christmas album, which has made a few "worst album ever" lists for christmas songs. Look for an appeal based on cruel and unusual punishment.

Riskvue, a website for risk management professionals, has a detailed post on holiday party disasters and how to avoid them. The Denver Business Journal says "Don't let Your Holiday Party Become A New Year's Lawsuit." What is it about drinking at an office party and the photocopier? For some funny videos, check out YouTube "holiday party disasters."

For some humorous reports on a series of recent lawsuits, check out Jester's Courtroom on the Center for Individual Freedom blog.

Happy Holidays everyone!

Are Settlement Agreements Enforceable In Connecticut

N. Kane Bennett — Wed, 23 Dec 2009 07:27:53 -0500

The short answer is that it depends. Settlement agreements are generally enforceable if the terms of the agreement are clear and authorized by the litigants or parties to the litigation. In Gengaro v. City of New Haven (to be officially released December 29th), the Appellate Court had another opportunity to comment on the long standing law in Connecticut that "a compromise agreement . . . if free from fraud, mistake or undue influence . . . is conclusive between the parties."

In Gengaro, a trial court granted summary judgment in favor of the City concerning employment claims because Gengaro had signed a confidential settlement agreement prior to the lawsuit. Gengaro claimed he was forced to so sign the agreement because of threats of losing his job. He claimed undue influence to attempt to invalidate the settlement agreement. Gengaro claimed that he had serious financial and medical problems. Coupled with the threat of job loss, he claimed that he had no reasonable alternative but to agree to the settlement.

The trial court granted summary judgment finding insufficient issues of fact concerning undue influence. Essentially, the court concluded that the threat of losing his job was not sufficient for the exercise of undue influence. The Appellate Court agreed. For a good analysis of what employers should to to avoid these type of claims check of the Connecticut Employment Law Blog post on the case.

To establish undue influence in Connecticut, four elements must be established:

a person is who is subject to influence
an opportunity to exert undue influence
a disposition to exert undue influence; and
a result indicating undue influence

Relevant factors in the inquiry include age, physical and mental condition, whether the person had disinterested or legal advice, the consideration of value of the contracted for exchange, and active solicitations and persuasions by the other party.

In summary, undue influence is the exercise of control by one person over another in an attempt to destroy the person's free agency and "constrain him to do something other than he would do under normal control..." Undue influence, if demonstrated, may invalidate a contract because the free assent of one party to the contract is lacking.

Settlements agreements are enforceable in court if the terms are clear and authorized by the parties. Attempting to invalidate the agreement by showing undue influence, fraud, or mistake are difficult claims to make. The take away here is to carefully review your settlement agreements with counsel because once you sign an agreement, it is likely to be enforced absent special factors.

Connecticut Guaranty Fund Offers Some Recovery For Homeowners Harmed By Construction Contractors

N. Kane Bennett — Sun, 13 Dec 2009 11:17:40 -0500

Recently,the Attorney General's office announced another criminal conviction against a home improvement contractor responsible for many failed home improvement contracts. The report also indicated that the homeowner consumers were going to get some financial relief from the Home Improvement Guaranty Fund (HIGF). The HIGF offers up to $15,000 in relief to consumers who meet certain conditions including:

failed contract with a register contractor
contract was for residential dwelling
you must first obtain a court judgment against the contractor
you must take reasonable steps to enforce the judgment without success

Any consumer who meets this criteria can file an application that is posted online. This applies to home improvements, not new construction. Consumers of new home construction in Connecticut can apply to the New Home Guaranty Fund (NHGF) for up to $30,000 in relief. The same basic criteria apply here, but the fund involves new home construction contracts.

Many times, when a contractor goes bankrupt or has no assets, the HIGF and NHGF are the only source of recovery for consumers that were victim of defective or negligent construction for new construction and home improvements. When a consumer decides to bring a lawsuit against a contractor, the first questions asked should be whether the contractor has assets to pay any judgment. If not, the funds may be the only realistic option for recovery

Of course, the goal is for homeowners to find their way to the many reputable contractors in Connecticut to avoid this type of problem. Reputable contractors will urge consumers to look up a contractor's history of complaints with the Department of Consumer Protection before signing a contract. Consumers should also ask for references and follow up on them before signing any contract. A reputable contractor will have no problem providing several references and examples of work product.

