Outside Inhouse Lawyer Blog

Washington Supreme Court Reinstates Discovery Sanction of $8,000,000

healygm@mac.com (Grace Healy) — Wed, 25 Nov 2009 13:32:13 -0800

Responding to discovery requests is expensive, but – in all likelihood -- will cost less than the $8,000,000 default judgment sanction that the Washington Supreme Court reinstated today in Magana v. Hyundai.

This decision is a must-cite for anyone moving for or opposing discovery sanctions. There is a two-judge dissent.

The case – which the court said involves “unique facts and circumstances” -- was commenced in 2000 and arises from an auto accident that took place in 1998. An $8,000,000 jury verdict was set aside by the Court of Appeals in 2005. Upon remand, plaintiffs requested that defendant update discovery responses prepared in 2000. A motion to compel was filed about three months before the second trial was scheduled to begin. Documents involving similar problems came to light.

The trial court determined that the additional documents should have been produced long before the motion to compel. Defendant, apparently, had only reviewed law department files for complaint documents; there were others in defendant’s consumer affairs department. Plaintiffs argued that they were prejudiced in trial preparation; the court agreed, and the sanction was imposed because of false responses, spoliation and substantial prejudice to plaintiffs.

That is a gross simplification of the facts in the opinion.

The bottom line for businesses is: when responding to discovery requests, you must search outside your legal department for responsive documents. In addition, when you think that discovery requests are over-broad (not really a “unique fact or circumstance” in my experience) consider the pros and cons of moving for a protective order instead of simply objecting in your responses and waiting for a motion to compel.

The irony here is that defendant won the appeal of the $8,000,000 jury verdict but has now been assessed with the same judgment, plus an obligation to pay plaintiffs’ attorneys fees and expenses, and, just a guess, there are going to be some insurance issues. Of course, with the additional disclosures, plaintiffs probably think they could have done much better if they had time to get ready for a second trial.

Whatever, it is crystal clear that Washington courts will not tolerate incomplete discovery responses.

NY Court of Appeals Affirms Narrow Definition of Champerty

healygm@mac.com (Grace Healy) — Mon, 19 Oct 2009 17:38:49 -0800

At one time or another, almost every lawyer presented with a claim says: “I think that might be champerty!” Then, research shows, it isn’t. Champerty is elusive, to say the least.

Last week, the NY Court of Appeals affirmed the narrow definition of champerty. In answering certified questions from the Second Circuit, the court ruled that indemnity claims – obtained in a settlement where there was a pre-existing interest -- were not barred by champerty. Trust for the Certificate Holders of the Merrill Lynch Mortgage Investors, Inc. Mortgage Pass-Through Certificates, Series 1999-C1, by and through Orix Capital Markets, LLC as Master Servicer and Special Servicer v. Love Funding Corporation.

The facts – which involve the sale, transfer and litigation related to mortgages – cover several years and parties. However, the holding is clear.

• First, the court defined champerty very narrowly as: the purchase of claims for the purpose of bringing an action in order to involve parties in costs and annoyance, where such claims would not be prosecuted absent that purpose.

• Second, it is not champerty to acquire the right to bring a claim as part of a settlement. The court was not aware of any New York case holding that it is champerty to acquire -- as part of a settlement -- indemnification rights for reasonable costs and fees incurred in past legal actions.

• Third, the rights transferred may be for an amount greater than the amount demanded in the underlying action. The court noted that it was not aware of any New York case standing for the proposition that it is champerty to settle a dispute by accepting a transfer of rights having the potential for a recovery that is larger than one demanded as a cash settlement.

This should reassure anyone who has ever taken a claim as part of a settlement.

Conclusions of Accident Investigation Performed with Assistance of Counsel are Privileged

healygm@mac.com (Grace Healy) — Wed, 30 Sep 2009 18:53:42 -0800

Many corporations have accident reporting policies which require their employees to draw conclusions about the cause of an accident or whether it could have been avoided. The goal is improved safety, but the result is often heartburn for in-house counsel because documents prepared in the ordinary course of business generally must be produced in litigation. With the goal of improved safety, reports are often -- rightly or wrongly -- very self-critical.