It is also critical that a consumer check to see if a contractor is properly registered before signing the contract. Although failing to properly register may be criminal, the lack of registration could prevent a consumer from recovering even the limited amounts under the guaranty funds.

Health Net's Data Loss In Connecticut Was Theft

N. Kane Bennett — Wed, 09 Dec 2009 08:45:23 -0500

Attorney General Richard Blumenthal issued a scathing press release related to Health Net's recent data loss and security breach. Blumenthal called Health Net's story on it "sanitized" and its six month delay in reporting "unconscionable." Blumenthal called for a federal investigation and intensified state efforts because of the sensitive financial and health information at risk for exposure.

Health Net is based in Shelton, Connecticut and is one of the largest health plans in the Northeast serving approximately 580,000 members. A report by Lucas Mearian of Computerworld stated that the information stolen was a portable hard drive that had not been encrypted. Proper encryption could have prevented access of the information.

Connecticut consumers have been affected by the data loss and more than a million people had social security numbers and financial and medical information exposed. Consumers in Arizona, New Jersey, and New York also had sensitive information exposed. Thus far, there has been no report of identity theft or misuse of the information.

Connecticut Businesses Should Check Massachusetts Privacy Laws

N. Kane Bennett — Wed, 02 Dec 2009 09:29:25 -0500

I have put together several posts on Connecticut's privacy laws and the potential impacts on small businesses concerning data loss or a security breach. It is important to point out that Connecticut companies doing business in Massachusetts or with Massachusetts residents must also consider Massachusetts privacy laws. Tracy Fox, from ForeSite Technologies, recently commented on the small business study I posted and provided a copy of a checklist for small businesses trying to comply with the relatively new, and complex privacy law framework in Massachusetts. I will write a more detailed post about the Massachusetts privacy law in the near future. The checklist is a good starting point.

Breach of Fiduciary Duty In Connecticut

N. Kane Bennett — Sun, 29 Nov 2009 10:58:17 -0500

Here is a quick summary of another of the so called "business torts" in Connecticut known as breach of fiduciary duty. A fiduciary duty can arise in a number of contexts in business including relationships with partners, lawyers, accountants, trustees, investment advisers, brokers and employees. When one party in a relationship is a fiduciary, it requires the party to act with the utmost good faith, fair dealing and loyalty.

Many times, breach of fiduciary lawsuits are filed in Connecticut when the relationship breaks down over lost or mismanaged money. Frequently, business partners are also found to be fiduciaries with respect to each other. A fiduciary relationship may be formed when the following factors exist:

unique degree of trust and confidence between the parties
one party has superior knowledge and skill
the party with superior knowledge has a duty to represent the interests of the other part

Connecticut's common law on breach of fiduciary duty law is flexible in that it will not exclude new situations, but is also clear that not all business relationships are fiduciary relationships. For example, courts will not recognize a fiduciary relationship for parties that are dealing at arm's length for transactions. This is because the relationship lacks a dominance by one party or dependence by the other, or the lack of a special relationship.

The legal recognition of a fiduciary relationship is very significant in a lawsuit in Connecticut. If a plaintiff proves that a fiduciary relationship exists, the standard and burden of proof changes. A plaintiff has to prove that a fiduciary duty exists by a preponderance of the evidence. Once established, the burden shifts to the fiduciary as a defendant to prove good faith and fair dealing. Further, the fiduciary must prove good faith by clear and convincing evidence.

Because of the burden shifting and higher standard, fiduciary cases are often won or lost on the legal characterization of the relationship.

Auto Body Association Wins 15 Million Dollar Verdict For Unfair Trade Practices

N. Kane Bennett — Wed, 18 Nov 2009 11:31:25 -0500

On November 17, a superior court jury in Stamford returned a 15 million dollar verdict in favor of the Auto Body Association of Connecticut (and three other auto body repair shops) arising out of claims againt the Hartford for unfair trade practices. The case docket goes back to 2003 and was filed based on claims that the Hartford was supressing auto body labor rates by steering customers to preferred appraisers and auto body shops.

The website search-autoparts.com provided some insights into the case stating that the claims were supported by "extensive documentation including internal memoranda detailing company policies, as well as several depositions by company employees." In addition to the 15 million dollar verdict, the Association is now looking to obtain injunctive relief, and potentially punitive damages according to a article in the Hartford Courant by Kenneth Gosselin. According to an article by Rob Varnon on newstimes.com the problem started when the Association believed that customers with damaged cars were being steered to preferred shops with lower rates according to terms of the insurance company, not the customer.