Corporate counsel who hope to keep conclusions in confidence will often promptly hire outside counsel to assist in an accident investigation when litigation is anticipated. They should be encouraged by last week’s decision of Magistrate Smith in Byrd v Wal-Mart Transportation, LLC, in the US District Court, Southern District of Georgia, which found the conclusions in a report were privileged even if the report was prepared pursuant to a corporate policy.

Following a fatal truck accident, Wal-Mart’s in-house lawyers immediately hired outside local counsel because litigation was anticipated. Counsel was involved in the investigation of the accident. In the ordinary course of business, Wal-Mart has its safety personnel perform an investigation, which is then reviewed by a “Serious Accident Committee.” The committee issues an opinion as to whether the accident was “preventable” or “non-preventable.”

During Wal-Mart’s corporate deposition plaintiff inquired about the conclusions of the Serious Accident Committee. Wal-Mart claimed privilege; plaintiff argued that the conclusions were reached in the ordinary course of business, rather than in anticipation of litigation, and had to be disclosed. The court granted Wal-Mart a protective order noting that this line of inquiry involved mental impressions that are privileged. Plaintiffs’ lawyers might take heart from a foot note that suggests that the deponent would have had to have been privy to counsel’s deliberations in order for the privilege to apply.

In-house Lawyers Only Say if Clients Can Do Something, Not if They Should: I don't think so

healygm@mac.com (Grace Healy) — Thu, 10 Sep 2009 10:30:14 -0800

In-house lawyers only tell clients if they “can” do something, but not if they “should.” Compliance departments take care of advising about the “should.” I came across that distinction today in an article on Law.com about Pfizer. I have no personal knowledge about the Pfizer situation, but, generally speaking, this distinction simply amazed (infuriated) me. How can: whether or not something may violate a regulation, put your client at risk of litigation or a claim, or in any way violate a legal standard not be part of a law department’s analysis for its in-house clients?

Last I heard, staying out of trouble with corporate constituents (including regulators) was good long term business strategy. If management needs a compliance nanny to tell it the right thing to do the problem isn’t with the law department. If management doesn’t trust -- or believe -- its lawyers’ counsel, maybe it has the wrong lawyers. I still think that lawyers are supposed to be "trusted advisers" but not deciders of business strategy.

The can/should distinction reflects the opinion held by some lawyers who have never been in-house that somehow in-house lawyers don’t really functioning as counsel to their in-house clients, or are ethically deficient.

Joint Representation May Create More Problems Than It Solves

healygm@mac.com (Grace Healy) — Wed, 19 Aug 2009 11:27:03 -0800

I am not a big fan of joint representation of employers and employees in civil matters no matter how clear the signed waiver or how sophisticated the client. A number of years ago, I was involved in the defense of a breach of restrictive covenant/trade secret matter and represented both the current employer and new employee. When the employer learned that the employee was, um, less than straightforward about what he had taken from his former employer, the new employer called me and told me to tell the new employee he was “fired”. I declined and, fortunately, was able to point to the waiver letter and discussions that clearly explained my refusal. No matter, it took some effort to get the bill paid.

I know joint representation can save a client fees, or avoid having another lawyer at the table debating strategy or asking questions at a hearing that completely undercut a defense. But, as a recent case, Trautenberg v. Paul Weiss, et al., shows, joint defense can spawn malpractice litigation and bad publicity (assuming you agree that exists).

Paul Weiss had represented Citibank and Trautenberg in connection with the defense of some claims arising out of the WorldCom debacle. Paul Weiss also advised Citibank regarding Trautenberg’s severance agreement. Two years after a severance agreement was negotiated and signed, Trautenberg sued Paul Weiss alleging breach of fiduciary duty and attorney misconduct relating to the firm's role in the severance discussions.

The case was dismissed for failure to state a claim on the pleadings, which generally is a pretty difficult motion to win. The decision carefully analyzes the complaint and law, but, let's face it, in August 2009, a plaintiff who already received a five million dollar severance hardly tugs at the heartstrings.

Whatever, this is grief that both lawyers and clients can do without.

WA Supreme Court Decides When Dissolved/Cancelled LLC's May Be Sued

healygm@mac.com (Grace Healy) — Wed, 12 Aug 2009 11:35:28 -0800

Limited liability companies have only been authorized in Washington since 1994 and there isn’t much case law discussing them or the statutory scheme which authorizes them. So, any decision discussing LLC law is big news.

Knowing this -- and doing business as a PLLC -- last May, I promptly downloaded a Washington State Supreme Court decision that discusses whether an LLC may sue and/or be sued after its certificate has been canceled or it has been dissolved. Chadwick Farms Owners Association v. FHC LLC, The decision, which involves two distinct fact patterns, is a bonanza for anyone interested in LLC law or who advises clients about it. The opinion also reviews when the members of an LLC may be personally liable.

However, although the decision is must reading for anyone looking to sue a dissolved LLC, or for the former members of an LLC who want to bring an action (or are concerned about being sued), the discussion and the rulings that the court makes are fairly technical. Anyone else might find it, well, dry reading, which is why I looked at it on my desktop for almost 90 days before getting past page 2.

There is a vigorous dissent (it is a 5-4 decision), so it is probably prudent for someone reading the decision to check if the legislature has addressed the concerns in the dissent.

Manufacturers Not Strictly Liable in New York for Machines Sold as Surplus Equipment

healygm@mac.com (Grace Healy) — Mon, 27 Jul 2009 15:16:11 -0800

Going through the pile of decisions that I meant to write about, but didn’t, I came across a New York Court of Appeals decision from earlier this year that should be of interest to anyone advising about used equipment sales. In Jaramillo v. Weyerhaeuser, the court reaffirmed its prior rulings that a business selling its used equipment is not strictly liable for a workplace accident where the equipment was not sold in the ordinary course of business and was sold “as is, where is.”

The machine in issue was sold as part of the defendant’s Investment Recovery Business, a division that distributes quarterly catalogs of sale items, advertises in trade journals and does market research. The year the machine was sold (1986) the division grossed between 7.5 million and 8.5 million dollars. The sale was not deemed in the ordinary course of business and defendant was not strictly liable for plaintiff’s injuries.

Although the opinion left the door open for “some imaginable case” where a seller of used goods could be held strictly liable, this decision reads as if the court is trying to drive a stake through the heart of these claims. In any event, a seller of surplus equipment is provided with a useful road map of the relevant factual considerations. For an injured plaintiff, it should do the same, but is pretty discouraging as to the likelihood of success.

NY 1st Department Recognizes Tort of Intentional Spoliation by a Non-Party

healygm@mac.com (Grace Healy) — Wed, 08 Jul 2009 10:34:52 -0800

Failure to fully respond to a non-party subpoena may now create a risk greater than sanctions in New York -- it might create tort liability. In IDT Corporation v. Morgan Stanley Dean Witter & Co., the First Department has ruled that claims for fraudulent misrepresentation and fraudulent concealment may be based upon intentional spoliation of evidence.

The spoliation claim arises from defendant, Morgan Stanley’s purported failure to fully respond to a subpoena in an arbitration between two of its clients (Morgan Stanley was not a party to the arbitration). Morgan Stanley had represented in writing that its production of approximately 2,000 pages of documents fully complied with the subpoena.

In this action, the remainder of which was dismissed by the Court of Appeals in March, plaintiff asserts that it learned that only a small number of responsive documents had been produced by Morgan Stanley in response to the subpoena. Allegedly, 500,000 pages were not produced, and the omitted documents included some “smoking guns” -- which would have resulted in an increased arbitration award if plaintiff had known of them at the time.

The trial court had dismissed the claims for fraud and fraudulent concealment because of an earlier Court of Appeals case, Ortega v. City of New York, which did not allow a claim of negligent spoliation against a third party.

The Appellate Division distinguished Ortega and ruled that claims for fraud and fraudulent concealment had been sufficiently alleged – a material misrepresentation of fact was made when Morgan Stanley represented that it had fully complied with the subpoena; the misrepresentation had been intentionally made to mislead plaintiff; that plaintiff had reasonably relied on the misrepresentation, and had suffered damages as a result (more would have been awarded in the arbitration). Because plaintiff stated a claim under existing tort principles, there was no reason to dismiss it because it involved spoliation of evidence in an action in which the defendant was a non-party.

There are a number of facts in this case that arguably present unusual (or, distinguishable) circumstances, including whether this is limited to third-parties who have fiduciary relationships with the other parties. But, the fact is that this is one more reason to pay close attention to those non-party subpoenas.