The Auto Body Association of Connecticut has taken issue with the practices of appraisals and auto body repair rates for years now. At one time, even before this current case, I represented one of several independent appraisal companies sued by the Association seeking discovery of documents related to the same set of issues. Our group of defendants was successful in defending the discovery lawsuit, but it was clear then that the Association intended to bring additional claims. The Attorney General is also getting into the dispute now seeking federal intervention after having sided with the Association in the past.

The Hartford intends to continue defending its appraisal and repair program on appeal and with post trial motions. The Hartford stated "we are disappointed with the verdict and plan to appeal. We remain confident that our auto-body repair program is fully consistent with Connecticut law . . ."

This litigation seems far from over. Only time will which side will eventually prevail.

New Study Shows Small Businesses Vulnerable to Cyber Attacks

N. Kane Bennett — Sat, 14 Nov 2009 11:00:31 -0500

The National Cyber Security Alliance recently released a new study with some startling numbers concerning small businesses and the threat of data loss, security breach, or cyber attack. Some of the key numbers obtained from polling small business owners include:

65% store customer information on computer systems
43% store financial records
33% store credit card information
86% do not have anyone focused on system security
11% of owners never check their computer security systems.
75% use the internet to communicate with customers
28% have formal internet security policies

What do these numbers suggest? Deborah Cohen, who covers small business for Reuters.com, published an article following release of the study and “confirmed that small businesses are among the most vulnerable to Internet crime. . .” She quoted Michael Kaiser, executive director of the National Cyber Security Alliance, who noted that “small businesses are pretty robust targets” for cyber attacks citing the lack of Internet protocol and employee training. Cohen’s article also offers some tips from Kaiser for small businesses to help confront cyber attacks.

If you are looking for some guidance or help with cyber security, read here for some of my earlier posts. If you are looking for a do-it-yourself placer to start, try the U.S. Chamber of Commerce. The Chamber offers a great resource entitled“Common Sense Guide to Cyber Security for Small Businesses.” It’s a 12 step plan to increase cyber security. Here are some highlights:

· Use strong passwords and change them regularly

· Watch for strange email attachments

· Install computer security software and network security

· Keep software updated

· Limit access to sensitive and confidential data

· Establish and follow security plan

· Maintain insurance coverage

The threat of data loss or security breach is not going away, but will only increase. Lawsuits concerning data loss and security breach are more frequent. Business owners need to stay on top of the threat by implementing a sound data loss and privacy plan. There is no one size fits all approach and every business will have its own risk exposures. If you are a business owner, consider having your business evaluated for risks of cyber attack or data loss.

Do You Need A Contract To Stop A Former Employee From Competing?

N. Kane Bennett — Tue, 03 Nov 2009 17:34:16 -0500

The short answer is yes, a business does need a contract, also known as a "non-compete agreement," to prevent a former employee from fairly competing in business once the employee resigns. Even with a written agreement, there are limitations on non-compete agreements because they are viewed as a restraint of trade. To be enforceable, the restrictions in the agreement must be reasonable in time, scope, and geography. The restrictions also must be reasonable in relation to legitimate business interests you are seeking to protect.

A poorly drafted agreement, or no agreement at all, can leave a business with little legal recourse to stop a former employee from fair competition once the employee resigns. Simply put, the law in Connecticut permits fair competition upon resignation. However, the lack of a written agreement does not give free license to employees to unfairly compete in all circumstances.

For example, what about an employee that starts competing against your business without your knowledge while continuing to work for you? Is this fair competition that should be freely permitted? Depending on the circumstances, this type of conduct can be actionable in a civil case for damages. The actionable conduct is breach of the employee's common law duty of loyalty, which exists without a written agreement in certain circumstances. There are also statutes in Connecticut that can protect businesses in certain situations that do not require contracts such as unauthorized computer access or misappropriation of trade secrets.

I just read a story about a recent case that demonstrated some of the legal issues involved when there are no contracts in place with former employees. According to the small business report by Carlye Adler of CNN, Charter Oak Lending, located in in Danbury Connecticut, lost a trial against several former employees who allegedly left to work for a larger company, CTX Mortgage. Charter Oak alleged it lost more than a third of its business and a million dollars in fees after a sudden departure of 10 employees to CTX. The litigation lasted four years and ended with a defense verdict for the former employees. Charter Oak is appealing the decision.