Coyotes' Bankruptcy Judge Gives Parties an Outline of HIs Concerns

healygm@mac.com (Grace Healy) — Tue, 23 Jun 2009 17:14:50 -0800

i obtained a copy of last week's decision in the Coyotes' bankruptcy case, which has been reported as denying the sale of the franchise so that it can be promptly moved to Hamilton, Ontario. Here is a quick take:

it gives the lawyers a road map of the bankruptcy judge's concerns so they know what to address from now on;
the best interests of the creditors -- not the combatants' ego -- are what count in bankruptcy;
the NHL better come up with a good reason if it's not going to approve a sale to PSE Sports (Jim Balsillie); and
the franchise is bleeding money in Arizona -- and it looks like this has been the case at least since it moved to its new arena.

The league argues that it is concerned that debtor might be using bankruptcy to circumvent its rules -- not a big shock to anyone who ever represented a creditor.

PACER, the federal court system for obtaining documents, is not my favorite service.

Two NY Court of Appeals Cases Illustrate Standard for Pleading Fraud

healygm@mac.com (Grace Healy) — Thu, 04 Jun 2009 18:57:33 -0800

I don’t post blog entries with great regularity because I try to limit myself to things that in-house counsel or clients might find interesting. But, I do look every day for things of interest. Today, I hit gold – three interesting cases from the NY Court of Appeals. Good thing as I probably won’t be posting anything for at least the next week and a half. I was tempted to schedule the posts, but, if the law is out there….

Here is the third and final post of the day.

Two of today’s Court of Appeals decisions deal with the pleading requirements for fraud. They offer a comparison of when the court is prepared to state that fraud has been adequately pled.

In the first, Eurycleia Partners, LP v. Seward & Kissel, LLP the court found that plaintiffs failed to plead fraud because the facts did not support an inference that defendant knew of the falsity of statements in an offering memorandum. The court stated: “the strength of the requisite inference of fraud will vary based upon the and context of each case.” Given that language, it is will be a rare fraud claim that won’t warrant a motion to dismiss. The court also took particular notice of the fact that the manager of the hedge fund – who had pled guilty to securities fraud – had supplied the plaintiffs with much of the factual basis for the claim.

In a second case, Sargiss v. Magarelli, the court ruled that an inference of fraud was present in the pleading. The complaint alleged that, in a 1998 divorce proceeding, the husband misrepresented his financial worth – he claimed that he had transferred a significant interest in a business to his brother. After the former husband’s death, his daughter came across documents strongly suggesting that he hadn’t really made the transfer.

The court found – based upon the documents – that the fraud claim against the decedent’s estate, was stated with adequate particularity. In addition, there was an adequate inference of fraud against his brother and the company; if the transfer wasn’t, in fact, made, the brother – who controlled the company – necessarily knew about it and was part of the scheme.

NY Court of Appeals -- Outside counsel doesn't owe fiduciary duty to limited partners

healygm@mac.com (Grace Healy) — Thu, 04 Jun 2009 18:09:54 -0800

A lot of NY lawyers representing limited partnerships will sleep a little bit better tonight. In Eurycleia Partners, LP v. Seward & Kissel, LLP, the NY Court of Appeals ruled today that they do not owe a fiduciary duty to individual limited partners. The court analogized the relationship of counsel to limited partners with that of the relationship of corporate ounsel to shareholders -- and noted that it is well settled that a corporation’s attorneys do not represent shareholders or employees.

The decision also affirmed the dismissal of fraud and aiding and abetting claims against the fund’s lawyers. More about that in my next post.

Out of State Assets of Judgment Debtor May be Garnished if Bank is Subject to NY Jurisdiction

healygm@mac.com (Grace Healy) — Thu, 04 Jun 2009 17:19:14 -0800

For me, a big part of a discussion regarding whether or not to litigate is figuring out whether there will be anything to collect. Today, in Koheler v. The Bank of Bermuda, Ltd, the New York Court of Appeals answered a certified question that might make you lean toward litigation. The decision extends the reach of a judgment creditor. Provided that a judgment garnishee is subject to New York personal jurisdiction, the garnishee can be ordered to turn over property of a judgment debtor that the garnishee controls even though the property is outside of the state, or the country. Since New York is a banking center, this could have a long reach.

The case was filed in the Southern District of New York in 1993 by an out of state judgment creditor who sought stock certificates or assets of a judgment debtor. The certificates were held in Bermuda by the Bank of Bermuda Limited, which was served through the Bank of Bermuda (New York) Ltd., allegedly a subsidiary or agent.

The District Court ordered the Bank to turn the certificates, or money sufficient to pay the judgment, over to the judgment creditor in 1993. Personal jurisdiction was litigated for ten years. Finally, in 2003, Bank of Bermuda, Ltd consented to personal jurisdiction.

This case appears to have a life span reminiscent of Jarndyce v. Jarndyce, and today’s opinion most probably won’t end it -- there is a three judge dissent that asserts that the majority holding may be unconstitutional. Meanwhile, if a judgment debtor or even a potential defendant has assets in a bank that is related to a bank located in New York, it bears consideration.

Is a Lawyer A Fiduciary or a Vendor?

healygm@mac.com (Grace Healy) — Fri, 29 May 2009 10:15:41 -0800

This week, in a decision reviewing sanctions imposed by the Bankruptcy Court, Judge Young of the USDC in Massachusetts quoted at length from an essay critical of the current state of law practice. It provides an interesting counterpoint to much of what is written about law firm practice and marketing. Here is a -- sorry, pretty long, but thought provoking -- portion of the decision:

"How is it that our profession, the legal profession-which could have and should have strongly counseled against the self interested excesses that set up the collapse-instead has eagerly aided and abetted those very excesses? How could we (all of us who profess to be lawyers) have fallen so low?

Perhaps the answer lies in a poignant and little known essay by the distinguished attorney Carl M. Sapers.

By the 1980's, the generalist lawyer had been succeeded by specialized lawyers, each of whom, like the hedgehog, knew only one thing but knew it very well.

By the mid-1980's, we had all become “transactional” lawyers engaged to handle a particular problem. We no longer were engaged to know about all of our client's legal problems. The in-house counsel had that plenary knowledge. We were no longer engaged to furnish wise judgment, but rather to solve a specific legal problem.

This development created in its train two significant changes: the wise counselor became a skilled technocrat; the traditional fiduciary became a vendor. The narrow focus of legal assignments meant that lawyers no longer comprehended the quotidian concerns of the client, nor did they see the client whole. Because the client chose its legal services on the basis of price, speed, and experience and cherry-picked what it thought the most appealing from several firms, the firms themselves had a diminished sense of loyalty to any client.

Perhaps, even more significantly, we as lawyers had lost that moral clarity that had characterized ... practice....

In February 1994, the Council of the Boston Bar rejected ... proposed guidelines [concerning lawyer political contributions], but proponents of the idea appealed to the Large Law Firm Group, which met monthly in Boston to discuss matters of mutual concern (while carefully avoiding the exchange of information that might implicate the Sherman Act).
The response from that mighty body, composed of the managing partners of our largest firms, was: “If it is not illegal, why should we curtail what we are doing?” This constituted a new definition of legal ethics. We only stop at the water's edge of criminality.
....

The working day was extended; the expectation of billable hours grew by leaps among partners and by leaps and bounds among associates. With more time directed at specialized work, there was less time to be involved in community life and recreational or cultural pursuits. Dean Kronman of the Yale Law School, in his provocative study, The Lost Lawyer: Failing Ideals of the Legal ProfessionFN4 describes law practice at its best as “the lawyer-statesman ideal,” when clients sought lawyers for their wisdom and experience, not just their technical agility within a narrow area of law. Dean Kronman observes that “the increasing narrowness of large-firm practice must itself be viewed as a threat to the lawyer-statesman ideal.” FN5 He writes that lawyers' “imaginative powers shrink as the boundaries of their experience do .” FN6 The new devotion to billable hours had narrowed the breadth and scope of most lawyers' lives.
FN4. Harvard University Press, 1993.
FN5. Id. at 304.
FN6. Id. at 307.