It appears that the decision against Charter Oak was based in part on the lack of contracts and the categorization of the defendants as independent contractors rather than employees. The Trade Secrets Blog by Womble Carlyle picked up the story and had an interesting take focused on pure versus unfair competition. The blog post supports the legal concept that a line can be crossed turning pure competition into unfair business.

Charter Oak's appeal of this case will be interesting to follow. The outcome will likely depend on what evidence existed at trial to demonstrate unfair competition prior to the employees' departure along with consideration of the duty of loyalty. The takeaway is that it is always better to have written agreements to protect your business' customers, client lists, and confidential information. However, the lack of such an agreement will not always give free license to former employees to unfairly compete in all circumstances. A close examination of the facts of each case must be undertaken to consider common law and statutory remedies that do not necessarily require agreements.

Did A Secretary Cause A Billion Dollar Default Judgment Against PepsiCo?

N. Kane Bennett — Thu, 29 Oct 2009 09:22:15 -0500

Imagine your company is so busy preparing for a board meeting that a secretary sets aside paperwork from a recently served lawsuit for a billion dollars over trade secrets. Imagine further that your company bureaucracy fails to put it together that a lawsuit has been filed until such a time that your company becomes defaulted in the case, to the tune of $1.26 billion dollars. Ouch.

Well, that is exactly what happened at PepsiCo according to a report by Lynne Marek in the National Law Journal. According to the story, PepsiCo for various reasons, failed to realize a lawsuit had been filed or a motion for default until it was too late. The case involved allegations that PepsiCo stole trade secrets and ideas for Aqaufina from two Wisconsin men. When the suit went unnoticed, a Wisconsin state court judge granted a motion for default against PepsiCo.

Marek writes that PepsiCo is trying to undo the damage and vacate the default. Perhaps PepsiCo can vacate the default, but if not, it is a devastating blow in litigation to lose your liability defenses. By all accounts PepsiCo indicates the lawsuit is questionable suggesting numerous defenses exist. Unfortunately, it appears there is a chance they may never get to assert the defenses.

In Connecticut, if you are defaulted for failing to respond to a lawsuit and a default judgment enters against you, you also can lose the ability to defend against the allegations in the complaint. If you further fail to appear in the case before the court determines the amount of damages (usually at a hearing), then you may also lose your ability to defend against damages claims. Of course, there are various ways to avoid a default judgment (such as filing an appearance before judgment enters), but if a lawsuit is ignored too long, you could face a similar fate as PepsiCo.

To avoid the PepsiCo disaster, Connecticut businesses should have a policy in place to handle all matters related to litigation or lawsuits. A business should designate one person that all staff can refer litigation issues, lawsuit papers or any other documents. Lawsuits should be given immediate attention so as to not miss any deadlines.

In state court, deadlines can determined from civil summons or cover page of the lawsuit.

A defendant has to file an appearance within 2 days of the return date listed on the civil summons
A defendant also has 30 days from the return date to file a responsive pleading to the complaint .

These deadlines should not be ignored. Although there are methods for vacating a default, even a frivolous lawsuit can end in a judgment if ignored for too long.

Business Litigation Blog Roundup

N. Kane Bennett — Thu, 22 Oct 2009 12:03:59 -0500

Here are some quick hits from Blogs I read around the country on business litigation.

Dionne Searcey of the Wall Street Journal law blog reports on the intellectual property fight over the red, white, and blue "Hope" image of President Barrack Obama created by Los Angeles artist Shepard Fairey. Fairey is claiming his rights to the work, but apparently is confused as to his source material leading to the withdrawal of his duped attorneys.

Rush on Business breaks down his tips for negotiating Franchise Agreements. Rush highlights the need to have an attorney review your franchise agreement and not to believe any franchisor that says you do not need an attorney or that they will not hold you to certain terms of the agreement.

A win for digital technology was reported on by Mack Sperling in the North Carolina Business Litigation Report. Mack reports on a case where a settlement agreement was challenged under the statue of frauds because it involved land and there were no written signatures. You can read here an earlier post from me on the statute of frauds in Connecticut. The court upheld the agreement in part based on electronic signatures in emails exchanged between counsel.

Nancy Savitt of the Privacy Law Blog reports on an enforcement action concerning the Children's Online Privacy Protect Act (COPPA). The Federal Trade Commission fined Iconix Brand Group, Inc $250,000 for "collecting personal information from children without complying with COPPA's parent consent..." The personal information at issue was dates of birth. Collecting personal identifiers such as dates of birth can be a real risk for any business. Read here for some of my posts on how Connecticut businesses can address privacy concerns.

Jeffrey Mehalic's West Virginia's Business Litigation Blog discusses an interesting suit involving misappropriation of trade secrets against the Pittsburgh Post-Gazette. A corporation, Mylan, brought a lawsuit against the paper claiming misappropriation of trade secrets and conversion for articles that were allegedly not favorable to Mylan.

Edward McNally of Delaware Business Litigation Blog reports on a case upholding Delaware as a forum for a trade secret case. This post is informative in that it discusses why Delaware is often a preferred forum for corporate litigants trying to protect trade secrets.

Connecticut Defamation Law, The Internet, And Social Networking

N. Kane Bennett — Tue, 13 Oct 2009 14:52:32 -0500

In the Business Torts category of this blog, I recently covered the basic law in Connecticut concerning interference with business relationships. Today's post concerns another business tort known as "defamation" and how it intersects with the growing use of social networking sites.

There already have been several lawsuits for defamation arising out of use of social networking sites, such as Twitter and Facebook. For example, The California Defamation Blog lists several celebrities involved in defamation cases, including Courtney Love who was sued by a fashion designer for defamation after a series of derogatory Twitter posts by Love. Craig Kanalley of Chicagonow.com reported that a property owner sued a tenant for disparaging Twitter comments. The Chicago Tribune recently reported on a defamation lawsuit brought by a mother and her son after a phony Facebook profile was created showing the son was a racist.

Should Connecticut businesses be concerned? Clearly, the type and variety of these suits are on the rise. In legal circles, these type of claims have a category of their own called "cyber slander" or "internet defamation." Given the popularity in use of social networking sites, and the ease in which statements can be broadcast to millions, it is safe to predict that more defamation cases will be filed in the future.

Connecticut businesses can be affected by defamation suits involving social networking sites and the internet in a number of ways, such as:

Employees making comments about a competitor
Employees making comments about supervisors or co-employees
Employees making comments about the company's products
Competitors making derogatory comments about the company
Phony Facebook or Twitter profiles
Derogatory comments about the company

In Connecticut, defamation encompasses defamation by spoken (slander) and written (libel) words. In general, to raise a proper claim for basic defamation, a plaintiff must show that:

A defamatory statement was made
The statement identified the plaintiff to a third person
The statement was published to a third person
The plaintiff's reputation suffered injury as a result of the defamatory statement

In regards to businesses, there is also a defamation claim sometimes referred to as "commercial disparagement" or "trade libel." For this type of claim, a plaintiff must prove disparagement of a business' goods or services by falsehoods published or communicated to a third person.

With the ease of publication to millions over the internet, it is easy to see how someone might publish a defamatory comment whether it be on a blog, social networking site, or website. Chances are, if you are in business, either you, someone who works for you, or a competitor has commented about the business in cyberspace.

For a business, the best way to avoid a lawsuit for defamation as a result of employee use of sites such as Twitter and Facebook is to have a written policy that governs employee use. The details of each policy will differ depending on your business, but clearly the policy should prohibit any defamatory or derogatory comments about the business, employees, or competitors.

In situations where a competitor or customer disparaged your business' products or services, a business may want to consider legal action and determine if grounds exist to issue a cease and desist letter, a take down letter, or initiate a lawsuit. Internet defamation can ruin a business' reputation overnight and should be addressed immediately regardless of whether the business pursues legal action.

For a business, whether legal action is taken may depend on the severity of the disparagement and the damage done. In some cases, a cease and desist or retraction is a practical solution especially when a defamation suit would bring added attention to the matter. In other cases, legal action, such as a defamation lawsuit, may be required to stop ongoing damage or serious problems.

Regardless of the situation, Connecticut businesses should, at a minimum, monitor cyberspace for defamatory comments. Comments that might lead to a lawsuit could come from your own employees, a competitor, or a disgruntled customer. A written policy is a good way to minimize risks of employee comments. As for competitors and customers, Google alerts is a good way to monitor use of a business' name on the Internet. The alert will send you an email every time your business name is found on the internet.