In the 1990s, the trajectory of practice was constant. More specialization, greater emphasis on billable hours, and more leveraging of increasing numbers of associates. Improving the bottom line was a guiding light in the management of large firms. Lawyers were sensitive to where their earnings ranked in the city, and for the first time partners jumped from firm to firm to improve their compensation. But then a sea change occurred: we who had habitually compared ourselves to our peers now began to compare ourselves to our clients.
Suddenly, Warren Buffet, Bill Gates, and Goldman Sachs became the standards against which we measured our compensation. With that comparison, another self-imposed barrier in our practice crumbled. Lawyers had kept a disinterested distance in order to claim a healthy objectivity in dealing with client problems; they were now prepared to take an equity stake in their clients.
....
[Today] diversity is remarkable. The partners come from a multitude of law schools; Harvard no longer dominates. Women are manifestly in positions of leadership; there were no women partners in the twelve largest firms in 1950. The members of the fourteen largest firms in 1999 come from all over the globe.
But something has been lost as well. Where are the seasoned lawyers with the moral clarity ....? Where are the lawyer-statesmen of an earlier generation who exalted our profession?

Carl M Sapers, Fifty Years of Large-Firm Practice in Boston: From moral clarity to the water's edge of criminality? Legal Chowder R. Kass. Ed.) at 73 (MCLE 2002)"

WA Supreme Court Holds WA is Demand Futility State and Follows Delaware Law

healygm@mac.com (Grace Healy) — Thu, 21 May 2009 10:59:59 -0800

The Washington Supreme Court ruled today that Washington follows the Delaware “demand futility” rule for shareholder derivative claims. The court was answering a certified question in a case filed in the US District Court for the Western District of Washington involving option backdating at a Washington corporation, In re F5 Networks, Inc.,

Shareholders may bring a derivative suit without making a demand on the board of directors if there is a reasonable doubt that the board could exercise “its independent and disinterested business judgment in responding to demand.” Reasonable doubt will be present and demand excused if under particularized facts it is doubtful that 1) the directors are disinterested and independent, and 2) the challenged transaction was the product of a valid exercise of business judgment.

The court reached this holding by analyzing RCW 23B.07.400(2), the shareholder derivative suit demand provision, and the fact that Delaware courts are well versed in this matter -- more than half of publicly traded corporations and sixty (60) percent of Fortune 500 companies are incorporated in Delaware.

The court also held that the reasoning in Ryan v. Gifford, a Delaware case finding demand futile in an option backdating claim based upon circumstantial evidence, applied to the F5 Networks claim.

Although the opinion only follows Delaware law on the demand futility standard, if the Washington statutory scheme is similar to that of Delaware in another area – given the reasoning that Delaware courts are well versed in corporate law – it seems reasonable to rely on Delaware case law in cases involving Washington corporations.

How An Appellate Court Works

healygm@mac.com (Grace Healy) — Wed, 13 May 2009 09:46:46 -0800

For anyone who has wondered how an appellate court works, there is an amazing article in today's New York Law Journal by Justice Saxe. I followed a free link in my daily NYLJ e-mail expecting a quick little article -- instead, I found a comprehensive description of the internal procedures of the Appellate Division, First Department. I'm not sure how, or if, it will have an effect on how lawyers approach appeals -- outside of calling attention to how important reply briefs are -- but it was refreshing to have it explained.

Phoenix Coyote Bankruptcy Presents Many Interesting Issues for Businesses

healygm@mac.com (Grace Healy) — Thu, 07 May 2009 10:06:47 -0800

Leaving aside the fact that I am a hockey fan – one of my lifetime highs was being at Madison Square Garden on June 14, 1994 – what is going on with the Phoenix Coyotes should be of interest to anyone who deals with franchises, bankruptcy, has received taxpayer financing, or has professional sports marketing deals.

For those who don’t follow hockey, the Coyotes filed for bankruptcy this week and are trying to have the court approve the sale of the club to the founder of Research in Motion, who presumably would move the team from Arizona to southeastern Canada. The NHL, which for years has seemed to think that playing ice hockey in the sunbelt is better than having it played in Canada, had a different purchaser in mind. So, it stripped the current owner of his right to run the team, and the Commissioner says that he doesn’t think that the other owners would approve the sale proposed by the Coyotes.

Because the current owner and the NHL appear to have declared war, it seems that the Bankruptcy court will have to deal with some interesting issues. A few come to mind immediately. After a bankruptcy, who controls where a franchise goes, who controls who owns it, who operates it – the league, an appointed trustee or the current owner as debtor in possession? Can a league prevent a member from filing for bankruptcy? What is the effect on a league if a member files for bankruptcy? What happens to taxpayer financed facilities? I’m sure there are many more issues that will develop as this case works its way through the bankruptcy process. Will Wayne Gretzky leave the sun to return to coach in Canada. (I guess that isn't a legal issue.)

Here are what the Wall Street Journal, ESPN, the CBC, and the New York Times have to say about this, so far.

Two Interesting Cases re Awards of Attorneys' Fees For In-House Counsel Work

healygm@mac.com (Grace Healy) — Wed, 15 Apr 2009 12:09:44 -0800

In the last two days, I have seen two interesting decisions regarding attorneys’ fee awards for in-house counsel litigation work. The first, AMX Enterprises, L.L.P. v. Masters Realty Corp., decided by the Texas Court of Appeals, has a comprehensive discussion of the appropriate measure of attorneys’ fees – should they be based upon market value or cost-plus value. After surveying various jurisdictions, the court determined that market value is the appropriate measure. The opinion also discusses the proof that should be submitted for an award. Ultimately, the case was sent back for a new trial on the fee issue.

The second case, Wordtech Systems, Inc. v. Integrated Network Solutions, Inc. decided by Judge England of the USDC for the Eastern District of California, also discusses the proof necessary for an in-house counsel fee award. Even while noting the “glaring lack of support” the court awarded $67,500 for the in-house services.

While it is very nice to have your employer compensated for your work – and certainly provides strong evidence of an in-house litigator’s value to his or her employer, as well as, a basis for a nice bonus for a good result – these cases support the wisdom of keeping time records if there is the potential for an attorneys fee award.

Unfortunately, I was only able to find the Westlaw opinion for each of these cases. If that is a problem, contact me.

Equal Pay Act Applies to In-House Attorneys; Reinstatement is Appropriate Remedy

healygm@mac.com (Grace Healy) — Wed, 15 Apr 2009 10:59:49 -0800

Yesterday, the Wisconsin Court of Appeals yesterday affirmed an order reinstating an in-house attorney who had been terminated. This case applied federal law, so it should be of interest to all in-house counsel -- both terminators and terminatees.

Defendant in Sands v. Menard contested the affirmance of an arbitration panel’s order requiring reinstatement of defendant’s former executive general counsel. The arbitration panel had ruled that defendant violated the Equal Pay Act by paying plaintiff less than a similarly situated male employee and had retaliated against her for asserting her discrimination claims.

In addition to compensatory and punitive damages, defendant was ordered to reinstate plaintiff. The opinion has a fairly long discussion regarding the standard of review, the application of anti-discrimination laws to in-house counsel and the appropriate remedies for violation of those laws. The bottom line in the opinion is that the defendant failed: “to explain how Wisconsin law regarding clients’ rights to choose their attorneys, or the rules of professional conduct, could negate the remedies of wrongfully terminated employees under federal law.”

This will probably give professional responsibility gurus a lot to discuss.

NY Court of Appeals Addresses Interpretation of Contract with Conflicting Provisions Regarding Written Amendments

healygm@mac.com (Grace Healy) — Thu, 26 Mar 2009 19:12:37 -0800

Life would be so much easier if parties who signed agreements that require written signed amendments really did sign written amendments, and, secondly, if parties signed agreements and modifications in their correct capacities.

That is the lesson that I learned from Israel v. Chabra which was handed down today by the Court of Appeals in response to a certified question from the Second Circuit. If you doubt the wisdom of my lesson, consider the fact that before the appeal to the Second Circuit, and the Court of Appeals briefing and argument, the trial court had awarded almost $300,000 in attorneys' fees to the plaintiffs after granting them summary judgment. Oh, and try to find a contract that doesn't say no oral modification, and/or that any amendment must be in a signed writing.

Frankly, I had to read the Second Circuit’s opinion as well as the Court of Appeals opinion to figure out what was going on here. This is not a slur on the opinion, which takes great care in analyzing the history of the statutory and common law in regard to “no oral modification” contract provisions law in New York.