New Laws In Connecticut Affecting Business

N. Kane Bennett — Fri, 02 Oct 2009 10:03:27 -0500

A whole series of new laws went into effect starting October 1, 2009. For a full list of the laws you can find a link on Dan Schwartz's Employment Law Blog. For a humorous "quick and dirty" summary you can go to Ryan McKeen's Connecticut Law Blog. If you want to know the new taxes and higher fees, read these articles by Susan Haigh of the Day and Christopher Keating of the Courant.

If you just want to know the laws affecting business, the Connecticut Office of Legislative Research puts together a nice summary. From that summary, I offer a few highlights of the laws that went into effect October 1, 2009.

BUSINESS CORPORATE ACT CHANGES-- PA09-55

There are several changes to the Connecticut Business Corporation Act. To most significant change is on Dissolution and is summarized in section 23. Here are the highlights:

eliminates requirement that court dissolve corporation in certain situations involving deadlock in management and elections
permits, instead of requires, court to dissolve corporation in certain situations involving deadlock and irreparable injury is threatened because of the deadlock

Safeguarding Personal Information-- PA 09-71

This is an act concerning state chartered banks and requires safeguarding of personal information, which is information that can be associated with an individual through an identifier like a Social Security number. The act gives the Department of Banking authority to enforce the law against state chartered banks. Any bank that adopts the security and privacy provisions that comply with the federal Gramm-Leach-Bliley Act is in compliance with the state act.

Penalty for Doing Business Without Authority -- PA09-83

This act increases the penalty on foreign businesses that conduct business without registering. I covered this act on an earlier blog post here.

Consumer Privacy and Identify Theft -- PA 09-239

Several changes were made to social security numbers and the personal identifier information. There were also changes to the laws concerning identity theft.

Most significant to businesses are the provisions that penalize employers for failing to:

obtain and retain job applications securely
take reasonable steps to destroy applications when disposing of them
allows the Department of Consumer Protection and Attorney General to enforce its provisions
a civil penalty between $500 and $500,000 may be imposed for failure to comply. The fines will be deposited into a newly established Privacy Protection Guaranty and Enforcement Account

I intend to a more detailed blog post on this topic in the future. Businesses should also be aware of the Act Concerning Social Security Numbers, which I wrote about in an earlier technology tip post here.

Customer Access to Restrooms - PA09-129

This act mandates that retail establishments give access to restrooms to individuals with certain medical conditions, even if the restroom is not open to the public. The act applies to customers with proof of certain medical conditions, such as inflammatory bowel disease. The act does not require any changes in construction for the non-public bathrooms.

Employment--PA09101

This act makes changes to the ban on employer discrimination for gender in compensation to employees. Allows the court to award back pay, compensatory, and punitive damages for claims that fall under the act. Dan Schwartz details the provisions of this act here.

First Amendment Suit Filed Against Hartford Courant Following Termination of Columnist

N. Kane Bennett — Tue, 29 Sep 2009 20:57:07 -0500

I was tipped off by a reader that George Gombossy, the consumer columnist at Ctwatchdog, would be filing his wrongful termination suit against his former employer the Hartford Courant. Sure enough, the lawsuit now has been filed and made its way around cyberspace today.

Hartford Attorney Mark Dumas posted a copy of the lawsuit on Twitter. You can read the lawsuit here (download). You can also read about the suit at the Laurel and in a post by Christine Stuart at CTnewsjunkie.

Mr. Gombossy also posted the lawsuit on his new blog, ctwatchdog.com. You can read Mr. Gombossy's comments on the suit here. He claims that "Courant management attempted to pressure [him] from writing negative columns about key advertisers." He claims that his termination followed after he wrote a column about Sleepy's that the Courant never published.

The Courant denied the allegations according to an article today by Kenneth Gosselin. The Courant also issued a statement calling Mr. Gombossy's claims a "mischaracterization."

The focus of relief for Mr. Gombossy's lawsuit is Connecticut's free speech statute, which provides for damages in the event of termination for exercise of certain first amendment rights. Dan Schwartz at the CT Employment Law Blog dissected the suit earlier today and provided a possible defense to the free speech claim.

As noted by Dan Schwartz, nothing needs to happen in the lawsuit until November 13th, at the earliest, when the Courant has to file a response to the lawsuit. Based on its statement on the case, it appears that the Courant intends to vigorously defend the suit. We will have to watch how this case develops.