Here is a greatly simplified view of the facts. Plaintiffs, father and son, were key employees of a business that was about to be sold. They each entered a three-year employment agreement, which was signed by the defendant Chabra, the president of the company, in his corporate capacity. Each also signed a “memorandum of intent” agreeing that, if the company were sold, he would be paid a bonus by defendant. (Yes, the dreaded retention bonus language is used, but I don’t think that Barney Frank or Andrew Cuomo could get too much press about this.)

A few months later, the agreements were modified and called “Amendment No. 1 to the Employment Agreement” and “Amendment No. 1 to Letter of Intent”. Key points are that the obligation to pay the bonuses was transferred from Chabra to the company, and that Chabra signed a personal guarantee stating that Chabra would cover any default of the current employer to pay a bonus installment. Critically, the guarantee said that the guarantor’s liability was absolute regardless of any “change in the time, manner, or place of payment.” The guarantee also said – in essence – that changes the Amendment No. 1 to the Employment Agreement had to be agreed to by the Guarantor (defendant, in his personal capacity) in writing.

A few years later, after payments had been missed, there was a “Second Amendment to the Employment Agreement," which changed the payment schedule. It was signed by defendant in his corporate capacity, but not his personal capacity.

Question: does NY General Obligations Law 15-301 mandate that the signed writing requirement trump the clause which creates an exception to a signed writing; if not, which of the conflicting provisions controls, the clause which says that changes in time, manner or place of payment would not alter the Guarantor’s obligation, or the clause that requires defendant, the guarantor, to agree in writing to changes from Amendment No. 1 to the Employment Agreement?

The court decides that NY General Obligations Law 15-301(1), permits the enforcement of contract clauses that require amendment in writing; however, it is not absolute; the statute doesn’t prohibit contractual interpretation if there are conflicting terms in the agreement. If the written amendment requirement conflicts with another term in the agreement, contract interpretation rules may be used to harmonize the clauses. (As an aside, anyone who has read the McKinneys’ volume on Statutory Interpretation knows that there is always at least one rule that goes your way.) Here, court declines to interpret the contract using the first clause governs rules. Back to the Second Circuit. Bleak House 21st Century style.

NY Court of Appeals Gives Example of Clear and Convincing Evidence

healygm@mac.com (Grace Healy) — Thu, 26 Mar 2009 15:19:31 -0800

The New York Court of Appeals issued three interesting decisions this morning. One – a libel case – offers an analysis of “clear and convincing” evidence of actual malice. Often when asked to explain that standard, the response is: “Well, it has to be clear and convincing.” Or, "it is somewhere between a preponderance of the evidence and proof beyond a reasonable doubt." Neither explanation is overly helpful.

Today’s decision in Shulman v. Hunderford discusses the facts necessary for a finding that actual malice has been proven by clear and convincing evidence. The court, which normally only reviews law, not facts, was able to do so because of the libel standard articulated by the Supreme Court in New York Times v. Sullivan – the statement must be made with actual malice, and the record must be examined to make certain that there is no constitutional violation. Thus, this is a rare case in which the NY Court of Appeals could do a factual analysis. It is interesting for citizens of Washington, as well, because there has been talk of the state legislature prohibiting untrue campaign statements.

Plaintiff brought the action alleging libel after he lost a local election. The basis of his claim was a pamphlet circulated on the eve of the election, which said that plaintiff had flagrantly broken the law. The case went to a jury and defendant was found liable for $100,000 in punitive damages. The trial court set aside the verdict, the Appellate Division reinstated it, and the Court of Appeals dismissed the action.

The Court of Appeals determined that, to prove libel, the evidence had to show actual malice with convincing clarity. Because the record failed to show that defendant knew that his statement was untrue, or that defendant had no basis for thinking plaintiff guilty of any legal transgression, the evidence of actual malice was not clear and convincing – even though defendant “could not have believed every word in the statement”. (That seems to relate to defendant's use of the word "flagrantly.") Therefore, clear and convincing evidence of actual malice requires a showing that the defendant knew his statement was not true and had no basis for thinking it was true.

Given this ruling, clear and convincing evidence is a pretty stringent standard.
Granted this is an analysis of whether actual malice is proven in the context of Constitutional free speech, but the clearly convincing standard applies in other civil contexts – such as fraud, which is a pretty common cause of action in commercial litigation.

I’m working on posts about the other two decisions.